<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998
REGISTRATION NO. 333-41909
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NUTRACEUTICAL INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 87-0515089 2833
(I.R.S. EMPLOYER (PRIMARY STANDARD
(STATE OR OTHER IDENTIFICATION NO.) INDUSTRIAL
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
1400 KEARNS BOULEVARD, 2ND FLOOR
PARK CITY, UTAH 84060
TELEPHONE: 435-655-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STANLEY E. SOPER, ESQ.
VICE PRESIDENT LEGAL AFFAIRS
NUTRACEUTICAL INTERNATIONAL CORPORATION
1400 KEARNS BOULEVARD, 2ND FLOOR
PARK CITY, UTAH 84060
TELEPHONE: 435-655-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARK B. TRESNOWSKI, ESQ. EMANUEL S. CHERNEY, ESQ.
KIRKLAND & ELLIS KAYE, SCHOLER, FIERMAN, HAYS &
200 EAST RANDOLPH DRIVE HANDLER, LLP
CHICAGO, ILLINOIS 60601 425 PARK AVENUE
TELEPHONE: 312-861-2000 NEW YORK, NEW YORK 10022-3598
TELEPHONE: 212-863-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 28, 1998
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
, 1998
3,330,000 SHARES
NUTRACEUTICAL INTERNATIONAL CORPORATION
COMMON STOCK
Of the 3,330,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), of Nutraceutical International Corporation ("Nutraceutical" or the
"Company") offered hereby (the "Offering"), 2,000,000 shares are being offered
by Nutraceutical and 1,330,000 shares are being offered by certain stockholders
(the "Selling Stockholders"). See "Principal and Selling Stockholders." The
Company will not receive any of the proceeds from the sale of the shares of
Common Stock by the Selling Stockholders.
Prior to the Offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price will be
between $14.00 and $16.00 per share. For a discussion relating to the factors
to be considered in determining the initial public offering price, see
"Underwriting."
An aggregate of 166,500 shares of Common Stock, or approximately 5.0% of the
shares offered hereby, have been reserved for sale to certain employees,
customers, independent sales representatives and affiliates of the Company. The
price per share of Common Stock to be sold to these persons is equal to the
initial public offering price. See "Underwriting."
Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "NUTR."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(3)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(3)......................... $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting estimated expenses of $1,400,000, which will be paid by
the Company.
(3) The Selling Stockholders have granted the Underwriters options, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
additional 499,500 shares of Common Stock solely to cover over-allotments,
if any. If such options are exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Selling Stockholders will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, when, as
and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made in New
York, New York on or about , 1998.
DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
SECURITIES CORPORATION
<PAGE>
[PHOTOGRAPH DEPICTING CERTAIN OF THE COMPANY'S PRODUCTS]
Beefense(TM), Beyond Garlic(TM), CranActin(R), KAL(R), NaturalMax(TM),
Peaceful Planet(TM), Premier One(R), Raw Energy(R), Solar Green(R),
Solaray(TM), Spectro(TM), Super Diet Max(R), Thin-Thin(TM) and VegLife(TM) are
trademarks of the Company.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise noted or where the context otherwise requires, all information herein
(i) assumes the Underwriters' over-allotment option is not exercised and (ii)
reflects the reclassification of all classes of the Company's capital stock
into Common Stock and a 7.5291-for-one Common Stock split to be effected
immediately after such reclassification (the "Reclassification"). References to
the "Company" and "Nutraceutical" refer to Nutraceutical International
Corporation and its direct and indirect subsidiaries unless otherwise stated or
the context otherwise requires. References to fiscal years refer to the
Company's fiscal year ended September 30 of the year indicated.
Market data used throughout this Prospectus were obtained from independent
industry publications, primarily a report (the "Packaged Facts Report")
prepared by Packaged Facts, Inc. ("Packaged Facts"), an independent market
research firm, and from internal Company data. The Packaged Facts Report was
prepared by Packaged Facts for syndicated publication and was not prepared for
or at the request of the Company. The Company has not independently verified
such market data. In addition, market conditions underlying such data are
subject to change based on economic conditions, consumer preferences and other
factors that are beyond the Company's control. See "Risk Factors--No Assurance
of Future Industry Growth."
THE COMPANY
Nutraceutical is one of the nation's largest manufacturers and marketers of
quality branded nutritional supplements sold to health food stores. The Company
sells its branded products under the widely recognized Solaray, KAL,
NaturalMax, VegLife, Premier One and Solar Green brand names directly and
exclusively to health food stores in the United States and internationally
primarily to distributors and retailers. In addition to branded products, the
Company manufactures premium bulk formulations for sale to other manufacturers
and marketers in the nutritional supplement industry. Since its formation in
1993, the Company has achieved rapid growth, both internally and through
acquisitions, with net sales increasing at a 47.8% compound annual rate, from
$20.5 million in fiscal 1993 to $98.1 million in fiscal 1997. During this
period, Adjusted EBITDA (as defined herein) increased at a compound annual rate
of 72.9%, from $2.2 million to $19.6 million.
The Company's strategy of selling its branded products directly and
exclusively to the approximately 9,700 health food stores in the United States
(the "Healthy Foods Channel") has enabled it to benefit from the rapid growth
of the Healthy Foods Channel. The Company believes that it is among the largest
suppliers of nutritional supplements to the Healthy Foods Channel that
develops, manufactures, markets and directly distributes a majority of its own
products. The Company offers one of the broadest branded product lines in the
industry with approximately 800 products and 1,400 stock keeping units
("SKUs"), including approximately 200 SKUs exclusively sold internationally.
None of the Company's products represented more than 2% of fiscal 1997 net
sales. The Company markets its branded products through the industry's largest
sales force dedicated to the Healthy Foods Channel. The Company seeks to be the
market leader in the development of new and innovative products, introducing
172 new SKUs (including 147 new formulations) in fiscal 1997. The Company
manufactured over 90% of its products in fiscal 1997 and believes that the
quality of its products is among the highest in the industry.
The total U.S. retail market for nutritional supplements (the "VMS Market")
is highly fragmented and rapidly growing, generating $6.5 billion in 1996
sales, as compared to $5.0 billion in 1994. The Company believes that this
rapid growth is due to a number of factors, including (i) increased interest in
healthier lifestyles, (ii) the publication of research findings supporting the
positive health effects of certain nutritional supplements and (iii) the aging
of the "Baby Boom" generation combined with the tendency of consumers to
purchase more nutritional supplements as they age.
3
<PAGE>
The Healthy Foods Channel consists of approximately 9,700 retailers including
(i) independent health food stores, (ii) health food stores affiliated with
local, regional and national health food chains (including healthy food
supermarket chains, such as Whole Foods Market and Wild Oats Markets) and (iii)
General Nutrition Center ("GNC") stores. The Company believes that the Healthy
Foods Channel will continue to experience strong growth based on the continued
expansion of independent health food stores and local, regional and national
health food chains in response to strong demand from consumers who desire
product education, service and high quality natural ingredients. The Company
believes there are significant differences between mass market retailers (such
as drugstores, warehouse clubs and supermarkets), which typically offer a
limited selection of discounted and lower potency items, and the Healthy Foods
Channel, where natural ingredients, quality, potency, selection and customer
support are more important. The Company benefits from substantially greater
customer diversification than most of its larger competitors, with no single
customer representing more than 5.5% of fiscal 1997 net sales.
The Company believes it is well positioned to capitalize on the growth of the
VMS Market and the Healthy Foods Channel. According to the Packaged Facts
Report:
. The VMS Market grew at a 14.2% compound annual rate from 1994 to 1996
and is projected to grow at a 13.6% compound annual rate from 1996 to
2001, to $12.3 billion;
. The Healthy Foods Channel generated $2.5 billion of retail sales in
1996, or 38.2% of the total VMS Market, representing the largest single
channel;
. The Healthy Foods Channel has been growing faster than the total VMS
Market, achieving a 16.7% compound annual growth rate from 1994 to 1996;
and
. Sales of supplements (as defined in the Packaged Facts Report) in the
VMS Market grew at a 35.6% compound annual rate from 1994 to 1996 and
are expected to grow at a 25.0% compound annual rate from 1996 to 2001.
Sales of supplements, the fastest growing segment of the VMS Market,
represented 61.7% of the Company's fiscal 1997 net sales of branded
products, as compared to 35.2% of the total VMS Market.
The Company was formed in 1993 by senior management and Bain Capital, Inc.
("Bain Capital") to effect a consolidation strategy in the highly fragmented
vitamin, mineral, herbal and other nutritional supplements industry (the "VMS
Industry"), which consists of over 400 manufacturers and marketers
domestically. Since its formation, the Company has successfully completed four
acquisitions, including Solaray, Premier One, KAL and Monarch (each as defined
herein). As a result of these acquisitions and internal growth, the Company has
achieved rapid growth in net sales and operating income. Management believes
that the Company is well positioned to continue to capitalize on the
consolidation occurring in the VMS Industry. To increase the Company's
operating efficiency and provide capacity for additional expansion, the Company
is in the process of negotiating a lease for a 250,000 square foot facility
into which the Company intends to consolidate seven of its current facilities.
4
<PAGE>
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a leader in supplying
quality branded products to the Healthy Foods Channel while continuing to
generate rapid growth in sales and profitability. Unlike many of its
competitors, the Company has chosen to focus exclusively on the Healthy Foods
Channel. Specifically, the Company seeks to:
. INCREASE MARKET SHARE IN THE RAPIDLY GROWING HEALTHY FOODS CHANNEL. The
Company's strategy is to increase its share in the rapidly growing
Healthy Foods Channel by (i) continuing to emphasize exclusive sales of
its existing branded products to the Healthy Foods Channel, (ii)
utilizing multiple brands and (iii) expanding its salesforce and its
geographic coverage:
--Exclusivity to the Healthy Foods Channel. The Company believes that
retailers in the Healthy Foods Channel favor brands that are sold
exclusively to the Healthy Foods Channel (i.e., that are not available
through mass marketers) and that, as a result, retailers will continue
to allocate additional shelf space to the Company's products.
--Multiple Brand Strategy. The Company currently markets its products
through a multiple brand strategy that the Company believes has been
successful in encouraging retailers to allocate additional shelf space
to the Company's brands. The Company intends to continue expanding its
brands by extending existing product lines and developing new product
lines. See "Business--Products."
--Largest Sales Force Targeting the Healthy Foods Channel. The Company
markets its products through a substantially larger direct sales force
dedicated to the Healthy Foods Channel than that of any competitor. The
Company currently anticipates adding additional individuals to its
sales force to increase its sales efforts in certain highly populated
areas that are currently underpenetrated by the Company. In particular,
the Company seeks to increase its presence in the Northeast and Mid-
Atlantic states including such markets as New York City, Long Island,
Boston, Philadelphia and Washington D.C. In 1997, the Company
implemented a new payment structure for its sales force that provides
additional incentives for sales growth.
. CONTINUE TO MAKE STRATEGIC ACQUISITIONS. The Company was founded in 1993
to effect a consolidation strategy in the fragmented VMS Industry. The
Company plans to continue to capitalize on the significant opportunities
for consolidation available in the VMS Industry. To date, the Company
has successfully completed four acquisitions and will seek additional
acquisitions that serve to expand the Company's brand names, broaden its
product offerings or facilitate entry into complementary distribution
channels.
. CONTINUE TO DEVELOP NEW PRODUCTS AND PRODUCT EXTENSIONS. The Company is
a market leader in the development of new and innovative products.
During fiscal 1997, the Company introduced 147 new formulations of
branded products compared to 46 in fiscal 1996. Branded products
introduced in 1996 and 1997 represented 16.8% of fiscal 1997 net sales
of branded products. The Company plans to continue developing new
products as a significant element of its future growth.
. CAPITALIZE ON STRONG INTERNATIONAL GROWTH. The Company believes that
international sales represent a significant growth opportunity.
Currently, the Company markets its products in over 30 countries,
principally through international distributors. Net sales by Au Naturel,
Inc., the Company's international subsidiary, grew 21.4% from 1996 to
1997 and represented 6.5% of the Company's fiscal 1997 net sales. The
Company plans to continue to aggressively pursue international sales by
adding additional salespeople, expanding its distribution and retailer
network in high growth regions and continuing its efforts to register
products and trademarks in attractive foreign markets.
5
<PAGE>
The Company's implementation of the foregoing business strategy is subject to
a number of risks and may cause the Company to incur additional expenses in
future periods. See "Risk Factors--Risks Associated with Implementation of
Business Strategy," "Risk Factors--Risks Associated with Acquisitions," "Risk
Factors--Risks Associated with International Markets" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
RECENT DEVELOPMENTS
For the three months ended December 31, 1997, the Company's net sales
increased approximately 15.6% to $25.9 million compared to $22.4 million in the
corresponding period in 1996. Adjusted EBITDA for the three months ended
December 31, 1997 was $5.1 million or approximately 15.9% higher than $4.4
million for the corresponding period in 1996. Operating income for the three
months ended December 31, 1997 was $3.9 million, a 14.7% increase from $3.4
million for the corresponding period in 1996.
For the twelve months ended December 31, 1997, the Company's net sales
increased approximately 17.3% to $101.6 million compared to $86.6 million in
the corresponding period in 1996. Adjusted EBITDA for the twelve months ended
December 31, 1997 was $20.3 million or approximately 40.4% higher than $14.4
million for the corresponding period in 1996. Adjusted EBITDA as a percent of
sales increased to 19.9% in the twelve months ended December 31, 1997 from
16.7% in the corresponding period in 1996. Operating income for the twelve
months ended December 31, 1997 was $14.1 million or approximately 29.7% higher
than $10.9 million for the corresponding period in 1996. Operating income as a
percent of sales increased to 13.9% in the twelve months ended December 31,
1997 from 12.5% in the corresponding period in 1996.
The principal executive offices of the Company are located at 1400 Kearns
Boulevard, 2nd Floor, Park City, Utah 84060 and its telephone number is (435)
655-6000.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by
the Company............. 2,000,000 shares
Common Stock Offered by
the Selling Stockhold-
ers..................... 1,330,000 shares
-----------
Total.................... 3,330,000 shares
Common Stock To Be Out-
standing After the Of-
fering (1).............. 11,496,692 shares
Use of Proceeds.......... The net proceeds to be received by the Company from
the Offering, estimated to be approximately $26.5
million (assuming an initial public offering price
of $15.00 per share, the midpoint of the estimated
price range of the Offering), together with
borrowings under the New Credit Agreement (as
defined below) and available cash resources of the
Company, will be used to repay the outstanding
indebtedness under the Existing Credit Agreement (as
defined below). The Company will not receive any
proceeds from the sale of shares by the Selling
Stockholders. See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol........... "NUTR"
</TABLE>
- --------------------
(1) Excludes 175,804 shares reserved for issuance upon the exercise of options
outstanding pursuant to the Company's 1995 Stock Plan (as defined below)
and 1,302,222 shares reserved for issuance upon the exercise of other
outstanding warrants and options. Also excludes 1,050,000 shares and
750,000 shares which, prior to the consummation of the Offering, will be
reserved for issuance under the Company's Stock Incentive Plans and
Employee Stock Purchase Plan (each as defined below), respectively. See
"Management--Stock Plans." The number of shares to be outstanding after the
Offering is subject to change. See "Reclassification."
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are summary historical and pro forma consolidated financial
data of the Company and of Solaray, Inc. ("Solaray" or the "Predecessor") for
the periods and dates indicated. The summary historical consolidated financial
data for the year ended September 30, 1993 were derived from the audited
financial statements of the Predecessor. The summary historical consolidated
financial data for the year ended September 30, 1994 were determined by
combining information derived from the unaudited financial statements of the
Predecessor for the period from October 1, 1993 through October 27, 1993 with
information derived from the audited financial statements of the Company for
the year ended September 30, 1994. The summary historical consolidated
financial data as of September 30, 1997 and for the years ended September 30,
1995, 1996 and 1997 were derived from the audited financial statements of the
Company. Combined and pro forma data are not audited. The following summary
historical and pro forma consolidated financial data should be read in
conjunction with, and are qualified by reference to, "Unaudited Pro Forma
Consolidated Financial Data," "Selected Historical Consolidated Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the audited consolidated financial statements and
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMBINED(A) COMPANY(B)
------------- ------------- -----------------------------------------
PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, -------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997(C)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $20,541 $ 28,095 $ 62,932 $83,923 $98,096 $98,096
Gross profit............ 9,439 13,673 27,047 38,824 45,819 45,819
Selling, general and
administrative......... 7,486 8,961 21,409 27,608 29,179 28,879
Amortization of
intangibles............ -- 394 1,059 1,483 1,346 1,346
One-time payment to
executive officer...... -- -- -- -- 1,700 1,700(d)
Income from operations.. 1,953 4,318 4,579 9,733 13,594 13,894(d)
Interest expense, net... 116 1,804 4,478 7,126 6,572 2,693
Net income before
extraordinary loss..... 1,164 1,532 78 1,551 4,248 6,777(d)
Net income (loss)....... 1,164 1,532 (400) 1,551 4,248 N/A
Pro forma net income per
share(e)............... $ 0.39
Pro forma weighted
average shares
outstanding(e)......... 10,785
Supplemental pro forma
net income per
share(e)............... $ 0.44
Supplemental pro forma
weighted average shares
outstanding(e)......... 12,785
Pro forma as adjusted
net income per share... $ 0.53(d)
Pro forma as adjusted
weighted average shares
outstanding............ 12,785
OTHER FINANCIAL DATA:
Adjusted EBITDA(f)...... $ 2,188 $ 6,088 $ 11,831 $13,118 $19,563 $19,563
Capital expenditures
(excluding
acquisitions).......... 217 465 2,837 5,498 3,652 3,652
Cash flows provided by
(used in):
Operating activities... 1,286 2,152 (64) 4,559 9,363 (g)
Investing activities... (214) (10,078) (49,155) (5,498) (3,652) (g)
Financing activities... (802) 8,173 49,645 2,600 (3,617) (g)
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
-------------------------
ACTUAL AS ADJUSTED(H)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 4,415 $ --
Working capital....................................... 15,616 20,723
Total assets.......................................... 90,110 86,998
Total debt............................................ 60,259(i) 34,379
Stockholders' equity.................................. 16,354 39,122
</TABLE>
- --------------------
(a) The summary historical consolidated financial data for the year ended
September 30, 1994 were determined by combining information derived from
the unaudited financial statements of the Predecessor for the period from
October 1, 1993 through October 27, 1993 with information derived from the
audited financial statements of the Company for the year ended September
30, 1994 as presented in "Selected Historical Consolidated Financial Data."
Such information was determined by adding the amount in each line item of
the unaudited financial statements of the
8
<PAGE>
Predecessor to the respective amount in the corresponding line item of the
audited financial statements of the Company. Such computations do not give
effect to any pro forma adjustments that may be required to reflect pro
forma consolidated financial data of the Company as if the acquisition of
all the capital stock of the Predecessor by the Company (the "Solaray
Acquisition") had been consummated on October 1, 1993. The Company's
audited financial statements for the year ended September 30, 1994
primarily reflect operations from the date of the Solaray Acquisition. The
Company's operations prior to such date were immaterial.
(b) The Company was formed in 1993 for the purpose of completing the Solaray
Acquisition, which was consummated on October 28, 1993. In October 1994,
the Company, through its wholly-owned subsidiary Premier One Products,
Inc., a Delaware corporation ("Premier"), acquired substantially all the
assets and assumed certain liabilities of Premier One Products, Inc., a
Nebraska corporation ("Old Premier") (the "Premier Acquisition"). In
January 1995, the Company, through its wholly-owned subsidiaries Makers of
KAL, Inc., a Delaware corporation ("KAL"), and NaturalMax, Inc., a
Delaware corporation ("NaturalMax"), acquired substantially all the assets
and assumed certain liabilities of Makers of KAL, Inc., a California
corporation ("Old KAL") (the "KAL/Max Acquisition"). In September 1995,
the Company, through its wholly-owned subsidiary Monarch Nutritional
Laboratories, Inc., a Delaware corporation ("Monarch"), acquired
substantially all the assets and assumed certain liabilities of Monarch
Nutritional Laboratories, a Utah corporation ("Old Monarch") (the "Monarch
Acquisition"). The Solaray Acquisition was accounted for as a purchase,
resulting in a new accounting basis for the Predecessor's assets. As a
result, financial information for the periods prior to October 28, 1993 is
not directly comparable to information for subsequent periods.
(c) Gives effect to (i) the Reclassification, (ii) the consummation of the
Offering (assuming an initial public offering price of $15.00 per share,
the midpoint of the estimated price range of the Offering) and the
application of the estimated net proceeds therefrom, together with
borrowings under a new senior credit agreement, which the Company
anticipates executing in connection with the Offering (the "New Credit
Agreement"), and available cash resources to repay indebtedness, as
described under "Use of Proceeds," and (iii) the elimination of annual
fees paid pursuant to the Restated Advisory Agreement (as defined below),
as if each such event had occurred on October 1, 1996. See "Unaudited Pro
Forma Financial Data."
(d) Excluding the one-time payment to the Company's Chief Executive Officer,
pro forma income from operations, pro forma net income before
extraordinary loss and pro forma as adjusted net income per share would
have been $15,594, $7,806 and $0.61, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(e) For the year-ended September 30, 1997, gives effect to the
Reclassification. Historical earnings per common share amounts are not
presented as they are not considered to be meaningful. Pro forma net
income per share was determined by dividing net income by the pro forma
weighted average number of common and common stock equivalent shares which
the Company estimates will be outstanding after giving effect to the
Reclassification. Common stock equivalents consist of the Company's Common
Stock issuable upon the exercise of stock options and warrants (using the
treasury stock method). In addition, in accordance with the Securities and
Exchange Commissions' Staff Accounting Bulletin No. 83, shares issued and
stock options granted within one year of the Offering have been included
in the calculation of weighted average shares outstanding as if they were
outstanding from inception of the Company (using the treasury stock method
and an assumed initial public offering price for the shares sold in the
Offering of $15.00 per share).
Supplemental pro forma net income per share was determined in the same
manner as that used to determine pro forma net income per share, except the
pro forma weighted average number of common and common equivalent shares
which the Company estimates will be outstanding after giving effect to the
Reclassification was increased by the number of shares of common stock
(2,000,000) to be issued to generate the net proceeds necessary to retire
$26,500 of the Company's borrowings under the Existing Credit Agreement (as
defined below) (assuming an initial public offering price of $15.00 per
share, the midpoint of the estimated price range of the Offering), and
historical net income was increased by $2,360 related to the elimination of
interest resulting from the assumed reduction of $26,500 of indebtedness,
net of tax of $932.
(f) "Adjusted EBITDA" is defined herein as net income (as presented) plus
provision for income taxes, net interest expense, depreciation and
amortization and other non-recurring items. Management believes that
Adjusted EBITDA, as presented, represents a useful measure of assessing
the performance of the Company's ongoing operating activities as it
reflects the earnings trends of the Company without the impact of the
purchase accounting applied in connection with the Company's history of
acquisitions, the financing required to consummate such transactions or
other non-recurring items. Targets and positive trends in Adjusted EBITDA
are used as the performance measure for determining management's bonus
compensation and are also used by the Company's creditors in assessing
debt covenant compliance. The Company understands that while Adjusted
EBITDA is frequently used by securities analysts in the evaluation of
nutritional supplement companies, it is not necessarily comparable to
other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation. Adjusted EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity or as an alternative to net income as an indicator of
the Company's operating performance or any other measure of performance in
accordance with generally accepted accounting principles.
9
<PAGE>
The following table sets forth a reconciliation of net income before
extraordinary loss to Adjusted EBITDA for each period included herein:
<TABLE>
<CAPTION>
PREDECESSOR COMBINED COMPANY
------------- ------------- -------------------------------------
YEAR ENDED SEPTEMBER PRO FORMA
YEAR ENDED YEAR ENDED 30, YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, ----------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
<S> <C> <C> <C> <C> <C> <C>
Net income before
extraordinary
loss (1).............. $1,164 $1,532 $ 78 $ 1,551 $ 4,248 $ 6,777
Provision for income
taxes................. 673 982 23 1,056 2,774 4,424
Interest expense, net
(2)................... 116 1,804 4,478 7,126 6,572 2,693
Depreciation and
amortization (3)...... 235 1,583 6,983 3,085 3,969 3,969
Certain non-recurring
items (4)............. -- 187 269 300 300 --
One-time payment to
executive officer(5).. -- -- -- -- 1,700 1,700
------ ------ ------- ------- ------- -------
Adjusted EBITDA........ $2,188 $6,088 $11,831 $13,118 $19,563 $19,563
====== ====== ======= ======= ======= =======
</TABLE>
--------------------
(1) Net income before extraordinary loss is equivalent to net income for
all periods presented except the year ended September 30, 1995,
during which the Company incurred an extraordinary loss on early
extinguishment of debt of $478, net of tax benefit. Actual net loss
for the year ended September 30, 1995 was $400.
(2)Includes amortization of capitalized debt issuance costs.
(3)Includes non-recurring amortization of inventory write up.
(4) Represents management fees paid to Bain Capital and F.W. Gay & Sons
pursuant to the Restated Advisory Agreement, which will be terminated
in connection with the Offering. The Company does not expect to incur
such recurring management fees following the Offering. See "Certain
Relationships and Related Transactions."
(5) Reflects a one-time payment to the Company's Chief Executive Officer
for successfully positioning the Company for the Offering. Such
payment is in excess of the Chief Executive Officer's annual
compensation (salary and bonus), and the Company does not expect to
make any further payments of this nature or magnitude in the future.
(g) Because of the subjectivity inherent in the assumptions concerning the
timing and nature of the uses of cash generated by the pro forma
interest and other cost savings adjustments, cash flows from operating,
investing and financing activities are not presented for the pro forma
period.
(h) Gives effect to (i) the consummation of the Offering (assuming an
initial public offering price of $15.00 per share, the midpoint of the
price range of the Offering) and the application of the estimated net
proceeds therefrom, together with borrowings under the New Credit
Agreement and available cash resources, as described under "Use of
Proceeds," and (ii) the termination of the Restated Advisory Agreement
and the payment of fees for services performed in connection with the
Offering, as if each such event had occurred on September 30, 1997. See
"Unaudited Pro Forma Financial Data."
(i) Total debt is presented net of $2,560 of unamortized debt issuance
discount.
10
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered in evaluating an investment in the
Common Stock offered hereby.
GOVERNMENT REGULATION
The formulation, manufacturing, processing, packaging, labeling,
advertising, distribution and sale of nutritional supplements such as those
sold by the Company are subject to regulation by a number of federal, state
and foreign agencies, principally, the Food and Drug Administration ("FDA")
and the Federal Trade Commission ("FTC"). Among other matters, such regulation
is concerned with health claims made with respect to a product that assert the
healing or nutritional value of such product. Such agencies have a variety of
remedies and processes available to them, including initiating investigations,
issuing warning letters and cease and desist orders, requiring corrective
labels or advertising, requiring consumer redress (for example, by requiring
that a company offer to repurchase products previously sold to consumers),
seeking injunctive relief or product seizure, imposing civil penalties, or
commencing criminal prosecution. Federal and state agencies have in the past
used these remedies in regulating participants in the nutritional supplements
industry, including the imposition by federal agencies of civil penalties in
the millions of dollars against a few industry participants. In addition,
increased sales and publicity of nutritional supplements may result in
increased regulatory scrutiny of the nutritional supplements industry. There
can be no assurance that the regulatory environment in which the Company
operates will not change or that such regulatory environment, or any specific
action taken against the Company, will not result in a material adverse effect
on the Company's business, financial condition or results of operations.
The FDA is currently proposing to regulate the sale of nonprescription
products containing ephedra, a natural product that contains a small
percentage of ephedrine alkaloids, which are used in some prescription and
over the counter stimulants and antihistamines. Less than 4% of the Company's
fiscal 1997 net sales were derived from products that contain ephedra. Various
state legislatures and agencies have also expressed concern, and in some cases
have proposed or passed legislation or regulations regarding ephedra-based
products. The loss of sales of these products or further limitations in the
states and other jurisdictions where these products now may be sold could have
an adverse effect on the Company.
The Company and a number of other suppliers, processors and marketers of
nutritional supplements received warning letters from the FDA relating to an
allegedly contaminated batch of an herb called plantain. The Company has
denied responsibility for any adverse effects and affirmed its commitment to
good manufacturing practices. The Company has received a notice that it may be
a defendant along with a number of other participants in the VMS Industry in a
threatened action by certain private litigants or the Attorney General of the
State of California, which alleges that the sale in California of certain
products containing fish and salmon oils may be in violation of a California
law known as "Proposition 65" for failure to include required warning labels.
The Company has also received notice from another private litigant that the
Company's sale of bulk quantities of copper gluconate was in violation of
Proposition 65 for failure to provide warning statements with respect to the
level of lead contained in such product. In March 1993, the staff of the
Cleveland Regional Office of the FTC began an investigation into advertising
claims made by the seller in the KAL/Max Acquisition, and made a follow up
inquiry to the Company in August 1995 concerning certain products and claims
associated with the KAL and NaturalMax product lines. The Company has
responded to the FTC and, to the Company's knowledge, the FTC has taken no
further action. There can be no assurance that such proceedings or
investigations or any future proceedings or investigations will not have a
material adverse effect on the Company. See "Business--Government Regulation."
PRODUCT LIABILITY; POTENTIAL ADVERSE PRODUCT PUBLICITY
The Company, like any other retailer, distributor or manufacturer of
products that are designed to be ingested, faces an inherent risk of exposure
to product liability claims in the event that the use of its products results
in injury. In the event that the Company does not have adequate insurance or
contractual indemnification, product liability claims could have a material
adverse effect on the Company. The Company is not currently a
11
<PAGE>
named defendant in any product liability lawsuit; however, Old KAL, Old
Premier and Old Monarch, like other manufacturers and distributors of
nutritional supplements, currently are or have been named as defendants in
such lawsuits. The successful assertion or settlement of any uninsured claim,
a significant number of insured claims, or a claim exceeding the Company's
insurance coverage could have a material adverse effect on the Company.
The Company is highly dependent upon consumers' perception of the safety and
quality of its products as well as similar products distributed by other
companies. Thus, the mere publication of reports asserting that such products
may be harmful could have a material adverse effect on the Company, regardless
of whether such reports are scientifically supported and regardless of whether
the harmful effects would be present at the dosages recommended for such
products.
LIMITED AVAILABILITY OF CONCLUSIVE CLINICAL STUDIES
Although many of the ingredients in the Company's products are vitamins,
minerals, herbs and other substances for which there is a long history of
human consumption, some of the Company's products contain innovative
ingredients or combinations of ingredients. Although the Company believes all
of its products to be safe when taken as directed by the Company, there is
little long-term experience with human consumption of certain of these
innovative product ingredients or combinations thereof in concentrated form.
Although the Company performs research and/or tests the formulation and
production of its products, it has only sponsored limited clinical studies.
See "--Product Liability; Potential Adverse Product Publicity."
COMPETITION
The VMS Industry is highly competitive. The Company's principal competitors
in the Healthy Foods Channel include a number of large nationally known
manufacturers (such as Twinlab Corporation, Solgar Vitamin and Herb Company,
Inc. and Nature's Way Products, Inc.) and many smaller manufacturers and
marketers of nutritional supplements. Certain of the Company's principal
competitors are larger than the Company, have greater access to capital and
may be better able to withstand volatile market conditions. Moreover, because
the VMS Industry generally has low barriers to entry, additional competitors
could enter the market at any time. In that regard, although the VMS Industry
to date has been characterized by many relatively small participants, there
can be no assurance that national or international companies (which may
include pharmaceutical companies or other suppliers to mass merchandisers)
will not seek to enter or to increase their presence in this industry.
Increased competition in the industry could have a material adverse effect on
the Company.
RISK OF LIMITED SUPPLY SOURCES; DEPENDENCE ON FOREIGN SUPPLIERS
The Company believes that its continued success will depend upon the
availability of raw materials that permit the Company to meet its labeling
claims, quality control standards and desire for unique ingredients. Due to
issues relating to quality or third party intellectual property rights, a
number of the Company's branded products (which accounted for approximately
31% of the Company's fiscal 1997 net sales) contain one or more of
approximately 72 ingredients that may only be available from a single source
or supplier. In addition, the supply of herbal products is subject to the same
risks normally associated with agricultural production, such as climactic
conditions, insect infestations and availability of manual labor or equipment
for harvesting. Any significant delay in or disruption of the supply of raw
materials could substantially increase the cost of such materials, could
require product reformulations, the qualification of new suppliers and
repackaging and could result in a substantial reduction or termination by the
Company of its sales of certain products, any of which could have a material
adverse effect upon the Company. Accordingly, while no single product
accounted for more than 2% of the Company's net sales in fiscal 1997, there
can be no assurance that the disruption of the Company's supply sources will
not have a material adverse effect on the Company.
Although the Company acquires the majority of its raw materials from U.S.
suppliers, the ingredients of a number of the Company's products (which
accounted for approximately 38% of the Company's fiscal 1997 net sales)
include one or more of approximately 188 ingredients that originate outside of
the United States. The Company's business is therefore subject to the risks
generally associated with doing business outside the United
12
<PAGE>
States, such as delays in shipments, embargoes, changes in economic and
political conditions, tariffs, foreign exchange rates and trade disputes. The
Company's business is also subject to the risks associated with the enactment
of United States and foreign legislation and regulations relating to imports
and exports, including quotas, duties, taxes or other charges or restrictions
that could be imposed upon the importation of products into the United States.
See "Business--Materials and Suppliers." These factors could result in a delay
in or disruption of the supply of certain raw materials and could have the
consequences described in the preceding paragraph, any of which could have a
material adverse effect on the Company.
RELIANCE ON KEY MANAGEMENT
The operation of the Company requires managerial and operational expertise.
In particular, the Company is dependent upon the management and leadership
skills of a number of its senior managers, including Frank W. Gay II, Bruce R.
Hough, Jeffrey A. Hinrichs, William T. Logan and Leslie M. Brown, Jr.
Substantially all of the Company's employees are employed "at will." None of
the key management employees has a long-term employment contract with the
Company and there can be no assurance that such individuals will remain with
the Company. The failure of such key personnel to continue to be active in
management could have a material adverse effect on the Company. After the
consummation of the Offering, the Company's executive officers, including key
management employees, will beneficially own 2,616,330 shares of Common Stock,
representing approximately 21.9% of the outstanding Common Stock on a fully
diluted basis, excluding shares purchased in the Offering pursuant to the
reserved share program and options to be granted under the 1998 Stock Plan in
connection with the Offering. See "Management."
RISKS ASSOCIATED WITH IMPLEMENTATION OF BUSINESS STRATEGY
Implementation of the Company's business strategy is subject to risks and
uncertainties, including certain factors that are within the Company's control
and other factors that are outside of the Company's control. In addition,
certain elements of the Company's business strategy, notably the acquisition
of complementary businesses or product lines, could result in significant
expenditures of cash and management resources. See "--Risks Associated with
Acquisitions." Finally, implementation of the Company's business strategy is
subject to risks associated with market and competitive conditions. See "--
Competition" and "--No Assurance of Future Industry Growth."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company has completed four acquisitions, including the Solaray
Acquisition, since 1993 and expects to pursue additional acquisitions in the
future as a key component of the Company's business strategy. See "Business--
Business Strategy." There can be no assurances that attractive acquisition
opportunities will be available to the Company, that the Company will be able
to obtain financing for or otherwise consummate any future acquisitions or
that any acquisitions which are consummated will prove to be successful.
Moreover, acquisitions involve numerous risks, including the risk that the
acquired business will not perform in accordance with expectations,
difficulties in the integration of the operations and products of the acquired
businesses with the Company's other businesses, the diversion of management's
attention from other aspects of the Company's business, the risks associated
with entering geographic and product markets in which the Company has limited
or no direct prior experience and the potential loss of key employees of the
acquired business. The acquisition of another business can also subject the
Company to liabilities and claims arising out of such business. In addition,
future acquisitions would likely require additional financing, which would
likely result in an increase in the Company's indebtedness or the issuance of
additional capital stock which could be dilutive to holders of shares issued
in the Offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
NO ASSURANCE OF FUTURE INDUSTRY GROWTH
Although market data referred to in this Prospectus and otherwise available
to prospective investors regarding the size and projected growth rates of the
VMS Market and the Healthy Foods Channel indicate that such markets are large
and rapidly growing, there can be no assurance that such markets are as large
as reported or that such projected growth will occur or continue. Market data
and projections, such as those presented in this Prospectus, are inherently
uncertain and subject to change. In addition, the underlying market conditions
are
13
<PAGE>
subject to change based on economic conditions, consumer preferences and other
factors that are beyond the Company's control. There can be no assurance that
an adverse change in size or growth rate of the VMS Market or the Healthy
Foods Channel will not have a material adverse effect on the Company.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS
The Company's continued growth is dependent in 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. 6.5% of the Company's net sales for fiscal 1997
were generated outside the United States. Operating in international markets
exposes the Company to certain risks, including, among other things: (i)
changes in or interpretations of foreign regulations that may limit the
Company's ability to sell certain products or repatriate profits to the United
States, (ii) exposure to currency fluctuations, (iii) the potential imposition
of trade or foreign exchange restrictions or increased tariffs and (iv)
political instability. As the Company continues to expand its international
operations, these and other risks associated with international operations are
likely to increase. See "Business--Business Strategy."
RELIANCE ON INDEPENDENT CONTRACTORS
The Company places significant reliance on a network of 56 independent
contractors to act as its primary sales force and sell its products to health
food retailers. As with any independent contractor, such contractors are not
employed or otherwise controlled by the Company and are generally free to
conduct their businesses at their own discretion. Although these contractors
enter into contracts with the Company, such contracts typically can be
terminated at any time by the Company or the independent contractor. The
simultaneous loss of the services of a number of these independent contractors
could have a material adverse effect on the Company.
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, investment funds (the "Bain Capital Funds")
controlled by Bain Capital will beneficially own approximately 43.1% of the
outstanding Common Stock (40.0% if the Underwriters' over-allotment option is
exercised in full). By virtue of such stock ownership, Bain Capital will be
able to control the election of the members of the Company's Board of
Directors and to generally exercise control over the affairs of the Company.
Such concentration of ownership could also have the effect of delaying,
deterring or preventing a change in control of the Company that might
otherwise be beneficial to stockholders. In addition, three representatives of
Bain Capital currently serve on the Company's Board of Directors. There can be
no assurance that conflicts of interest will not arise with respect to such
Directors or that such conflicts will be resolved in a manner favorable to the
Company. See "Principal and Selling Stockholders."
COMPUTER SYSTEMS AND YEAR 2000 ISSUES
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. The
Company does not anticipate any significant costs, problems or uncertainties
associated with becoming Year 2000 compliant and is currently developing a
plan to ensure that its computer systems are modified to be compliant on a
timely basis. Failure of the Company or its software providers to adequately
address the Year 2000 issue could result in misstatement of reported financial
information or otherwise adversely affect the Company's business operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock may fluctuate significantly. These
fluctuations could result from, among other things, variations in the
Company's results of operations, which could be adversely affected by a number
of factors (some of which are beyond the Company's control), including
economic downturns, variations in demand for nutritional supplements, changes
in the mix of products sold, price changes in response to
14
<PAGE>
competition, increases in the cost of raw materials and possible supply
shortages. In particular, the market price of the Common Stock could be
materially adversely affected by reports by official or unofficial health and
medical authorities and the general media regarding the potential health
benefits or detriments of products sold by the Company or of similar products
distributed by other companies regardless of whether such reports are
scientifically supported and regardless of whether the Company's operating
results are likely to be affected by such reports, as well as by consumer
perceptions regarding the safety and efficacy of nutritional supplements and
consumer preferences generally. In addition, the stock market in general has
experienced wide price and volume fluctuations in recent periods, and these
fluctuations are often unrelated to the operating performance of the specific
issuers whose stock is affected.
ABSENCE OF PUBLIC MARKET; SUBSTANTIAL DILUTION
Prior to the Offering, there has been no public market for the Common Stock.
Although the Company has applied to list the Common Stock on the Nasdaq
National Market, there can be no assurance that an active trading market for
the Common Stock will develop or be sustained. The initial public offering
price of the Common Stock offered hereby will be determined by negotiations
among the Company, the Selling Stockholders and the Underwriters and should
not be considered as an indication of the market price for the Common Stock
after the Offering. See "--Possible Volatility of Stock Price" and
"Underwriting." Purchasers of the Common Stock in the Offering will be subject
to immediate and substantial dilution. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 11,496,692 shares
of Common Stock outstanding. The 3,330,000 shares of Common Stock sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act of 1933 (the "Securities Act"), unless held by an
"affiliate" of the Company, as that term is defined in the Securities Act. The
Company, and all persons holding Common Stock, or warrants or options to
purchase Common Stock, prior to the Offering, have agreed not to sell, offer
to sell, grant any option for the sale of or otherwise dispose of any shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") on behalf of the Underwriters, for a
period of 180 days after the date of this Prospectus, other than shares sold
in the Offering; in addition, the Company will be permitted to issue shares of
Common Stock upon the exercise of outstanding options or warrants and to issue
stock options to employees pursuant to employee stock option plans. Commencing
180 days after the date of this Prospectus, upon the expiration of certain
lock-up agreements with DLJ, approximately 7,994,797 shares of Common Stock
(7,551,524 shares if the Underwriters' over-allotment options are exercised in
full) issued and outstanding as of the date of this Prospectus will be
eligible for immediate sale in the public market subject in certain cases to
compliance with certain volume and other limitations under Rule 144 of the
Securities Act ("Rule 144"). In addition, pursuant to the Company's
registration agreement (the "Registration Agreement"), holders of 9,468,914
shares of Common Stock and options to purchase shares of Common Stock
(8,969,415 shares if the Underwriters' over-allotment options are exercised in
full) will have the right to require the Company to register their shares
under the Securities Act. See "Shares Eligible for Future Sale--Registration
Rights." No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of shares of Common Stock for sale
will have on the market price of the Common Stock from time to time. The sale
of a substantial number of shares held by existing stockholders, whether
pursuant to subsequent public offerings or otherwise, or the perception that
such sales could occur, could adversely affect the market price of the Common
Stock and could materially impair the Company's future ability to raise
capital through an offering of equity securities. See "Shares Eligible For
Future Sale" and "Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Restated Certificate") and Amended and Restated By-laws (the "By-laws")
may inhibit changes in control of the Company not approved by the Company's
Board of Directors. These provisions include (i) a classified Board of
Directors, (ii) a
15
<PAGE>
prohibition on stockholder action through written consents, (iii) a
requirement that special meetings of stockholders be called only by the Board
of Directors, (iv) advance notice requirements for stockholder proposals and
nominations, (v) limitations on the ability of stockholders to amend, alter or
repeal the By-laws and (vi) the authority of the Board to issue without
stockholder approval preferred stock with such terms as the Board may
determine. The Company will also be afforded the protections of Section 203 of
the Delaware General Corporation Law, which could have similar effects. See
"Description of Capital Stock."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein under "Prospectus Summary," "Risk
Factors," "Business," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," including statements concerning (i) the
Company's strategy, (ii) the Company's expansion plans, (iii) the market for
the Company's products, (iv) the effects of government regulation of the
Company's products and (v) the effects on the Company of certain legal
proceedings, contain certain forward-looking statements concerning the
Company's operations, economic performance and financial condition. Because
such statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
Factors that could cause such differences include, but are not limited to,
those discussed under "Risk Factors."
RECLASSIFICATION
Prior to the consummation of the Offering, the Company will reclassify all
of its outstanding shares of capital stock into a single class of common stock
("Common Stock") and will authorize a single class of undesignated preferred
stock ("Preferred Stock"). The Company currently has five classes of
authorized capital stock: Common Stock, Non-Voting Common Stock, Class A
Common Stock, Class A Non-Voting Common Stock and Class P Common Stock. Prior
to consummation of the Offering, the Non-Voting Common Stock, Class P Common
Stock, Class A Non-Voting Common Stock and Class A Common Stock will cease to
be authorized and all outstanding shares of such classes of capital stock (or
rights to purchase such shares) will be reclassified into shares of Common
Stock (or rights to purchase such shares). After giving effect to the
foregoing transactions, a 7.5291-for-one stock split will be effected as to
all of the outstanding shares of Common Stock and a corresponding adjustment
to the number of shares issuable upon exercise of all outstanding warrants and
options will be made. Such reclassification and the subsequent stock split are
referred to herein collectively as the "Reclassification."
The following discussion describes the transactions pursuant to which all
existing classes of the Company's capital stock will be reclassified into
Common Stock. Each share of Class P Common Stock, Class A Common Stock and
Class A Non-Voting Common Stock is entitled to a preferential payment (the
"Preference Amount") upon any distribution by the Company to holders of its
capital stock (whether by dividend, liquidating distribution or otherwise)
equal to the original cost of such share plus an amount which accrues on a
daily basis at a rate of 10% per annum on such cost, compounded quarterly. As
of September 30, 1997, the Preference Amount of the outstanding Class P Common
Stock was $29.82 per share, based on an original cost per share of $20.25. In
connection with the Reclassification, each outstanding share of such classes
of capital stock will be reclassified into one share of Common Stock plus an
additional number of shares of Common Stock determined by dividing the
applicable Preference Amount for such share by the value of a share of Common
Stock based on the estimated initial public offering price in the Offering.
The number of shares of Common Stock that will be issued upon such
Reclassification cannot be determined with certainty until the initial public
offering price and the closing date for the Offering have been determined.
Assuming an initial public offering price of $15.00 per share and an assumed
closing date of February 9, 1998 and giving effect to the stock split referred
to above, an aggregate of 978,251 shares of Common Stock would be issued upon
the conversion of all shares of Class P Common Stock and 115,378 shares of
Common Stock would be reserved for issuance upon the conversion of all
outstanding warrants to purchase shares of Class A Non-Voting Common Stock.
There are no shares of Class A Non-Voting Common Stock or shares (or rights to
purchase shares) of Class A Common Stock outstanding. Fractional shares
otherwise issuable will be rounded to the nearest whole number. See
"Description of Capital Stock."
16
<PAGE>
DILUTION
The deficit in net tangible book value of the Company as of September 30,
1997 was approximately $27.9 million, or $2.99 per share of Common Stock. Net
tangible book value per share represents the amount of the Company's total
tangible assets less its total liabilities, divided by the number of shares of
Common Stock outstanding (after giving effect to the Reclassification). After
giving effect to (i) the receipt of $26.5 million of estimated net proceeds
from the sale by the Company of shares of Common Stock in the Offering
(assuming an initial public offering price of $15.00 per share) and (ii) the
use of such net proceeds to repay indebtedness as described under "Use of
Proceeds," the deficit in pro forma net tangible book value of the Company at
September 30, 1997 would have been approximately $4.0 million, or $0.35 per
share of Common Stock. This represents an immediate dilution in net tangible
book value of $15.35 per share to new investors purchasing shares in the
Offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
Deficit in net tangible book value per share at September
30, 1997................................................... (2.99)
Increase in net tangible book value per share attributable
to the Offering............................................ 2.64
-----
Deficit in pro forma net tangible book value per share after
the Offering............................................... (0.35)
------
Dilution of net tangible book value per share to purchasers
of shares in the Offering.................................. $15.35
======
</TABLE>
The foregoing computations assume no exercise of any stock options or
warrants after September 30, 1997. As of September 30, 1997, there were
outstanding options and warrants to purchase an aggregate of 1,636,844 shares
of Common Stock (after giving effect to the Reclassification) at exercise
prices from $0.001 to $9.30 per share. If all of the foregoing options and
warrants had been exercised at September 30, 1997, the deficit in net tangible
book value per share of Common Stock at such date would have been $2.29, and
the deficit in pro forma net tangible book value per share after giving effect
to the Offering would have been $0.09, representing an immediate dilution to
purchasers of shares in the Offering of $15.09 per share and an immediate
increase in net tangible book value of $2.20 per share to existing
stockholders.
The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by the existing
stockholders and new investors purchasing shares in the Offering, adjusted to
give effect to the sale of the shares of Common Stock offered hereby at an
assumed initial public offering price of $15.00 per share and before deducting
the underwriting discount and the estimated expenses of the Offering payable
by the Company:
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
------------------ ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C>
Existing
stockholders(a)........ 8,166,692 71% $ 8,281,537 14% $ 1.01
Investors purchasing
shares in the
Offering(b)............ 3,330,000 29% 49,950,000 86% 15.00
---------- --- ----------- --- ------
Total................... 11,496,692 100% $58,231,537 100% $ 5.07
========== === =========== === ======
</TABLE>
The foregoing data has been computed based upon the estimated number of
shares to be outstanding after the Offering. See "Reclassification."
- ---------------------
(a) Includes 158,817 shares of Common Stock (after giving effect to the
Reclassification) issued pursuant to the exercise of warrants to purchase
such shares and the aggregate consideration to the Company of $46,646.
Does not include 1,330,000 shares of Common Stock (after giving effect to
the Reclassification) offered for sale hereby by the Selling Stockholders
and the aggregate consideration to the Company for the original purchase
of such shares of $1,175,541.
(b) Includes (i) 2,000,000 shares of Common Stock (after giving effect to the
Reclassification) offered hereby and gross consideration to the Company of
$30,000,000 for such shares and (ii) 1,330,000 shares of Common Stock
(after giving effect to the Reclassification) offered hereby and gross
consideration to the Selling Stockholders of $19,950,000 for such shares.
17
<PAGE>
DIVIDEND POLICY
The Company has never paid any dividends on its capital stock. The Company
presently intends to retain all available funds for use in the business and
therefore does not anticipate paying cash dividends in the foreseeable future.
Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion. As a holding company, the
ability of the Company to pay dividends is dependent upon the receipt of
dividends or other payments from its operating subsidiaries. In addition, the
Company is currently prohibited from paying dividends on its capital stock
under its senior credit agreement (the "Existing Credit Agreement") with
Jackson National Life Insurance Company ("Jackson National"). The Company
expects that the New Credit Agreement will contain similar restrictions. See
"Management's Discussions and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered by the Company are estimated to be $26.5 million, assuming an initial
public offering price of $15.00 per share (which represents the midpoint of
the estimated price range of the Offering). The Company expects to replace the
Existing Credit Agreement, under which the Company had outstanding borrowings
of $61.2 million (not including unamortized discount of $2.6 million) at
September 30, 1997, with the New Credit Agreement, which will make $70.0
million of revolving credit borrowings available to the Company, in connection
with the consummation of the Offering. The Company intends to use the net
proceeds of the Offering, together with borrowings under the New Credit
Agreement and all available cash resources of the Company ($4.4 million at
September 30, 1997), to repay all existing indebtedness under the Existing
Credit Agreement as well as fees totaling $2.5 million in connection with (i)
the termination of the Restated Advisory Agreement and services rendered in
connection with the Offering, (ii) prepayment penalties on the Term B Loan (as
defined below) resulting from replacing the Existing Credit Agreement and
(iii) origination fees arising from the establishment of the New Credit
Agreement. On a pro forma basis, the Company will have outstanding borrowings
of $34.1 million under the New Credit Agreement after the use of proceeds as
discussed above. The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders in the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
At September 30, 1997, the outstanding indebtedness under the Existing
Credit Agreement consisted of (i) a $37.0 million term "A" loan (the "Term A
Loan"), which currently bears interest at a rate equal to the London Inter-
Bank Offered Rate ("LIBOR") plus 3.25% (8.88% per annum at September 30,
1997), (ii) a $15.0 million term "B" loan (the "Term B Loan"), which currently
bears interest at a rate equal to LIBOR plus 4.0% (9.63% per annum at
September 30, 1997) and (iii) $9.2 million of outstanding borrowings under a
revolving credit facility (the "Revolving Credit Facility"), which currently
bears interest at a rate equal to LIBOR plus 3.0% (8.63% per annum at
September 30, 1997).
18
<PAGE>
CAPITALIZATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the consolidated capitalization of the
Company at September 30, 1997 and as adjusted to give effect to the
Reclassification and the sale by the Company of the 2,000,000 shares of Common
Stock offered hereby (assuming an initial public offering price of $15.00 per
share, the midpoint of the estimated price range of the Offering) and the
application of the estimated net proceeds therefrom, together with borrowings
under the New Credit Agreement and available cash resources of the Company, to
repay indebtedness and pay certain other fees. See "Use of Proceeds" and
"Unaudited Pro Forma Financial Data."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------------
ACTUAL AS ADJUSTED(A)
<S> <C> <C>
Cash and cash equivalents... $ 4,415 $ --
============ ============
Total debt:
Senior bank debt........... $58,680(b) $34,065(c)
Capital leases and other
obligations............... 1,579 314
------------ ------------
Total debt................ 60,259 34,379
------------ ------------
Stockholders' equity:
Common stock prior to the
Reclassification.......... 12 --
Preferred stock, $.01 par
value, 5,000,000 shares
authorized, no shares
issued and outstanding.... -- --
Common stock, $.01 par
value, 50,000,000 shares
authorized, 11,496,692
shares issued and
outstanding(d)............ -- 115
Additional paid-in
capital................... 9,690 36,087
Subscriptions receivable... (55) (55)
Retained earnings.......... 6,707 2,975(e)
------------ ------------
Total stockholders'
equity................... 16,354 39,122
------------ ------------
Total capitalization.... $ 76,613 $ 73,501
============ ============
</TABLE>
- ---------------------
(a) Amounts give effect to the Reclassification and the sale by the Company of
the 2,000,000 shares of Common Stock offered hereby (assuming an initial
public offering price of $15.00 per share, the midpoint of the estimated
price range of the Offering) and the application of the estimated net
proceeds therefrom, together with borrowings under the New Credit
Agreement and available cash resources of the Company, to repay
indebtedness and pay certain other fees, including (i) fees of $1,000 in
connection with the termination of the Restated Advisory Agreement and for
services rendered in connection with the Offering, (ii) prepayment
penalties of $525 on the Term B Loan resulting from the early retirement
of indebtedness and (iii) loan origination fees and other fees of $950 in
conjunction with the establishment of the New Credit Agreement. See "Use
of Proceeds" and "Unaudited Pro Forma Financial Data."
(b) Includes indebtedness under the Revolving Credit Facility of $9,240, the
Term A Loan of $37,000 and the Term B Loan of $12,440 (net of unamortized
discount of $2,560).
(c) The Company intends to replace the Existing Credit Agreement with the New
Credit Agreement in connection with the consummation of the Offering. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
(d) Excludes 175,804 shares reserved for issuance upon the exercise of options
granted pursuant to the Company's 1995 Stock Plan and 1,302,222 shares
reserved for issuance upon the exercise of other outstanding options and
warrants. Also excludes 1,050,000 shares and 750,000 shares which, prior
to the consummation of the Offering, will be reserved for issuance under
the Company's Stock Incentive Plans and Stock Purchase Plan, respectively.
See "Management--Stock Plans." The number of shares to be outstanding
after the Offering is subject to change. See "Reclassification."
(e) Reflects a nonrecurring charge for retirement of debt (write-off of debt
issuance costs and prepayment penalties) of $5,169, net of a tax benefit
of $2,042, and payment of fees upon the termination of the Restated
Advisory Agreement and for services rendered in connection with the
Offering of $1,000, net of a tax benefit of $395.
19
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended September 30, 1997 give pro forma effect to (i) the Reclassification,
(ii) the consummation of the Offering (assuming an initial public offering
price of $15.00 per share, the midpoint of the estimated price range of the
Offering) and the application of the net proceeds therefrom, together with
borrowings under the New Credit Agreement and available cash resources, to
repay indebtedness as described under "Use of Proceeds" and (iii) the
elimination of annual fees paid pursuant to the Restated Advisory Agreement,
as if each such event had occurred on October 1, 1996.
The Unaudited Pro Forma Consolidated Balance Sheet at September 30, 1997
gives pro forma effect to (i) the Reclassification, (ii) the consummation of
the Offering (assuming an initial public offering price of $15.00 per share,
the midpoint of the estimated price range of the Offering) and the application
of the net proceeds therefrom, together with borrowings under the New Credit
Agreement and available cash resources, to repay indebtedness, as described
under "Use of Proceeds," and (iii) the payment of fees in connection with the
termination of the Restated Advisory Agreement and for services rendered in
connection with the Offering, as if each such event had occurred on such date.
The Unaudited Pro Forma Financial Data are provided for informational
purposes only and are not necessarily indicative of the results of operations
or financial position of the Company had the transactions assumed therein
occurred, nor are they necessarily indicative of the results of operations
which may be expected to occur in the future. Furthermore, the unaudited pro
forma financial data are based upon assumptions that the Company believes are
reasonable and should be read in conjunction with the financial statements and
the accompanying notes thereto included elsewhere in this Prospectus.
The Unaudited Pro Forma Consolidated Statement of Operations does not
reflect an extraordinary loss on the early extinguishment of debt estimated at
$5.2 million resulting from the write off of debt issuance costs in connection
with the pay down of debt upon completion of the Offering or the payment of
$1.0 million in fees in connection with the termination of the Restated
Advisory Agreement and for services rendered in connection with the Offering.
The Unaudited Pro Forma Consolidated Balance Sheet, however, does reflect such
charges and the related tax benefit of $2.4 million.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
<S> <C> <C> <C>
Net sales............................... $98,096 $ -- $98,096
Cost of sales........................... 52,277 -- 52,277
------- ------- -------
Gross profit.......................... 45,819 -- 45,819
------- ------- -------
Operating expenses:
Selling, general and administrative... 29,179 (300)(a) 28,879
Amortization of intangibles........... 1,346 -- 1,346
One-time payment to executive
officer.............................. 1,700 -- 1,700
------- ------- -------
32,225 (300) 31,925
------- ------- -------
Income from operations.................. 13,594 300 13,894
------- ------- -------
Interest expense, net................... 6,572 (3,879)(b) 2,693
Income before provision for income
taxes.................................. 7,022 4,179 11,201
Provision for income taxes.............. 2,774 1,650 (c) 4,424
------- ------- -------
Net income.............................. $ 4,248 $ 2,529 $ 6,777
======= ======= =======
Net income per share.................... $ 0.39(d)
Weighted average shares outstanding..... 10,785(d)
Supplemental pro forma net income per
share.................................. $ 0.44(d)
Supplemental pro forma weighted average
shares outstanding..................... 12,785(d)
Pro forma as adjusted net income per
share.................................. $ 0.53(d)
Pro forma as adjusted weighted average
shares outstanding..................... 12,785(d)
</TABLE>
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Unaudited Pro Forma Consolidated Statement of Operations gives effect to
the following unaudited pro forma adjustments:
(a) Reflects the permanent elimination of recurring external management fees
(other than out-of-pocket expenses) resulting from the termination of the
Restated Advisory Agreement in connection with the Offering.
(b) Reflects the decrease in interest expense in connection with the
refinancing of the Existing Credit Agreement and the use of net proceeds
from the Offering and available cash to repay $28,440 of outstanding debt
as follows:
<TABLE>
<CAPTION>
PRO
FORMA
-------
<S> <C>
Elimination of interest under the Existing Credit Agreement... $(5,731)
Elimination of penalty on unused Revolving Credit Facility.... (21)
Elimination of interest on note payable....................... (110)
Elimination of amortization of debt issuance costs............ (817)
Interest on debt under the New Credit Agreement:
Revolving credit facility at LIBOR plus a variable margin
based on Adjusted EBITDA and outstanding borrowings (average
rate of 6.78% on an assumed average balance of $35,900)..... 2,434
Interest on unutilized revolving credit facility commitment
(average rate of .37% on an assumed average unused balance
of $34,100)................................................. 126
Annual Syndicate Fee......................................... 50
Amortization of deferred financing fees related to the New
Credit Agreement ($950 over five years)..................... 190
-------
Net decrease in pro forma interest expense.................... $(3,879)
=======
</TABLE>
The above calculation assumes an average rate of 6.78% for fiscal 1997
based on historical Adjusted EBITDA and average borrowing levels. At the
consummation of the Offering, the Company expects the interest rate under
the New Credit Agreement to be LIBOR plus 0.875% (6.51%, assuming a 5.63%
LIBOR rate). See "Use of Proceeds."
(c) Reflects the increase in the provision for income taxes resulting from the
pro forma adjustments to pro forma income before provision for income
taxes, applying an estimated effective tax rate of 39.5%.
(d) Pro forma net income per share is computed using historical net income and
10,785,333 common and common equivalent shares outstanding after giving
effect to the Reclassification through which (i) 102,000 outstanding
shares of Class P Common Stock will be reclassified into 129,929 shares of
Common Stock using a factor of 1.2738 shares of Common Stock to one share
of Class P Common Stock, outstanding warrants to purchase 12,994 shares of
Class A Non-Voting Common Stock will be reclassified into warrants to
purchase 15,324 shares of Common Stock using a factor of 1.1793 shares of
Common Stock to one share of Class A Non-Voting Common Stock, 84,309
outstanding shares of Non-Voting Common Stock will be reclassified in
84,309 shares of Common Stock, and warrants to purchase 116,949 shares of
Non-Voting Common Stock will be reclassified into warrants to purchase
116,949 shares of Common Stock; and, after giving effect to the foregoing,
(ii) a 7.5291-for-one stock split will be effected as to all 1,240,238 of
the outstanding shares of Common Stock and 192,248 of the outstanding
common equivalent shares. Common equivalent shares consist of the
Company's Common Stock issuable upon the exercise of stock options and
warrants (using the treasury stock method). In addition, in accordance
with the Securities and Exchange Commissions's Staff Accounting Bulletin
No. 83, shares issued and stock options granted within one year of the
Offering have been included in the calculation of weighted average shares
outstanding as if they were outstanding from inception of the Company
(using the treasury stock method and an assumed initial public offering
price for shares sold in the offering of $15.00 per share).
Supplemental net income per share is determined in the same manner as that
used to determine pro forma net income per share, except the pro forma
weighted average number of common and common equivalent shares which the
Company estimates will be outstanding after giving effect to the
Reclassification has been increased by 2,000,000, the number of shares of
Common Stock to be issued to generate the proceeds necessary to retire
$26,500 of the Company's borrowings under the Existing Credit Agreement
(assuming an initial public offering price of $15.00 per share, the
midpoint of the estimated price range of the Offering), and historical net
income has been increased by $2,360 related to the elimination of interest
resulting from the assumed reduction of $26,500 of indebtedness, net of tax
of $932.
Pro forma as adjusted net income per share is determined using pro forma
net income and common and common equivalent shares considered to be
outstanding after giving effect to the Reclassification and the Offering
(at an assumed initial public offering price of $15.00 per share).
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................... $ 4,415 $ (4,415)(a) $ --
Accounts receivable, net.................. 8,001 -- 8,001
Inventories, net.......................... 20,753 -- 20,753
Prepaid expenses and other assets......... 1,018 2,437 (b) 3,455
Deferred income taxes..................... 897 -- 897
------- -------- -------
Total current assets.................... 35,084 (1,978) 33,106
Property plant and equipment, net........... 10,711 -- 10,711
Other assets, net........................... 44,315 (1,134)(c) 43,181
------- -------- -------
$90,110 $ (3,112) $86,998
======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......... $ 7,085 $ (7,085)(a) $ --
Current portion of capital lease
obligations.............................. 181 -- 181
Accounts payable.......................... 6,932 -- 6,932
Accrued expenses.......................... 5,270 -- 5,270
------- -------- -------
Total current liabilities............... 19,468 (7,085) 12,383
Long-term debt.............................. 52,860 (18,795)(a) 34,065
Capital lease obligations................... 133 -- 133
Deferred income taxes, net.................. 1,295 -- 1,295
------- -------- -------
Total liabilities....................... 73,756 (25,880) 47,876
------- -------- -------
Stockholders' equity:
Preferred Stock........................... -- -- --
Class P Common Stock...................... 1 (1) --
Common Stock.............................. 11 104 115
Additional paid-in capital................ 9,690 26,397 (a) 36,087
Subscriptions receivable.................. (55) -- (55)
Retained earnings......................... 6,707 (3,732)(d) 2,975
------- -------- -------
Total stockholders' equity.............. 16,354 22,768 39,122
------- -------- -------
$90,110 $ (3,112) $86,998
======= ======== =======
</TABLE>
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Unaudited Pro Forma Consolidated Balance Sheet gives effect to the
following unaudited pro forma adjustments:
(a) Reflects the net proceeds to the Company from the Offering of $26,500 and
the use of such proceeds to repay outstanding debt. Also reflects the
estimated use of available cash to pay (i) an additional $1,940 of
outstanding debt for a total debt reduction of $28,440, net of the
elimination of the unamortized discount on the Term B Loan of $2,560, (ii)
fees of $1,000 in connection with the termination of the Restated Advisory
Agreement and for services rendered in connection with the Offering, (iii)
$525 of prepayment penalties on the Term B Loan resulting from the
refinancing of the debt outstanding under the Existing Credit Agreement
and (iv) $950 in loan origination and other fees in conjunction with the
establishment of the New Credit Agreement.
(b) Reflects the increase in the income tax receivable arising from the
respective tax benefits (each computed using an effective rate of 39.5%)
of (i) fees paid to terminate the Restated Advisory Agreement and for
services rendered in connection with the Offering of $1,000 and (ii) the
extraordinary loss on early extinguishment of debt related to prepayment
penalties on the Term B Loan of $525 and the write-off of debt issuance
costs and the unamortized discount on the Term B Loan totaling $4,644 in
connection with the refinancing of the debt outstanding under the Existing
Credit Agreement.
(c) Reflects the decrease in deferred financing fees of $2,084 in connection
with the refinancing of the debt outstanding under the Existing Credit
Agreement, offset by $950 of estimated loan origination and other fees in
connection with the establishment of the New Credit Agreement.
(d) Reflects the retained earnings impact, net of the respective tax benefits
(each computed using an effective rate of 39.5%), of (i) fees paid to
terminate the Restated Advisory Agreement and for services rendered in
connection with the Offering of $1,000 and (ii) the extraordinary loss on
early extinguishment of debt related to prepayment penalties on the Term B
Loan of $525 and the write-off of debt issuance costs and unamortized
discount on the Term B Loan totaling $4,644 in connection with the
refinancing of the debt outstanding under the Existing Credit Agreement.
24
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are selected historical consolidated financial data of the
Company and the Predecessor for the periods and dates indicated. The selected
historical consolidated financial data for the year ended September 30, 1993
were derived from the audited financial statements of the Predecessor. Data
for the period from October 1 through October 27, 1993 are not audited. The
selected historical consolidated financial data as of and for the years ended
September 30, 1994, 1995, 1996 and 1997 were derived from the audited
financial statements of the Company. The following selected historical
consolidated financial data should be read in conjunction with, and are
qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited consolidated financial
statements and accompanying notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(A)
------------------------- ----------------------------------
OCTOBER 1
YEAR ENDED THROUGH YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, OCTOBER 27, ----------------------------------
1993 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $20,541 $2,012 $26,083 $62,932 $83,923 $98,096
Cost of sales........... 11,102 1,012 13,410 35,885 45,099 52,277
------- ------ ------- ------- ------- -------
Gross profit........... 9,439 1,000 12,673 27,047 38,824 45,819
Operating expenses:
Selling, general and
administrative........ 7,486 658 8,303 21,409 27,608 29,179
Amortization of
intangibles........... -- -- 394 1,059 1,483 1,346
One-time payment to
executive officer..... -- -- -- -- -- 1,700
------- ------ ------- ------- ------- -------
Income from operations.. 1,953 342 3,976 4,579 9,733 13,594
Interest expense, net... 116 (16) 1,820 4,478 7,126 6,572
------- ------ ------- ------- ------- -------
Income before provision
for income taxes....... 1,837 358 2,156 101 2,607 7,022
Provision for income
taxes.................. 673 134 848 23 1,056 2,774
------- ------ ------- ------- ------- -------
Net income before
extraordinary loss..... 1,164 224 1,308 78 1,551 4,248
Extraordinary loss on
early extinguishment of
debt, net of tax....... -- -- -- (478) -- --
------- ------ ------- ------- ------- -------
Net income (loss)....... $ 1,164 $ 224 $ 1,308 $ (400) $ 1,551 $ 4,248
======= ====== ======= ======= ======= =======
Pro forma net income per
share(b)............... $ 0.39
Pro forma weighted
average shares
outstanding(b)......... 10,785
Supplemental pro forma
net income per
share(b)............... $ 0.44
Supplemental pro forma
weighted average shares
outstanding(b)......... 12,785
OTHER FINANCIAL DATA:
Adjusted EBITDA(c)...... $ 2,188 $ 364 $ 5,724 $11,831 $13,118 $19,563
Capital expenditures
(excluding
acquisitions).......... 217 13 452 2,837 5,498 3,652
Cash flows provided by
(used in):
Operating activities... 1,286 194 1,958 (64) 4,559 9,363
Investing activities... (214) (13) (10,065) (49,155) (5,498) (3,652)
Financing activities... (802) (168) 8,341 49,645 2,600 (3,617)
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents............ $ 278 $ 291 $ 234 $ 660 $ 2,321 $ 4,415
Working capital......... 2,350 2,416 2,814 17,165 19,727 15,616
Total assets............ 6,422 6,465 16,076 83,498 84,755 90,110
Total debt(d)........... 849 662 8,769 60,881 63,657 60,259
Stockholders' equity.... 2,970 3,194 3,738 10,512 12,091 16,354
</TABLE>
- ---------------------
(a) The Company's audited financial statements for the year ended September
30, 1994 primarily reflect operations after October 27, 1993, the date of
the Solaray Acquisition. The Company's operations prior to such date were
immaterial. The Solaray Acquisition was accounted for as a purchase,
resulting in a new accounting basis for the Predecessor's assets. As a
result, financial information for the periods prior to October 28, 1993 is
not directly comparable to information for subsequent periods.
25
<PAGE>
(b) Gives effect to the Reclassification. Historical earnings per common share
amounts are not presented as they are not considered to be meaningful. Net
income per share was determined by dividing the net income by the weighted
average number of common and common stock equivalent shares which the
Company estimates will be outstanding after giving effect to the
Reclassification. Common stock equivalents consist of the Company's Common
Stock issuable upon the exercise of stock options and warrants (using the
treasury stock method). In addition, in accordance with the Securities and
Exchange Commissions' Staff Accounting Bulletin No. 83, shares issued and
stock options granted within one year of the Offering have been included
in the calculation of weighted average shares outstanding as if they were
outstanding from inception of the Company (using the treasury stock method
and an assumed initial public offering price for the shares sold in the
Offering of $15.00 per share). Supplemental net income per share was
determined in the same manner as that used to determine pro forma net
income per share, except the pro forma weighted average number of common
and common equivalent shares which the Company estimates will be
outstanding after giving effect to the Reclassification was increased by
the number of shares of common stock (2,000,000) to be issued to generate
the proceeds necessary to retire $26,500 of the Company's borrowings under
the Existing Credit Agreement (assuming an initial public offering price
of $15.00 per share, the midpoint of the estimated price range of the
Offering), and historical net income was increased by $2,360 related to
the elimination of interest resulting from the assumed reduction of
$26,500 of indebtedness, net of tax of $932.
(c) "Adjusted EBITDA" is defined herein as net income before extraordinary
loss plus provision for income taxes, net interest expense, depreciation
and amortization and other non-recurring items. Management believes that
Adjusted EBITDA, as presented, represents a useful measure of assessing
the performance of the Company's ongoing operating activities as it
reflects the earnings trends of the Company without the impact of the
purchase accounting applied in connection with the Company's history of
acquisitions, the financing required to consummate such transactions or
other non-recurring items. Targets and positive trends in Adjusted EBITDA
are used as the performance measure for determining management's bonus
compensation, and are also used by the Company's creditors in assessing
debt covenant compliance. The Company understands that while Adjusted
EBITDA is frequently used by securities analysts in the evaluation of
nutritional supplement companies, it is not necessarily comparable to
other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation. Adjusted EBITDA is not
intended as an alternative to cash flow from operating activities as a
measure of liquidity or as an alternative to net income as an indicator of
the Company's operating performance or any other measure of performance in
accordance with generally accepted accounting principles.
The following table sets forth a reconciliation of net income from
operations before extraordinary loss to Adjusted EBITDA for each period
included herein:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------- ------------------------------
OCTOBER 1
YEAR ENDED THROUGH YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, OCTOBER 27, ------------------------------
1993 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Net income before
extraordinary loss..... $1,164 $224 $1,308 $ 78 $ 1,551 $ 4,248
Provision for income
taxes.................. 673 134 848 23 1,056 2,774
Interest expense
(income), net (1)...... 116 (16) 1,820 4,478 7,126 6,572
Depreciation and
amortization (2)....... 235 22 1,561 6,983 3,085 3,969
Certain non-recurring
items (3).............. -- -- 187 269 300 300
One-time payment to
executive officer(4)... -- -- -- -- -- 1,700
------ ---- ------ ------- ------- -------
Adjusted EBITDA......... $2,188 $364 $5,724 $11,831 $13,118 $19,563
====== ==== ====== ======= ======= =======
</TABLE>
--------
(1) Includes amortization of capitalized debt issuance costs.
(2) Includes non-recurring amortization of inventory write up.
(3) Represents management fees paid to Bain Capital and F.W. Gay & Sons
pursuant to the Restated Advisory Agreement, which will be terminated
in connection with the Offering. The Company does not expect to incur
such recurring management fees following the Offering. See "Certain
Relationships and Related Transactions."
(4) Reflects a one-time payment to the Company's Chief Executive Officer
for successfully positioning the Company for the Offering. Such payment
is in excess of the Chief Executive Officer's annual compensation
(salary and bonus), and the Company does not expect to make any further
payments of this nature or magnitude in the future.
(d) Total debt for the Company is presented net of unamortized debt issuance
discount.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
audited consolidated financial statements and accompanying notes thereto
included elsewhere in this Prospectus.
OVERVIEW
The Company was formed in 1993 by key members of the current management team
and Bain Capital to effect a consolidation strategy in the fragmented VMS
Industry. The Company purchased Solaray in October 1993 with a view toward
using it as a platform for future acquisitions of businesses in the VMS
Industry. In fiscal 1995, the Company completed three additional significant
acquisitions, the Premier Acquisition in October 1994, the KAL/Max Acquisition
in January 1995 and the Monarch Acquisition in September 1995, collectively
referred to as the "Fiscal 1995 Acquisitions."
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1996 1997
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of sales............................... 57.0 53.7 53.3
-------- -------- --------
Gross profit................................ 43.0 46.3 46.7
Selling, general and administrative ........ 34.0 32.9 29.7
Amortization of intangibles................. 1.7 1.8 1.4
One-time payment to executive officer....... -- -- 1.7
-------- -------- --------
Income from operations...................... 7.3 11.6 13.9
Interest expense, net....................... 7.1 8.5 6.7
-------- -------- --------
Income before provision for income taxes.... 0.2 3.1 7.2
Provision for income taxes.................. 0.0 1.3 2.8
-------- -------- --------
Net income from operations before
extraordinary loss......................... 0.2 1.8 4.4
Extraordinary loss on early extinguishment
of debt, net of tax........................ (0.8) -- --
-------- -------- --------
Net income (loss)........................... (0.6)% 1.8% 4.4%
======== ======== ========
</TABLE>
COMPARISON OF FISCAL 1997 TO FISCAL 1996
Net Sales. Net sales increased by $14.2 million, or 16.9%, to $98.1 million
for fiscal 1997 from $83.9 million for fiscal 1996. The increase in net sales
was primarily the result of increased sales volume and, to a lesser extent,
minimal increases in the prices of the Company's products. The Company
believes that the increased volume was primarily attributable to industry
growth as well as to the success of the Company's new growth-based incentive
compensation structure for independent sales representatives and the success
of new product introductions.
Gross Profit. Gross profit increased by $7.0 million, or 18.0%, to $45.8
million for fiscal 1997 from $38.8 million for fiscal 1996. This increase in
gross profit was primarily attributable to growth in sales volume. As a
percentage of net sales, gross profit increased to 46.7% for fiscal 1997 from
46.3% for fiscal 1996. This increase in gross profit as a percentage of net
sales was primarily attributable to decreased material costs associated with
new vendor sourcing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.6 million, or 5.7%, to $29.2 million
for fiscal 1997 from $27.6 million for fiscal 1996. As a percentage of net
sales, selling, general and administrative expenses decreased to 29.7% for
fiscal 1997 from 32.9% for fiscal 1996. This decrease in selling, general and
administrative expenses as a percentage of net sales was primarily
attributable to the Company's efforts to implement new incentive and cost
control programs.
27
<PAGE>
Amortization of Intangibles. Amortization of intangibles decreased by $0.2
million, or 9.2%, to $1.3 million for fiscal 1997 from $1.5 million for fiscal
1996. As a percentage of net sales, amortization of intangibles decreased to
1.4% for fiscal 1997 from 1.8% for fiscal 1996. This decrease in amortization
of intangibles was primarily attributable to the use of the declining balance
method of amortization associated with certain non-compete covenants arising
from the Fiscal 1995 Acquisitions.
One-Time Payment to Executive Officer. One-time payment to executive officer
of $1.7 million for fiscal 1997 represents a payment to the Company's Chief
Executive Officer for successfully positioning the Company for the Offering.
Interest Expense, Net. Interest expense decreased by $0.5 million, or 7.8%,
to $6.6 million for fiscal 1997 from $7.1 million for fiscal 1996. As a
percentage of net sales, interest expense decreased to 6.7% for fiscal 1997
from 8.5% for fiscal 1996. This decrease in interest expense was primarily
attributable to decreased indebtedness associated with the Revolving Credit
Facility.
Provision for Income Taxes. The Company's effective tax rate decreased to
39.5% for fiscal 1997 from 40.5% for fiscal 1996. In each fiscal year, the
effective tax rate is higher than statutory rates primarily due to the non-
deductibility for tax purposes of goodwill amortization arising from the
Solaray Acquisition. The impact of Solaray goodwill on the effective tax rate
for 1997 decreased compared to fiscal 1996 as a result of the Company's higher
income before provision for taxes.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Net Sales. Net sales increased by $21.0 million, or 33.4%, to $83.9 million
for fiscal 1996 from $62.9 million for fiscal 1995. The increase in net sales
was primarily the result of increased sales volume. The Company believes that
the increased volume was primarily attributable to the Fiscal 1995
Acquisitions as well as to industry growth and the success of new product
introductions.
Gross Profit. Gross profit increased by $11.8 million, or 43.5%, to $38.8
million for fiscal 1996 from $27.0 million for fiscal 1995. This increase in
gross profit was primarily attributable to growth in sales volume. As a
percentage of net sales, gross profit increased to 46.3% for fiscal 1996 from
43.0% for fiscal 1995. This increase in gross profit as a percentage of net
sales was primarily attributable to the negative impact on fiscal 1995 gross
profit of the one-time step-up in inventory value related to the Solaray and
Premier acquisitions, offset somewhat by a shift in sales mix attributable to
the Fiscal 1995 Acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $6.2 million, or 29.0%, to $27.6 million
for fiscal 1996 from $21.4 million for fiscal 1995. As a percentage of net
sales, selling, general and administrative expenses decreased to 32.9% for
fiscal 1996 from 34.0% for fiscal 1995. This decrease in selling, general and
administrative expenses as a percentage of net sales was primarily
attributable to the Company's efforts related to the consolidation of the
Fiscal 1995 Acquisitions.
Amortization of Intangibles. Amortization of intangibles increased by $0.4
million, or 40.0%, to $1.5 million for fiscal 1996 from $1.1 million for
fiscal 1995. As a percentage of net sales, amortization of intangibles
increased to 1.8% for fiscal 1996 from 1.7% for fiscal 1995. This increase in
amortization of intangibles was primarily attributable to the Fiscal 1995
Acquisitions. During fiscal 1996, twelve months of amortization expense
related to these acquisitions was incurred compared to less than twelve months
for fiscal 1995.
Interest Expense, Net. Interest expense increased by $2.6 million, or 59.1%,
to $7.1 million for fiscal 1996 from $4.5 million for fiscal 1995. As a
percentage of net sales, interest expense increased to 8.5% for fiscal 1996
from 7.1% for fiscal 1995. This increase in interest expense was primarily
attributable to increased term debt arising from the Fiscal 1995 Acquisitions.
During fiscal 1996, twelve months of interest expense related to this debt was
incurred compared to less than twelve months for fiscal 1995. The Company also
incurred increased interest expense for additional borrowings under the
Revolving Credit Facility used to finance the Monarch Acquisition and the
Company's operating needs.
28
<PAGE>
Provision for Income Taxes. The Company's effective tax rate was 40.5% for
fiscal 1996 as compared to a benefit rate of 22.5% for fiscal 1995. In each
fiscal year, the effective tax rate varied from the statutory rate primarily
due to the non-deductibility for tax purposes of amortization arising from the
Solaray Acquisition.
Extraordinary Loss on Early Extinguishment of Debt. An extraordinary loss on
early extinguishment of debt of $0.5 million, net of tax, was recognized in
fiscal 1995. This loss was incurred in connection with the Fiscal 1995
Acquisitions when new financing under the Existing Credit Agreement was used
to extinguish previous debt arising from the Solaray Acquisition.
SEASONALITY
The Company believes that its business is characterized by minor
seasonality. Historically, the Company has recorded higher sales volume during
the second and third quarters due to increased interest in health-related
products among consumers following the holiday season and in anticipation of
the summer months. The Company does not believe that the impact of seasonality
on its results of operations is material. In addition, the Company's sales of
premium bulk formulations are characterized by periodic shipments to certain
customers and can vary from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended September 30, 1997, net cash provided by (used in)
operations was $9.4 million compared to $4.6 million for the year ended
September 30, 1996 and $(0.1 million) for the year ended September 30, 1995.
The increase in fiscal 1997 was primarily attributable to higher net income
and reflects higher levels of accounts payable and deferred income taxes,
offset by higher accounts receivable and inventory balances arising from
higher sales volume. The increase in fiscal 1996 from fiscal 1995 was
primarily attributable to higher net income and reflects a lower level of
accounts receivable combined with a higher level of deferred income taxes,
offset by lower levels of accounts payable and accrued expenses and a higher
level of inventory.
Net cash used in investing activities was $3.7 million, $5.5 million and
$49.2 million for the years ended September 30, 1997, 1996 and 1995,
respectively. The Company's investing activities consist primarily of
acquisitions and, to a lesser extent, costs associated with capital
expenditures. The higher level of cash used in investing activities for fiscal
1995 reflects the Company's purchase of net assets related to the Fiscal 1995
Acquisitions. Capital expenditures during fiscal 1997 and fiscal 1996 related
primarily to manufacturing equipment and information systems required to
expand capacity and improve overall operating efficiency. The Company
anticipates additional capital expenditures during fiscal 1998 of
approximately $4.0 million to purchase additional manufacturing equipment and
information systems in connection with the Company's consolidation of the
existing facilities into the new facility. The Company intends to finance
these anticipated capital expenditures through internally generated cash flow
and, if necessary, through funds provided under the Existing Credit Agreement
or the New Credit Agreement.
Net cash provided by (used in) financing activities was $(3.6) million, $2.6
million and $49.6 million for the years ended September 30, 1997, 1996 and
1995, respectively. The Company's financing activities consist primarily of
the borrowings incurred in connection with the Fiscal 1995 Acquisitions and,
to a lesser extent, borrowings and repayments on the Revolving Credit Facility
related to operating needs.
The Existing Credit Agreement currently consists of three components: the
Term A Loan, the Term B Loan and the Revolving Credit Facility. The Company
had borrowings of $37.0 million, $15.0 million (before unamortized discount of
$2.6 million) and $9.2 million outstanding under the Term A Loan, the Term B
Loan and the Revolving Credit Facility, respectively, at September 30, 1997.
The Revolving Credit Facility permits the Company to make borrowings in a
principal amount not to exceed $15.0 million at any time outstanding. The
Revolving Credit Facility is to be repaid not later than January 31, 2003. The
Term A Loan is required to be repaid in quarterly installments beginning April
30, 1998 with final maturity of January 31, 2003. The Term B Loan is to be
repaid not later than January 31, 2004.
Borrowings under the Existing Credit Agreement for the Revolving Credit
Facility may, at the Company's option, bear interest at either LIBOR plus
3.00% or the lenders base rate plus 1.50%. With respect to borrowings under
the Term A Loan, the Company may select either LIBOR plus 3.25% or the
lender's base rate plus 1.75%. For the Term B Loan, the Company may select
either LIBOR plus 4.00% or the lender's base rate plus 2.50%.
29
<PAGE>
Borrowings under the Existing Credit Agreement are secured by a perfected
first priority security interest in substantially all of the assets of the
Company and its subsidiaries. The Existing Credit Agreement contains
restrictive covenants, including restrictions on the incurrence of other
indebtedness, limitations on capital expenditures, requirements that the
Company maintain a minimum level of consolidated net worth, a minimum ratio of
cash flow to fixed charges, a minimum level of Adjusted EBITDA, and a maximum
ratio of debt to Adjusted EBITDA. Upon the occurrence of an event of default
under the Existing Credit Agreement, the lender may require the Company to
repay all amounts borrowed thereunder and may proceed against the collateral.
The Existing Credit Agreement also restricts the Company's ability to make
certain payments, including the payment of dividends on its Common Stock and
payments with respect to certain capital expenditures, without the approval of
its lenders.
The Company has negotiated a commitment letter with respect to the proposed
execution of the New Credit Agreement, with which it expects to refinance its
existing indebtedness under the Existing Credit Agreement in connection with
the Offering. The Company expects that the New Credit Agreement will provide
for revolving credit borrowings of up to $70.0 million and have a scheduled
maturity in 2003. Borrowings under the New Credit Agreement are expected to
bear interest at rates equal to LIBOR plus a margin ranging from 0.5% to 2.0%,
based on the Company's then-current leverage ratio. At the consummation of the
Offering, the Company expects the interest rate under the New Credit Agreement
to be LIBOR plus 0.875%. The New Credit Agreement is also expected to provide
for alternate rates based upon prime. The Company anticipates that the New
Credit Agreement will be secured by substantially all of the assets of the
Company and generally will contain restrictive covenants, financial tests and
events of default similar to those in the Existing Credit Agreement. To date,
no definitive agreements have been executed and, as a result, no assurance can
be given that the New Credit Agreement will be executed on such terms or
entered into at all. In the event the Company does not renegotiate, amend or
replace the Existing Credit Agreement prior to the consummation of the
Offering, net proceeds of the Offering will be used to repay $26.5 million of
the outstanding indebtedness under the Term A Loan.
A key component of the Company's business strategy is to seek to make
additional acquisitions, which will likely require that the Company obtain
additional financing, which could include the incurrence of substantial
additional indebtedness. The Company believes that following the Offering,
based on current levels of operations and anticipated growth, borrowings under
the Existing Credit Agreement or a replacement credit facility, together with
cash flow from operations, will be sufficient to make required payments under
the Existing Credit Agreement or any such replacement facility, make its
anticipated capital expenditures and fund working capital needs for fiscal
1998.
INFLATION
Inflation affects the cost of raw materials, goods and services used by the
Company. In recent years, inflation has been modest. The competitive
environment somewhat limits the ability of the Company to recover higher costs
resulting from inflation by raising prices. Overall product prices have
generally been stable and the Company seeks to mitigate the adverse effects of
inflation primarily through improved productivity and cost containment
programs. The Company does not believe that inflation has had a material
impact on its results of operations for the periods presented.
30
<PAGE>
BUSINESS
GENERAL
Nutraceutical is one of the nation's largest manufacturers and marketers of
quality branded nutritional supplements sold to health food stores. The
Company sells its branded products under the widely recognized Solaray, KAL,
NaturalMax, VegLife, Premier One and Solar Green brand names directly and
exclusively to health food stores in the United States and internationally
primarily to distributors and retailers. In addition to branded products, the
Company manufactures premium bulk formulations for sale to other manufacturers
and marketers in the nutritional supplement industry. Since its formation in
1993, the Company has achieved rapid growth, both internally and through
acquisitions, with net sales increasing at a 47.8% compound annual rate, from
$20.5 million in fiscal 1993 to $98.1 million in fiscal 1997. During this
period, Adjusted EBITDA (as defined herein) increased at a compound annual
rate of 72.9%, from $2.2 million to $19.6 million.
The Company's strategy of selling its branded products directly and
exclusively to the approximately 9,700 stores in the Healthy Foods Channel has
enabled it to benefit from the rapid growth of the Healthy Foods Channel. The
Company believes that it is among the largest suppliers of nutritional
supplements to the Healthy Foods Channel that develops, manufactures, markets
and directly distributes a majority of its own products. The Company offers
one of the broadest branded product lines in the industry with approximately
800 products and 1,400 SKUs, including approximately 200 SKUs exclusively sold
internationally. None of the Company's products represented more than 2% of
fiscal 1997 net sales. The Company markets its branded products through the
industry's largest sales force dedicated to the Healthy Foods Channel. The
Company seeks to be the market leader in the development of new and innovative
products, introducing 172 new SKUs (including 147 new formulations) in fiscal
1997. The Company manufactured over 90% of its products in fiscal 1997 and
believes that the quality of its products is among the highest in the
industry.
The VMS Market is highly fragmented and rapidly growing, generating $6.5
billion in 1996 sales, as compared to $5.0 billion in 1994. The Company
believes that this rapid growth is due to a number of factors, including (i)
increased interest in healthier lifestyles, (ii) the publication of research
findings supporting the positive health effects of certain nutritional
supplements and (iii) the aging of the "Baby Boom" generation combined with
the tendency of consumers to purchase more nutritional supplements as they
age.
The Healthy Foods Channel consists of approximately 9,700 retailers
including (i) independent health food stores, (ii) health food stores
affiliated with local, regional and national health food chains (including
healthy food supermarket chains, such as Whole Foods Market and Wild Oats
Markets) and (iii) GNC stores. The Company believes that the Healthy Foods
Channel will continue to experience strong growth based on the continued
expansion of independent health food stores and local, regional and national
health food chains in response to strong demand from consumers who desire
product education, service and high quality natural ingredients. The Company
believes there are significant differences between mass market retailers (such
as drugstores, warehouse clubs and supermarkets), which typically offer a
limited selection of discounted and lower potency items, and the Healthy Foods
Channel, where natural ingredients, quality, potency, selection and customer
support are more important. The Company benefits from substantially greater
customer diversification than most of its larger competitors, with no single
customer representing more than 5.5% of fiscal 1997 net sales.
The Company believes it is well positioned to capitalize on the growth of
the VMS Market and the Healthy Foods Channel. According to the Packaged Facts
Report:
. The VMS Market grew at a 14.2% compound annual rate from 1994 to 1996
and is projected to grow at a 13.6% compound annual rate from 1996 to
2001, to $12.3 billion;
. The Healthy Foods Channel generated $2.5 billion of retail sales in
1996, or 38.2% of the total VMS Market, representing the largest single
channel;
. The Healthy Foods Channel has been growing faster than the total VMS
Market, achieving a 16.7% compound annual growth rate from 1994 to 1996;
and
31
<PAGE>
. Sales of supplements (as defined in the Packaged Facts Report) in the
VMS Market grew at a 35.6% compound annual rate from 1994 to 1996 and
are expected to grow at a 25.0% compound annual rate from 1996 to 2001.
Sales of supplements, the fastest growing segment of the VMS Market,
represented 61.7% of the Company's fiscal 1997 net sales of branded
products, as compared to 35.2% of the total VMS Market.
The Company was formed in 1993 by senior management and Bain Capital to
effect a consolidation strategy in the highly fragmented VMS Industry, which
consists of over 400 manufacturers and marketers domestically. Since its
formation, the Company has successfully completed four acquisitions, including
Solaray, Premier One, KAL and Monarch. As a result of these acquisitions and
internal growth, the Company has achieved rapid growth in net sales and
operating income. Management believes that the Company is well positioned to
continue to capitalize on the consolidation occurring in the VMS Industry. To
increase the Company's operating efficiency and provide capacity for
additional expansion, the Company is in the process of negotiating a lease for
a 250,000 square foot facility into which the Company intends to consolidate
seven of its current facilities.
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a leader in supplying
quality branded products to the Healthy Foods Channel while continuing to
generate rapid growth in sales and profitability. Unlike many of its
competitors, the Company has chosen to focus exclusively on the Healthy Foods
Channel. Specifically, the Company seeks to:
. INCREASE MARKET SHARE IN THE RAPIDLY GROWING HEALTHY FOODS CHANNEL. The
Company's strategy is to increase its share in the rapidly growing
Healthy Foods Channel by (i) continuing to emphasize exclusive sales of
its existing branded products to the Healthy Foods Channel, (ii)
utilizing multiple brands and (iii) expanding its salesforce and its
geographic coverage:
--Exclusivity to the Healthy Foods Channel. The Company believes that
retailers in the Healthy Foods Channel favor brands that are sold
exclusively to the Healthy Foods Channel (i.e., that are not available
through mass marketers) and that, as a result, retailers will continue
to allocate additional shelf space to the Company's products.
--Multiple Brand Strategy. The Company currently markets its products
through a multiple brand strategy that the Company believes has been
successful in encouraging retailers to allocate additional shelf space
to the Company's brands. The Company intends to continue expanding its
brands by extending existing product lines and developing new product
lines. See "--Products."
--Largest Sales Force Targeting the Healthy Foods Channel. The Company
markets its products through a substantially larger direct sales force
dedicated to the Healthy Foods Channel than that of any competitor.
The Company currently anticipates adding additional individuals to its
sales force to increase its sales efforts in certain highly populated
areas that are currently underpenetrated by the Company. In
particular, the Company seeks to increase its presence in the
Northeast and Mid-Atlantic states including such markets as New York
City, Long Island, Boston, Philadelphia and Washington D.C. In 1997,
the Company implemented a new payment structure for its sales force
that provides additional incentives for sales growth.
. CONTINUE TO MAKE STRATEGIC ACQUISITIONS. The Company was founded in 1993
to effect a consolidation strategy in the fragmented VMS Industry. The
Company plans to continue to capitalize on the significant opportunities
for consolidation available in the VMS Industry. To date, the Company
has successfully completed four acquisitions and will seek additional
acquisitions that serve to expand the Company's brand names, broaden its
product offerings or facilitate entry into complementary distribution
channels.
32
<PAGE>
. CONTINUE TO DEVELOP NEW PRODUCTS AND PRODUCT EXTENSIONS. The Company is
a market leader in the development of new and innovative products.
During fiscal 1997, the Company introduced 147 new formulations of
branded products compared to 46 in fiscal 1996. Branded products
introduced in 1996 and 1997 represented 16.8% of fiscal 1997 net sales
of branded products. The Company plans to continue developing new
products as a significant element of its future growth.
. CAPITALIZE ON STRONG INTERNATIONAL GROWTH. The Company believes that
international sales represent a significant growth opportunity.
Currently, the Company markets its products in over 30 countries,
principally through international distributors. Net sales by Au Naturel,
Inc., the Company's international subsidiary, grew 21.4% from 1996 to
1997 and represented 6.5% of the Company's fiscal 1997 net sales. The
Company plans to continue to aggressively pursue international sales by
adding additional salespeople, expanding its distribution and retailer
network in high growth regions and continuing its efforts to register
products and trademarks in attractive foreign markets.
The Company's implementation of the foregoing business strategy is subject
to a number of risks and may cause the Company to incur additional expenses in
future periods. See "Risk Factors--Risks Associated with Implementation of
Business Strategy," "--Risks Associated with Acquisitions" and "--Risks
Associated with International Markets."
PRODUCTS
The Company currently sells approximately 800 different branded products and
1,400 SKUs, including approximately 200 SKUs exclusively sold internationally.
The Company's products generally fall into one of three categories: (i)
supplements, (ii) vitamins and minerals and (iii) diet, energy and other,
representing approximately 820, 510 and 70 SKUs, respectively. The Company's
products come in various formulations and delivery forms, including tablets,
capsules, softgels, liquids, powders and whole herbs. Many of the Company's
products are marketed under two or more brand names. For example, saw palmetto
berry and coenzyme Q-10 are both sold through the KAL and Solaray product
lines, as are many of the Company's other popular items such as gingko biloba,
various minerals, single vitamins and digestive supplements. The Company's
most popular products include the following: CranActin, Echinacea, Gingko
Biloba, Pygeum/Saw Palmetto, Royal Jelly, St. John's Wort, Super DietMax and
multivitamin/mineral formulas, such as Spectro.
The Company currently markets its products through a multiple brand strategy
that the Company believes has been successful in encouraging retailers to
allocate additional shelf space to the Company's brands. The Company has
enhanced the strength of all of its brands since their respective acquisitions
by (i) consolidating sales forces and increasing the brands' geographic
coverage through an expanded sales force, (ii) instituting performance and
growth based incentives for brand managers and sales representatives, (iii)
introducing more sophisticated management information systems and (iv)
updating the brand's packaging.
The Company's portfolio of established brand names consists of the
following:
Solaray. Solaray began manufacturing and selling herbal products in 1973,
originally as a pioneer in formulating and marketing blended herbal products,
which contain two or more herbs with complementary effects. From its
inception, Solaray focused on encapsulated products, which offer rapid
disintegration and are easy to swallow, and for over ten years has sold its
products through independent sales representatives to the Healthy Foods
Channel. By 1984, Solaray had become a full line manufacturer, carrying not
only herbs, but also a full line of vitamins and minerals. Solaray has become
one of the most popular and well-known brands of nutritional supplements in
the Healthy Foods Channel, and has developed a reputation for quality,
consistency and innovation. Three of the most popular products developed by
Solaray include (i) Spectro, considered by many to be the premier
multivitamin/mineral supplement, (ii) CranActin, which the Company believes is
the
33
<PAGE>
best-selling cranberry supplement in the Healthy Foods Channel, and (iii)
Pygeum/Saw Palmetto, two ingredients intended to help maintain a healthy
prostate. As of September 30, 1997, the Solaray line consisted of 629 SKUs.
Solaray's brand packaging is consistently distinguished by white bottles with
a rainbow of seven colors across the top of the label as a backdrop to the
distinctive Solaray logo.
KAL. The KAL product line was established in Southern California in 1932 as
one of the first nutritional supplement lines in the United States. Although
KAL's first products were in powdered form, KAL soon shifted its focus to
tableted products, which are more economical than capsules as a delivery form
and which allow for fewer units per dose than encapsulated products. KAL has
been a pioneer in the introduction of new and innovative products, as well as
new and unique delivery forms. Among its innovative product introductions was
Beyond Garlic, which remains a popular garlic product in the Healthy Foods
Channel and was the first "enteric coated softgel" garlic product. This unique
delivery form allowed for fresh garlic oil inside of a softgel to pass through
the stomach into the intestine before being digested, thereby virtually
eliminating any potential garlic odor. KAL was also the first nutritional
supplement marketer in the Healthy Foods Channel to introduce pycnogenol and
melatonin. More recently, KAL has been an innovator in introducing lipospray
products, a new delivery form that allows for quick absorption through a
liquid spray. As of September 30, 1997, the KAL line consisted of 593 SKUs.
KAL's brand packaging consists of a white bottle with a red and platinum label
distinguished by a diagonal white stripe, platinum borders and a circular red
and black KAL logo.
NaturalMax. The NaturalMax brand began as a product line of the KAL brand in
approximately 1993, with a focus on diet products (with diet plans) as well as
energy and rest products. The NaturalMax brand uses tablets, softgels,
capsules and liquids, depending on the most desired form for the particular
product. After the KAL/Max Acquisition, the Company established NaturalMax as
a separate brand in order to bring special focus to the NaturalMax product
line. The product line includes such innovative and popular products as Super
DietMax (which recently received the Vity Award as the number one diet product
in the Healthy Foods Channel) and Thin-Thin, a nutritional supplement and diet
plan with natural 5-HTP derived from griffonia beans. As of September 30,
1997, the NaturalMax line consisted of 85 SKUs. The packaging of NaturalMax
products always includes the distinctive NaturalMax logo.
Premier One. The Premier One brand was founded in July 1984 in Omaha,
Nebraska as one of the first product lines devoted entirely to natural,
nutritional supplements derived from bee products. The Premier One brand uses
various delivery forms, each chosen for its particular benefits, including
capsules, chewable wafers, granules, energy bars, tinctures and products in a
honey base. The Company believes that by 1995 the Premier One Royal Jelly
products had become the best-selling royal jelly products in the Healthy Foods
Channel. As of September 30, 1997, the Premier One line consisted of 42 SKUs.
Aside from Royal Jelly in Honey, some of Premier One's other popular products
include Raw Energy, an energy product that includes royal jelly, bee pollen
and a variety of herbs, and Beefense, a popular product which includes bee
propolis and echinacea. Premier One's brand packaging includes a distinctive
logo of a bee harvesting scene in a mountain setting, with gold highlights on
the label.
VegLife. VegLife is relatively new brand which began in 1992 as a product
line under the Solaray brand. The goal was to create a line of products that
would be suitable for strict vegetarians, who will not consume any products
which include any animal-derived ingredients, including gelatin capsules.
VegLife was among the first to introduce a line of nutritional supplements
using a cellulose-based capsule with substantially equivalent characteristics
to traditional gelatin capsules. Vegetarian consumers showed substantial
interest in this product line, and the Company established it as a separate
brand in 1995 in order to allow a management team to focus on the development
of a full line of vegetarian products. This team scrutinizes every element of
each product developed, as well as the materials used in formulation, to
ensure that strict vegetarian standards are met. The VegLife brand focuses
primarily on encapsulated products, but also now includes a popular soy-based
protein drink supplement sold under the trademark Peaceful Planet. As of
September 30, 1997, the VegLife brand
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<PAGE>
included 38 SKUs. VegLife's brand packaging includes a distinctive green and
blue label, as well as a logo with an attractive depiction of a budding plant.
Solar Green. Solar Green was launched in April of 1997 as the Company's
newest brand. The Solar Green brand is focused on chlorophyll-laden "green
foods," such as algaes (including chlorella, spirulina and blue green algae)
and cereal grasses (such as barley and wheat grass). These products are
currently offered in tablet forms. Solar Green also recently introduced three
separate "green food" drink mixes which can be combined with juice or water to
create a nutritious beverage supplement. As of September 30, 1997, the Solar
Green brand included five tableted products and three green drink mixes. Solar
Green's brand packaging includes a distinctive Solar Green logo and a label
with green borders and accents.
SALES AND MARKETING
The Company promotes demand for its products by educating retailers, who in
turn educate consumers, as to the qualities of its natural vitamin, mineral
and herbal nutritional supplements and the wide range of its products. The
Company's branded products are currently sold in the United States exclusively
to retailers in the Healthy Foods Channel, which consists of approximately
9,700 stores, including approximately (i) 5,700 independent health food
stores, (ii) 1,000 health food stores affiliated with local, regional and
national health food chains (including healthy food supermarket chains such as
Whole Foods Market and Wild Oats Markets) and (iii) 3,000 GNC stores. Unlike
many of its competitors, the Company sells its branded products in the United
States exclusively to the Healthy Foods Channel. The Company believes that its
products are attractive to retailers due to factors such as the strength of
its brand names, the quality and potency of its products, service and the
availability of sales support and educational materials regarding the
products.
The Company markets its products through a substantially larger direct sales
force dedicated to the Healthy Foods Channel than that of any competitor. The
Company's 56 independent sales representatives regularly visit each assigned
health food store in their respective territories to provide product sales
assistance. In addition, to service its largest customers, the Company employs
nine key account representatives to provide sales and product support. The
Company's sales force educates retailers regarding the Company's products,
communicates special promotions, monitors inventory levels, performs in-store
demonstrations and assists retailers in other ways to promote sales of the
Company's products. In 1997, the Company implemented a new payment structure
for its sales force that provides additional incentives for sales growth. The
Company believes that this structure has resulted in improved customer service
and increased sales. The Company currently anticipates adding additional
individuals to its sales force to increase its sales efforts in certain highly
populated areas that are currently underpenetrated by the Company. In
particular, the Company seeks to increase its presence in the Northeast and
Mid-Atlantic states including such markets as New York City, Long Island,
Boston, Philadelphia and Washington D.C.
The Company also sells products directly to certain retailers through its
telephone marketing organization. The telephone marketing organization is
generally assigned accounts not covered by a sales representative or the key
accounts department and provides the retailer with information regarding
special promotions or pricing on certain products. The telephone marketing
organization is particularly well-suited for the rapid dissemination of
information regarding new products or programs.
The Company's marketing efforts are focused on educating retailers to enable
them to then educate the ultimate consumer about the Company's products. The
Company sponsors a retailer seminar program, which the Company believes has
made an important contribution to the growth of its brands. These seminars are
held both in Utah and in the field, on a regional and state by state basis.
The Company also sponsors seminars for consumers. Participants receive product
education presentations with background information relating to existing
products and with special emphasis given to new products. The Company's
seminars are designed to foster relationships with the Company's customers in
the Healthy Foods Channel and to increase retailer and consumer awareness of
the Company's products.
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<PAGE>
Au Naturel, Inc. ("Au Naturel") is a wholly-owned subsidiary of the Company
which was formed in fiscal 1995 for the purpose of marketing the Company's
branded products internationally. During fiscal 1997, Au Naturel marketed
products to distributors and customers in approximately 30 foreign countries.
As of September 30, 1997, it had approximately 200 branded formulations labeled
and designed for various foreign customers. Although Au Naturel is not a
product brand, it functions as a separate business unit. Au Naturel markets
standard and unique formulations that must meet specific requirements of
certain foreign countries, including minor product formulation and labeling
changes for Au Naturel's international customers. Au Naturel uses specialized
labels to meet the specific requirements of each country. The Company believes
that international sales represent a significant growth opportunity. Net sales
by Au Naturel grew 21.4% from 1996 to 1997 and represented 6.3% and 6.5% of the
Company's fiscal 1996 and 1997 net sales, respectively.
RESEARCH AND DEVELOPMENT; QUALITY CONTROL
The Company has a strong commitment to research and development. The Company
believes that product quality and innovation are fundamental to its long-term
growth and success. Through its research and development efforts, the Company
seeks to (i) identify the active ingredients in current and potential new
products, (ii) test the safety, potency and efficacy of products, (iii) develop
more effective and efficient means of extracting ingredients for use in
products, (iv) develop testing methods for ensuring and verifying the
consistency of the dosage of ingredients included in the Company's products,
(v) develop new, more effective product delivery forms and (vi) develop new
products either by combining existing ingredients used in nutritional
supplements or identifying new ingredients that can be used in nutritional
supplements. The Company's efforts are designed to lead not only to the
development of new and improved products, but also to ensure effective
manufacturing quality control measures.
The Company has entered into a cooperative arrangement with Weber State
University in Ogden, Utah through which, among other things, the University
provides the Company with access to certain laboratory space and equipment. The
University has assigned one faculty member as a project director to coordinate
the use of any projects undertaken at the University facility. The Company also
conducts research and development in Company-owned laboratories. The Company
currently employs 13 professionals in its research and development and quality
control departments, including three with post-graduate degrees, of which two
are Ph.D.'s. These 13 professionals have degrees in chemistry, botany,
microbiology, nutrition and engineering and, in many cases, have received
training in natural health food products. In addition, the Company retains the
services of outside laboratories from time to time to validate its product
standards and manufacturing protocols.
The Company's quality control program seeks to ensure the superior quality of
the Company's products and that they are manufactured in accordance with
current Good Manufacturing Practices. The Company's processing methods are
monitored closely to ensure that only quality ingredients are used and to
ensure product purity. The Company has been a leader in establishing industry
product quality guidelines.
MANUFACTURING
The Company's manufacturing process generally consists of the following
operations (i) extracting the ingredients contained in a particular product
from a bulk source of such ingredient and measuring the ingredient for
inclusion in such product, (ii) blending the measured ingredients into a
mixture with a homogeneous consistency and (iii) encapsulating or tableting the
blended mixture into the appropriate dosage form using either automatic or
semiautomatic equipment. The next step, bottling and packaging, involves
placing the encapsulated or tableted product in packaging with appropriate
tamper-evident features and sending the packaged product to the distribution
point for delivery to retailers. The Company places special emphasis on quality
control and conducts inspections throughout the manufacturing process,
including raw material verification, homogeneity tests, weight deviation
measurements and package quality sampling. See "--Research and Development;
Quality Control."
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<PAGE>
The Company manufactured over 90% of its products in fiscal 1997, based on
net sales. By manufacturing the majority of its own products, the Company
believes it maintains better control over product quality and availability
while also reducing production costs. The Company's manufacturing operations
are performed in its facilities located in the greater Ogden, Utah area. Total
manufacturing square footage is approximately 60,000 square feet. In addition,
the Company currently performs more than 90% of all packaging of its branded
products, based on SKUs. The Company also has a working relationship with
numerous outside manufacturers and packagers and utilizes these outside sources
from time to time.
Monarch Nutritional Laboratories and Great Basin Botanicals source raw
material components, provide contract grinding and milling services,
manufacture premium bulk formulations and supply these to the Company and other
marketers of nutritional supplements, including, in certain cases, competitors
of the Company. Monarch was acquired in September 1995, and certain assets of
Great Basin were purchased in March 1997. As of September 30, 1997,
Monarch/Great Basin manufactured and sold 789 different products and
combinations.
MANAGEMENT INFORMATION AND COMMUNICATION SYSTEMS
Beginning in November 1995, the Company installed an upgraded client server
computer system for handling order entry and invoicing, shipping, warehouse
operations and customer service inquiries. The new system provides more
efficient product delivery and more detailed order information and allows for
better inventory management. The Company believes that this system has improved
operating efficiencies and customer service. In addition, the Company has
installed a state-of-the-art telephone communication system which provides the
platform for computer-telephone integration and facilitates intra-company
communication.
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. The
Company does not anticipate any significant costs, problems or uncertainties
associated with becoming Year 2000 compliant and is currently developing a plan
to ensure that its computer systems are modified to be compliant on a timely
basis.
MATERIALS AND SUPPLIERS
The Company utilizes a centralized purchasing staff, employing individuals
with extensive product knowledge and experience related to herbs, minerals,
bulk products, bottles, caps, labels, packaging and advertising, marketing and
selling material and merchandise. The purchasing department, in cooperation
with the quality control department, maintains supplier relationships and
gathers market information to inform management of issues that might adversely
impact the Company's ability to acquire sufficient quantities of raw materials
to meet customer demand. The Company engages in extensive sample testing of raw
materials to be incorporated in the Company's products.
The Company believes that its continued success will depend upon the
availability of raw materials that permit the Company to meet its labeling
claims, quality control standards and demand for unique ingredients. Due to
issues related to quality, efficacy, safety or third-party intellectual
property protection, a number of the Company's branded products (which
accounted for approximately 31% of the Company's fiscal 1997 net sales) contain
one or more of approximately 72 ingredients that may only be available from a
single source or supplier. In addition, the supply of herbal products is
subject to the same risks normally associated with agricultural production,
such as climatic conditions, insect infestations and availability of manual
labor for harvesting. Any significant delay in or disruption of the supply of
raw materials could substantially increase the cost of such materials and could
require product reformulations, as well as the qualification of new suppliers
and repackaging. Accordingly, while no single product accounted for more than
2% of the Company's net sales in fiscal 1997, there can be no assurance that
the disruption of the Company's supply sources will not have a material adverse
effect on the Company.
Although the Company acquires the majority of its raw materials from U.S.
suppliers, the ingredients of a number of the Company's products (which
accounted for approximately 38% of the Company's fiscal 1997 net sales) include
one or more of approximately 188 ingredients that originate outside of the
United States. The
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Company's business is therefore subject to the risks generally associated with
doing business outside the United States, such as delays in shipments,
embargoes, changes in economic and political conditions, tariffs, foreign
exchange rates and trade disputes. The Company's business is also subject to
the risks associated with the enactment of United States and foreign
legislation and regulations relating to imports and exports, including quotas,
duties, taxes or other charges or restrictions that could be imposed upon the
importation of products into the United States.
The Company seeks to mitigate the risk of the shortage of certain raw
materials through its relationships with approximately 100 principal suppliers.
To help reduce the possibility of shortages, the Company acquired Monarch, a
manufacturer of premium bulk formulations, in fiscal 1995 and in fiscal 1997
purchased manufacturing equipment and hired personnel to allow more extensive
vertical integration and to improve the quality and consistency of ingredients.
DISTRIBUTION
The Company ships the majority of its products directly to retailers via
Federal Express. Shipments are generally made from the Company's primary
distribution facilities in Clearfield, Utah and Memphis, Tennessee. These
distribution facilities have been strategically located to reduce the Company's
expenses relating to outbound freight charges without sacrificing delivery
times. Each facility has approximately 25,000 square feet of floor space.
Certain of the Company's largest customers receive shipments directly from the
Company's central warehouse, located in a separate facility in Clearfield,
Utah, which also services the Company's two primary distribution centers.
The Company is in the process of negotiating a lease for a 250,000 square
foot facility in the Ogden, Utah area in which it intends to consolidate
distribution and certain other operations which are currently being performed
in seven different buildings and locations. This facility will be designed to
respond quickly to customer demands for the Company's products with a minimum
of out-of-stocks and a minimum of finished goods inventory. By integrating the
bulk product inventory distribution operation with the bottling and packaging
operation, the Company believes it will be able to bottle and package finished
goods on a more selective customer demand basis. The Company expects that its
Memphis, Tennessee facility will continue to operate for Eastern distribution.
GOVERNMENT REGULATION
The formulation, manufacturing, processing, packaging, labeling, advertising,
distribution and sale of nutritional supplements such as those sold by the
Company are subject to regulation by one or more federal agencies, principally
the FDA and the FTC, and to a lesser extent the Consumer Product Safety
Commission and United States Department of Agriculture. These activities are
also regulated by various governmental agencies for the states and localities
in which the Company's products are sold, as well as by governmental agencies
in certain foreign countries in which the Company's products are sold. Among
other matters, regulation of the Company by the FDA and FTC is concerned with
claims made with respect to a product which refer to the value of the product
in treating or preventing disease or other adverse health conditions.
Federal agencies, primarily the FDA and FTC, have a variety of remedies and
processes available to them, including initiating investigations, issuing
warning letters and cease and desist orders, requiring corrective labels or
advertising, requiring consumer redress (for example, requiring that a company
offer to repurchase products previously sold to consumers), seeking injunctive
relief or product seizure and imposing civil penalties or commencing criminal
prosecution. In addition, certain state agencies have similar authority, as
well as the authority to prohibit or restrict the manufacture or sale of
products within their jurisdiction. These federal and state agencies have in
the past used these remedies in regulating participants in the nutritional
supplements industry, including the imposition by federal agencies of civil
penalties in the millions of dollars against a few industry participants. In
addition, certain product lines now manufactured by the Company had been the
subject of investigations prior to the acquisition of those product lines by
the Company. Although none of these
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investigations has had a material adverse effect on the Company, there can be
no assurance that future regulatory action will not have such an effect. There
can be no assurance that the regulatory environment in which the Company
operates will not change or that such regulatory environment, or any specific
action taken against the Company, will not result in a material adverse effect
on the Company's business, financial condition or results of operations. In
addition, increased sales and publicity of nutritional supplements may result
in increased regulatory scrutiny of the nutritional supplements industry.
The Dietary Supplement Health and Education Act of 1994 (the "Act") was
enacted in October 1994, amending the Food, Drug and Cosmetic Act. The Company
believes this law is generally favorable to the dietary supplement industry.
The Act establishes a new statutory class of "dietary supplements," which
provide vitamins, minerals, herbs, amino acids and other dietary ingredients
for human use to supplement the diet. Dietary ingredients on the market as of
October 15, 1994 will not require the submission by the manufacturer or
distributor of evidence of a history of use or other evidence of safety
establishing that the supplement will reasonably be expected to be safe, but a
dietary supplement which contains a dietary ingredient which was not on the
market as of October 15, 1994 does require such submission of evidence of a
history of use or other evidence of safety. Among other things, this law
prevents the further regulation of dietary ingredients as "food additives" and
allows the use of statements of nutritional support on product labels.
The FDA is currently proposing to regulate the sale of nonprescription
products containing ephedra, a natural product that contains a small
percentage of ephedrine alkaloids which are used in some prescriptions and
over the counter stimulants and antihistamines. Approximately 3.9% of the
Company's fiscal 1997 net sales were derived from products that contain
ephedra. Various state legislatures and agencies have also expressed concern
regarding ephedra-based products. For example, Arkansas, Hawaii, Missouri,
Ohio, Florida and Texas have passed legislation or adopted regulations
regulating the over-the-counter sale of certain ephedra products or are
considering doing so. The Company believes that other states are considering
or will consider taking similar action and may take such action in the future.
The loss of sales of these products or a further limitation in the states and
other jurisdictions where these products may be sold could have a material
adverse effect on the Company.
In October 1997 the Company and a number of other suppliers, processors and
marketers of nutritional supplements received warning letters from the FDA
relating to an allegedly contaminated batch of an herb called plantain. These
letters claimed that the plantain, which had been shipped to the United States
from Europe, had been contaminated with another botanical product with
potentially harmful side effects. The letter that the Company received alleged
that some of this plantain had been included in a shipment of products that
Great Basin had processed for a third party on a contract basis. The Company
has replied to the FDA, explaining that, among other things, it did not own
the products or market them for human consumption but simply provided grinding
services for the owner of the herbs. The Company has denied responsibility for
any adverse effects and affirmed its commitment to good manufacturing
practices. There can be no assurances that the FDA will not take further
action and that, if taken, such action will not result in a material adverse
effect on the Company.
The Company has received a notice that it may be a defendant along with a
number of other participants in the dietary supplement industry in a
threatened action by certain private litigants or the Attorney General of the
State of California, which alleges that certain products containing fish and
salmon oils also may be in violation of a California law known as "Proposition
65" for failure to include required warning labels. Proposition 65 allows
private litigants or the California Attorney General to recover monetary
penalties or injunctive relief under certain circumstances. The Company
intends to dispute the allegations, and is considering joining a joint defense
group with other participants in the nutritional supplements industry who have
been named as defendants in such action. The Company also intends to explore
the possibility of seeking indemnification from the suppliers of the products
in question, which are simply bottled and distributed by the Company, as well
as from Old KAL (the seller in the KAL/Max Acquisition) with respect to sales
that occurred prior to the KAL/Max Acquisition. The foregoing action may
result in monetary penalties, adverse publicity, lost sales or a change in the
Company's labeling as to the products in question and could have a material
adverse effect on the Company.
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On January 20, 1998, the Company received a written notice from an attorney
representing a private party that alleges that the Company violated
Proposition 65 by not providing appropriate warning statements with respect to
the level of lead contained in copper gluconate. This notice arises from the
sale of bulk quantities of copper gluconate to a wholesale customer. The
private party that initiated this notice purchased some of these products from
the Company's customer. The Company intends to dispute the notice and any
potential claim arising therefrom.
In March 1993, the staff of the Cleveland Regional Office of the FTC began
an investigation into advertising claims made by the seller in the KAL/Max
Acquisition, and made an inquiry to the Company in August 1995 concerning
certain products and claims associated with the KAL and NaturalMax product
lines. The Company has responded to the FTC and, to the Company's knowledge,
the FTC has taken no further action.
There can be no assurance that the foregoing proceedings or investigations
or any future proceedings or investigations will not have a material adverse
effect on the Company.
COMPETITION
The nutritional supplements segment of the natural health food products
industry is highly competitive. The Company's principal competitors in the
Healthy Foods Channel include a limited number of large nationally known
manufacturers (such as Twinlab Corporation, Solgar Vitamin and Herb Company,
Inc. and Nature's Way Products, Inc.) and many smaller manufacturers and
distributors of nutritional supplements. Certain of the Company's principal
competitors are larger than the Company, have greater access to capital and
may be better able to withstand volatile market conditions within the VMS
Industry. Moreover, because this industry generally has low barriers to entry,
additional competitors could enter the market at any time. In that regard,
although the VMS Industry to date has been characterized by many relatively
small participants, there can be no assurance that national or international
companies (which may include pharmaceutical companies or other suppliers to
mass merchandisers) will not seek in the future to enter or to increase their
presence in this industry. Increased competition in the industry could have a
material adverse effect on the Company.
INTELLECTUAL PROPERTY
As of September 30, 1997, the Company owned 34 trademarks which have been
registered with the United States Patent and Trademark Office and had filed
applications to register an additional 27 trademarks. In addition, the Company
claims domestic trademark and servicemark rights in numerous additional marks
used by the Company. The Company owns a number of trademark registrations in
foreign countries and is in the process of filing additional registration
applications in various countries. The Company regards its trademarks and
other proprietary rights as valuable assets and believes they make a
significant positive contribution to the marketing of its products.
The Company protects its legal rights concerning its trademarks by
appropriate legal action. The Company relies on common law trademark rights to
protect its unregistered trademarks. Common law trademark rights do not
provide the company with the same level of protection as afforded by a United
States federal registration of a trademark. In addition, common law trademark
rights are limited to the geographic area in which the trademark is actually
used, while a United States federal registration of a trademark enables the
registrant to stop the unauthorized use of the trademark by any third party
anywhere in the United States, even if the registrant has never used the
trademark in the geographic area wherein the unauthorized use is being made
(provided, however, that an unauthorized third party user has not, prior to
the registration date, perfected its common law rights in the trademark in
that geographic area). The Company has registered and intends to register its
trademarks in certain foreign jurisdictions where the Company's products are
sold. However, the protection available in such jurisdictions may not be as
extensive as the protection available to the Company in the United States.
The Company is currently involved in trademark infringement litigation
relating to the Solaray rainbow logo. The Company is vigorously defending the
suit and believes that its use of such logo does not infringe on the
plaintiff's registered trademark. See "Legal Proceedings."
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EMPLOYEES
At September 30, 1997, the Company and its subsidiaries employed over 400
full-time and over 30 part-time employees. None of the Company's employees is
represented by a collective bargaining unit. The Company believes that it has
a good relationship with its employees.
FACILITIES
The Company owns a manufacturing facility located in Ogden, Utah which
produces branded products for Solaray, KAL, NaturalMax, Premier One, VegLife
and Solar Green. The Company leases all other facilities, which lease terms
expire between 1997 and 2003. The following is a list of all facilities
utilized by the Company:
<TABLE>
<CAPTION>
PURPOSE LOCATION SQUARE FOOTAGE
<S> <C> <C>
Raw material and bulk distribution*......... Ogden, Utah 40,000
Brand manufacturing......................... Ogden, Utah 31,230
Finished goods warehouse*................... Clearfield, Utah 28,000
International and custom manufacturing*..... Clearfield, Utah 28,000
Western distribution*....................... Clearfield, Utah 25,200
Great Basin manufacturing*.................. Clearfield, Utah 24,700
Eastern distribution........................ Memphis, Tennessee 22,400
Monarch manufacturing*...................... Ogden, Utah 21,100
Brand marketing and product development..... Park City, Utah 8,480
Printing facility*.......................... Las Vegas, Nevada 7,974
Administrative offices and customer
service.................................... Ogden, Utah 7,830
Executive offices and corporate sales and
marketing.................................. Park City, Utah 6,103
Research, development and quality control... Ogden, Utah 1,813
</TABLE>
- ---------------------
* The operations currently housed in these facilities are expected to be
moved to the Company's proposed 250,000 square foot facility, a lease for
which is currently under negotiation.
The Company believes that each of its facilities is suitable for its current
use, however, the Company's new facilities are expected to improve upon the
suitability of its current facilities. Pending completion of the move to its
new facilities, the Company has negotiated lease extensions for those
facilities whose lease terms have expired or will expire prior to such move.
LEGAL PROCEEDINGS
The Company is currently a party to various claims and legal actions which
arise in the ordinary course of business. The Company believes such claims and
legal actions, individually or in the aggregate, will not have a material
adverse effect on the business, financial condition or results of operations
of the Company. The Company carries insurance coverage in the types and
amounts that management considers reasonably adequate to cover the risks it
faces in the industry in which it competes. There can be no assurance,
however, that such insurance coverage will be adequate to cover all losses
which the Company may incur in future periods.
The Company is also currently involved in a lawsuit relating to a former
international distributor of Old Premier in which the plaintiff alleges
damages as a result of the breach of the distribution agreement between Old
Premier and such person relating to the supply of products. The plaintiff
alleges that the Company assumed the contract. The Company does not believe
such claim, if successful, would have a material adverse effect on the
business, financial condition or results of operations of the Company.
The Company has been sued by American Cyanimid, the manufacturer of the
Centrum line of vitamin/mineral supplements. American Cyanimid alleges that
the Solaray rainbow logo, as well as the KAL rainbow logo (since abandoned)
infringes, or has infringed, on the Centrum color spectrum logo. The Company
believes the claim is without merit and is vigorously defending the lawsuit.
The case appears to be proceeding to trial, and although the Company expects
to prevail, there can be no assurance of this, nor any assurance that the
Company may not be required to pay damages or attorney fees and costs, and
change or abandon the Solaray rainbow logo.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth certain information concerning the directors,
executive officers and certain other key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Frank W. Gay II............. 52 Director, Chairman of the Board and Chief
Executive Officer
Bruce R. Hough.............. 43 Director, President
Jeffrey A. Hinrichs......... 40 Director, Chief Operating Officer and Executive
Vice President
William T. Logan............ 55 Senior Vice President, Marketing and Sales
Leslie M. Brown, Jr......... 33 Senior Vice President, Finance and Chief
Financial Officer
Stanley E. Soper............ 34 Vice President, Legal Affairs
David M. Vance.............. 56 President, Au Naturel
Robert C. Gay............... 46 Director
Geoffrey S. Rehnert......... 40 Director
Matthew S. Levin............ 31 Director
</TABLE>
Frank W. Gay II has served as the Chairman of the Board of Directors of the
Company since its inception and as Chief Executive Officer since 1994. Mr. Gay
has been a partner of F.W. Gay & Sons, a private equity investment group, from
1967 to present.
Bruce R. Hough has served as a member of the Board of Directors of the
Company since its inception and was made its President in 1994. Prior to
joining the Company, Mr. Hough acted as a consultant from 1991 to 1993 and as
President of Keystone Communications, a telecommunications firm, from 1987 to
1991.
Jeffrey A. Hinrichs has served as the Chief Operating Officer and Executive
Vice President of the Company since 1994. Prior to joining the Company, Mr.
Hinrichs served as President of Solaray, now a subsidiary of the Company, from
1993 to 1994 and as Chief Financial Officer and in other management positions
with Solaray from 1984 to 1993.
William T. Logan has served as Senior Vice President, Marketing and Sales
since February 1995. Mr. Logan served as Senior Vice President of Old Kal from
1978 to January 1995. Prior to joining Old Kal, he held several sales and
marketing positions with Gillette.
Leslie M. Brown, Jr. joined the Company in January 1995 as Vice President
and Controller. Mr. Brown became Senior Vice President, Finance and Chief
Financial Officer in October 1997. Prior to joining the Company, he was
employed by Price Waterhouse LLP. Mr. Brown is a Certified Public Accountant.
Stanley E. Soper has been Vice President, Legal Affairs for the Company
since July 1997. Mr. Soper graduated from Yale Law School in 1991, and was in
private law practice from 1991 to 1997, most recently with Holland & Hart LLP.
David M. Vance served as the Senior Vice President--Administration and Chief
Financial Officer of the Company from May 1995 to July 1997. In July 1997, he
become President of Au Naturel. Prior to joining the Company, Mr. Vance was
Assistant Treasurer--International of Cooper Industries, a diversified
manufacturing company, from 1985 to 1995.
Robert C. Gay has served as a Director of the Company since its inception.
He has been a Managing Director of Bain Capital, Inc., a private equity firm,
since 1993, and has been a general partner of Bain Capital Venture Capital
since 1989. He is also Vice Chairman of the Board of Directors of IHF Capital,
parent of ICON Health and Fitness Inc., a manufacturer and distributor of home
health equipment. In addition, Mr. Gay serves as
42
<PAGE>
a director of American Pad & Paper Company, an office supply manufacturer;
Cambridge Industries, Inc., a manufacturer of automotive parts; GS
Technologies Corporation, a manufacturer of specialty steel products; Physio-
Control International Corporation, a manufacturer of defibrillators and vital
sign assessment devices; and GT Bicycles Inc., a manufacturer and distributor
of bicycles.
Geoffrey S. Rehnert has served as a Director of the Company since its
inception. He has been a Managing Director of Bain Capital since 1993, a
general partner of Bain Capital Venture Capital since 1987 and a general
partner of Bain Capital Partners since 1986. Mr. Rehnert serves as a director
of Kollmorgen Corp., a manufacturer of electric motors; ICON Health and
Fitness, Inc., a manufacturer and distributor of home health equipment; FTD,
Inc., a floral services company; and is Chairman of GT Bicycles, Inc., a
manufacturer and distributor of bicycles.
Matthew S. Levin served as a Director of the Company from its inception
through January 1995 and also from December 1996 to the present. Mr. Levin is
an associate with Bain Capital. Mr. Levin joined Bain Capital in 1992, and
attended the Harvard Business School from 1994 to 1996. From 1988 to 1991, Mr.
Levin was a consultant with Bain & Company, Inc.
At present, all directors are elected annually and serve until the next
annual meeting of stockholders or until the election and qualification of
their successors. Effective upon the consummation of the Offering, the Board
of Directors will be divided into three classes, as nearly equal in number as
possible, with each Director serving a three year term and one class being
elected at each year's annual meeting of stockholders. Messrs. Levin and Hough
will be in the class of directors whose term expires at the 1998 annual
meeting of the Company's stockholders. Messrs. Rehnert and Hinrichs will be in
the class of directors whose term expires at the 1999 annual meeting of the
Company's stockholders. Messrs. Robert C. Gay and Frank W. Gay II will be in
the class of directors whose term expires at the 2000 annual meeting of the
Company's stockholders. At each annual meeting of the Company's stockholders,
successors to the class of directors whose term expires at such meeting will
be elected to serve for three-year terms and until their successors are
elected and qualified. Following the consummation of the Offering, the Company
will establish an Audit Committee consisting of at least two independent
directors and a Compensation Committee consisting of at least two independent
directors.
EXECUTIVE COMPENSATION
Prior to the Offering, the Board did not have a Compensation Committee.
Decisions concerning the compensation of executive officers and senior
management during fiscal 1997 were made by Messrs. Frank W. Gay II and Matthew
S. Levin with the advice of the Board. The one time payment to the Company's
Chief Executive Officer in 1997 was approved by the Board with Messrs. Frank
W. Gay II and Robert C. Gay abstaining. Following the consummation of the
Offering, the Board will establish a Compensation Committee, which will
include two or more independent directors to make decisions regarding
salaries, incentive compensation, stock option grants and other matters with
respect to executive officers and other key employees of the Company.
The following table sets forth in summary form information concerning the
compensation for all services rendered in all capacities to the Company and
its subsidiaries for the fiscal year ended September 30, 1997 for Mr. Frank W.
Gay II and the four other most highly compensated executive officers of the
Company during the fiscal year ended September 30, 1997 (collectively, the
"named executive officers").
43
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY (A) BONUS COMPENSATION (B) OPTIONS
<S> <C> <C> <C> <C> <C>
Frank W. Gay II, Chief
Executive Officer........ 1997 $181,000 $303,752 $1,707,615(c) --
Bruce R. Hough,
President................ 1997 161,346 78,000 7,933 --
Jeffrey A. Hinrichs, Chief
Operating Officer........ 1997 151,538 136,409 7,481 --
William T. Logan, Senior
Vice President, Marketing
and Sales................ 1997 121,154 35,500 5,981 --
David M. Vance, President,
Au Naturel, Inc.......... 1997 135,577 48,750 6,721 --
</TABLE>
- ---------------------
(a) Includes amounts earned in fiscal 1997, but deferred at each named
executive officer's election pursuant to the Company's 401(k) Plan.
(b) Includes matching contributions made by the Company under its 401(k) Plan.
(c) Includes the one-time payment of $1.7 million.
COMPENSATION PURSUANT TO BENEFIT PLANS AND ARRANGEMENTS
STOCK OPTIONS
No grants of stock options were made to any of the named executive officers
during fiscal 1997. No stock appreciation rights ("SARs") were granted during
fiscal 1997.
OPTION EXERCISES AND HOLDINGS
No stock options or SARs were exercised by the named executive officers
during fiscal 1997. The following table sets forth information with respect to
the aggregate number of unexercised options to purchase Common Stock and SARs
granted in all years to the named executive officers and held by them as of
September 30, 1997, and the value of unexercised in-the-money options (i.e.,
options that had a positive spread between the exercise price and the initial
public offering price of the Common Stock) as of September 30, 1997:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT THE-MONEY OPTIONS/SARS
FISCAL YEAR END AT FISCAL YEAR END(A)
SHARES ACQUIRED ------------------------- -------------------------
NAME UPON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Frank W. Gay II......... -- -- 150,582/37,645 $1,738,729/434,682
Bruce R. Hough.......... -- -- 40,657/27,105 469,457/312,971
Jeffrey A. Hinrichs..... -- -- 22,587/22,587 260,809/260,809
William T. Logan........ -- -- -- /-- -- /--
David M. Vance.......... -- -- 37,646/37,645 379,682/379,682
</TABLE>
- ---------------------
(a) At an assumed initial public offering price of $15.00 per share, minus the
exercise price.
STOCK PLANS
1995 STOCK PLAN
The Company's 1995 Stock Option Plan (the "1995 Stock Plan") authorizes
grants of stock options, including options that are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code, and sales of any class or classes of common stock to current or
future employees, directors, consultants or advisors of the Company or its
subsidiaries. The 1995 Stock Plan authorizes the granting of stock options for
up to an aggregate of 225,873 shares of Common Stock (after giving effect to
the
44
<PAGE>
Reclassification), subject to adjustment upon the occurrence of certain events
to prevent any dilution or expansion of the rights of participants that might
otherwise result from the occurrence of such events. Under the 1995 Stock
Plan, the Board is authorized to grant options at any time prior to the
termination of the 1995 Stock Plan in such quantity, at such price, on such
terms and subject to such conditions as established by the Board. Nonqualified
options to purchase an aggregate of 175,804 shares (after giving effect to the
Reclassification) of Common Stock are outstanding under the 1995 Stock Plan.
Of the options to purchase an aggregate of 175,804 shares of Common Stock
(after giving effect to the Reclassification) that are outstanding to date,
options to purchase an aggregate of 80,749 shares of Common Stock (after
giving effect to the Reclassification) will be exercisable at the consummation
the Offering and the remaining options to purchase an aggregate of 95,055
shares of Common Stock (after giving effect to the Reclassification) will vest
over a four-year period. The exercise prices of the options granted under the
1995 Stock Plan range from approximately $4.91 per share to $9.30 per share
(such dollar amounts giving effect to the Reclassification).
1998 STOCK PLAN
The Board and stockholders of the Company have approved the Nutraceutical
International Corporation 1998 Stock Incentive Plan (the "1998 Stock Plan").
The 1998 Stock Plan will be administered by a Compensation Committee (the
"Committee"), composed of at least two Directors who are Non-Employee
Directors (as defined in Rule 16b-3 under the Exchange Act) and who are
"outside directors" (as defined in Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code")), who will be appointed by the Board. Certain
employees, advisors and consultants of the Company will be eligible to
participate in the 1998 Stock Plan (a "Participant"). The Committee will be
authorized under the 1998 Stock Plan to select the Participants and determine
the terms and conditions of the awards under the 1998 Stock Plan. The 1998
Stock Plan provides for the issuance of the following types of incentive
awards: stock options, stock appreciation rights, restricted stock,
performance grants and other types of awards that the Compensation Committee
deems consistent with the purposes of the 1998 Stock Plan. An aggregate of
1,050,000 shares of Common Stock of the Company will be reserved for issuance
under the 1998 Stock Plan, subject to certain adjustments reflecting changes
in the Company's capitalization. The 1998 Stock Plan provides that each
Participant will be limited to receiving awards relating to no more than
100,000 shares of Common Stock per year.
Options granted under the 1998 Stock Plan may be either incentive stock
options ("ISOs") or such forms of non-qualified stock options ("NQOs") as the
Committee may determine. ISOs are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code. The exercise price of
(i) an ISO granted to an individual who owns shares possessing more than 10%
of the total combined voting power of all classes of stock of the Company (a
"10% Owner") will be at least 110% of the fair market value of a share of
common stock on the date of grant and (ii) an ISO granted to an individual
other than a 10% Owner and an NQO will be at least 100% of the fair market
value of a share of Common Stock on the date of grant.
Options granted under the 1998 Stock Plan may be subject to time vesting and
certain other restrictions at the sole discretion of the Committee. The Board
generally will have the power and authority to amend the 1998 Stock Plan at
any time without approval of the Company's stockholders, subject to applicable
federal securities and tax law limitations (including regulations of the
Nasdaq National Market).
The Company currently intends to grant options under the 1998 Stock Plan to
purchase an aggregate of 250,000 shares of Common Stock to certain of its
employees contemporaneously with the consummation of the Offering, at an
exercise price equal to the initial public offering price. The following
individuals are expected to receive such grants in the following amounts:
Bruce R. Hough--10,000; Jeffrey A. Hinrichs--30,000; William T. Logan--10,000;
Leslie M. Brown, Jr.--25,000; Stanley E. Soper--7,500; and other key
employees--167,500.
EMPLOYEE STOCK PURCHASE PLAN
The Nutraceutical International Corporation Employee Stock Discount Purchase
Plan (the "Stock Purchase Plan") will be approved by the Board and
stockholders prior to the consummation of the Offering. The Stock Purchase
Plan is intended to give employees desiring to do so a convenient means of
purchasing shares of
45
<PAGE>
Common Stock through payroll deductions. The Stock Purchase Plan is intended
to provide an incentive to participate by permitting purchases at a discounted
price. The Company believes that ownership of stock by employees will foster
greater employee interest in the success, growth and development of the
Company.
Subject to certain restrictions, each employee of the Company who is a U.S.
resident or a U.S. citizen temporarily on location at a facility outside of
the United States will be eligible to participate in the Stock Purchase Plan
if he or she has been employed by the Company for more than one year.
Participation will be discretionary with each eligible employee. The Company
will reserve 750,000 shares of Common Stock for issuance in connection with
the Stock Purchase Plan. Each eligible employee will be entitled to purchase a
maximum number of shares per quarter equal to 15% of such employee's gross pay
for the immediately prior quarter divided by the purchase price per share.
Elections to participate and purchases of stock will be made on a quarterly
basis. Each participating employee contributes to the Stock Purchase Plan by
choosing a payroll deduction in any specified amount, with a minimum deduction
of $25 per payroll period. A participating employee may increase or decrease
the amount of such employee's payroll deduction, including a change to a zero
deduction as of the beginning of any calendar quarter. Elected contributions
will be credited to participants' accounts at the end of each calendar
quarter. In addition, employees may make lump sum contributions during a
quarter to enable them to purchase the maximum number of shares available for
purchase during such quarter.
Each participating employee's contributions will be used to purchase shares
for the employee's share account within 15 days after the last day of each
calendar quarter. The cost per share will be 90% of the lower of the closing
price of the Company's Common Stock on the Nasdaq National Market on the first
or the last trading day of the calendar quarter. The number of shares
purchased on each employee's behalf and deposited in his/her share account
will be based on the amount accumulated in such participant's cash account and
the purchase price for shares with respect to any calendar quarter. Shares
purchased under the Stock Purchase Plan carry full rights to receive dividends
declared from time to time. Under the Stock Purchase Plan, any dividends
attributable to shares in the employee's share account will be automatically
used to purchase additional shares for such employee's share account. Share
distributions and share splits will be credited to the participating
employee's share account as of the record date and effective date,
respectively. A participating employee will have full ownership of all shares
in such employee's share account and may withdraw them for sale or otherwise
by written request to the Committee. Subject to applicable federal securities
and tax laws, the Board of Directors will have the right to amend or to
terminate the Stock Purchase Plan. Amendments to the Stock Purchase Plan will
not affect a participating employee's right to the benefit of the
contributions made by such employee prior to the date of any such amendment.
In the event the Stock Purchase Plan is terminated, the Committee will be
required to distribute all shares held in each participating employee's share
account plus an amount of cash equal to the balance in each participating
employee's cash account.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The 1998 Non-Employee Director Stock Option Plan (the "Director Option
Plan," and together with the 1998 Stock Plan, the "Stock Incentive Plans")
will be adopted and approved by the Board and stockholders prior to the
consummation of the Offering. The Director Option Plan is intended to
encourage stock ownership by certain Directors of the Company and to provide
those individuals with an additional incentive to manage the Company in the
shareholders' best interests and to provide a form of compensation that will
attract and retain highly qualified individuals as members of the Board. The
Director Option Plan will provide for the granting of options to non-employee
Directors, as defined, covering an aggregate of 150,000 shares of Common Stock
of the Company, subject to certain adjustments reflecting changes in the
Company's capitalization. The Committee or the full Board will be authorized
under the Director Option Plan to make discretionary grants of options and
determine the terms and conditions of such options. Each member of the
Committee is eligible to participate in the Director Option Plan; however,
grants made to a member of the Committee must be approved by the full Board
with such member abstaining. The Director Option Plan requires that the
exercise price for each option granted under the plan must equal 100% of the
fair market value of the Company's Common Stock on the date the option is
granted. Nothing contained in the Director Option Plan or any agreement to be
executed pursuant to the Director Option Plan will obligate the Company, its
Board or its stockholders to retain an optionee as a Director of the Company.
46
<PAGE>
401(K) PLAN
The Company has a tax-qualified employee savings and retirement plan (the
"401(k) Plan") covering all of the Company's full-time employees. Pursuant to
the 401(k) Plan, employees may elect to reduce their current compensation up
to the statutorily prescribed annual limit ($9,500 in 1997) and have the
amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan
provides for contributions to the 401(k) Plan by the Company on behalf of all
participants. The Company contributes an amount up to 5% of an eligible
employee's base monthly earnings. The 401(k) Plan is intended to qualify under
Section 401 of the Code so that contributions by employees or by the Company
to the 401(k) Plan and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan so that contributions by the
Company will be deductible by the Company when made. The trustees under the
401(k) Plan, at the direction of each participant, invest such participant's
assets in the 401(k) Plan in selected investment options.
COMPENSATION OF BOARD OF DIRECTORS
The Company will determine the compensation to be paid to its independent
Directors at the time of their initial appointments. Non-employee Directors
are reimbursed for their out-of-pocket expenses incurred in connection with
attending meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Robert C. Gay, Rehnert and Levin, directors of the Company, have
professional affiliations with Bain Capital. Messrs. Robert C. Gay and Frank
W. Gay II are brothers. See "Management."
47
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
Pursuant to an advisory agreement (the "Advisory Agreement") dated October
28, 1993, among the Company, Bain Capital and F.W. Gay & Sons, Bain Capital and
F.W. Gay & Sons agreed to provide general executive management, consulting and
financial services to Solaray in consideration for which Bain Capital and F.W.
Gay & Sons each were entitled to receive annual fees of $100,000 plus
reimbursement for expenses, and one-time fees of $150,000 plus expenses with
respect to work performed on the Solaray Acquisition. On October 31, 1994, the
Advisory Agreement was amended to increase the annual fees payable to each of
Bain Capital and F.W. Gay & Sons to $125,000. On January 31, 1995, the Advisory
Agreement was amended and restated (the "Restated Advisory Agreement") as
follows: (i) annual fees (from the Company) to Bain Capital were increased to
$300,000, (ii) Bain Capital and F.W. Gay & Sons received one-time payments of
$700,000 and $500,000, respectively, plus expenses, for certain services
provided and (iii) upon payment of the one-time fees plus expenses to Bain
Capital and F.W. Gay & Sons, F.W. Gay & Sons and Solaray ceased to be parties
to the Restated Advisory Agreement. For the years ended September 30, 1996 and
1997, fees and expenses incurred by the Company or its affiliates to Bain
Capital totaled $338,641 and $360,000, respectively. Prior to the consummation
of the Offering, the Company and Bain Capital will terminate the Restated
Advisory Agreement and Bain Capital will receive a payment of $1.0 million in
exchange for such termination and services rendered in connection with the
Offering. Messrs. Robert C. Gay, Rehnert and Levin are directors of the Company
and are also affiliated with Bain Capital. Mr. Frank W. Gay II is the Chairman
of the Board, Chief Executive Officer and a Director of the Company as well as
a partner of F.W. Gay & Sons.
Prior to the completion of the Offering, the Company expects to enter into a
transaction services agreement with Bain Capital pursuant to which Bain Capital
will agree to provide advisory services in connection with any potential
acquisitions, dispositions or other financing transactions (whether debt or
equity) of the Company or any of its subsidiaries in exchange for a transaction
fee equal to 1.0% of the aggregate value of any such transaction. Such
agreement will not provide for recurring annual management fees. Pursuant to
the new agreement, Bain Capital will provide advisory services and personnel
support to the Company relating to the identification, structuring, negotiating
and financing analysis of potential acquisitions, dispositions or other
financing transactions. The Company believes that the terms of such agreement
are at least as favorable to the Company as those which could be negotiated
with a third party.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Prior to the consummation of the Offering, the Company expects to enter into
agreements to provide indemnification for its directors and executive officers
in addition to the indemnification provided for in the Company's Amended and
Restated Certificate of Incorporation and By-laws (as described under
"Description of Capital Stock").
AGREEMENTS AMONG SECURITYHOLDERS
The Company, the Bain Capital Funds, Jackson National, Heller Financial,
Inc., F.W. Gay & Sons and certain other stockholders are parties to a
stockholders agreement, dated as of January 31, 1995 (the "Stockholders
Agreement"). The Stockholders Agreement amends, restates and supersedes a prior
stockholders agreement, dated as of October 28, 1993. The Stockholders
Agreement contains provisions relating to the composition of the Board of
Directors, restricting the transferability of the shares subject to such
agreement and granting preemptive rights in certain circumstances to the
parties thereto. The Stockholders Agreement, apart from certain provisions
thereof, will be automatically terminated upon consummation of the Offering
contemplated hereby.
The Company and certain of its stockholders are parties to a Registration
Agreement providing for the registration of certain shares of Common Stock in
future periods. See "Shares Eligible for Future Sale-- Registration Rights."
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth certain information regarding the equity
ownership of the Company (a) as of September 30, 1997 and (b) immediately
following the Offering by: (i) each person or entity who beneficially owns
five percent or more of a class of capital stock; (ii) each Director and each
of the named executive officers; (iii) each Selling Stockholder; and (iv) all
directors and executive officers of the Company as a group. Unless otherwise
stated, each of the persons named in the table has sole or shared voting and
investment power with respect to the securities beneficially owned by it or
him as set forth opposite its or his name.
<TABLE>
<CAPTION>
SHARES OWNED
PRIOR TO THE SHARES OWNED AFTER
OFFERING (A) THE OFFERING
----------------- SHARES ------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Bain Capital Funds (b)(c)(d)... 5,896,470 63.2% 940,315 4,956,155 43.1%
The Stephen and Helene Weldon
Trust (e)..................... 665,298 7.1% 62,973 602,325 5.2%
Jackson National Life Insurance
Company (e)................... 634,771 6.8% 101,227 533,543 4.6%
Heller Financial, Inc. (e)(f).. 995,900 9.6% 158,817 837,083 6.8%
Frank W. Gay (g)............... 573,934 6.2% 66,667 507,267 4.4%
DIRECTORS AND OFFICERS
Frank W. Gay II................ 1,049,128 11.0% -- 1,049,128 9.0%
Bruce R. Hough................. 261,143 2.8% -- 261,143 2.3%
Jeffrey A. Hinrichs............ 238,556 2.5% -- 238,556 2.1%
William T. Logan............... 147,844 1.6% -- 147,844 1.3%
David M. Vance................. 75,291 * -- 75,291 *
Robert C. Gay (c)(h)........... 5,896,470 63.2% 940,315 4,956,155 43.1%
Geoffrey S. Rehnert (c)(h)..... 5,896,470 63.2% 940,315 4,956,155 43.1%
Matthew S. Levin (c)(h)........ 400,187 4.3% 63,818 336,438 2.9%
All executive officers and
directors as a group (six
persons)...................... 7,706,078 79.0% 940,315 6,765,762 56.8%
</TABLE>
- -------------------
* represents less than 1% of the total.
(a) Calculation of percentage of beneficial ownership assumes the exercise of
all warrants and options exercisable within 60 days of the date hereof
only by the respective named stockholder.
(b) Includes 2,563,081 shares of Common Stock held by Bain Capital Fund IV,
L.P. ("Fund IV"); 2,933,202 shares of Common Stock held by Bain Capital
Fund IV-B, L.P. ("Fund IV-B"); 193,267 shares of Common Stock held by BCIP
Associates ("BCIP"); and 206,920 shares of Common stock held by BCIP Trust
Associates, L.P. ("BCIP Trust" and collectively with Fund IV, Fund IV-B
and BCIP, the "Bain Capital Funds").
(c) The address of such person is Two Copley Place, Boston, Massachusetts
02116.
(d) Selling Stockholders have granted to the Underwriters options to purchase
up to 499,500 shares of Common Stock solely to cover over-allotments, if
any. See "Underwriting." In the event the Underwriters' over-allotment
options are exercised in full, the above Selling Stockholders would own
4,623,250, 561,867, 497,705, 780,856 and 473,194 shares of Common Stock
(or 40.0%, 4.9%, 4.3%, 6.3% and 4.1% of the total outstanding shares of
Common Stock), respectively, after giving effect to the Offering.
(e) The address of the Stephen and Helene Weldon Trust is 2680 Aspen Springs
Drive, Park City, Utah 84060. The address of Jackson National Life
Insurance Company is c/o PPM America, Inc., 225 West Wacker Drive, Suite
1200, Chicago, Illinois 60606. The address of Heller Financial, Inc. is
500 West Monroe, Suite 1200, Chicago, Illinois 60661.
(f) Represents warrants to purchase shares of Common Stock.
(g) Mr. Gay's address is c/o Nutraceutical International Corporation, 1400
Kearns Boulevard, 2nd Floor, Park City, Utah 84060. Mr. Gay is the father
of Frank W. Gay II and Robert C. Gay.
(h) All of the shares shown are held by the Bain Capital Funds.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
At the time of the Offering, the total amount of authorized capital stock of
the Company will consist of 50,000,000 shares of Common Stock, par value $0.01
per share, and 5,000,000 shares of preferred stock, par value $0.01 per share
(the "Serial Preferred Stock"). Upon completion of the Offering, 11,496,692
shares of Common Stock will be issued and outstanding, no shares of Serial
Preferred Stock will be issued and outstanding and no other class of capital
stock will be authorized, issued or outstanding. As of September 30, 1997 and
without giving effect to the Reclassification, there were 1,026,000 shares of
Common Stock, 102,000 shares of Class P Common Stock, 84,309 shares of Non-
Voting Common Stock, warrants to purchase 12,994.35 shares of Class A Non-
Voting Common Stock, warrants to purchase 116,949.15 shares of Non-Voting
Common Stock and warrants to purchase 21,779 shares of Common Stock, held by
14, 12, 1, 1, 1 and 3 stockholder(s) of record, respectively. All outstanding
shares of Class P Common Stock and warrants to purchase Class A Non-Voting
Common Stock will be converted into shares of Common Stock and warrants to
purchase Common Stock, respectively, in the Reclassification. The following
discussion describes the Company's capital stock, the Restated Certificate and
By-laws as anticipated to be in effect upon consummation of the Offering. The
following summary of certain provisions of the Company's capital stock and
describes all material provisions of, but does not purport to be complete and
is subject to, and qualified in its entirety by, the Restated Certificate and
the By-laws, which are included as exhibits to the Registration Statement of
which this Prospectus forms a part and by the provisions of applicable law.
The Restated Certificate and By-laws will contain certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of
delaying, deferring or preventing a future takeover or change in control of
the Company unless such takeover or change in control is approved by the Board
of Directors.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock to be issued by the Company in connection with the Offering will
be, validly issued, fully paid and nonassessable. Subject to the prior rights
of the holders of any Serial Preferred Stock, the holders of outstanding
shares of Common Stock are entitled to receive dividends out of assets legally
available therefor at such time and in such amounts as the Board of Directors
may from time to time determine. See "Dividend Policy." The shares of Common
Stock are not convertible and the holders thereof have no preemptive or
subscription rights to purchase any securities of the Company. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive pro rata the assets of the Company which are
legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Serial Preferred
Stock then outstanding. Each outstanding share of Common Stock is entitled to
one vote on all matters submitted to a vote of stockholders. There is no
cumulative voting.
Application will be made for inclusion of the Common Stock on the Nasdaq
National Market under the symbol "NUTR."
SERIAL PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Serial Preferred Stock in series and may, at the time of issuance, determine
the rights, preferences and limitations of each series. Satisfaction of any
dividend preferences of outstanding shares of Serial Preferred Stock would
reduce the amount of funds available for the payment of dividends on shares of
Common Stock. Holders of shares of Serial Preferred Stock may be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding-up of the Company before any payment is made to the holders of shares
of Common Stock. Under certain circumstances, the issuance of shares of Serial
Preferred Stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a
large block of the Company's securities or the removal of incumbent
50
<PAGE>
management. Upon the affirmative vote of a majority of the total number of
directors then in office, the Board of Directors of the Company, without
stockholder approval, may issue shares of Serial Preferred Stock with voting
and conversion rights which could adversely affect the holders of shares of
Common Stock. There are no shares of Serial Preferred Stock outstanding, and
the Company has no present intention to issue any shares of Serial Preferred
Stock.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
The Restated Certificate provides for the Board to be divided into three
classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. See
"Management." Under the Delaware General Corporation Law, directors serving on
a classified board can only be removed for cause. The provision for a
classified board could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the Board until the
second annual stockholders meeting following the date the acquiror obtains the
controlling stock interest. The classified board provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.
The Restated Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Restated Certificate and the By-laws provide
that, except as otherwise required by law, special meetings of the
stockholders can only be called pursuant to a resolution adopted by a majority
of the Board of Directors or by the Chief Executive Officer of the Company.
Stockholders will not be permitted to call a special meeting or to require the
Board to call a special meeting.
The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder who was a stockholder of record on
the record date for the meeting, who is entitled to vote at the meeting and
who has given to the Company's Secretary timely written notice, in proper
form, of the stockholder's intention to bring that business before the
meeting. Although the By-laws do not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the By-laws may have
the effect of precluding the conduct of certain business at a meeting if the
proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.
The Restated Certificate and By-laws provide that the affirmative vote of
holders of at least 66 2/3% of the then outstanding shares of Common Stock is
required to amend, alter, change or repeal certain of their respective
provisions. This requirement of a super-majority vote to approve amendments to
the Restated Certificate and By-laws could enable a minority of the Company's
stockholders to exercise veto power over any such amendments.
CERTAIN PROVISIONS OF DELAWARE LAW
Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction
which the person became an "interested stockholder," unless (i) the
transaction is approved by the Board of Directors prior to the date the
"interested stockholder" obtained such status, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder," owned at least 85% of the voting
stock of
51
<PAGE>
the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares
owned by (a) persons who are directors and also officers and (b) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer or (iii) on or subsequent to such date the "business
combination" is approved by the Board of Directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" is defined to include mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
In general, an "interested stockholder" is a Person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of a corporation's voting stock. The statute could prohibit or delay mergers
or other takeover or change in control attempts with respect to the Company
and, accordingly, may discourage attempts to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate limits the liability of directors to the fullest
extent permitted by the Delaware General Corporation Law. In addition, the
Restated Certificate provides that the Company shall indemnify directors and
officers of the Company to the fullest extent permitted by such law. The
Company anticipates entering into indemnification agreements with its current
directors and executive officers prior to the completion of the Offering and
expects to enter into a similar agreement with any new directors or executive
officers. In addition, the Company anticipates obtaining directors' and
officers' insurance prior to the completion of the Offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have outstanding
11,496,692 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). All of the shares of Common Stock sold in the Offering
will be freely tradeable under the Securities Act, unless purchased by
"affiliates" of the Company as that term is defined under the Securities Act.
Upon the expiration of lock-up agreements between the Company, certain
stockholders and the Underwriters, which will occur 180 days after the date of
this Prospectus (the "Effective Date"), 7,994,797 shares of Common Stock
(7,551,524 shares if the Underwriters' over-allotment option is exercised in
full) (the "Restricted Shares") will become eligible for sale, subject to
compliance with Rule 144 of the Securities Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of (i) 1% of the number of shares
of Common Stock then outstanding (approximately 114,966 shares immediately
after the Offering) or (ii) the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which the notice of sale is filed with the Securities
and Exchange Commission. Sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has
beneficially owned Restricted Shares for at least two years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations and
requirements described above.
Certain stockholders have agreed with the Underwriters that until 180 days
after the Effective Date not to directly or indirectly, offer, sell, contract
to sell, grant any option to purchase or otherwise dispose of any Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock, or in any
52
<PAGE>
manner transfer all or a portion of the economic consequences associated with
the ownership of the Common Stock, or cause a registration statement covering
any shares of Common Stock to be filed, without the prior written consent of
DLJ, subject to certain limited exceptions. The Company has also agreed not to
directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or, in any manner,
transfer all or a portion of the economic consequences associated with the
ownership of the Common Stock or cause a registration statement covering any
shares of Common Stock to be filed, for a period of 180 days after the
Effective Date, without the prior written consent of DLJ, subject to certain
limited exceptions including grants of options pursuant to, and issuance of
shares of Common Stock upon exercise of options under, the 1998 Stock Plan. The
lock-up agreements may be released at any time as to all or any portion of the
shares subject to such agreements at the sole discretion of DLJ. See "Risk
Factors--Shares Eligible for Future Sale."
The Company intends to file a registration statement covering the sale of
175,804 shares of Common Stock reserved for issuance under the 1995 Stock Plan,
1998 Stock Plan, Director Option Plan and Stock Purchase Plan. See
"Management--Stock Plans." Such registration statement is expected to be filed
as soon as practicable after the date of this Prospectus and will automatically
become effective upon the filing. Accordingly, shares registered under such
registration statement will be available for sale in the public market unless
such shares are subject to vesting restrictions and subject to limitations on
resale by "affiliates" pursuant to Rule 144. It is anticipated that
approximately 80,749 shares of Common Stock issuable upon exercise of currently
outstanding options will become eligible for sale in the public market without
restrictions 180 days after the date of this Prospectus upon expiration of the
lock-up agreements, pursuant to registration under such registration statement
and subject to volume limitations and other restrictions under Rule 144.
REGISTRATION RIGHTS
Pursuant to the Registration Agreement, the Bain Capital Funds (who in the
aggregate will hold 6,529,739 shares (6,162,762 shares if the Underwriters'
over-allotment options are exercised in full) upon consummation of the
Offering) have the right, subject to certain terms and conditions, to require
the Company to register their shares under the Securities Act for offer and
sale to the public (including by way of underwritten public offering) on three
Long-Form Registrations or an unlimited number of Short-Form Registrations
(each as defined in the Registration Agreement). Upon such demand, all holders
of Registrable Securities (as defined in the Registration Agreement) may sell
in such public offering, pro rata according to the amount of Registrable
Securities owned by such holder. Upon consummation of the Offering, Heller
(which will hold Warrants to purchase 837,083 shares of Common Stock (780,856
shares if the Underwriters' over-allotment options are exercised in full) upon
consummation of the Offering) will have the right, subject to certain terms and
conditions, to require the Company to register its Registrable Securities for
offer and sale to the public (including by way of an underwritten public
offering) on one Long-Form Registration or one Short-Form Registration. See
"Certain Relationships and Related Transactions--Agreements Among
Securityholders." Exercise by the Bain Capital Funds or Heller of their rights
under such agreement could result in the distribution of substantial amounts of
Common Stock, including distributions in underwritten public offerings. See
"Risk Factors--Shares Eligible for Future Sale."
In addition, certain other holders of Common Stock and options to purchase
Common Stock (who in the aggregate will hold 2,102,093 shares (2,025,797 shares
if the Underwriters' over-allotment options are exercised in full) after the
Offering), as well as the Bain Capital Funds and Heller, will have unlimited
"piggyback" registration rights, which, subject to certain terms and
restrictions, entitle them to join in any registration of securities by the
Company. See "Certain Relationships and Related Transactions--Agreements Among
Securityholders." Exercise of such "piggyback" rights could also result in the
distribution of substantial amounts of Common Stock, including distributions in
underwritten public offerings. See "Risk Factors--Shares Eligible for Future
Sale."
53
<PAGE>
UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the Underwriters named below for
whom DLJ and Smith Barney Inc. are acting as representatives (the
"Representatives") have severally agreed to purchase from the Company the
number of shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation................
Smith Barney Inc. .................................................
---------
Total............................................................ 3,330,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of
the shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be
so purchased.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial price to the public for the Common Stock offered
hereby will be determined by negotiation between the Company and the
Representatives. The principal factors to be considered in determining the
initial price to the public include the information set forth in the
Prospectus and otherwise made available to the Representatives, the history of
and the prospects for the industry in which the Company competes, the ability
of the Company's management, the past and present operations of the Company,
the historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities markets at
the time of the Offering and the recent market prices of securities of
generally comparable companies.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
price to the public set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $ per share. The Underwriters may allow, and such
dealers may reallow, discounts not in excess of $ per share to any other
Underwriter and certain other dealers. After the initial public offering, the
price to the public, the concession and the discount to dealers may be changed
by the Representatives.
The Selling Stockholders have granted to the Underwriters an option to
purchase up to an aggregate of 499,500 additional shares of Common Stock at
the initial public offering price less underwriting discounts and commissions
solely to cover over-allotments. Such option may be exercised in whole or in
part from time to time during the 30-day period after the date of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
The Company and common stockholders have agreed not to directly or
indirectly offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable or
54
<PAGE>
exchangeable for Common Stock, or in any manner transfer all or a portion of
the economic consequences associated with the ownership of such Common Stock,
or to cause a registration statement covering any shares of Common Stock to be
filed, for 180 days after the date of this Prospectus without the prior written
consent of DLJ, subject to certain limited exceptions, and provided that the
Company may grant options pursuant to, and issue shares of Common Stock upon
the exercise of options under, the 1998 Stock Plan. See "Shares Eligible for
Future Sale."
The Representatives have informed the Company that they do not expect to make
sales to accounts over which they exercise discretionary authority in excess of
5% of the number of shares of Common Stock offered hereby.
At the request of the Company, the Underwriters have reserved a portion of
the Common Stock for sale to certain employees of the Company and other persons
designated by the Company. The aggregate number of shares of Common Stock
available for sale to the public in the Offering will be reduced to the extent
such persons purchase such shares of Common Stock. The price per share of
Common Stock to be sold to these persons is equal to the initial public
offering price. Any reserved shares of Common Stock not so purchased will be
offered by the Underwriters to the public on the same basis as the other shares
of Common Stock offered hereby.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may over-allot the Offering, creating a
syndicate short position. In addition, the Underwriters may bid for and
purchase Common Stock in the open market to cover syndicate short positions or
to stabilize the price of the Common Stock. Finally, the underwriting syndicate
may reclaim selling concessions from syndicate members in the Offering, if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activites may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby and certain other legal
matters relating to the Offering will be passed upon for the Company by
Kirkland & Ellis (a partnership which includes professional corporations),
Chicago, Illinois. A partner of Kirkland & Ellis owns 17,189 shares of Common
Stock after giving effect to the Reclassification. Kaye, Scholer, Fierman, Hays
& Handler, LLP, New York, New York, will act as counsel for the Underwriters.
EXPERTS
The financial statements included in this Prospectus have been audited by
Price Waterhouse LLP. The companies and periods covered by these audits are
indicated in the report of independent accountants. Such financial statements
have been so included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 with respect to
the Common Stock being offered hereby with the Securities and Exchange
Commission (the "Commission") under the Securities Act. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
omitted in accordance with the rules and regulations of the Commission.
Statements contained in this Prospectus concerning the provisions of documents
filed with the Registration Statement as exhibits are necessarily summaries of
such documents, and each such
55
<PAGE>
statement is qualified in its entirety by reference to the copy of the
applicable document filed as an exhibit to the Registration Statement. The
Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549; at its Chicago Regional Office,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and at its
New York Regional Office, Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained from the public reference
section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates or accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov. For further information pertaining
to the Company and the Common Stock being offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports containing
unaudited summary financial information for the first three fiscal quarters of
each fiscal year.
56
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at September 30, 1996 and 1997............... F-3
Consolidated Statements of Operations for the years ended September 30,
1995, 1996 and 1997..................................................... F-4
Consolidated Statements of Cash Flows for the years ended September 30,
1995, 1996 and 1997..................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1995, 1996 and 1997....................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Nutraceutical International Corporation:
In our opinion, the consolidated financial statements of Nutraceutical
International Corporation listed in the accompanying index present fairly, in
all material respects, the financial position of Nutraceutical International
Corporation and its subsidiaries at September 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1997, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Salt Lake City, Utah
October 21, 1997
F-2
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
SEPTEMBER 30, EQUITY (NOTE 2)
---------------- SEPTEMBER 30,
1996 1997 1997
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ 2,321 $ 4,415
Accounts receivable, net................... 7,207 8,001
Inventories, net........................... 17,424 20,753
Prepaid expenses and other assets.......... 1,208 1,018
Deferred income taxes...................... 733 897
------- -------
Total current assets..................... 28,893 35,084
Property, plant and equipment, net........... 9,620 10,711
Goodwill, net................................ 43,227 42,008
Other assets, net............................ 3,015 2,307
------- -------
$84,755 $90,110
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.......... $ 500 $ 7,085
Current portion of capital lease
obligations............................... 182 181
Accounts payable........................... 4,993 6,932
Accrued expenses........................... 3,491 5,270
------- -------
Total current liabilities................ 9,166 19,468
Long-term debt............................... 62,661 52,860
Capital lease obligations.................... 314 133
Deferred income taxes, net................... 523 1,295
------- -------
Total liabilities........................ 72,664 73,756
------- -------
Commitments and contingencies (Notes 10, 13
and 16)
Stockholders' equity:
Class P Common Stock, $.01 par value,
cumulative yield of 10% per annum
compounded quarterly, 200,000 shares
authorized, 102,000 shares issued and
outstanding at September 30, 1996 and
1997, no shares issued and outstanding at
September 30, 1997 after giving effect to
the conversion and split on an as adjusted
basis..................................... 1 1 --
Class A Common Stock, $.01 par value,
cumulative yield of 10% per annum
compounded quarterly, 13,000 shares
authorized, no shares issued at September
30, 1996 and 1997, no shares issued and
outstanding at September 30, 1997 after
giving effect to the conversion and split
on an as adjusted basis................... -- -- --
Class A Non-Voting Common Stock, $.01 par
value, cumulative yield of 10% per annum
compounded quarterly, 13,000 shares
authorized, no shares issued at September
30, 1996 and 1997, no shares issued and
outstanding at September 30, 1997 after
giving effect to the conversion and split
on an as adjusted basis................... -- -- --
Common Stock, $.01 par value, 2,000,000
shares authorized, 1,026,000 shares issued
and outstanding at September 30, 1996 and
1997, 9,337,875 shares issued and
outstanding at September 30, 1997 after
giving effect to the conversion and split
on an as adjusted basis................... 10 10 93
Non-Voting Common Stock, $.01 par value,
620,000 shares authorized, 84,309 shares
issued and outstanding at September 30,
1996 and 1997, no shares issued and
outstanding at September 30, 1997 after
giving effect to the conversion and split
on an as adjusted basis................... 1 1 --
Additional paid-in capital................. 9,690 9,690 9,609
Subscriptions receivable................... (70) (55) (55)
Retained earnings.......................... 2,459 6,707 6,707
------- ------- ------
Total stockholders' equity............... 12,091 16,354 16,354
------- ------- ------
$84,755 $90,110
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
<S> <C> <C> <C>
Net sales.......................................... $62,932 $83,923 $ 98,096
Cost of sales...................................... 35,885 45,099 52,277
------- ------- ----------
Gross profit..................................... 27,047 38,824 45,819
------- ------- ----------
Operating expenses:
Selling, general and administrative.............. 21,409 27,608 29,179
Amortization of intangibles...................... 1,059 1,483 1,346
One-time payment to executive officer............ -- -- 1,700
------- ------- ----------
22,468 29,091 32,225
------- ------- ----------
Income from operations............................. 4,579 9,733 13,594
Interest expense, net.............................. 4,478 7,126 6,572
------- ------- ----------
Income before provision for income taxes........... 101 2,607 7,022
Provision for income taxes......................... 23 1,056 2,774
------- ------- ----------
Net income before extraordinary loss............... 78 1,551 4,248
Extraordinary loss on early extinguishment of debt,
net of tax........................................ (478) -- --
------- ------- ----------
Net income (loss).................................. $ (400) $ 1,551 $ 4,248
======= ======= ==========
Pro forma income per common share (unaudited)...... $ 0.39
==========
Weighted average shares used in computation of pro
forma income per common share (unaudited)......... 10,785,333
==========
Supplemental pro forma income per common share
(unaudited)....................................... $ 0.44
==========
Weighted average shares used in computation of
supplemental pro forma income per common share
(unaudited)....................................... 12,785,333
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1995 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ (400) $ 1,551 $ 4,248
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization (includes
amortization of inventory write-up of $5,285
during 1995).................................... 6,983 3,085 3,969
Amortization of debt issuance costs.............. 1,006 785 817
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable............................ (4,478) 3,932 (794)
Inventories.................................... (4,811) (1,491) (3,390)
Prepaid expenses and other assets.............. (253) (358) 190
Deferred income taxes.......................... 215 909 608
Other assets................................... (68) (1) (3)
Accounts payable............................... 1,506 (2,838) 1,939
Accrued expenses............................... 236 (1,015) 1,779
-------- ------- -------
Net cash provided by (used in) operating
activities.................................. (64) 4,559 9,363
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................ (2,837) (5,498) (3,652)
Acquisitions, net of cash acquired................. (44,560) -- --
Payments of exit and other costs associated with
acquisitions...................................... (1,758) -- --
-------- ------- -------
Net cash used in investing activities........ (49,155) (5,498) (3,652)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility............ 12,890 4,250 --
Payments on revolving credit facility.............. (3,450) (1,500) (2,950)
Proceeds from long-term debt....................... 52,000 -- --
Payments on long-term debt......................... (8,020) -- (500)
Principal payments on capital lease obligations.... (178) (178) (182)
Payment of deferred financing fees................. (3,656) -- --
Receipt of subscriptions receivable................ 59 28 15
-------- ------- -------
Net cash provided by (used in) financing
activities.................................. 49,645 2,600 (3,617)
-------- ------- -------
Net increase in cash............................... 426 1,661 2,094
Cash at beginning of period........................ 234 660 2,321
-------- ------- -------
Cash at end of period.............................. $ 660 $ 2,321 $ 4,415
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest......................................... $ 4,156 $ 6,164 $ 5,924
Income taxes..................................... $ 3 $ 513 $ 2,432
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CLASS P NON-VOTING
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
-------------- ---------------- ------------- PAID-IN SUBSCRIPTIONS RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1,
1994................... 102,000 $ 1 918,000 $ 9 -- $-- $2,577 $(157) $1,308 $ 3,738
Issuance of common
stock.................. -- -- 108,000 1 84,309 1 7,113 -- -- 7,115
Receipt of subscriptions
receivable............. -- -- -- -- -- -- -- 59 -- 59
Net loss................ -- -- -- -- -- -- -- -- (400) (400)
------- ---- --------- --- ------ ---- ------ ----- ------ -------
Balance at September 30,
1995................... 102,000 1 1,026,000 10 84,309 1 9,690 (98) 908 10,512
Receipt of subscriptions
receivable............. -- -- -- -- -- -- -- 28 -- 28
Net income.............. -- -- -- -- -- -- -- -- 1,551 1,551
------- ---- --------- --- ------ ---- ------ ----- ------ -------
Balance at September 30,
1996................... 102,000 1 1,026,000 10 84,309 1 9,690 (70) 2,459 12,091
------- ---- --------- --- ------ ---- ------ ----- ------ -------
Receipt of subscriptions
receivable............. -- -- -- -- -- -- -- 15 -- 15
Net income.............. -- -- -- -- -- -- -- -- 4,248 4,248
------- ---- --------- --- ------ ---- ------ ----- ------ -------
Balance at September 30,
1997................... 102,000 $ 1 1,026,000 $10 84,309 $ 1 $9,690 $ (55) $6,707 $16,354
======= ==== ========= === ====== ==== ====== ===== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS
Nutraceutical International Corporation (the Company) develops, manufactures
and sells high quality branded vitamin, mineral, herbal and specialty dietary
supplements to domestic health food stores and international distributors
under the Solaray, KAL, NaturalMax, VegLife, Premier One and Solar Green brand
names. The Company also produces chelated minerals and processed herbs for its
own use and sells these items to other manufacturers and marketers in the
dietary supplement industry. The Company's wholly-owned subsidiaries consist
of Nutraceutical Corporation; Solaray, Inc. (Solaray); Premier One Products,
Inc. (Premier); Makers of KAL, Inc. (KAL); NaturalMax, Inc. (Max); Monarch
Nutritional Laboratories, Inc. (Monarch); Au Naturel, Inc.; VegLife, Inc.; and
Makers of KAL B.V.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its subsidiaries (Note 1). The acquired
operations of Solaray, Premier, KAL, Max and Monarch have been consolidated
from their respective dates of acquisition (Note 3). All significant
intercompany transactions and balances have been eliminated.
Use of Estimates--The preparation of these financial statements in
conformity with generally accepted accounting principles required management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of net sales and
expenses during the reporting periods. Estimates include reserves for obsolete
and slow moving inventory, customer returns and allowances and uncollectible
accounts receivable. Actual results could differ from these estimates.
Unaudited Pro Forma Income Per Share--Given the changes in the Company's
capital structure to be effected in conjunction with the anticipated initial
public offering, historical income (loss) per common share amounts are not
presented in the consolidated financial statements as they are not considered
to be meaningful.
The calculation of pro forma primary income per share was determined by
dividing net income by the pro forma weighted average common and common
equivalent shares outstanding after giving retroactive effect to the
conversion of Class P Common Stock into 129,929 shares of Common Stock and the
conversion of Non-Voting Common Stock into 84,309 shares of Common Stock and
the 7.5291-to-one stock split of Common Stock upon the anticipated
effectiveness of the Registration Statement (collectively, the
Reclassification). In addition, in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83, shares issued and share options
granted within one year of the anticipated public offering have been included
in the calculation of common share equivalents for the primary income per
share, using the treasury stock method to determine the dilutive effect of the
issuances, as if they were outstanding for all periods presented.
Some of the proceeds from the Company's anticipated public offering will be
used to retire indebtedness existing under its Senior Credit Agreement (Note
9). Accordingly, supplemental pro forma income per share is $0.44 for the year
ended September 30, 1997; the number of shares of Common Stock whose net
proceeds are to be used to retire debt is 2,000,000. This calculation assumes
the debt retirement had taken place at the beginning of the period. The amount
of interest expense eliminated, net of tax effects, is $1,428 for the year
ended September 30, 1997.
As Adjusted Equity--The as adjusted equity at September 30, 1997 adjusts the
historical September 30, 1997 equity to give effect to the anticipated
Reclassification based on an initial public offering price of $15.00 per share
to be effective prior to the closing of the anticipated initial public
offering.
F-7
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Cash--Substantially all of the Company's cash is held by one bank at
September 30, 1997. The Company does not believe that, as a result of this
concentration, it is subject to any unusual financial risk beyond the normal
risk associated with commercial banking relationships.
Inventories--Inventories include freight-in, materials, labor and overhead
costs and are stated at the lower of cost or market, cost being determined by
a moving weighted average under the first-in, first-out method.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost, less accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the respective assets. Expenditures for renewals and
betterments are capitalized while maintenance and repairs are charged to
operations in the period incurred.
Goodwill--The excess of the purchase price over the fair market value of the
net assets acquired and liabilities assumed is classified as goodwill and is
being amortized using the straight-line method over periods ranging from 25 to
40 years. The Company periodically evaluates the recoverability of goodwill
based on undiscounted future cash flows. No impairments of goodwill have been
recorded as a result of these evaluations.
Non-Compete Agreements--Included in long-term other assets are capitalized
costs associated with non-compete agreements the Company entered into with
certain key executives of the Acquired Businesses (Note 3). These capitalized
costs are being amortized using the declining balance method over the lives of
the agreements which expire during fiscal 2000.
Deferred Financing Fees--As part of the Fiscal 1995 Acquisitions (Note 3),
the Company deferred certain debt issuance costs related to the establishment
of new financing loans (Note 9). These costs are capitalized in long-term
other assets and are being amortized using the effective interest rate method
over the life of the loans.
Interest Rate Cap Agreement--The Company entered into an interest rate cap
agreement to hedge against the interest rate risk associated with its variable
rate debt obligations (Note 9). The effect of this interest rate cap is to
minimize the impact of interest rate fluctuations on the Company's operating
results. Because the Company's losses are limited to the premium paid as part
of entering into this agreement, the Company is not subject to additional
interest rate risk. At September 30, 1997, the Company had an outstanding
interest rate cap agreement with a notional principal amount of $26,000. The
fair value of the interest rate cap agreement approximated its book value as
market interest rates have not exceeded the interest rate cap during the year.
The premium paid of $226 is being amortized over the life of the interest rate
cap which expires during fiscal 1998.
Revenue Recognition--Sales are recognized upon shipment of merchandise to a
customer. Provision is made for estimated customer returns, discounts and
allowances at the time of sale.
Research and Development--The Company expenses research and development
costs as incurred. For the years ended September 30, 1995, 1996 and 1997, the
Company incurred $472, $837 and $850, respectively, in research and
development expenditures. These costs are included in selling, general and
administrative expenses for the respective periods.
Advertising--The Company expenses advertising costs as incurred. These costs
are included in selling, general and administrative expenses for the
respective periods in the statements of operations.
Income Taxes--The Company accounts for income taxes using the asset and
liability method as prescribed by Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires the Company
to record deferred tax assets and liabilities for expected future tax
consequences of events that have been recognized in different periods for
financial statements versus tax returns.
F-8
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Accounting for Stock-Based Compensation--The Company has adopted Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). The Company measures compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by the Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and will, when material, provide pro forma
disclosures of net income and net income per share as if the fair value-based
method prescribed by SFAS 123 had been applied in measuring compensation
expense.
Fair Value of Financial Instruments--The fair values of financial
instruments, including cash, accounts receivable, other current assets,
accounts payable, accrued expenses and debt, approximates their respective
book values.
Concentrations of Credit Risk--In the normal course of business, the Company
provides credit terms to its customers; however, collateral is not required.
Accordingly, the Company performs ongoing credit evaluations of its customers
and maintains allowances for possible losses which, when realized, have been
within the range of management's expectations. From time to time, a higher
concentration of credit risk may exist on outstanding accounts receivable for
a select number of customers depending on individual buying patterns. At
September 30, 1996 and 1997, no customer accounted for more than 10 percent of
trade accounts receivable. Furthermore, no customer accounted for more than 10
percent of net sales in any of the three years ended September 30, 1997.
3. ACQUISITIONS
Acquisitions--On October 28, 1993, the Company acquired all of the
outstanding stock of Solaray, a manufacturer and marketer of encapsulated
vitamin, mineral and herbal products (the Solaray Acquisition). On October 31,
1994, January 31, 1995 and September 29, 1995, the Company acquired
substantially all of the assets and assumed certain liabilities of each of
Premier, a manufacturer and marketer of nutritional supplements derived from
bee products (the Premier Acquisition), KAL, a manufacturer and marketer of
tableted vitamins and minerals as well as diet, energy and rest products (the
KAL Acquisition), and Monarch, a manufacturer of premium bulk formulations and
provider of contract grinding services (the Monarch Acquisition), respectively
(collectively referred to as the Acquired Businesses or the Fiscal 1995
Acquisitions). These acquisitions were accounted for using the purchase method
of accounting. Accordingly, the portion of the purchase price assigned to the
assets acquired and liabilities assumed was equivalent to their respective
fair market values at the respective dates of acquisition, as determined by
valuations and studies conducted by the Company and independent third parties.
The excess of the purchase price over the fair market value of the net assets
acquired and liabilities assumed is classified as goodwill and is being
amortized using the straight-line method over periods ranging from 25 to 40
years. The consolidated statements of operations and statements of cash flows
presented herein include the activities of the Acquired Businesses from their
respective dates of acquisition.
F-9
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The aggregate purchase price for the Fiscal 1995 Acquisitions totaled
$50,821, consisting of cash of $44,560, Common Stock of $3,996 and a note
payable to a seller of $2,265. The following reflects the allocation of the
aggregate purchase price for the Fiscal 1995 Acquisitions to the aggregate
assets acquired and the liabilities assumed:
<TABLE>
<CAPTION>
FISCAL 1995
ACQUISITIONS
------------
<S> <C>
Aggregate purchase price for Fiscal 1995 Acquisitions.............. 50,821
------
Aggregate assets acquired and liabilities assumed:
Current assets.................................................... 17,413
Fixed assets...................................................... 567
Non-compete agreements............................................ 700
Other assets...................................................... 592
Goodwill.......................................................... 39,521
Current liabilities............................................... (6,651)
Long-term liabilities............................................. (40)
Exit costs........................................................ (1,281)
------
Total.............................................................. 50,821
------
</TABLE>
Exit Costs--As part of the Fiscal 1995 Acquisitions, the Company developed a
plan to close certain of the Acquired Businesses' existing facilities and
integrate their activities into the Company's operations. Pursuant to this
plan, the Company made severance payments to approximately 72 employees and
incurred certain expenditures related to non-cancelable contractual
obligations arising from the Fiscal 1995 Acquisitions. The Company accrued
$1,281 for exit costs related to the Fiscal 1995 Acquisitions. During the
years ended September 30, 1995, 1996 and 1997, approximately $850, $150 and
$39 were expended related to these exit costs. It is anticipated that the
remaining $242 will be expended over the next several years as a result of
non-cancelable contractual obligations.
4. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net, consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1997
<S> <C> <C>
Accounts receivable.......................................... $8,018 $8,811
Less allowances.............................................. (811) (810)
------ ------
$7,207 $8,001
====== ======
</TABLE>
5. INVENTORIES, NET
Inventories, net of reserves for obsolete and slow moving inventory, are
comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1996 1997
<S> <C> <C>
Raw materials................................................ $ 9,086 $10,090
Work-in-process.............................................. 1,201 3,064
Finished goods............................................... 7,137 7,599
------- -------
$17,424 $20,753
======= =======
</TABLE>
F-10
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In connection with the Fiscal 1995 Acquisitions (Note 3), the inventories of
the Acquired Businesses were valued at fair market value to reflect the net
realizable value of these inventories as of their respective acquisition dates.
The amount ascribed in excess of historical cost (write-up) was $5,285 for the
year ended September 30, 1995 and was charged to cost of sales in the
accompanying statements of operations as the inventories were sold.
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, are comprised of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL SEPTEMBER 30,
LIFE ----------------
(YEARS) 1996 1997
<S> <C> <C> <C>
Land.................... -- $ 340 $ 422
Building and
improvements........... 30 2,208 2,576
Furniture, fixtures and
equipment.............. 3-10 9,526 12,708
------- -------
12,074 15,706
Less accumulated
depreciation and
amortization........... (2,454) (4,995)
------- -------
$ 9,620 $10,711
======= =======
</TABLE>
At September 30, 1996 and 1997, furniture, fixtures and equipment includes
$522 and $474, respectively, of leased equipment with an accumulated
amortization balance of $275 and $304, respectively. Certain property and
equipment collateralize debt obligations (Note 9).
Depreciation and amortization of property, plant and equipment totaled $639,
$1,541 and $2,561 for the years ended September 30, 1995, 1996 and 1997,
respectively.
7. GOODWILL, NET
Goodwill, net, is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1996 1997
<S> <C> <C>
Goodwill................................................. $45,237 $45,237
Less accumulated amortization............................ (2,010) (3,229)
------- -------
$43,227 $42,008
======= =======
8. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<CAPTION>
SEPTEMBER 30,
----------------
1996 1997
<S> <C> <C>
Employee payroll, benefits, taxes and performance
incentives.............................................. $ 1,186 $ 2,009
One-time payment to executive officer.................... -- 1,700
Other.................................................... 2,305 1,561
------- -------
$ 3,491 $ 5,270
======= =======
</TABLE>
F-11
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The one-time payment to executive officer represents a payment to the
Company's Chief Executive Officer for successfully positioning the Company for
an initial public offering. Such payment is in excess of the Chief Executive
Officer's annual compensation (salary and bonus), and the Company does not
expect to make any further payments of this nature or magnitude in the future.
9. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1996 1997
<S> <C> <C>
Note payable, payable in three installments as follows:
$500 in December 1996, $500 in October 1997 and $765 in
January 1998; interest is payable with principal
installments and accrues at 8% per annum................. $ 1,765 $ 1,265
Senior Credit Agreement:
Revolving Credit Facility............................... 12,190 9,240
Term A Loan............................................. 37,000 37,000
Term B Loan, net of unamortized discount of $2,794 and
$2,560................................................. 12,206 12,440
------- -------
Total long-term debt...................................... 63,161 59,945
Less current portion...................................... (500) (7,085)
------- -------
$62,661 $52,860
======= =======
</TABLE>
SENIOR CREDIT AGREEMENT
In connection with the KAL Acquisition (Note 3), the Company and its
subsidiaries entered into a Senior Credit Agreement with a lender, which was
subsequently amended at closing of the Monarch Acquisition. The Company's
borrowings under the Senior Credit Agreement, consisting of the Revolving
Credit Facility, the Term A Loan and the Term B Loan, are secured by a
perfected first priority security interest in the assets of the Company and
its subsidiaries. The Company deferred certain debt issuance costs as part of
entering into the Senior Credit Agreement. These costs have been capitalized
in long-term other assets and are being amortized using the effective interest
rate method over the life of the loans. A portion of the proceeds from the
Senior Credit Agreement were used to repay the long-term debt outstanding
related to the Solaray and Premier Acquisitions. In connection with the
repayment of this debt, unamortized deferred financing fees of $554 were
written off as an extraordinary expense in determining net loss for the year
ended September 30, 1995.
Under the terms of the Senior Credit Agreement, the Company must comply with
certain restrictive covenants which include the requirement that the Company
maintain minimum amounts of profitability, solvency and liquidity. In
addition, the Senior Credit Agreement restricts the Company from making
certain payments. The Senior Credit Agreement provides that upon a change in
control of the Company, the lender could require immediate payment of the
Revolving Credit Facility, Term A Loan and Term B Loan.
Revolving Credit Facility--The agreement provides for borrowings of up to
$15,000 based upon a percentage of eligible accounts receivable and
inventories and expires on January 31, 2003. Advances under the Revolving
Credit Facility bear interest at the London Inter-Bank Offered Rate (LIBOR)
plus 3% or the lender's base rate plus 1.5% (8.63% at September 30, 1997). The
Company is required to pay a monthly fee of 0.5% per annum on the average
unused balance under the Revolving Credit Facility. As of September 30, 1997,
$5,760 was available to be borrowed under the Revolving Credit Facility.
Accrued interest on the facility is payable monthly.
F-12
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Term A Loan--Under the Term A Loan, $37,000 was advanced on January 31, 1995.
Principal payments of $1,629 are due quarterly beginning April 30, 1998.
Quarterly principal payments increase to $2,094 beginning April 30, 2002 and
continue through maturity on January 31, 2003. In addition, pursuant to the
Senior Credit Agreement, the Company is required to make payments on the Term A
Loan for excess cash flow as calculated at each fiscal year end. As of
September 30, 1997, the total amount due related to excess cash flow is $2,562.
Advances under the Term A Loan bear interest at a rate equal to the LIBOR plus
3.25% or the lender's base rate plus 1.75% (8.88% at September 30, 1997).
Accrued interest on the Term A Loan is payable monthly. In addition, the Senior
Credit Agreement permits the Company to borrow up to an additional $6,000
related to the Term A Loan for construction of a new facility. As of September
30, 1997, the Company had not made any borrowings related to this additional
$6,000 under the Term A Loan.
Term B Loan--Under the Term B Loan, $15,000 was advanced on January 31, 1995
and the entire amount is due on January 31, 2004. In connection with this loan,
the Company issued 84,309 shares of Non-Voting Common Stock at $37.00 per
share, the estimated fair market value. The Term B Loan was recorded with an
original discount of $3,119, equivalent to the estimated fair value of the
Common Stock issued. This discount is being amortized using the effective
interest method over the life of the loan. Advances under the Term B Loan bear
interest at a rate equal to the LIBOR plus 4%, or the lender's base rate plus
2.5% (9.63% at September 30, 1997). Accrued interest on the Term B Loan is
payable quarterly.
FUTURE PAYMENTS
At September 30, 1997, the scheduled future principal payments are as
follows:
<TABLE>
<CAPTION>
YEAR
ENDING
SEPTEMBER
30,
<S> <C>
1998............................................................... $ 7,085
1999............................................................... 6,515
2000............................................................... 6,515
2001............................................................... 6,515
2002............................................................... 7,446
Thereafter......................................................... 25,869
-------
$59,945
=======
</TABLE>
F-13
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. LEASE COMMITMENTS AND OBLIGATIONS
The Company leases office and warehouse facilities under non-cancelable
operating leases expiring June of 2003. These operating leases require the
Company to pay all taxes, insurance and maintenance. The Company also leases
certain computer, manufacturing and laboratory equipment under capital leases.
The following summarizes future minimum lease payments required under capital
and operating leases:
<TABLE>
<CAPTION>
YEAR
ENDING
SEPTEMBER CAPITALIZED OPERATING
30, LEASES LEASES
<S> <C> <C>
1998................................................. $ 206 $ 779
1999................................................. 63 539
2000................................................. 63 319
2001................................................. 23 66
2002................................................. -- 66
Thereafter........................................... -- 50
----- ------
Future minimum lease payments......................... 355 $1,819
======
Less amounts representing interest.................... (41)
-----
Present value of future minimum lease payments........ 314
Less amounts due within one year...................... (181)
-----
Amounts due after one year............................ $ 133
=====
</TABLE>
Total rent expense incurred by the Company under non-cancelable operating
leases for the years ended September 30, 1995, 1996 and 1997 was $715, $898 and
$950, respectively.
11. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Current:
Federal............................................... $(302) $ 134 $2,058
State................................................. (29) 13 197
Deferred:
Federal............................................... 194 830 508
State................................................. 21 79 11
----- ------ ------
$(116) $1,056 $2,774
===== ====== ======
</TABLE>
The net benefit for income taxes consists of a provision of $23 resulting
from income before provision for income taxes and a benefit of $139 resulting
from the extraordinary loss on early extinguishment of debt.
F-14
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of the composition of net deferred income tax assets and
liabilities is as follows:
<TABLE>
<CAPTION>
SEPTEMBER
30,
-----------
1996 1997
<S> <C> <C>
ASSETS
Accrued liabilities............................................. $329 $ 748
Inventory differences........................................... 348 108
Accounts receivable reserves.................................... 28 41
Other........................................................... 28 --
---- ------
Current deferred income tax assets.............................. $733 $ 897
==== ======
LIABILITIES
Amortization of intangibles..................................... $521 $1,131
Depreciation.................................................... 2 164
---- ------
Long-term deferred income tax liabilities, net.................. $523 $1,295
==== ======
</TABLE>
The differences between income taxes at the statutory federal income tax rate
and income taxes reported in the statements of operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------------
1995 1996 1997
<S> <C> <C> <C>
Tax at federal statutory rate......................... $(176) $ 886 $2,387
State tax, net of federal benefit..................... (5) 94 249
Non-deductible expenses............................... 76 86 102
Other................................................. (11) (10) 36
----- ------ ------
$(116) $1,056 $2,774
===== ====== ======
</TABLE>
12. CAPITAL STOCK
Description of Capital Stock--The Company has five classes of authorized
capital stock: Class P Common Stock, Class A Common Stock, Class A Non-Voting
Common Stock, Common Stock and Non-Voting Common Stock. Each share of Class P
Common Stock, Class A Common Stock and Class A Non-Voting Common Stock is
entitled to a preferential payment (the Preference Amount) upon any
distribution by the Company to holders of its capital stock (whether by
dividend, liquidating distribution or otherwise) equal to the original cost of
such share plus an amount which accrues on a daily basis at a rate of 10% per
annum on such cost, compounded quarterly. As of September 30, 1997, the
aggregate Preference Amount of the outstanding Class P Common Stock was $3,041,
based on an aggregate original cost of $2,066. Upon the occurrence of an
initial public offering of the Company's Common Stock, each outstanding share
of such classes of capital stock will be reclassified into one share of Common
Stock plus an additional number of shares of Common Stock determined by
dividing the applicable Preference Amount for such share by the value of a
share of Common Stock based on the estimated initial public offering price.
Holders of Class P Common Stock are entitled to receive their respective
Preference Amounts before any distributions can be made to the holders of Class
A Common Stock, Class A Non-Voting Common Stock, Common Stock and Non-Voting
Common Stock. Similarly, holders of Class A Common Stock and Class A Non-Voting
Common Stock are entitled to receive their respective Preference Amounts before
any distributions can be made to the holders of Common Stock and Non-Voting
Common Stock. Once holders of Class P Common Stock, Class A Common Stock and
Class A Non-Voting Common Stock have received their respective
F-15
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Preference Amounts, additional distributions will be divided ratably among all
classes of Common Stockholders based upon the total number of shares
outstanding.
Holders of Class P Common Stock, Class A Common Stock and Common Stock are
entitled to one vote per share on all matters to be voted on by the Company's
stockholders, and the holders of these classes of stock vote together as a
single class. The outstanding shares of one class of stock cannot be the
subject of a stock split or a stock dividend unless the outstanding shares of
the other class are similarly affected.
Executive Stock Purchase Agreements--On October 28, 1993, the Company entered
into stock purchase agreements with certain executives whereby each executive
purchased 500 shares of Class P Common Stock and 4,500 shares of Common Stock
at their estimated fair market values of $20.25 and $0.25 per share,
respectively. Ten percent of the shares purchased vested upon execution of the
agreements and the remaining shares vest between 20% and 30% at the end of each
calendar year through December 31, 1997. Upon a sale or public offering of the
stock of the Company, all unvested shares vest immediately. Each agreement
includes an option for the Company to repurchase the executive's shares upon
the executive's termination of employment. This option provides for vested
shares to be repurchased at fair market value and unvested shares to be
repurchased at the executive's original per share cost.
Stock Warrants--The debt financing obtained as part of the Solaray
Acquisition on October 28, 1993 has detachable stock warrants that entitle the
holder to purchase 12,994.35 shares of Class A Non-Voting Common Stock and
116,949.15 shares of Non-Voting Common Stock of the Company at an exercise
price of $0.01 per share. The stock warrants, which expire October 28, 2003,
were valued at their estimated fair market value of $292 on the date of
issuance, as benchmarked against comparable transactions. This amount has been
recorded in additional paid-in capital. As part of entering into the Senior
Credit Agreement (Note 9), the debt financing obtained as part of the Solaray
Acquisition was retired and the $63 unamortized portion of the discount arising
from the detachable stock warrants was recognized as an extraordinary expense
in determining net loss for the year ended September 30, 1995.
Stock Options--During November 1994, the Company issued 40,000 common stock
options to certain key executives at an exercise price of $26.00, management's
estimate of the fair market value of the common stock at the date of grant.
These options vest over a period of five years and expire on the tenth
anniversary of the date of grant.
Pursuant to certain broker agreements entered into in connection with the
Premier Acquisition and the KAL Acquisition (Note 3), the Company issued
warrants during January 1995 to purchase 21,779 shares of Common Stock at
exercise prices ranging from $36.58 to $37.00 per share, which were considered
to be the estimated fair market value of the Company's stock at the date of
grant. These warrants vested immediately and expire in January 2005.
F-16
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Stock Option Plan--During the year ended September 30, 1995, the Company's
Board of Directors adopted the 1995 Stock Option Plan (the 1995 Option Plan).
The 1995 Option Plan provides for granting options to executives and key
employees of the Company and its subsidiaries to purchase common stock. In
aggregate, 30,000 shares have been reserved for issuance under the 1995 Option
Plan. The following grants have been made under this plan:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE PRICE AGGREGATE
OPTIONS PER SHARE OPTION PRICE
<S> <C> <C> <C>
Outstanding at October 1, 1994......... -- $-- $ --
Granted................................ 25,300 37 936
Exercised.............................. -- -- --
Canceled............................... -- -- --
------ ---- -----
Outstanding at September 30, 1995...... 25,300 37 936
------ ---- -----
Granted................................ -- -- --
Exercised.............................. -- -- --
Canceled............................... (2,025) (37) (75)
------ ---- -----
Outstanding at September 30, 1996...... 23,275 37 861
------ ---- -----
Granted................................ 3,500 65 228
Exercised.............................. -- -- --
Canceled............................... (4,425) (37) (164)
------ ---- -----
Outstanding at September 30, 1997...... 22,350 $ 41 $ 925
====== ==== =====
</TABLE>
These options were issued at exercise prices which represent management's
estimate of the fair market value at the date of grant. The options vest over a
period of four years and expire on the tenth anniversary of the date of grant.
The Company's pro forma net income for the years ended September 30, 1996 and
1997 would have been $1,551 and $4,239, respectively, if compensation cost had
been measured under the fair value method of SFAS 123.
The fair value of the options granted during 1997 was estimated as of the
date of grant using a Black-Scholes option pricing model with the following
assumptions: risk free interest rate of 6.15%; expected life of 5 years;
expected volatility of 1%; and expected dividend yield of 0%. Because the
Company's stock options have characteristics significantly different from
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, management's opinion is that the
existing valuation models do not necessarily provide a reliable single measure
of the fair value of its employee stock options. The initial impact of applying
the fair value method of SFAS 123 on pro forma net income may not be
representative of the impact of applying such method in future years, depending
upon the amount of stock options awarded in the future and their related
vesting periods.
13. EMPLOYEE BENEFIT PLANS
401(k) Plan--The Company has a 401(k) defined contribution profit sharing
plan which covers substantially all employees. Under the plan, employees can
contribute up to 15% of their compensation, not to exceed the prescribed annual
statutory limit ($9,500 for calendar 1997). The Company makes matching and
discretionary contributions to the plan which approximate 5% of all eligible
employees' salaries. The amounts contributed to the plan by the Company during
the years ended September 30, 1995, 1996 and 1997 were $174, $254 and $317,
respectively.
F-17
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Self-Funded Health Insurance Plan--The Company has a self-insured health care
program for its employees and their dependents. Under the program, the Company
pays claims up to $30 per year for each individual, while claims exceeding $30
per individual, or $498 in the aggregate as of September 30, 1997, are covered
by a third party stop-loss insurance policy. The stop-loss insurance amounts
are determined by the Company based on the number of employees, prior claim
history and insurance premium pricing. The Company accrues for anticipated
health care expenses which have been incurred but not yet reported based on
historical claim experience. Total health insurance expense incurred by the
Company, which includes claims, third party insurance premiums and other
related costs, for the years ended September 30, 1995, 1996 and 1997 was $240,
$526 and $770, respectively. At September 30, 1997, the Company had accrued
$105 for claims incurred but not reported and claims reported but not paid.
14. RELATED PARTY TRANSACTIONS
On January 31, 1995, the Company entered into a five year management
agreement (the Agreement) with certain stockholders of the Company. The
Agreement is automatically extended on a year-to-year basis unless written
notice is provided by one of the parties. The Agreement requires the Company to
pay a monthly management fee of $25 plus out-of-pocket expenses payable on a
quarterly basis in arrears commencing March 31, 1995. For the years ended
September 30, 1995, 1996, and 1997, the Company incurred $341, $339 and $360,
respectively, in fees and out-of-pocket expenses for these stockholders. The
balances due at September 30, 1996 and 1997 under the Agreement were $86 and
$89, respectively.
In addition to the management fees described above, certain stockholders also
received payouts of $300, $100 and $1,200 for services rendered related to the
Solaray, Premier and KAL Acquisitions, respectively.
During fiscal 1994, the Company loaned a total of $157 to certain
stockholders for the purchase of the Company's Common Stock. Loans in the
aggregate amount of $45 were non-interest bearing and were repaid in full
during fiscal 1995. The remaining loans in the aggregate of $112 bear interest
at 6% per annum and are payable in four annual installments commencing October
28, 1994 and ending October 28, 1997. The amounts outstanding under these loans
at September 30, 1996 and 1997 were $70 and $55, respectively.
The Company, certain stockholders, the Company's lender under the Senior
Credit Agreement and the Company's lender in connection with the Solaray and
Premier acquisitions are parties to a stockholders agreement, dated as of
January 31, 1995 (the Stockholders Agreement). The Stockholders Agreement
amends, restates and supersedes a prior stockholders agreement, dated as of
October 28, 1993. The Stockholders Agreement contains provisions relating to
the composition of the Board of directors, restricting the transferability of
the shares subject to such agreement and granting preemptive rights in certain
circumstances to the parties thereto. The Stockholders Agreement, apart from
certain provisions thereof, will be automatically terminated upon consummation
of the anticipated initial public offering.
The Company and certain of its stockholders are parties to a Registration
Agreement providing for the registration of certain shares of Common Stock in
future periods.
15. SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended September 30, 1995, the Company issued 108,000 shares
of Common Stock at $37.00 per share and a $2,265 note payable for the purchases
of KAL and Monarch (Note 3), respectively. Additionally, warrants were issued
pursuant to certain broker agreements entered into in connection with the KAL
and Premier Acquisitions (Note 12).
F-18
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
As part of entering into the Senior Credit Agreement pursuant to the KAL
Acquisition (Note 9), the Company issued 84,309 shares of Non-Voting Common
Stock at $37.00 per share. These shares were recorded as a discount of $3,119
on the Term B Loan.
16. COMMITMENTS AND CONTINGENCIES
The formulation, manufacturing, processing, packaging, labeling, advertising,
distribution and sale of dietary supplements (consisting of vitamins, amino
acids, minerals, herbs, other botanicals and other dietary ingredients) such as
those sold by the Company are subject to regulation by one or more federal
agencies, principally the Food and Drug Administration and the Federal Trade
Commission and, to a lesser extent, the Consumer Product Safety Commission and
United States Department of Agriculture. These activities are also regulated by
various governmental agencies for the states and localities in which the
Company's products are sold, as well as by governmental agencies in certain
foreign countries in which the Company's products are sold.
Although management believes that the Company is in compliance, in all
material respects, with the statutes, laws, rules and regulations of every
jurisdiction in which it operates, no assurance can be given that the Company's
compliance with applicable statutes, laws, rules and regulations will not be
challenged by governing authorities or that such challenges will not have a
material adverse effect on the Company's financial position or results of
operations or cash flows.
The Company, like any other retailer, distributor and manufacturer of
products that are designed to be ingested, also faces an inherent risk of
exposure to product liability claims in the event that the use of its products
results in injury. With respect to product liability claims, the Company has
liability insurance; however, there can be no assurance that such insurance
will be adequate to cover potential liabilities. In the event that the Company
does not have adequate insurance or contractual indemnification from parties
supplying raw materials or marketing its products, product liabilities relating
to defective products could have a material adverse effect on the Company.
The Company has been sued by American Cyanimid, the manufacturer of the
Centrum line of vitamin/mineral supplements. American Cyanimid alleges that the
Solaray rainbow logo, as well as the KAL rainbow logo (since abandoned)
infringes, or has infringed, on the Centrum color spectrum logo. The Company
believes the claim is without merit and is vigorously defending the lawsuit.
There can be no assurance that the Company may not be required to pay damages
or attorney fees and costs, and change or abandon the Solaray rainbow logo. The
Company is unable to estimate a possible loss or range of loss which could
result from this contingency.
The Company is not currently a named defendant in any product liability
lawsuit. However, the Company is involved in various legal matters arising in
the normal course of business. In the opinion of management, the Company's
liability, if any, arising from legal proceedings related to these matters is
not expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPEC-
TUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HERE-
OF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
Reclassification......................................................... 16
Dilution................................................................. 17
Dividend Policy.......................................................... 18
Use of Proceeds.......................................................... 18
Capitalization........................................................... 19
Unaudited Pro Forma Financial Statements................................. 20
Selected Historical Consolidated Financial Data......................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 31
Management............................................................... 42
Certain Relationships and Related Transactions........................... 48
Principal and Selling Stockholders....................................... 49
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Underwriting............................................................. 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Available Information.................................................... 55
Index to Financial Statements............................................ F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,330,000 SHARES
NUTRACEUTICAL
INTERNATIONAL
CORPORATION
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 16,963
NASD filing fee................................................. 6,250
Nasdaq National Market fees..................................... 50,000
Blue sky fees and expenses (including attorneys' fees and ex-
penses)........................................................ 10,000
Printing and engraving expenses................................. 120,000
Transfer agent's fees and expenses.............................. 15,000
Accounting fees and expenses.................................... 600,000
Legal fees and expenses......................................... 500,000
Miscellaneous expenses.......................................... 81,787
----------
Total....................................................... $1,400,000
==========
</TABLE>
All amounts are estimated except for the SEC registration fee and the NASD
filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was or is an officer, director, employee or agent of
such corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any person who is, or is
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The Company's Restated Certificate of Incorporation will provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.
In that regard, the Restated Certificate of Incorporation will provide that
the Company shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action,
II-1
<PAGE>
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of such corporation, or is or was
serving at the request of such corporation as a director, officer or member of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification in
connection with an action or suit by or in the right of such corporation to
procure a judgment in its favor will be limited to payment of settlement of
such an action or suit except that no such indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the indemnifying corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Prior to the consummation of the Offering, the Company expects to enter into
agreements to provide indemnification for its directors and executive officers
in addition to the indemnification provided for in the Company's Restated
Certificate of Incorporation and By-laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The number of shares set forth below, and the exercise price of certain
options and warrants per share set forth below, do not give effect to the
proposed stock split and other transactions referred to in the Prospectus
under "Reclassification."
(1) On January 31, 1995, the Company issued to Jackson National 84,309
shares of the Non-Voting Common Stock of the Company, par value $.01 per
share. These shares were issued to Jackson National as part of the
consideration furnished to Jackson National in return for the credit facility
and term loans provided by Jackson National to certain subsidiaries of the
Company.
(2) On January 31, 1995, the Company issued to Old Kal 108,000 shares of the
Common Stock of the Company, par value $.01 per share. The Company issued
these shares as part of the consideration furnished to Old Kal in return for
assets sold by Old Kal to the Company.
(3) On January 31, 1995, as partial consideration for certain advisory
services, the Company sold the following warrants to purchase its Common
Stock: (a) (i) to William E. Myers, Jr., for an aggregate purchase price of
$773.34, warrants to purchase 2,374.14 shares; (ii) to Brian E. Sanderson, for
an aggregate purchase price of $193.33, warrants to purchase 593.53 shares;
and (iii) to David Harvey, for an aggregate purchase price of $33.33, warrants
to purchase 102.33 shares and (b) (i) to William E. Myers, Jr., for an
aggregate purchase price of $773.34, warrants to purchase 14,468.30 shares;
(ii) to Brian E. Sanderson, for an aggregate purchase price of $193.33,
warrants to purchase 3,617.07 shares; and (iii) to David Harvey, for an
aggregate purchase price of $33.33, warrants to purchase 623.63 shares. The
warrants listed under (a) above had an exercise price of $36.58 per share, and
the warrants listed under (b) above had an exercise price of $37.00 per share
(in each case before giving effect to the stock split described under
"Reclassification" in the Prospectus).
(4) The Company has outstanding options to purchase an aggregate of 23,350
(before adjusting for the stock split accomplished in connection with the
Offering) shares of Common Stock pursuant to its 1995 Stock Option Plan, none
of which have been exercised as of January 27, 1998.
The Company has not sold any unregistered securities, other than those
described above, in the last three years. The sales and issuances described in
paragraphs (1)-(3) above were deemed to be exempted from registration under
the Securities Act by virtue of Section 4(2) as transactions not involving a
public offering. The sales and issuances described above in paragraph (4) were
deemed to be exempted from registration under the Securities Act by virtue of
Section 3(b) thereof and Rule 701 promulgated thereunder.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Form of By-laws of the Registrant
4.1 Form of certificate representing Common Stock
*5.1 Opinion of Kirkland & Ellis
10.1 Revolving Credit and Term Loan Agreement dated as of January 31, 1995
among Nutraceutical Corporation, Solaray, Kal, Natural Max, Premier,
the Company and Jackson National+
10.2 Waiver and Amendment to Revolving Credit and Term Loan Agreement
dated as of September 29, 1995 among Nutraceutical Corporation,
Solaray, Kal, Natural Max, Premier, Monarch, Au Naturel, Inc., the
Company and Jackson National
10.3 Amended and Restated Stockholders Agreement dated as of January 31,
1995 among the Company and certain of its stockholders
10.4 Amended and Restated Registration Agreement dated as of January 31,
1995 among the Company and certain of its stockholders
10.5 Investor Agreement dated as of January 31, 1995 among the Company,
Old Kal and the Bain Capital Funds
10.6 Consultant Stock Agreement dated as of October 28, 1993 between the
Company and Bruce R. Hough
10.7 Executive Stock Agreement dated as of October 28, 1993 between the
Company and Jeffrey H. Hinrichs
10.8 Warrants dated October 28, 1993 issued by the Company to Heller
Financial, Inc. for the right to purchase 12,994.35 shares of Class A
Non-Voting Common Stock and 116,949.15 shares of Non-Voting Common
Stock
10.9 First Amendment to Warrants dated as of October 31, 1994 between the
Company and Heller
10.10 Second Amendment to Warrants dated as of January 31, 1995 between the
Company and Heller
10.11 Stock Option Agreement dated as of November 15, 1994 between the
Company and Jeffrey A. Hinrichs
10.12 Stock Option Agreement dated as of November 15, 1994 between the
Company and Bruce R. Hough
10.13 Stock Option Agreement dated as of November 15, 1994 between the
Company and Frank W. Gay, II
10.14 Form of Area Sales Consultant Agreement
10.15 Form of Transaction Services Agreement between the Company and Bain
Capital, Inc.
10.16 Form of Termination Agreement between the Company and Bain Capital,
Inc.
10.17 Form of Indemnification Agreement
10.18 1998 Stock Incentive Plan
10.19 Non-Employee Director Stock Option Plan
10.20 Employee Stock Discount Purchase Plan
11.1 Computation of Pro Forma Earnings Per Share
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
<C> <S>
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Kirkland & Ellis (included in opinion to be filed as
Exhibit 5.1)
*24.1 Powers of attorney
**27 Financial Data Schedule
</TABLE>
- ---------------------
*To be filed by amendment.
**Previously filed.
+The Company agrees to submit any omitted schedule or exhibit to such item
upon request by the Commission.
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BOSTON, STATE OF MASSACHUSETTS ON JANUARY 28, 1998.
Nutraceutical International
Corporation
*
By: _________________________________
NAME:FRANK W. GAY II
TITLE: CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED ON JANUARY 28, 1998, BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED WITH RESPECT TO NUTRACEUTICAL
INTERNATIONAL CORPORATION:
SIGNATURE CAPACITY
Director, Chairman
* of the Board and
- ------------------------------------- Chief Executive
FRANK W. GAY II Officer
Director and
* President
- -------------------------------------
BRUCE R. HOUGH
Director, Chief
* Operating Officer
- ------------------------------------- and Executive Vice
JEFFREY A. HINRICHS President
Senior Vice
* President, Finance
- ------------------------------------- and Chief Financial
LESLIE M. BROWN, JR. Officer
Director
*
- -------------------------------------
ROBERT C. GAY
Director
*
- -------------------------------------
GEOFFREY S. REHNERT
II-5
<PAGE>
SIGNATURE CAPACITY
Director
*
- -------------------------------------
MATTHEW S. LEVIN
* The undersigned, by signing his name hereto, does hereby sign and execute
this Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Stanley E. Soper
- -------------------------------------
STANLEY E. SOPER
Attorney-in-fact
II-6
<PAGE>
NUTRACEUTICAL INTERNATIONAL CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1997
Deducted from related
asset account:
Allowance for sales
returns.............. $456 $207 $ -- $243 $ 420
Allowance for doubtful
accounts............. $355 $ 35 $ -- $ -- $ 390
Provision for
inventory............ $675 $492 $ -- $ -- $1,167
SEPTEMBER 30, 1996
Deducted from related
asset account:
Allowance for sales
returns.............. $412 $601 $ -- $557 $ 456
Allowance for doubtful
accounts............. $420 $ -- $ -- $ 65 $ 355
Provision for
inventory............ $625 $ 50 $ -- $ -- $ 675
SEPTEMBER 30, 1995
Deducted from related
asset account:
Allowance for sales
returns.............. $ 20 $ -- $394 $ 2 $ 412
Allowance for doubtful
accounts............. $ 21 $100 $303 $ 4 $ 420
Provision for
inventory............ $ -- $400 $225 $ -- $ 625
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
<C> <S> <C>
*1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Form of By-laws of the Registrant
4.1 Form of certificate representing Common Stock
*5.1 Opinion of Kirkland & Ellis
10.1 Revolving Credit and Term Loan Agreement dated as of January
31, 1995 among Nutraceutical Corporation, Solaray, Kal,
Natural Max, Premier, the Company and Jackson National+
10.2 Waiver and Amendment to Revolving Credit and Term Loan
Agreement dated as of September 29, 1995 among Nutraceutical
Corporation, Solaray, Kal, Natural Max, Premier, Monarch, Au
Naturel, Inc., the Company and Jackson National
10.3 Amended and Restated Stockholders Agreement dated as of
January 31, 1995 among the Company and certain of its
stockholders
10.4 Amended and Restated Registration Agreement dated as of
January 31, 1995 among the Company and certain of its
stockholders
10.5 Investor Agreement dated as of January 31, 1995 among the
Company, Old Kal and the Bain Capital Funds
10.6 Consultant Stock Agreement dated as of October 28, 1993
between the Company and Bruce R. Hough
10.7 Executive Stock Agreement dated as of October 28, 1993 between
the Company and Jeffrey H. Hinrichs
10.8 Warrants dated October 28, 1993 issued by the Company to
Heller Financial, Inc. for the right to purchase 12,994.35
shares of Class A Non-Voting Common Stock and 116,949.15
shares of Non-Voting Common Stock
10.9 First Amendment to Warrants dated as of October 31, 1994
between the Company and Heller
10.10 Second Amendment to Warrants dated as of January 31, 1995
between the Company and Heller
10.11 Stock Option Agreement dated as of November 15, 1994 between
the Company and Jeffrey A. Hinrichs
10.12 Stock Option Agreement dated as of November 15, 1994 between
the Company and Bruce R. Hough
10.13 Stock Option Agreement dated as of November 15, 1994 between
the Company and Frank W. Gay, II
10.14 Form of Area Sales Consultant Agreement
10.15 Form of Transaction Services Agreement between the Company and
Bain Capital, Inc.
10.16 Form of Termination Agreement between the Company and Bain
Capital, Inc.
10.17 Form of Indemnification Agreement
10.18 Stock Incentive Plan
10.19 Non-Employee Director Stock Option Plan
10.20 Employee Stock Discount Purchase Plan
11.1 Computation of Pro Forma Earnings Per Share
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
<C> <S> <C>
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Kirkland & Ellis (included in opinion to be filed
as Exhibit 5.1)
*24.1 Powers of attorney
**27 Financial Data Schedule
</TABLE>
*To be filed by amendment.
**Previously filed.
+The Company agrees to submit any omitted schedule or exhibit to such item
upon request by the Commission.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
NUTRACEUTICAL INTERNATIONAL CORPORATION
ARTICLE I - Name
----------------
The name of the corporation is Nutraceutical International Corporation
(hereinafter referred to as the "Corporation").
ARTICLE II - Registered Office
------------------------------
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle
19805. The name of the registered agent of the Corporation at that address is
The Prentice-Hall Corporation System, Inc.
ARTICLE III - Purpose
---------------------
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "Delaware General Corporation Law").
ARTICLE IV - Capital Stock
--------------------------
Part A. General. The maximum number of shares of capital stock that the
Corporation is authorized to have outstanding at any one time is 55,000,000
shares, consisting of: (i) 5,000,000 shares of Preferred Stock, par value $0.01
per share (the "Preferred Stock"); and (ii) 50,000,000 shares of Common Stock,
par value $0.01 per share (the "Common Stock").
Part B. Preferred Stock. Authority is hereby expressly vested in the
Board of Directors of the Corporation (each member thereof, a "Director," and
collectively, the "Board of Directors" or the "Board"), without further action
by the Corporation's stockholders, subject to the provisions of this ARTICLE IV
and to the limitations prescribed by law, to authorize the issuance from time to
time of one or more series of Preferred Stock. The authority of the Board of
Directors with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a majority of the total number of the Directors then in
office:
<PAGE>
(1) The designation of such series;
(2) The dividend rate of such series, the conditions and dates upon which
such dividends shall be payable, the relation which such dividends shall bear to
the dividends payable on any other class or classes or series of the
Corporation's capital stock and whether such dividends shall be cumulative or
non-cumulative;
(3) Whether the shares of such series shall be subject to redemption for
cash, property or rights, including securities of any other corporation, by the
Corporation or upon the happening of a specified event and, if made subject to
any such redemption, the times or events, prices, rates, adjustments and other
terms and conditions of such redemptions;
(4) The terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
(5) Whether or not the shares of such series shall be convertible into, or
exchangeable for, at the option of either the holder or the Corporation or upon
the happening of a specified event, shares of any other class or classes or of
any other series of the same class of the Corporation's capital stock and, if
provision be made for conversion or exchange, the times or events, prices,
rates, adjustments and other terms and conditions of such conversions or
exchanges;
(6) The restrictions, if any, on the issue or reissue of any additional
Preferred Stock;
(7) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(8) The provisions as to voting, optional and/or other special rights and
preferences, if any, including, without limitation, the right to elect one or
more Directors.
Part C. Common Stock. Except as otherwise provided by the Delaware
General Corporation Law or this Restated Certificate of Incorporation (the
"Restated Certificate"), and subject to the rights of holders of any series of
Preferred Stock, the holders of record of Common Stock shall share ratably in
all dividends payable in cash, stock or otherwise and other distributions,
whether in respect of liquidation or dissolution (voluntary or involuntary) or
otherwise and, are subject to all the powers, rights, privileges, preferences
and priorities of any series of Preferred Stock as provided herein or in any
resolution or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the provisions of Section B of this ARTICLE
IV.
(1) The Common Stock shall not be convertible into, or exchangeable for,
shares of any other class or classes or of any other series of the same of the
Corporation's capital stock.
(2) No holder of Common Stock shall have any preemptive, subscription,
redemption, conversion or sinking fund rights with respect to the Common Stock,
or to any obligations convertible (directly or indirectly) into stock of the
Corporation whether now or hereafter authorized.
-2-
<PAGE>
(3) Except as otherwise provided by the Delaware General Corporation Law,
or the Restated Certificate and subject to the rights of holders of any series
of Preferred Stock, all of the voting power of the stockholders of the
Corporation shall be vested in the holders of the Common Stock, and each holder
of Common Stock shall have one vote for each share held by such holder on all
matters voted upon by the stockholders of the Corporation.
Part D. Reclassification and Stock Split.
(1) Reclassification. Immediately upon the filing of this Restated
Certificate with the Secretary of State of the State of Delaware (the "Effective
Time"), (A) each share of Non-Voting Common Stock, par value $.01, of the
Corporation outstanding immediately prior to the Effective Time shall be,
without further action by the Corporation or any of the holders thereof,
reclassified into one share of Common Stock and (B) each share of Class A Non-
Voting Common Stock, par value $.01 per share, Class A Common Stock, par value
$.01 per share, and Class P Common Stock, par value $.01 per share, of the
Corporation (the "Accruing Common") outstanding immediately prior to the
Effective Time shall be, without further action by the Corporation or any of the
holders thereof, reclassified into one share of Common Stock plus an additional
number of shares of Common Stock equal to the sum of the Unreturned Original
Cost and Unpaid Yield (as such terms are defined in the Corporation's
Certificate of Incorporation as in effect immediately prior to the Effective
Time) on such outstanding share of Accruing Common as of the Effective Date
divided by the Public Offering Price. The fraction resulting from dividing the
sum of the Unreturned Original Cost and Unpaid Yield of each outstanding share
of Accruing Common by the Public Offering Price is referred to herein as the
"Conversion Factor". Each certificate representing outstanding shares of
Accruing Common shall automatically represent from and after the Effective Time
that number of shares of Common Stock equal to the number of shares shown on the
face of the certificate plus such additional number of shares equal to the
number of shares shown on the face of the certificate multiplied its respective
Conversion Factor. For purpose of this Part D of this ARTICLE IV, "Public
Offering Price" shall mean the initial public offering price per share of Common
Stock set forth on the cover page of the Corporation's Prospectus included in
the Registration Statement on Form S-1, as amended (Registration No. 333-41909)
(the "Registration Statement"), relating to the initial public offering of the
Corporation's Common Stock and in the form first used to confirm sales of the
Common Stock, without deduction for any underwriting discounts or commissions or
any expenses incurred by the Corporation in connection with the initial public
offering and as adjusted so as to not give effect to the stock split described
in the following paragraph.
(2) Stock Split. At the Effective Time and immediately following the
reclassification of the Accruing Common set forth above (the
"Reclassification"), each share of Common Stock outstanding at the Effective
Time (after giving effect to the Reclassification) shall be, without further
action by the Corporation or any of the holders thereof, changed and converted
into a number of shares of Common Stock equal to that number determined by
multiplying each outstanding share of Common Stock by _________ (the "Stock
Split Factor"). Each certificate then outstanding representing shares of Common
Stock (including those certificates that represent shares of Common Stock as a
result of the Reclassification) shall automatically represent from and after the
-3-
<PAGE>
Effective Time that number of shares of Common Stock equal to the number of
shares shown on the face of the certificate multiplied by the Stock Split
Factor.
(3) Fractional Shares. Notwithstanding the foregoing, in the event that
the conversion of the Common Stock described in (1) and (2) above would result
in any holder of shares of Common Stock holding a share of Common Stock that is
not an integral multiple of one, the effect of the conversion shall be such that
the shares of Common Stock issued as a result of the Reclassification shall be
the integral multiple of one closest to the product of the Stock Split Factor
and the number of shares of Common Stock held by such holder, with fractions of
0.50 and greater being rounded up to the next higher integral multiple of one
and fractions less than 0.50 being rounded down to the next lower integral
multiple of one. No consideration will be paid in lieu of fractions that are
rounded down and no consideration shall be due from holders of Common Stock in
lieu of fractions that are rounded up.
ARTICLE V - Existence
---------------------
The Corporation is to have perpetual existence.
ARTICLE VI - By-laws
--------------------
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized to make, alter, amend, change, add to or repeal the By-laws
of the Corporation by the affirmative vote of a majority of the total number of
Directors then in office. Any alteration or repeal of the By-laws of the
Corporation by the stockholders of the Corporation shall require the affirmative
vote of at least a majority of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote on such alteration or
repeal, subject to ARTICLE IX hereof and ARTICLE VII of the Corporation's By-
laws.
ARTICLE VII - Stockholders and Directors
----------------------------------------
Part A. Stockholder Action. Election of Directors need not be by written
ballot unless the By-laws of the Corporation so provide. Subject to any rights
of holders of any series of Preferred Stock, from and after the date on which
the Common Stock of the Corporation is registered pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (i) any action required
or permitted to be taken by the stockholders of the Corporation must be effected
at an annual or special meeting of stockholders of the Corporation and may not
be effected in lieu thereof by any consent in writing by such stockholders, (ii)
special meetings of stockholders of the Corporation may be called only by either
the Board of Directors pursuant to a resolution adopted by the affirmative vote
of the majority of the total number of Directors then in office or by the chief
executive officer of the Corporation and (iii) advance notice of stockholder
nominations of persons for election to the Board of Directors of the Corporation
and of business to be brought before any annual meeting of the stockholders by
the stockholders of the Corporation shall be given in the manner provided in the
By-laws of the Corporation.
-4-
<PAGE>
Part B. Number of Directors and Term of Office. Subject to any rights of
holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors of the Corporation shall be fixed from time to time in the
manner set forth in the By-laws of the Corporation. The Directors of the
Corporation shall be divided into three classes: Class I, Class II and Class
III. Membership in such class shall be as nearly equal in number as possible.
The term of office of the initial Class I Directors shall expire at the annual
election of Directors by the stockholders of the Corporation in 1998, the term
of office of the initial Class II Directors shall expire at the annual election
of Directors by the stockholders of the Corporation in 1999 and the term of
office of the initial Class III Directors shall expire at the annual election of
Directors by the stockholders of the Corporation in 2000, or thereafter when
their respective successors in each case are elected by the stockholders and
qualified, subject however, to prior death, resignation, retirement,
disqualification or removal from office for cause. At each succeeding annual
election of Directors by the stockholders of the Corporation beginning in 1998,
the Directors chosen to succeed those whose terms then expire shall be
identified as being of the same class as the Directors they succeed and shall be
elected for a term expiring at the third succeeding annual election of Directors
by the stockholders of the Corporation, or thereafter when their respective
successors in each case are elected by the stockholders and qualified. If the
number of Directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of Directors in each class as
nearly equal as possible, and any additional Director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of Directors shorten the term of any incumbent
Director.
Part C. Removal and Resignation. No Director may be removed from office
without cause and without the affirmative vote of the holders of a majority of
the voting power of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of Directors voting
together as a single class; provided, however, that if the holders of any class
or series of capital stock are entitled by the provisions of this Restated
Certificate (it being understood that any references to this Restated
Certificate shall include any duly authorized certificate of designation) to
elect one or more Directors, such Director or Directors so elected may be
removed without cause only by the vote of the holders of a majority of the
outstanding shares of that class or series entitled to vote. Any Director may
resign at any time upon written notice to the Corporation.
Part D. Vacancies and Newly Created Directorships. Subject to any rights of
holders of any series of Preferred Stock to fill such newly created
Directorships or vacancies, any newly created Directorships resulting from any
increase in the authorized number of Directors and any vacancies in the Board of
Directors resulting from death, resignation, disqualification or removal from
office for cause shall, unless otherwise provided by law or by resolution
approved by the affirmative vote of a majority of the total number of Directors
then in office, be filled only by resolution approved by the affirmative vote of
a majority of the total number of Directors then in office. Any Director so
chosen shall hold office until the next election of the class for which such
Director shall have been chosen, and until his successor shall have been duly
elected and qualified, unless he shall resign, die, become disqualified or be
removed for cause.
-5-
<PAGE>
Part E. Effectiveness. The provisions of this ARTICLE VII shall terminate
and be of no further force and effect in the event that the initial public
offering of the Corporation's Common Stock as contemplated by the Corporation's
Prospectus included in the Registration Statement is not consummated within 30
days of the Effective Time.
ARTICLE VIII - General Provisions
---------------------------------
Part A. Dividends. The Board of Directors shall have authority from time to
time to set apart out of any assets of the Corporation otherwise available for
dividends a reserve or reserves as working capital or for any other purpose or
purposes, and to abolish or add to any such reserve or reserves from time to
time as said board may deem to be in the interest of the Corporation; and said
Board shall likewise have power to determine in its discretion, except as herein
otherwise provided, what part of the assets of the Corporation available for
dividends in excess of such reserve or reserves shall be declared in dividends
and paid to the stockholders of the Corporation.
Part B. Issuance of Stock. The shares of all classes of stock of the
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of stock having a par value shall not be
issued for a consideration less than such par value, as determined by the Board.
At any time, or from time to time, the Corporation may grant rights or options
to purchase from the Corporation any shares of its stock of any class or classes
to run for such period of time, for such consideration, upon such terms and
conditions, and in such form as the Board of Directors may determine. The Board
of Directors shall have authority, as provided by law, to determine that only a
part of the consideration which shall be received by the Corporation for the
shares of its stock which it shall issue from time to time, shall be capital;
provided, however, that, if all the shares issued shall be shares having a par
value, the amount of the part of such consideration so determined to be capital
shall be equal to the aggregate par value of such shares. The excess, if any, at
any time, of the total net assets of the Corporation over the amount so
determined to be capital, as aforesaid, shall be surplus. All classes of stock
of the Corporation shall be and remain at all times nonassessable.
The Board of Directors is hereby expressly authorized, in its discretion,
in connection with the issuance of any obligations or stock of the Corporation
(but without intending hereby to limit its general power so to do in other
cases), to grant rights or options to purchase stock of the Corporation of any
class upon such terms and during such period as the Board of Directors shall
determine, and to cause such rights to be evidenced by such warrants or other
instruments as it may deem advisable.
Part C. Inspection of Books and Records. The Board of Directors shall have
power from time to time to determine to what extent and at what times and places
and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
-6-
<PAGE>
Part D. Location of Meetings, Books and Records. Except as otherwise
provided in the By-laws, the stockholders of the Corporation and the Board of
Directors may hold their meetings and have an office or offices outside of the
State of Delaware and, subject to the provisions of the laws of said State, may
keep the books of the Corporation outside of said State at such places as may,
from time to time, be designated by the Board of Directors.
ARTICLE IX - Amendments
-----------------------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate in the manner now or
hereinafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding anything contained in this Restated Certificate to
the contrary, Parts A, B and C of ARTICLE IV, ARTICLE VII, ARTICLE X, and this
ARTICLE IX of this Restated Certificate shall not be altered, amended or
repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 66 2/3% of the voting power of the
then outstanding shares of capital stock of the Corporation entitled to vote on
such alteration, amendment or repeal, voting together as a single class (other
than any alteration or amendment to Part A of ARTICLE IV that increases the
authorized number of shares of Preferred Stock or Common Stock).
ARTICLE X - Liability
---------------------
Part A. Limitation of Liability.
(1) To the fullest extent permitted by the Delaware General Corporation Law
as it now exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than permitted prior thereto), and except
as otherwise provided in the Corporation's By-laws, no Director of the
Corporation shall be liable to the Corporation or its stockholders for monetary
damages arising from a breach of fiduciary duty owed to the Corporation or its
stockholders.
(2) Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
Part B. Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
fact that he or she is or was a Director or officer of the Corporation or, while
a Director or officer of the Corporation, is or was serving at the request of
the Corporation as a Director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (an "indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a Director or
officer or in any other capacity while serving as a Director or officer, shall
be indemnified and held harmless
-7-
<PAGE>
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise exercise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a Director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Part C of this ARTICLE X with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Part B of this ARTICLE X shall be a contract
right and shall include the obligation of the Corporation to pay the expenses
incurred in defending any such proceeding in advance of its final disposition
(an "advance of expenses"); provided, however, that, if and to the extent that
the Delaware General Corporation Law requires, an advance of expenses incurred
by an indemnitee in his or her capacity as a Director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (an "undertaking"),
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Part B or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same or lesser scope and effect
as the foregoing indemnification of Directors and officers.
Part C. Procedure for Indemnification. Any indemnification of a Director or
officer of the Corporation or advance of expenses under Part B of this ARTICLE X
shall be made promptly, and in any event within forty-five days (or, in the case
of an advance of expenses, twenty days), upon the written request of the
Director or officer. If a determination by the Corporation that the Director or
officer is entitled to indemnification pursuant to this ARTICLE X is required,
and the Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved the request. If the
Corporation denies a written request for indemnification or advance of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within forty-five days (or, in the case of an advance of expenses, twenty days),
the right to indemnification or advances as granted by this ARTICLE X shall be
enforceable by the Director or officer in any court of competent jurisdiction.
Such person's costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any
such action shall also be indemnified by the Corporation. It shall be a defense
to any such action (other than an action brought to enforce a claim for the
advance of expenses where the undertaking required pursuant to Part B of this
ARTICLE X, if any, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
-8-
<PAGE>
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct. The procedure
for indemnification of other employees and agents for whom indemnification is
provided pursuant to Part B of this ARTICLE X shall be the same procedure set
forth in this Part C for Directors or officers, unless otherwise set forth in
the action of the Board of Directors providing indemnification for such employee
or agent.
Part D. Insurance. The Corporation may purchase and maintain insurance on
its own behalf and on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss asserted against him or her and incurred by him or her in any
such capacity, whether or not the Corporation would have the power to indemnify
such person against such expenses, liability or loss under the Delaware General
Corporation Law.
Part E. Service for Subsidiaries. Any person serving as a Director,
officer, employee or agent of another corporation, partnership, limited
liability company, joint venture or other enterprise, at least 50% of whose
equity interests are owned by the Corporation (a "subsidiary" for this ARTICLE
X) shall be conclusively presumed to be serving in such capacity at the request
of the Corporation.
Part F. Reliance. Persons who after the date of the adoption of this
provision become or remain Directors or officers of the Corporation or who,
while a Director or officer of the Corporation, become or remain a Director,
officer, employee or agent of a subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this ARTICLE X in entering into or continuing such service. The
rights to indemnification and to the advance of expenses conferred in this
ARTICLE X shall apply to claims made against an indemnitee arising out of acts
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.
Part G. Non-Exclusivity of Rights. The rights to indemnification and to the
advance of expenses conferred in this ARTICLE X shall not be exclusive of any
other right which any person may have or hereafter acquire under this Restated
Certificate or under any statute, by-law, agreement, vote of stockholders or
disinterested Directors or otherwise.
Part H. Merger or Consolidation. For purposes of this ARTICLE X, references
to the "Corporation" shall include, in addition to the resulting Corporation,
any constituent Corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its Directors,
officers and employees or agents, so that any person who is or was a Director,
officer, employee or agent of such constituent Corporation, or is or was serving
at the request of such constituent Corporation as a Director, officer, employee
or agent of another Corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this ARTICLE X with
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<PAGE>
respect to the resulting or surviving Corporation as he or she would have with
respect to such constituent Corporation if its separate existence had continued.
ARTICLE XI - Business Combinations
----------------------------------
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law. Notwithstanding the terms of Section 203 of
the Delaware General Corporation Law, none of Bain Capital, Inc. and its
affiliates (the "Bain Entities") and F.W. Gay and Sons and its partners (the
"Gay Entities") shall be deemed at any time and without regard to the percentage
of voting stock of the Corporation owned by the Bain Entities or the Gay
Entities to be an "interested stockholder" as such term is defined in Section
203(c)(5) of the Delaware General Corporation Law.
* * * * *
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
NUTRACEUTICAL INTERNATIONAL CORPORATION
A Delaware Corporation
ARTICLE I
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OFFICES
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Section 1. Registered Office. The registered office of Nutraceutical
International Corporation (the "Corporation") in the State of Delaware shall be
located at 1013 Centre Road, in the City of Wilmington, County of New Castle
19805. The name of the Corporation's registered agent at such address shall be
The Prentice-Hall Corporation System, Inc. The registered office and/ or
registered agent of the Corporation may be changed from time to time by action
of the Board of Directors.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
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MEETINGS OF STOCKHOLDERS
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Section 1. Annual Meeting. An annual meeting of the stockholders shall
be held each year within 150 days after the close of the immediately preceding
fiscal year of the Corporation or at such other time specified by the Board of
Directors for the purpose of electing Directors and conducting such other proper
business as may come before the annual meeting. At the annual meeting,
stockholders shall elect Directors and transact such other business as properly
may be brought before the annual meeting pursuant to ARTICLE II, Section 11
hereof.
Section 2. Special Meetings. Special meetings of the stockholders may
only be called in the manner provided in the Restated Certificate of
Incorporation.
Section 3. Place of Meetings. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting. If no designation is made,
or if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
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Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the Board of Directors, the chairman of the board, the president or the
secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by the General Corporation Law of the State of Delaware or by the
Restated Certificate of Incorporation. If a quorum is not present, the holders
of a majority of the shares present in person or represented by proxy at the
meeting, and entitled to vote at the meeting, may adjourn the meeting to another
time and/or place. When a specified item of business requires a vote by a class
or series (if the Corporation shall then have outstanding shares of more than
one class or series) voting as a class, the holders of a majority of the shares
of such class or series shall constitute a quorum (as to such class or series)
for the transaction of such item of busi ness.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
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Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of
the Restated Certificate of Incorporation a different vote is required, in which
case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the election of Directors, in which case
Section 2 of ARTICLE III hereof shall govern and control the approval of such
subject matter.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware, the Restated Certificate of
Incorporation of the Corporation or any amendments thereto or these By-laws,
every stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of common stock held by such
stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.
Section 11. Business Brought Before an Annual Meeting. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 70 days' notice or prior public announcement of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the annual meeting was mailed or such public announcement was made. A
stockholder's notice to the secretary shall set forth as to
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each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this section. The
presiding officer of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this section; if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. For purposes of this
section, "public announcement" shall mean disclosure in a press release reported
by Dow Jones News Service, Associated Press or a comparable national news
service. Nothing in this section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
ARTICLE III
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Directors
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Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to such powers as are herein and in the Restated Certificate of
Incorporation expressly conferred upon it, the Board of Directors shall have
and may exercise all the powers of the Corporation, subject to the provisions of
the laws of Delaware, the Restated Certificate of Incorporation and these By-
laws.
Section 2. Number, Election and Term of Office. Subject to any rights of
the holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors shall be fixed from time to time by resolution adopted by the
affirmative vote of a majority of the total number of Directors then in office.
The Directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of Directors; provided that, whenever the holders of any class or
series of capital stock of the Corporation are entitled to elect one or more
Directors pursuant to the provisions of the Restated Certificate of
Incorporation of the Corporation (including, but not limited to, for purposes of
these By-laws, pursuant to any duly authorized certificate of designation), such
Directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
the election of such Directors. The Directors shall be elected and shall hold
office only in the manner provided in the Restated Certificate of Incorporation.
Section 3. Removal and Resignation. No Director may be removed from
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
entitled to vote generally in the election of Directors voting
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together as a single class; provided, however, that if the holders of any class
or series of capital stock are entitled by the provisions of the Restated
Certificate of Incorporation (it being understood that any references to the
Restated Certificate of Incorporation shall include any duly authorized
certificate of designation) to elect one or more Directors, such Director or
Directors so elected may be removed without cause only by the vote of the
holders of a majority of the outstanding shares of that class or series entitled
to vote. Any Director may resign at any time upon written notice to the
Corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the total number of Directors may be filled only in the
manner provided in the Restated Certificate of Incorporation.
Section 5. Nominations.
(a) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-law, who is
entitled to vote generally in the election of Directors at the meeting and who
shall have complied with the notice procedures set forth below in Section 5(b).
(b) In order for a stockholder to nominate a person for election to
the Board of Directors of the Corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 60 nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
of the meeting was made, and (ii) in the case of a special meeting at which
Directors are to be elected, not later than the close of business on the 10th
day following the earlier of the day on which notice of the date of the meeting
was mailed or public announcement of the meeting was made. Such stockholder's
notice shall set forth (i) as to each person whom the stockholder proposes to
nominate for election as a Director at such meeting all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a Director
if elected); (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation's books, of such stockholder and (B)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder and also which are owned of record by such stockholder; and
(iii) as to the beneficial owner, if any, on whose behalf the nomination is
made, (A) the name and address of such person and (B) the class and
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number of shares of the Corporation which are beneficially owned by such person.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this section, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a Director must also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this section.
Section 6. Annual Meetings. The annual meeting of the Board of Directors
shall be held without other notice than this By-law immediately after, and at
the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the Board of Directors may be called by the
chairman of the board, the president (if the president is a Director) or, upon
the written request of at least a majority of the Directors then in office, the
secretary of the Corporation on at least 24 hours notice to each Director,
either personally, by telephone, by mail or by telecopy.
Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment.
The Board of Directors shall elect, by the affirmative vote of a majority of the
total number of Directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and Board of Directors at which he
or she is present and shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe. If the chairman of the
board is not present at a meeting of the stockholders or the Board of Directors,
the president (if the president is a Director and is not also the chairman of
the board) shall preside at such meeting, and, if the president is not present
at such meeting, a majority of the Directors present at such meeting shall elect
one of their members to so preside. A majority of the total number of Directors
then in office shall constitute a quorum for the transaction of business.
Unless by express provision of an applicable law, the Restated Certificate of
Incorporation or these By-laws a different vote is required, the vote of a
majority of Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
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Section 9. Committees. The Board of Directors may, by resolution passed
by a majority of the total number of Directors then in office, designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which to the extent provided in such resolution or these By-
laws shall have, and may exercise, the powers of the Board of Directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The Board of Directors may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
Section 10. Committee Rules. Each committee of the Board of Directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the Board of Directors, of such committee is or are
absent or disqualified, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
Section 11. Communications Equipment. Members of the Board of Directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of the
Board of Directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by the
Restated Certificate of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
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ARTICLE IV
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OFFICERS
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Section 1. Number. The officers of the Corporation shall be elected by
the Board of Directors and shall consist of a chairman of the board, a chief
executive officer, a president, one or more vice-presidents, a secretary, a
chief financial officer and such other officers and assistant officers
as may be deemed necessary or desirable by the Board of Directors. Any number
of offices may be held by the same person. In its discretion, the Board of
Directors may choose not to fill any office for any period as it may deem
advisable, except that the offices of president and secretary shall be filled as
expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the Board of
Directors may be removed by the Board of Directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise may be filled by the
Board of Directors.
Section 5. Compensation. Compensation of all executive officers shall be
approved by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a Director of the
Corporation.
Section 6. Chairman of the Board. The chairman of the board shall preside
at all meetings of the stockholders and of the Board of Directors and shall have
such other powers and perform such other duties as may be prescribed to him or
her by the Board of Directors or provided in these By-laws.
Section 7. Chief Executive Officer. The chief executive officer shall
have the powers and perform the duties incident to that position. Subject to
the powers of the Board of Directors and the chairman of the board, the chief
executive officer shall be in the general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy making
officer. The chief executive officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or provided in
these By-laws. The chief executive officer is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where
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the signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation. Whenever the
president is unable to serve, by reason of sickness, absence or otherwise, the
chief executive officer shall perform all the duties and responsibilities and
exercise all the powers of the president.
Section 8. The President. The president of the Corporation shall, subject
to the powers of the Board of Directors, the chairman of the board and the chief
executive officer, have general charge of the business, affairs and property of
the Corporation, and control over its officers, agents and employees. The
president shall see that all orders and resolutions of the Board of Directors
are carried into effect. The president is authorized to execute bonds, mortgages
and other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation. The
president shall have such other powers and perform such other duties as may be
prescribed by the chairman of the board, the chief executive officer, the Board
of Directors or as may be provided in these By-laws.
Section 9. Vice-Presidents. The vice-president, or if there shall be more
than one, the vice-presidents in the order determined by the Board of Directors
or the chairman of the board, shall, in the absence or disability of the
president, act with all of the powers and be subject to all the restrictions of
the president. The vice-presidents shall also perform such other duties and have
such other powers as the Board of Directors, the chairman of the board, the
chief executive officer, the president or these By-laws may, from time to time,
prescribe. The vice-presidents may also be designated as executive vice-
presidents or senior vice-presidents, as the Board of Directors may from time to
time prescribe.
Section 10. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the Board of Directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under the
chairman of the board's supervision, the secretary shall give, or cause to be
given, all notices required to be given by these By-laws or by law; shall have
such powers and perform such duties as the Board of Directors, the chairman of
the board, the chief executive officer, the president or these By-laws may, from
time to time, prescribe; and shall have custody of the corporate seal of the
Corporation. The secretary, or an assistant secretary, shall have authority to
affix the corporate seal to any instrument requiring it and when so affixed, it
may be attested by his or her signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors, the
chairman of the board, the chief executive officer, the president, or secretary
may, from time to time, prescribe.
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Section 11. The Chief Financial Officer. The chief financial officer shall
have the custody of the corporate funds and securities; shall keep full and
accurate all books and accounts of the Corporation as shall be necessary or
desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation as may be ordered by the chairman of the board
or the Board of Directors; shall cause the funds of the Corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the Board of Directors, at
its regular meeting or when the Board of Directors so requires, an account of
the Corporation; shall have such powers and perform such duties as the Board of
Directors, the chairman of the board, the chief executive officer, the president
or these By-laws may, from time to time, prescribe. If required by the Board of
Directors, the chief financial officer shall give the Corporation a bond (which
shall be rendered every six years) in such sums and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the office of chief financial officer and for the restoration
to the Corporation, in case of death, resignation, retirement or removal from
office of all books, papers, vouchers, money and other property of whatever kind
in the possession or under the control of the chief financial officer belonging
to the Corporation.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.
Section 13. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any Director, or to any other
person selected by it.
ARTICLE V
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CERTIFICATES OF STOCK
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Section 1. Form. Every holder of stock in the Corporation shall be entitled
to have a certificate, signed by, or in the name of the Corporation by the
chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the Corporation or its employee or (ii) by a registrar, other than the
Corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may
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less be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the Corporation. Shares of stock of the Corporation shall only be
transferred on the books of the Corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
Corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization and other matters as the Corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate or certificates and
record the transaction on its books. The Board of Directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his or her legal representative, to give the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against the
Corporation on account of the loss, theft or destruction of any such certificate
or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than 60 nor less than 10 days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be the close of business on the next day preceding
the day on which notice is first given. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 4. Fixing a Record Date for Other Purposes. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than 60 days
-11-
<PAGE>
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 5. Registered Stockholders. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 6. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.
ARTICLE VI
----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the certificate of , if any, may be declared by the
Board of Directors at any regular or special meeting, in accordance with
applicable law. Dividends may be paid in cash, in property or in shares of the
capital stock, subject to the provisions of the Restated Certificate of
Incorporation. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or any other purpose
and the Directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts or other orders for
the payment of money by or to the Corporation and all notes and other evidences
of indebtedness issued in the name of the Corporation shall be signed by such
officer or officers, agent or agents of the Corporation, and in such manner, as
shall be determined by resolution of the Board of Directors or a duly authorized
committee thereof.
-12-
<PAGE>
Section 3. Contracts. In addition to the powers otherwise granted to
officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 6. Corporate Seal. The Board of Directors may provide a corporate
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in any
other Corporation held by the Corporation shall be voted by the chief executive
officer, the president or a vice-president, unless the Board of Directors
specifically confers authority to vote with respect thereto, which authority may
be general or confined to specific instances, upon some other person or officer.
Any person authorized to vote securities shall have the power to appoint
proxies, with general power of substitution.
Section 8. Inspection of Books and Records. The Board of Directors shall
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
Section 9. Section Headings. Section headings in these By-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
-13-
<PAGE>
Section 10. Inconsistent Provisions. In the event that any provision of
these By-laws is or becomes inconsistent with any provision of the Restated
Certificate of Incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VII
-----------
AMENDMENTS
----------
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend, change, add to or repeal these By-laws by the affirmative vote of
a majority of the total number of Directors then in office. Any alteration or
repeal of these By-laws by the stockholders of the Corporation shall require the
affirmative vote of a majority of the outstanding shares of the Corporation
entitled to vote on such alteration or repeal; provided, however, that Section
11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VII
of these By-laws shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least 66% of the outstanding shares of the Corporation entitled
to vote on such alteration or repeal.
-14-
<PAGE>
Exhibit 4.1
[NUTRACEUTICAL INTERNATIONAL CORPORATION LOGO HERE]
COMMON STOCK COMMON STOCK
NUMBER SHARES
THIS CERTIFICATE IS SEE REVERSE FOR
TRANSFERABLE IN NEW YORK, NY CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE CUSIP 67060Y 10 1
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
Nutraceutical International Corporation transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
Dated:
/s/ Bruce R. Hough [Nutraceutical International Corporation /s/ Frank W. Gay II
- ------------------ Seal here] -------------------
President and Secretary Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
By
AUTHORIZED SIGNATURE
<PAGE>
Exhibit 4.1
Page 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
UNIF GIFT MIN ACT -- ________ Custodian _______
(Cust.) (Minor)
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of and/or Uniform Gifts to Minors
survivorship and not as tenants in Act
common ------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________________________________
_________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
___________________________________ Attorney to transfer the said stock on
the books of the within named Corporation with full power of substitution in the
premises.
Dated _____________________
________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By: ______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 10.1
------------
================================================================================
NUTRACEUTICAL INTERNATIONAL CORPORATION
NUTRACEUTICAL CORPORATION
SOLARAY, INC.
MAKERS OF KAL, INC.
NATURAL MAX, INC.
PREMIER ONE PRODUCTS, INC.
---------------------------------------------------------------
--------------------
REVOLVING CREDIT AND TERM LOAN AGREEMENT
---------------------------
---------------------------------------------------------------
-----------------------------------
Dated as of January 31, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<C> <S> <C>
1. Definitions..................................................... 2
1.1. Defined Terms............................................. 2
1.2. Accounting Terms.......................................... 37
1.3. Rules of Construction..................................... 38
2. Loans........................................................... 38
2.1. Revolving Credit Facility................................. 38
2.2. Revolving Loans........................................... 39
2.3. Manner of Making Revolving Loans and Repayments........... 39
2.4. Series A Term Loans....................................... 40
2.5. Series B Term Loans; Issuance of Shares................... 42
2.6. Several Obligations; Remedies Independent................. 42
2.7. Letter of Credit Guarantees............................... 42
3. Types of Loans; Interest Rates and Fees......................... 46
3.1. Types of Loans............................................ 46
3.2. Interest Rates............................................ 46
3.3. Post-Default Rate; Computations........................... 47
3.4. Payments of Interest...................................... 47
3.5. Underutilization Fee...................................... 47
3.6. Letter Of Credit Guarantee Fee............................ 48
3.7. Interest Rate Limitation.................................. 48
3.8. Net Payments.............................................. 48
4. Payments of Principal, Interest and Prepayment Premium.......... 50
4.1. Mandatory Payments and Prepayments........................ 50
4.2. Optional Prepayments; Conversion Loans.................... 53
4.3. Notice of Prepayment or Conversion........................ 55
4.4. Mandatory Prepayment of Revolving Loans................... 55
4.5. Maturity of Loans......................................... 56
4.6. Surrender of Notes; Notation Thereon...................... 56
4.7. Purchase of Notes......................................... 56
4.8. Changes of Commitments.................................... 56
5. Representations and Warranties of the Borrowers and the Parent.. 57
5.1. Corporate Existence and Power............................. 57
5.2. Corporate Authority....................................... 57
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
Section Heading Page
- ------- ------- ----
5.3. Binding Effect................................................... 57
5.4. Capital Stock.................................................... 58
5.5. Business Operations and Other Information; Financial Condition... 59
5.6. Subsidiaries..................................................... 61
5.7. Litigation; No Violation of Governmental Orders or Laws.......... 62
5.8. Outstanding Indebtedness; Investments............................ 63
5.9. No Conflicts with Agreements, Statutes, Orders, Etc.............. 64
5.10. Consents, Etc.................................................... 64
5.11. Title to Properties; Equipment................................... 64
5.12. Taxes............................................................ 65
5.13. Related Documents................................................ 65
5.14. Disclosure....................................................... 66
5.15. Offering of Securities........................................... 66
5.16. Broker's or Finder's Commissions................................. 66
5.17. Labor Matters.................................................... 66
5.18. Environmental Matters............................................ 67
5.19. Possession of Franchises, Licenses, Etc.......................... 69
5.20. Intellectual Property............................................ 69
5.21. Margin Regulations; Use of Proceeds.............................. 69
5.22. Compliance with ERISA............................................ 70
5.23. Material Contracts............................................... 71
5.24. Customers; Suppliers............................................. 71
5.25. Insurance........................................................ 72
5.26. Solvency......................................................... 72
5.27. Status under Certain Laws........................................ 72
5.28. Foreign Assets Control Regulations............................... 73
5.29. Places of Business............................................... 73
5.30. Other Names...................................................... 74
5.31. Certain Transactions............................................. 74
5.32. Eligible Accounts Warranties..................................... 74
5.33. Eligible Inventory Warranties.................................... 75
5.34. Depositary Accounts.............................................. 75
6. Representations of the Original Lender................................. 75
7. Conditions Precedent to Initial Disbursement of Loans.................. 76
7.1. Proceedings Satisfactory......................................... 76
7.2. Delivery of Notes and Shares..................................... 76
7.3. Opinion of Counsel to the Borrowers.............................. 76
-ii-
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
7.4. Discharge of Refinanced Indebtedness..............................77
7.5. Initial Borrowing Base Certificate................................77
7.6. Representations and Warranties True; Certificates.................77
7.7. Acquisition.......................................................77
7.8. Absence of Material Adverse Change, Etc...........................78
7.9. Consents and Approvals............................................78
7.10. Absence of Litigation, Orders, Etc................................78
7.11. Legal Investment..................................................78
7.12. Parent Guarantees.................................................78
7.13. Security Documents................................................78
7.14. Solvency Certificate..............................................81
7.15. Charters and By-Laws..............................................81
7.16. Fees Payable at Closing...........................................81
7.17. Environmental Audit...............................................82
7.18. Restatements of Certain Documents.................................82
7.19. Intercreditor Agreement...........................................82
7.20. Process Agent Acceptance..........................................82
7.21. Private Placement Number..........................................82
7.22. Wire Instructions.................................................82
8. Conditions Precedent to Each Revolving Loan..............................82
8.1. Borrowing Request.................................................83
8.2. Representations and Warranties True...............................83
8.3. No Default or Event of Default....................................83
8.4. Credit Limit Not Exceeded.........................................83
8.5. Legal Prohibitions................................................83
8.6. Other Requirements................................................83
9. Financial Statements and Information.....................................84
10. Inspection of Properties and Books; Confidentiality......................89
11. Affirmative Covenants....................................................90
11.1. Payment of Principal, Prepayment Charge, Interest and
Fees; Compliance With Agreements..................................90
11.2. Payment of Taxes and Claims.......................................90
11.3. Maintenance of Properties and Corporate Existence; Fiscal
Year..............................................................91
11.4. Insurance.........................................................92
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
11.5. Further Assurances...............................................93
11.6. After Acquired Real Property.....................................94
11.7. Future Guarantors and Securing Subsidiaries......................95
11.8. New Depositary Accounts..........................................95
11.9. Interest Rate Protection Agreements..............................96
11.10. Compliance with Terms of Leaseholds..............................96
11.11. ERISA Covenants..................................................96
12. Negative and Maintenance Covenants.......................................97
12.1. Restrictions on Indebtedness.....................................97
12.2. Restrictions on Liens............................................98
12.3. Sales and Leasebacks.............................................99
12.4. Capital Expenditures.............................................99
12.5. Transactions with Affiliates....................................100
12.6. Consolidation, Merger or Disposition of Assets;
Acquisitions....................................................101
12.7. Sale or Discount of Receivables.................................103
12.8. Certain Contracts...............................................104
12.9. No Amendment of Charter, By-Laws................................104
12.10. Conduct of Business.............................................105
12.11. Restricted Payments and Restricted Investments..................105
12.12. Disqualified Capital Stock; Issuance of Shares..................107
12.13. Disposition of Capital Stock and Indebtedness of
Subsidiaries....................................................107
12.14. Financial Covenants.............................................107
12.15. Amendments to Certain Documents.................................112
12.16. Limitation on Dividend Restrictions Affecting Subsidiaries......112
12.17. Acquisition of Margin Securities................................112
12.18. Collateral Locations; Corporate Names...........................113
13. Events of Default.......................................................113
13.1. Events of Default; Remedies.....................................113
13.2. Suits for Enforcement; Remedies Against Collateral..............117
13.3. Remedies Cumulative.............................................117
13.4. Remedies Not Waived.............................................117
13.5. Cash Collateral for Letters of Credit...........................118
14. Registration, Exchange, and Transfer of Notes...........................118
</TABLE>
-iv-
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Section Heading Page
- ------- ------- ----
<S> <C> <C>
15. Lost, Stolen, Damaged and Destroyed Notes...............................118
16. Miscellaneous...........................................................119
16.1. Home Office Payment.............................................119
16.2. Amendment and Waiver............................................119
16.3. Expenses........................................................120
16.4. Survival of Representations and Warranties......................121
16.5. Successors and Assigns; Successor Collateral Agent;
Successor Agent.................................................121
16.6. Notices.........................................................123
16.7. Indemnification.................................................123
16.8. Integration and Severability....................................124
16.9. Joint and Several Liability.....................................124
16.10. Payments Due on Days not Business Days..........................126
16.11. Counterparts....................................................126
16.12. Governing Law...................................................127
16.13. Submission to Jurisdiction; Waiver of Service and Venue.........127
16.14. Waiver of Right to Trial by Jury................................127
Signatures...................................................................129
</TABLE>
-v-
<PAGE>
SCHEDULES
---------
<TABLE>
<S> <C>
Schedule I - Manner of Payment and Communications to the
Lenders, the Collateral Agent and the Agent
Schedule II - Borrowers' Account
Schedule 5.1 - Jurisdictions of Incorporation; Foreign Qualifications
Schedule 5.4 - Capital Stock
Schedule 5.5A - Financial Statements
Schedule 5.5B - Projections
Schedule 5.5C - Pro Forma Balance Sheet
Schedule 5.5D - Sources and Uses of Funds
Schedule 5.7 - Litigation; Violations of Orders and Laws
Schedule 5.8A - Existing Indebtedness
Schedule 5.8B - Existing Investments
Schedule 5.9 - Conflicts with Agreements, Etc.
Schedule 5.10 - Consents
Schedule 5.11 - Title to Property and Leases
Schedule 5.12 - Taxes
Schedule 5.16 - Brokers
Schedule 5.17 - Labor Matters
Schedule 5.19 - Franchises, Licenses, Etc.
Schedule 5.20 - Intellectual Property
Schedule 5.22 - Employee Benefit Plans
Schedule 5.23 - Material Contracts
Schedule 5.24 - Customers
Schedule 5.25 - Insurance
Schedule 5.29 - Places of Business; Locations of Records, Inventory
and Equipment
Schedule 5.30 - Other Names
Schedule 5.31 - Certain Transactions
Schedule 5.34 - Depositary Accounts
</TABLE>
-vi-
<PAGE>
EXHIBITS
--------
<TABLE>
<S> <C>
Exhibit A-1 - Form of Revolving Note
Exhibit A-2 - Form of Series A Term Note
Exhibit A-3 - Form of Series B Term Note
Exhibit B - Information Memorandum
Exhibit C-1 - Form of Series A/Revolver Parent Guarantee
Exhibit C-2 - Form of Series B Parent Guarantee
Exhibit D - Form of Restated Stockholders Agreement
Exhibit E-1 - Form of Series A/Revolver Subsidiary Guarantee
Exhibit E-2 - Form of Series B Subsidiary Guarantee
Exhibit F - Form of Restated Advisory Agreement
Exhibit G - Form of Borrowing Request
Exhibit H-1 - Form of Borrowers' Counsel Opinion
Exhibit H-2 - Form of Opinion of Local Counsel to the Borrowers
Exhibit I - Form of Pledge and Security Agreement
Exhibit J - Form of Intellectual Property Security Agreement
Exhibit K - Subordination Provisions for Notes Issued to
Management
Exhibit L-1 - Form of Subsidiary Pledge and Security Agreement
Exhibit L-2 - Form of Subsidiary Intellectual Property Security
Agreement
Exhibit M-1 - Form of Fee Mortgage
Exhibit M-2 - Form of Leasehold Mortgage
Exhibit M-3 - Form of Lessor Recognition Agreement
Exhibit N - Form of Depositary Account Agreement
Exhibit O - Certificates of Incorporation of the Borrowers
Exhibit P - Certificate of Incorporation of the Parent
Exhibit Q - By-Laws of the Borrowers
Exhibit R - By-Laws of the Parent
Exhibit S - Form of Borrowing Base Certificate
Exhibit T - Form of Restated Registration Agreement
Exhibit U - Form of Letter of Credit Guarantee
Exhibit V - Form of Solvency Certificate
Exhibit W - Form of Intercreditor Agreement
Exhibit X-1 - Form of Lessor Estoppel Letter
Exhibit X-2 - Form of Bailee Estoppel Letter
</TABLE>
-vii-
<PAGE>
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This Revolving Credit and Term Loan Agreement ("Agreement"), dated as of
January 31, 1995, is by and among NUTRACEUTICAL CORPORATION, a Delaware
corporation formerly known as Nutraceutical Newco, Inc. ("Nutraceutical"),
SOLARAY, INC., a Utah corporation which is a wholly-owned subsidiary of
Nutraceutical ("Solaray"), MAKERS OF KAL, INC., a Delaware corporation which is
a wholly-owned subsidiary of Nutraceutical ("KAL"), NATURAL MAX, INC., a
Delaware corporation which is a wholly-owned subsidiary of Nutraceutical
("Natural Max"), PREMIER ONE PRODUCTS, INC., a Delaware corporation which is a
wholly-owned subsidiary of Nutraceutical ("Premier"; Nutraceutical, Solaray,
KAL, Natural Max and Premier, together with their respective successors and
assigns, are hereinafter collectively referred to as the "Borrowers" and
individually as a "Borrower"), NUTRACEUTICAL INTERNATIONAL CORPORATION, a
Delaware corporation formerly known as Nutraceutical Corporation which owns all
of the issued and outstanding shares of capital stock of Nutraceutical (together
with its successors and assigns, the "Parent"), and JACKSON NATIONAL LIFE
INSURANCE COMPANY, a Michigan insurance corporation (the "Original Lender").
RECITALS
--------
A. On the date hereof, KAL and Natural Max are acquiring substantially
all of the assets and business of Makers of KAL, Inc., a California corporation
("KAL Seller"), and Blue Ribbon Graphics, Inc., a Nevada corporation ("Blue
Ribbon"), and certain related assets, and are assuming certain related
liabilities, pursuant to an Asset Purchase Agreement dated as of November 16,
1994, among KAL, the Parent, KAL Seller, Blue Ribbon, the Lee and Judith Weldon
Family Trust, the Stephen and Helene Weldon Family Trust, William T. Logan and
Sally Logan, Lee Weldon, in his individual capacity, Stephen Weldon, in his
individual capacity, and William T. Logan, in his individual capacity (as from
time to time amended, modified or supplemented in accordance with its terms, the
"Acquisition Agreement"), for an aggregate purchase price consisting of
approximately $38,745,485 in cash and the issuance of an aggregate of 108,000
shares of the authorized but unissued shares of common stock of the Parent.
B. The Borrowers have requested that on the date hereof, the Lender
furnish to the Borrowers certain revolving credit and term loans and other
financial accommodations, all as hereinafter more fully set forth, the proceeds
of which will be used to finance the cash portion of the purchase price to be
paid pursuant to the Acquisition (as hereinafter defined), to pay fees and
expenses incurred by the Parent and the Borrowers in connection with the
Acquisition, to repay certain existing Indebtedness of the Borrowers, and for
working capital and other corporate purposes of the Borrowers and their
Subsidiaries. Since (i) the business of the Borrowers has been
<PAGE>
and will be conducted as a single integrated business, and (ii) it is
anticipated that each of the Borrowers will receive substantial benefits from
the loans and other financial accommodations to be provided hereunder, the
Borrowers have agreed that they will be jointly and severally liable in respect
of all indebtedness and obligations of the Borrowers incurred pursuant to this
Agreement and the other agreements, instruments and documents entered into
pursuant to this Agreement or in connection herewith. The Original Lender has
indicated its willingness to lend such amounts and provide such financial
accommodations on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the terms and
conditions contained herein, and of any loans or financial accommodations now or
hereafter made to or for the benefit of the Borrowers and the Parent by the
Lenders (as hereinafter defined), the parties hereto hereby agree as follows:
Section 1. Definitions.
Section 1.1. Defined Terms. For the purposes of this Agreement, the
following terms shall have the following respective meanings:
"Accountants" has the meaning specified in Section 9(c)(i).
"Account Debtor" shall mean the party who is obligated on or under an
Account.
"Account" means, as at any date of determination, all "accounts" (as such
term is defined in the Uniform Commercial Code in effect in the State of New
York on the date hereof) of the Borrowers and their Subsidiaries, including,
without limitation, the unpaid portion of the obligation of a customer of the
Borrowers or any of their Subsidiaries in respect of Inventory purchased by and
shipped to such customer or services rendered by the Borrowers or any such
Subsidiary related to such Inventory, as stated on the respective invoice of the
Borrowers or any such Subsidiary, net of any credits, rebates or offsets owed to
such customer.
"Acquisition" means the acquisition of substantially all of the assets of
KAL Seller and Blue Ribbon, subject to the assumption of certain liabilities,
provided for in the Acquisition Agreement.
"Acquisition Agreement" has the meaning specified in paragraph A of the
Recitals.
"Acquisition Documents" means, collectively, the Acquisition Agreement and
all other agreements, instruments and documents executed pursuant thereto or in
connection therewith, as each of such agreements, instruments and documents may
from time to time be amended, modified or supplemented in accordance with the
terms thereof.
-2-
<PAGE>
"Additional Amount" means an additional amount payable in connection with
any declaration of acceleration or other acceleration of the maturity of the
Loans pursuant to Section 13.1 hereof equal to, for any period shown in the
table set forth in the definition of "Prepayment Premium" herein, the sum of (a)
the percentage shown opposite such period in such table under the heading
"Series A Non-Triggering" of the aggregate unpaid principal balance of the
Series A Term Loans, plus (b) the percentage shown opposite such period in such
table under the heading "Series B Non-Triggering" of the aggregate unpaid
principal balance of the Series B Term Loans.
"Additional Series A Term Loan Date" has the meaning specified in Section
2.4(b).
"Additional Series A Term Loans" has the meaning specified in Section
2.4(b).
"Adjusted Core EBITDA" means, for any period of determination (the
"Applicable Determination Period"), with respect to any acquisition proposed to
be made after the Closing Date pursuant to the provisions of Section 12.6(g)
hereof (each a "Proposed Acquisition"), the sum of (i) the aggregate amount of
Core EBITDA for the Applicable Determination Period, plus (ii) the sum obtained
by adding, for each acquisition (if any) made pursuant to the provisions of
Section 12.6(g) hereof prior to the last day of the Applicable Determination
Period (each Person or business acquired pursuant to any such prior acquisition,
whether such acquisition was accomplished by means of an acquisition of Capital
Stock or an acquisition of assets or a combination thereof, being herein called
a "Previously Acquired Business"), the product obtained by multiplying (x) the
Assumed Baseline EBITDA for such Previously Acquired Business for the Applicable
Baseline Period therefor by (y) the Incremental Factor with respect to such
Previously Acquired Business. For such purposes:
(i) the "Assumed Baseline EBITDA" shall be an amount (but in no event
less than $0) with respect to any Previously Acquired Business equal to the
greatest of (x) the actual historical EBITDA of such Previously Acquired
Business for the period of four consecutive full fiscal quarters of such
Previously Acquired Business most recently ended prior to the date such
Previously Acquired Business was acquired (as determined pursuant to a
calculation set forth in reasonable detail in an Officer's Certificate of
the Parent delivered to the Agent at least 15 days prior to the date of the
Proposed Acquisition, based on audited financial statements of such
Previously Acquired Business for such period or unaudited financial
statements thereof Certified by an Authorized Representative of the Parent,
which financial statements shall be delivered to the Agent together with
such Officer's Certificate), or (y) the aggregate amount of EBITDA of such
Previously Acquired Business projected to be attained for the first four
consecutive full fiscal quarters of the Parent following the date such
Previously Acquired Business was acquired, as set forth in a budget of such
Previously Acquired Business for such period, prepared at the time of the
acquisition thereof and based on reasonable assumptions, which shall be
-3-
<PAGE>
delivered to the Agent at least 15 days prior to the date of the Proposed
Acquisition, or (z) 10% of the aggregate gross revenues of such Previously
Acquired Business projected to be attained for the first four consecutive
full fiscal quarters of the Parent following the date such Previously
Acquired Business was acquired, as set forth in a budget of such Previously
Acquired Business for such period, prepared at the time of the acquisition
thereof and based on reasonable assumptions, which shall be delivered to
the Agent at least 15 days prior to the date of the Proposed Acquisition;
provided, however, that in any case where the Applicable Determination
Period shall be a period of less than four consecutive full fiscal quarters
of the Parent, then the amount of the Assumed Baseline EBITDA shall be
determined by multiplying the amount determined pursuant to the foregoing
provisions of this paragraph (i) by a fraction, the numerator of which is
the number of days in such Applicable Determination Period and the
denominator of which is 365;
(ii) the "Applicable Baseline Period" in respect of any Previously
Acquired Business shall be either (A) the period of four consecutive fiscal
quarters of such Previously Acquired Business relating to the amount
determined with respect thereto pursuant to clause (x) of paragraph (ii) of
this definition (in any case where the amount determined pursuant to such
clause (x) shall be greater than the amount determined pursuant to clause
(y) of said paragraph (ii)), or (B) the period of four consecutive fiscal
quarters of the Parent relating to the amount determined with respect
thereto pursuant to clause (y) of paragraph (ii) of this definition (in any
case where the amount determined pursuant to such clause (y) shall be
greater than the amount determined pursuant to clause (x) of said paragraph
(ii)); and
(iii) the "Incremental Factor" with respect to any Previously
Acquired Business shall be an amount equal to (1.05)/M/12/, where "M" is
equal to the number of months in the period from the last day of the
Applicable Baseline Period for such Previously Acquired Business to and
including the last day of the Applicable Determination Period.
"Affiliate" means as to any Person (a) any Person which directly or
indirectly controls, is controlled by, or is under common control with such
Person, (b) any Person who is a director, officer, partner or principal of such
Person or of any Person which directly or indirectly controls, is controlled by,
or is under common control with such Person, and (c) any individual who is a
member of the immediate family of any Person described in clause (a) or clause
(b) above. For purposes of this definition, "control" of a Person shall mean
the power, direct or indirect, (i) to vote or direct the voting of 5% or more of
the Voting Stock of such Person, or (ii) to direct or cause the direction of the
management and policies of such Person whether by ownership of Capital Stock, by
contract or otherwise.
"After Acquired Property" has the meaning specified in Section 11.6.
-4-
<PAGE>
"Agent" means PPM America, Inc., not personally but solely acting in its
capacity as agent for the Lenders under the terms of this Agreement, and its
successors and assigns acting in such capacity.
"Aggregate Revolving Loan Commitment" as of any date of determination shall
be $15,000,000, minus (i) the Letter of Credit Reserve, and (ii) the aggregate
amount of all reductions in the Aggregate Revolving Loan Commitment effected on
or prior to such date pursuant to Section 4.8.
"Applicable Margin" means:
(a) with respect to any Revolving Loan,
(i) during any period when such Revolving Loan is a LIBO Rate Loan, a
percentage amount per annum equal to 3.00%; and
(ii) during any period when such Revolving Loan is a Base Rate Loan, a
percentage amount per annum equal to 1.50%;
(b) with respect to any Series A Term Loan,
(i) during any period when such Series A Term Loan is a LIBO Rate
Loan, a percentage amount per annum equal to 3.25%; and
(ii) during any period when such Series A Term Loan is a Base Rate
Loan, a percentage amount per annum equal to 1.75%; and
(c) with respect to any Series B Term Loan,
(i) during any period when such Series B Term Loan is a LIBO Rate
Loan, a percentage amount per annum equal to 4.00%; and
(ii) during any period when such Series B Term Loan is a Base Rate
Loan, a percentage amount per annum equal to 2.50%.
"Authorized Representative" with respect to any Person means the Chief
Executive Officer, the Chief Financial Officer and the President of such Person,
or any further or different officer of such Person so designated by any
Authorized Representative in a written notice to the Agent.
"Bankruptcy Code" means 11 U.S.C. Sec. 101 et seq., as from time to time
hereafter amended, and any successor or similar statute.
-5-
<PAGE>
"Base Rate" means, in respect of interest accrued on the Loans during each
Interest Period (or portion thereof) during the period in which the Loans shall
be outstanding, a percentage rate per annum equal to the amount shown as the
"Bank Prime Rate" on the display designated as "Page 5" on the Telerate Access
Service (or such other display as may replace Page 5 on the Telerate Access
Service) two Business Days prior to the first day of such Interest Period;
provided, however, that in the event that for any reason such information shall
not be available on the Telerate Access Service on any such date of
determination, then the Base Rate in respect of such Interest Period shall be
the rate of interest per annum most recently published on or prior to such date
of determination by the Board of Governors of the Federal Reserve System as the
"Bank Prime Loan" rate in Federal Reserve statistical release H.15 (519)
entitled "Selected Interest Rates," or any successor publication of the Federal
Reserve System reporting the Bank Prime Loan rate or its equivalent. It is
understood and agreed that the Base Rate as herein defined is a reference rate
and is not necessarily the lowest rate of interest charged by the Lenders in
connection with loans and financial accommodations made by them.
"Base Rate Loan" means, with respect to any Revolving Loan, Series A Term
Loan or Series B Term Loan, such Loan at any time when the interest rate
applicable to such Loan shall be equal to the Base Rate at the time in effect
plus the Applicable Margin.
"Blue Ribbon" has the meaning specified in the Recitals.
"Board of Directors" means the Board of Directors of any corporation or a
committee of said corporation having authority to exercise, when the Board of
Directors is not in session, the powers of the Board of Directors (subject to
any designated limitations) in the management of the business and affairs of
said corporation.
"Borrower Security Agreement" has the meaning set forth in Section 7.13(a).
"Borrowers" and "Borrower" have the meanings specified in the Preamble.
"Borrowers' Account" means the joint bank account of the Borrowers more
particularly described on Schedule II hereto or such other account as may be
specified by an Authorized Representative in writing to the Agent. Any such
account may be an account maintained in the name of Nutraceutical as
disbursement agent for itself and the other Borrowers.
"Borrowing Base" means an amount as of any time of determination equal to
the sum of:
(x) 85% of the aggregate amount then outstanding under existing
Eligible Accounts, plus
-6-
<PAGE>
(y) 65% of the aggregate value of the Borrowers' and their
Subsidiaries' then existing Eligible Inventory, valued at the lower of cost
(determined by the moving average cost method, except that the cost of
Eligible Inventory of KAL and Natural Max may be determined on a first-in-
first-out basis prior to September 30, 1995) or market and net of all
specific or general reserves applicable against Inventory in accordance
with GAAP.
"Borrowing Base Certificate" has the meaning set forth in Section 9(f).
"Business Day" means any day on which commercial banks are not authorized
or required to close in New York, New York or in Salt Lake City, Utah, and, if
such day relates to the date which is two Business Days prior to the first day
of an Interest Period for purposes of the determination of a LIBO Rate for any
applicable interest period, a day which is also a day on which dealings in
Dollar deposits are carried out on the London interbank market.
"Capital Expenditures" means the expenditures of any Person which are
properly capitalized on the balance sheet of such Person in accordance with GAAP
and which are made in connection with the purchase, construction or improvement
of items properly classified on such balance sheet as property, plant, equipment
or other fixed assets or intangibles; provided that "Capital Expenditures" shall
not include any amounts constituting all or any part of the consideration paid
for an acquisition effected pursuant to Section 12.6(g) hereof.
"Capitalized Lease" means, as to any Person, a lease of (or other agreement
conveying the right to use) real and/or personal Property to such Person as
lessee, with respect to which the obligations of such Person to pay rent or
other amounts are required to be classified and accounted for as a capital lease
on a balance sheet of such Person in accordance with GAAP (including Statement
of Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board).
"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a Capitalized Lease and, for
purposes of this Agreement, the amount of such obligation shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests or similar interests (whether
general or limited) in any Person which is a partnership, joint venture or
similar entity, and (iii) all equity, membership or ownership interests in any
Person of any other type, including, without limitation, any limited liability
company.
-7-
<PAGE>
"Cash Equivalents" means
(1) marketable obligations maturing within 180 days after acquisition
thereof issued or fully guaranteed by the United States of America or
an instrumentality or agency thereof,
(2) open market commercial paper, maturing within 180 days after
acquisition thereof, which has the highest credit rating of either
Standard & Poor's Corporation or Moody's Investors Service, Inc.,
issued by a corporation (other than the Parent or any of its
Subsidiaries or Affiliates) organized under the laws of any State of
the United States of America or of the District of Columbia, and
(3) certificates of deposit or bankers acceptances or other obligations
maturing within 180 days after acquisition thereof issued by a
domestic commercial bank which is a member of the Federal Reserve
System and has capital, surplus and undivided profits in excess of
$500,000,000.
"Cash Flow Available for Fixed Charges" means, for any period, EBITDA of
the Parent for such period minus, without duplication, (i) Capital Expenditures
for such period (to the extent made in cash and not financed by Indebtedness
other than the Initial Series A Term Loans, the Revolving Loans and the Series B
Term Loans), (ii) payments made during such period on account of the principal
amount of Indebtedness (other than the Initial Series A Term Loans, the
Revolving Loans and the Series B Term Loans) previously incurred to finance
Capital Expenditures, and (iii) taxes based on or measured by net income paid
(whether or not deducted in determining Consolidated Net Income (Loss) for such
period) or accrued for such period (but excluding accruals of deferred taxes),
all as determined for the Parent and its Subsidiaries for such period on a
consolidated basis in accordance with GAAP.
"Casualty" shall have the meaning ascribed thereto in Section 11.4(c).
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act, as amended.
"Certified" when used with respect to any financial information of any
Person to be certified by any of its respective financial or accounting
officers, indicates that such information is to be accompanied by a certificate
to the effect that such financial information has been prepared in accordance
with GAAP consistently applied, subject in the case of interim financial
information to the absence of notes and to normal year-end audit adjustments,
and presents fairly the information contained therein as at the dates and for
the periods covered thereby.
"Change of Board" means any transaction or event as a result of which the
Sponsor Group shall fail to be entitled, by virtue of ownership of securities or
by agreement or otherwise, to cause the election or removal of directors of the
Parent
-8-
<PAGE>
having, in the aggregate, at least a majority of the voting power at the
time represented by all members of the Board of Directors of the Parent.
"Change of Control" means any transaction or event (including, without
limitation, an issuance, sale or exchange of Capital Stock, a merger or
consolidation, or a dissolution or liquidation) as a direct or indirect result
of which (a) if such transaction or event occurs prior to the completion of a
Qualified Initial Public Offering, (i) the Sponsor Group collectively
beneficially owns less than 75% of the aggregate number of shares of Parent
Common Stock owned by the members of the Sponsor Group on the Closing Date
(after adjusting such number for any stock dividends, subdivisions or
combinations of shares, or similar events, if any, affecting the number of
shares of Parent Common Stock owned by such Persons which shall have occurred
after the Closing Date), or (ii) a Change of Board occurs, (b) if such
transaction or event is a Qualified Initial Public Offering or occurs after the
completion of a Qualified Initial Public Offering, (i) the Sponsor Group
collectively beneficially owns less than 25% of the Fully Diluted Common Stock,
or (ii) any Person or any group shall beneficially own in the aggregate a
greater number of shares of Voting Stock of the Parent than the aggregate number
of shares of Voting Stock of the Parent beneficially owned by the members of the
Sponsor Group, and (c) if such transaction or event occurs at any time, whether
before or after the completion of a Qualified Initial Public Offering, (i) the
Parent shall cease to own, of record and beneficially, with sole voting and
dispositive power, 100% of the outstanding shares of Capital Stock of
Nutraceutical, or (ii) Nutraceutical shall cease to own, of record and
beneficially, with sole voting and dispositive power, 100% of the outstanding
shares of Capital Stock of each other Borrower (other than by reason of a merger
or consolidation of any such other Borrower with or into Nutraceutical or with
or into another Borrower other than Natural Max, or a dissolution of any such
other Borrower into Nutraceutical), or (iii) the Borrowers shall sell, lease or
otherwise dispose of all or substantially all of their assets (other than to
Nutraceutical or another Borrower other than Natural Max); provided that a sale
or disposition of the Capital Stock or assets of Natural Max as permitted by
Section 12.6(f) shall not be deemed to be a Change of Control. For purposes of
this definition, the terms "beneficially own" and "group" shall have the
respective meanings ascribed to them pursuant to Section 13(d) of the Exchange
Act and rules and regulations promulgated thereunder.
"Class A Common Stock" means the Class A Common Stock, par value $.01 per
share, of the Parent.
"Class A Non-Voting Common Stock" means the Class A Non-Voting Common
Stock, par value $.01 per share, of the Parent.
"Class P Common Stock" means the Class P Common Stock, par value $.01 per
share, of the Parent.
-9-
<PAGE>
"Closing Date" means the date of the initial disbursement of Loans
hereunder, which (subject to satisfaction of the applicable conditions set forth
herein) shall occur at 10:00 A.M. (New York time) on January 31, 1995, or such
other time and date as shall be mutually acceptable to the Borrowers and the
Original Lender, at the offices of Sonnenschein Nath & Rosenthal, 1221 Avenue of
the Americas, New York, New York 10020.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
"Code" means the Internal Revenue Code of 1986, as from time to time
amended.
"Collateral" means all "Collateral", "Security", "Pledged Collateral" and
"Property" referred to in, and any other Property in which any Lien is granted
under, any of the Security Documents and all other Property that is or becomes
subject to any Lien in favor of the Collateral Agent or the Lenders.
"Collateral Agent" means Jackson National Life Insurance Company, a
Michigan insurance corporation, not personally but acting in its capacity as
collateral agent for the benefit of the Lenders and itself in such capacity, and
its successors and assigns acting in such capacity, including, without
limitation, any successor collateral agent appointed by the Majority Lenders
pursuant to Section 16.5(c) hereof.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Parent.
"Consolidated Current Assets" means all assets of the Parent and its
Subsidiaries on a consolidated basis which, in accordance with GAAP, are
properly classified as current assets, exclusive of cash and Cash Equivalents.
"Consolidated Current Liabilities" means all liabilities of the Parent and
its Subsidiaries on a consolidated basis maturing on demand or within one year
from the date as of which such liabilities are to be determined, and such other
liabilities (including, without limitation, accrued taxes) as may properly be
classified as current liabilities in accordance with GAAP, but excluding (i) the
currently payable portion of any Indebtedness of the Parent or any of its
Subsidiaries which by its terms matures, or at the Parent's or any such
Subsidiary's option can be extended until, a date that is one year or more after
the date of the creation or incurrence thereof, and (ii) the amount of any
outstanding Revolving Loans.
"Consolidated Interest Expense" means, for any period, without duplication,
total interest expense paid or accrued with respect to all outstanding
Indebtedness of the Parent and its Subsidiaries (net of any interest income
received in respect of such period), including, without limitation, that portion
of any Capitalized Lease Obligations
-10-
<PAGE>
attributable to interest expense in conformity with GAAP, debt issuance costs
and capitalized interest paid during such period (but excluding in any event all
such costs and the amortization of such costs incurred in connection with the
Transactions), interest on the Loans (including the Underutilization Fee and L/C
Guarantee Fees), all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net costs
under Interest Rate Protection Agreements (including amortization of such
costs), all as determined for the Parent and its Subsidiaries on a consolidated
basis for such period in accordance with GAAP.
"Consolidated Net Income (Loss)" means, for any period, with respect to any
Person (the "Determination Person"), the net income (or loss) of the
Determination Person and its Subsidiaries on a consolidated basis for such
period, determined in accordance with GAAP; provided that in determining
Consolidated Net Income (Loss) there shall be excluded (i) the income (or loss)
of any other Person which is not a Subsidiary of the Determination Person except
to the extent of the amount of dividends or other distributions actually paid to
the Determination Person or any of its Subsidiaries by such other Person during
such period, (ii) the income (or loss) of any Person accrued prior to the date
it becomes a Subsidiary of the Determination Person or is merged into or
consolidated with the Determination Person or any of its Subsidiaries or that
Person's assets are acquired by the Determination Person or any of its
Subsidiaries, (iii) the proceeds of any life insurance policy, (iv) gains and
losses from the sale, exchange, transfer or other disposition of Property or
assets not in the ordinary course of business of the Determination Person and
its Subsidiaries, and related tax effects in accordance with GAAP, (v) any other
extraordinary or non-recurring gains or losses of the Determination Person or
its Subsidiaries, and related tax effects in accordance with GAAP, and (vi) the
income of any Subsidiary of the Determination Person to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that income is not at the time permitted by operation of the terms of its
charter or of any agreement, instrument, Statute or Order applicable to that
Subsidiary.
"Consolidated Net Worth" means, as at any date of determination, the sum at
such date of (i) the aggregate par value of the Parent's outstanding Capital
Stock, plus (ii) additional paid-in capital, plus (iii) retained earnings, plus
(iv) the amount of the Parent's and its Subsidiaries' stepup in Inventory basis
resulting from the Acquisition in accordance with APB No. 16, to the extent
deducted in determining Consolidated Net Income (Loss) for any period after the
Closing Date, less the Parent's treasury stock account, all as determined for
the Parent and its Subsidiaries on a consolidated basis in conformity with GAAP.
"Consolidated Series A/B Indebtedness" means, as at any date of
determination, the aggregate amount of Indebtedness of the Parent and its
Subsidiaries as of such date in respect of the Series A Term Loans and the
Series B Term Loans, determined on a consolidated basis in conformity with GAAP.
-11-
<PAGE>
"Consolidated Total Indebtedness" means, as at any date of determination,
the total amount at such date of all Indebtedness of the Parent and its
Subsidiaries, as determined on a consolidated basis in conformity with GAAP.
"Continuing Indebtedness" has the meaning specified in Section 5.8(a).
"Controlled Person" means, with respect to any Person, any other Person
directly or indirectly controlled by such Person. For purposes of this
definition, "control" of a Person shall mean the power, direct or indirect, to
direct or cause the direction of the management and policies of such Person,
whether by ownership of Capital Stock, by contract or otherwise.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 4.2 hereof of one Type of Loan into another Type of Loan.
"Core EBITDA" means, in respect of the period of four consecutive full
fiscal quarters of the Parent ending on any of the dates set forth below (or, in
respect of any such date that is earlier than March 31, 1996, the period from
the Closing Date to and including such date), the corresponding amount set forth
opposite such date below:
<TABLE>
<CAPTION>
Period Ending: Amount
-------------- -----------
<S> <C>
March 31, 1995 $ 1,091,000
June 30, 1995 4,564,000
September 30, 1995 9,729,000
December 31, 1995 13,900,000
March 31, 1996 15,150,000
June 30, 1996 15,525,000
September 30, 1996 15,925,000
December 31, 1996 16,300,000
March 31, 1997 16,700,000
June 30, 1997 17,100,000
September 30, 1997 17,500,000
December 31, 1997 17,850,000
March 31, 1998 18,175,000
June 30, 1998 18,525,000
September 30, 1998 18,900,000
December 31, 1998 19,550,000
March 31, 1999 20,225,000
June 30, 1999 20,900,000
September 30, 1999 21,625,000
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Period Ending: Amount
-------------- -----------
<S> <C>
December 31, 1999 21,950,000
March 31, 2000 22,300,000
June 30, 2000 22,650,000
September 30, 2000 23,000,000
December 31, 2000 23,475,000
March 31, 2001 23,875,000
June 30, 2001 24,475,000
September 30, 2001 25,000,000
Last day of any fiscal quarter thereafter: 25,000,000
</TABLE>
"Current Value" has the meaning specified in Section 11.6.
"Default" means any event or condition which, with due notice or lapse of
time or both, would become an Event of Default.
"Depositary Account" means with respect to any Person any demand, time,
savings, passbook, money market or other depositary account maintained by such
Person with any bank, savings and loan association, credit union or other
depositary institution, other than an account evidenced by a certificate of
deposit.
"Depositary Account Agreement" means an agreement substantially in the form
of Exhibit N hereto, with respect to one or more Depositary Accounts now or
hereafter maintained by the Parent, the Borrowers or their Subsidiaries, among
the Person maintaining such Depositary Account, the bank or other depositary
institution at which such Depositary Account is maintained, and the Collateral
Agent.
"Disqualified Capital Stock" means, with respect to any Person, that
portion of any class or series of Capital Stock of such Person that, by its
terms or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of an event or passage of time would be,
required to be redeemed or repurchased (including at the option of the holder),
in whole or in part, or has, or upon the happening of an event or passage of
time would have, a redemption, sinking fund or similar payment due, in either
case, on or prior to the Series B Maturity Date.
"Dollars" and "$" shall mean lawful money of the United States of America.
"EBITDA" means, for any period, with respect to any Person, Consolidated
Net Income (Loss) for such Person for such period plus all amounts deducted in
determining such Consolidated Net Income (Loss) on account of Consolidated
Interest Expense of such Person, taxes based on or measured by income,
depreciation expense, amortization expense and other non-cash items (including
non-cash charges and including, without limitation, adjustments related to the
write-up in the book value of any assets arising out of the Transactions, to the
extent such adjustments are made
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<PAGE>
pursuant to APB Nos. 16 and 17 and are deducted in determining Consolidated Net
Income (Loss) of such Person for such period, but exclusive of extraordinary and
non-recurring items), all as determined for such Person and its Subsidiaries on
a consolidated basis in accordance with GAAP.
"Eligible Account" means each Account:
(a) that arises out of the sale by any of the Borrowers or their
Subsidiaries of finished goods Inventory to an Account Debtor located
within the United States of America or Canada, or located outside of
the United States of America and Canada if such Accounts are backed by
letters of credit issued or confirmed by a bank which is organized
under the laws of the United States of America or Canada or a state or
province thereof and which has capital, surplus and undivided profits
in excess of $500,000,000, and such letter of credit has been
delivered to the Collateral Agent as Collateral;
(b) that is the valid, binding and legally enforceable obligation of the
Account Debtor obligated thereon and such Account Debtor is not (i) an
Affiliate of the Parent, any Borrower or of any Subsidiary of any
Borrower, (ii) a director, officer or employee of the Parent, any
Borrower or any Subsidiary or Affiliate of any Borrower, (iii) the
United States of America or any department, agency or instrumentality
thereof unless the applicable Borrower or Subsidiary has complied with
the Federal Assignment of Claims Act of 1940, as amended to the
satisfaction of the Agent, (iv) Canada or any department, agency or
instrumentality thereof unless the applicable Borrower or Subsidiary
has complied with the Financial Administration Act (Canada), as
amended, (v) a debtor under any proceeding under the Bankruptcy Code
or any other comparable bankruptcy or insolvency law applicable under
the law of any other country or political subdivision thereof, or (vi)
an assignor for the benefit of creditors;
(c) that is assignable and not evidenced by an instrument or chattel paper
unless the same has been endorsed and delivered to the Collateral
Agent;
(d) that is subject to a perfected, first priority Lien in favor of the
Collateral Agent, and is free and clear of any other Lien other than
Permitted Liens;
(e) that is net of any credit or allowance given by any Borrower or any
Subsidiary of any Borrower to the Account Debtor obligated thereon;
(f) that is not subject to any asserted offset, counterclaim or other
defense with respect thereto;
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<PAGE>
(g) that is not unpaid more than 90 days (or 120 days, in the case of
Accounts payable by GNC) after the invoice date (which must be not
more than five days subsequent to the shipment date);
(h) that is not owed by an Account Debtor who is obligated on accounts
owed to the Borrowers more than 20% of the aggregate unpaid balance of
which have been past due for longer than the relevant period specified
in clause (g) above unless the Agent has approved the continued
eligibility thereof;
(i) to the extent that including such Account as an Eligible Account would
not cause the total Eligible Accounts owing from any one Account
Debtor or its Affiliates to exceed 10% of all Eligible Accounts (or,
in the case of Eligible Accounts owing from GNC, 20% of all Eligible
Accounts);
(j) that does not arise from a sale to an Account Debtor on a bill-and-
hold, guaranteed sale, sale-or-return, sale-on-approval, consignment
or any other repurchase or return basis;
(k) that is payable in Dollars;
(l) that is evidenced by an invoice or other writing in a standard form
used in the ordinary course of business of the Borrowers and their
Subsidiaries; and
(m) that is accurately described by each of the statements set forth in
clauses (a) through (h), inclusive, of Section 5.32 hereof.
"Eligible Inventory" means all raw material Inventory, work-in-process
Inventory and finished goods Inventory (but excluding packaging, crating and
supplies Inventory) as to which any of the Borrowers or their Subsidiaries has
title, provided that such Inventory:
(a) is subject to a perfected, first priority Lien in favor of the
Collateral Agent, and is free and clear of any other Lien other than
Permitted Liens;
(b) is located in the United States at any of the locations identified as
locations of Inventory pursuant to Section 5.29 hereof (as said
Schedule may be supplemented from time to time by timely notices
delivered pursuant to Section 12.18 hereof); provided, however, that
any Inventory which is located at any such location which is not owned
by any of the Borrowers or their Subsidiaries and as to which the
Borrowers have not obtained an Estoppel Letter, to the extent that
such Inventory at any time exceeds $250,000 in the aggregate, shall
not be deemed Eligible Inventory;
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(c) is not so identified to a contract to sell that it constitutes an
Account;
(d) has not been acquired by any of the Borrowers or their Subsidiaries on
consignment and has not been placed out on consignment by any of the
Borrowers or their Subsidiaries;
(e) is not obsolete or Slow Moving Inventory, and is of good and
merchantable quality free from any defects which could reasonably be
expected to adversely affect the market value thereof; and
(f) was not produced in violation of the Fair Labor Standards Act and
subject to the so-called "hot goods" provision contained in Title 29
U.S.C. (S) 215(a)(1).
"Environment" means any and all surface water, ground water or other
underground water, drinking water supply, solid surface or subsurface strata,
soil, biota or air.
"Environmental Laws" means any and all Federal, state, local, and foreign
Statutes, Orders, permits, authorizations, licenses, or governmental
restrictions relating to pollution, the protection of the Environment or the
generation, treatment, storage, use, maintenance, recycling, transportation,
release or disposal of Hazardous Materials, including, without limitation,
CERCLA, the Resource Conservation and Recovery Act, the Emergency Planning and
Community Right to Know Act, the Safe Drinking Water Act, the Hazardous
Materials Transportation Act, the Clean Air Act, the Clean Water Act, the
Federal Insecticide, Fungicide and Rodenticide Act, the Noise Control Act, the
Occupational Safety and Health Act, the Toxic Substances Control Act, any so-
called "Superfund" or "Superlien" law, and any regulation promulgated under any
of the foregoing, all as now or at any time hereafter may be in effect.
"Environmental Matter" means any claim, investigation, notice letter,
information request, litigation or administrative proceeding, whether pending
or, to the knowledge of the Parent or the Borrowers, threatened, or judgment or
Order, relating to any Hazardous Materials, the release thereof, or any
Environmental Law.
"Equipment" means "equipment" as defined in the Uniform Commercial Code as
in effect in the State of New York on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as from
time to time amended.
"ERISA Affiliate" means any corporation or other Person which is a member of
the same controlled group (within the meaning of Section 414(b) of the Code) of
corporations or other Persons as any of the Borrowers or the Parent, or which is
under common control (within the meaning of Section 414(c) of the Code) with any
of the Borrowers or the Parent, or any corporation or other Person which is a
member of an
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affiliated service group (within the meaning of Section 414(m) of
the Code) with any of the Borrowers or the Parent, or any corporation or other
Person which is required to be aggregated with any of the Borrowers or the
Parent pursuant to Section 414(o) of the Code or the regulations promulgated
thereunder, to the extent effective.
"Estoppel Letter" has the meaning specified in Section 12.18.
"Event of Default" has the meaning specified in Section 13.1.
"Excess Cash Flow" means, for any fiscal year, without duplication,
Consolidated Net Income (Loss) of the Parent plus, to the extent deducted in
determining such Consolidated Net Income (Loss) for such fiscal year, (a)
depreciation expense, (b) amortization expense, (c) deferred income taxes, (d)
all other non-cash charges and non-cash credits, and (e) any net decrease in
Working Capital during such fiscal year, minus (w) income taxes paid during such
fiscal year, to the extent not deducted in determining such Consolidated Net
Income (Loss) for such fiscal year, (x) Capital Expenditures made during such
fiscal year in accordance with Section 12.4 (to the extent made in cash and not
financed by Indebtedness other than the Initial Series A Term Loans, the
Revolving Loans and the Series B Term Loans), (y) scheduled payments of the
principal amount of any Indebtedness actually paid during such fiscal year
(including, without limitation, all payments pursuant to Section 4.1(a) hereof,
but excluding payments pursuant to Section 4.1(b)(i) hereof), and (z) any net
increase in Working Capital during such fiscal year, all as determined for the
Parent and its Subsidiaries on a consolidated basis in accordance with GAAP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute then in effect, and a reference to a particular
section thereof shall include a reference to the comparable section, if any, of
any such similar Federal statute.
"Executive Agreements" means collectively (i) that certain Executive Stock
Agreement dated as of October 28, 1993 between the Parent and Jeffrey A.
Hinrichs, (ii) those certain Executive Stock Agreements dated July 8, 1994,
between the Parent and each of (A) James Selander, (B) Farley Quist, (C) Daren
Peterson and (D) Brent Roth, (iii) that certain Consultant Stock Agreement dated
as of October 28, 1993 between the Parent and Bruce R. Hough, (iv) that certain
Option Agreement dated as of October 31, 1994 between the Parent and Marshall G.
Campbell, and (v) those certain Option Agreements dated as of November 15, 1994,
between the Parent and each of (A) Frank W. Gay II, (B) Bruce R. Hough, and (C)
Jeffrey A. Hinrichs.
"Existing Indebtedness" means all Indebtedness of the Parent and its
Subsidiaries existing on the Closing Date immediately prior to the initial
disbursement of the Loans hereunder.
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"Fair Market Value" means the amount a willing buyer would pay to a willing
seller for the assets in question, neither party being under compulsion to act
and both having reasonable knowledge of all relevant facts.
"FDA" means the United States Food and Drug Administration or any successor
Governmental Body thereto.
"Fixed Charges" shall mean, for any period, without duplication,
Consolidated Interest Expense for such period, plus scheduled payments of
principal of all Indebtedness of the Parent and its Subsidiaries during such
period, all as determined for the Parent and its Subsidiaries on a consolidated
basis in accordance with GAAP.
"Fully Diluted Common Stock" at any time shall mean all shares of Parent
Common Stock then issued and outstanding and all shares of Parent Common Stock
issuable upon the exercise of any then outstanding warrants, options, conversion
rights or other rights to subscribe for, purchase or acquire shares of Parent
Common Stock, regardless of whether such warrants, options, conversion rights or
other rights are then exercisable.
"FWG" means F.W. Gay & Sons, a Texas general partnership.
"GAAP" means generally accepted accounting principles in the United States
of America (applied on a consistent basis both as to classification of items and
amounts), as in effect on September 30, 1994, and as applied in the preparation
of the Parent Financial Statements for the fiscal year of the Parent ended on
such date; provided that for the purposes of the preparation and certification
of the financial statements required to be delivered pursuant to Sections 9(a)
and 9(c)(i) hereof, "GAAP" shall mean generally accepted accounting principles
in the United States of America (applied on a consistent basis both as to
classification of items and amounts), as in effect on the respective dates of
preparation of such financial statements.
"GNC" means General Nutrition Companies Inc., a Delaware corporation.
"Governmental Body" means any Federal, state, county, city, town, village,
municipal or other governmental department, commission, board, bureau, agency,
authority or instrumentality, domestic or foreign.
"Guarantee" means any guarantee or other contingent liability (other than
any endorsement for collection or deposit in the ordinary course of business),
direct or indirect, with respect to any obligations of another Person, through
an agreement or otherwise, including, without limitation, (a) any other
endorsement or discount with recourse or undertaking substantially equivalent to
or having economic effect similar to a guarantee in respect of any such
obligations and (b) any agreement (i) to purchase, or to advance or supply funds
for the payment or purchase of, any such obligations, (ii) to purchase, sell or
lease Property, products, materials or supplies, or transportation
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or services, in respect of enabling such other Person to pay any such obligation
or to assure the owner thereof against loss regardless of the delivery or
nondelivery of the Property, products, materials or supplies or transportation
or services or (iii) to make any loan, advance or capital contribution to or
other investment in, or to otherwise provide funds to or for, such other Person
in respect of enabling such Person to satisfy any obligation (including any
liability for a dividend, stock liquidation payment or expense) or to assure a
minimum equity, working capital or other balance sheet condition in respect of
any such obligation. The amount of any Guarantee shall be equal to the
outstanding amount of the obligations directly or indirectly guaranteed.
"Guarantors" means, collectively, the Parent and each Subsidiary of the
Parent or the Borrowers (other than any of the Borrowers) that executes and
delivers a Subsidiary Guarantee, and "Guarantor" means any one of such
Guarantors.
"Hazardous Material" and "Hazardous Materials" shall mean as follows:
(a) any "hazardous substance" as defined in, or for purposes of, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C.A. (S)(S) 9601 & 9602, or any other so-called "superfund" or
"superlien" law and any judicial interpretation of any of the foregoing;
(b) any "regulated substance" as defined pursuant to 40 C.F.R. Part
280;
(c) any "pollutant or contaminant" as defined in 42 U.S.C.A. (S)
9601(33);
(d) any "hazardous waste" as defined in, or for purposes of, the
Resource Conservation and Recovery Act;
(e) any "hazardous chemical" as defined in 29 C.F.R. Part 1910;
(f) any "hazardous material" as defined in, or for purposes of, the
Hazardous Materials Transportation Act; and
(g) any other substance, regardless of physical form, or form of
energy or pathogenic agent that is subject to any other past, present or
future law or requirement of any Governmental Body regulating, relating to,
or imposing obligations, liability, or standards of conduct concerning the
protection of human health, plant life, animal life, natural resources,
Property or the reasonable enjoyment of life or Property from the presence
in the Environment of any solid, liquid, gas, odor, pathogen or form of
energy, from whatever source.
Without limiting the generality of the foregoing, the term "Hazardous
Material" thus includes, but is not limited to, any material, waste or substance
that contains
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petroleum or any fraction thereof, asbestos, or polychlorinated biphenyls, or
that is flammable, explosive or radioactive.
"Heller" means Heller Financial, Inc., a Delaware corporation.
"Heller Warrants" means those certain Warrants dated October 28, 1993
issued by the Parent to Heller to purchase in the aggregate 116,949.15 shares of
Non-Voting Common Stock and 12,994.35 shares of Class A Non-Voting Common Stock
(in each case subject to adjustment as therein provided), as amended on or prior
to the Closing Date and as such documents may from time to time be further
amended, modified or supplemented in accordance with their terms.
"Indebtedness" with respect to any Person means, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) any obligation
incurred for all or any part of the purchase price of Property or services,
other than accounts payable and accrued expenses included in current liabilities
and incurred in respect of Property or services purchased in the ordinary course
of business, (iii) indebtedness or obligations evidenced by bonds, debentures,
notes or similar written instruments, (iv) the face amount of any letter of
credit or similar instrument issued or accepted by banks or other financial
institutions for the account of such Person, whether or not drawn, (v) any
obligation (whether or not such Person has assumed or become liable for the
payment of such obligation) secured by a Lien on any Property of such Person,
(vi) Capitalized Lease Obligations of such Person, (vii) all obligations,
contingent or otherwise, of such Person with respect to any Interest Rate
Protection Agreement, (viii) all obligations, contingent or otherwise, of such
Person under any foreign exchange contract, currency swap agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency values, and (ix) all Guarantees by such Person of
Indebtedness of the character described in clauses (i) through (viii),
inclusive, of this definition.
"Information Memorandum" means the Information Memorandum dated November
1994, prepared by the Sponsor and Clarte Capital, which document is attached
hereto as Exhibit B.
"Initial Borrowing Base Certificate" means the initial Borrowing Base
Certificate to be delivered to the Agent prior to the Closing Date pursuant to
Section 7.5 hereof.
"Initial Series A Term Loans" has the meaning specified in Section 2.4(a).
"Intellectual Property" of any Person means:
(a) all trademarks, trade names, trade styles, service marks, logos,
emblems, prints and labels, all elements of package or trade dress of
goods, and all general intangibles of like nature, of such Person, together
with the goodwill of such Person's business connected with the use thereof
and symbolized
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thereby, and all applications, registrations and recordings thereof,
including, without limitation, applications, registrations and recordings
in the United States Patent and Trademark Office or in any similar office
or agency of the United States of America or in any office of the Secretary
of State (or equivalent) of any state thereof, or in any similar office or
agency of any country or political subdivision thereof throughout the
world, together with all extensions, renewals and corrections thereof and
all licenses thereof or pertaining thereto, including, without limitation,
all License Agreements with respect thereto,
(b) all letters patent of such Person and applications therefor, and
all registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States of
America or any state thereof, or in any similar office or agency of any
country or political subdivision thereof throughout the world, together
with all re-examinations, reissues, continuations, continuations-in-part,
divisions, improvements and extensions thereof and all licenses and claims
for infringement thereof or pertaining thereto including, without
limitation, all License Agreements with respect thereto, and the rights to
make, use and sell, and all other rights with respect to, the inventions
disclosed or claimed therein, all inventions, designs, proprietary or
technical information, know-how, other data or information, software,
databases, all embodiments or fixations thereof and related documentation,
and all other trade secret rights not described above,
(c) all copyrights of such Person in works of authorship of any kind,
and all applications, registrations and recordings thereof in the Office of
the United States Register of Copyrights, Library of Congress, or in any
similar office or agency of any country or political subdivision thereof
throughout the world, together with all extensions, renewals and
corrections thereof and all licenses and claims for infringement thereof or
pertaining thereto, including, without limitation, all License Agreements
with respect thereto, and
(d) all customer lists and other records of such Person relating to
the distribution of products bearing any of the items described in
subparagraphs (a), (b) or (c) of this definition.
"Intellectual Property Security Agreement" has the meaning specified in
Section 7.13(b).
"Intercreditor Agreement" means the Intercreditor Agreement in the form of
Exhibit W hereto to be entered into on the Closing Date pursuant to Section
7.19, as from time to time amended, modified or supplemented in accordance with
the terms thereof.
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"Interest Expense Coverage Ratio" means, for any period, the ratio of
(i) the EBITDA of the Parent and its Subsidiaries for such period to (ii) the
aggregate amount of all Consolidated Interest Expense for such period.
"Interest Payment Date" has the meaning set forth in Section 3.4(a).
"Interest Period" means (a) the period from and including the Closing Date
to but excluding the first Interest Payment Date immediately following the
Closing Date, and thereafter (b) the approximately one month period from and
including each Interest Payment Date to but excluding the immediately following
Interest Payment Date.
"Interest Rate Protection Agreement" shall mean an interest rate swap, cap
or collar agreement or similar arrangement between any Person or Persons and one
or more financial institutions providing for the transfer or mitigation of
interest rate or expense risks either generally or under specific contingencies.
"Internal Revenue Service" means the United States Internal Revenue Service
and any successor or similar agency performing similar functions.
"Inventory" shall mean all of the inventory of the Borrowers and their
Subsidiaries of every kind and description, now or at any time hereafter owned
by or in the custody or possession, actual or constructive, of any of the
Borrowers or their Subsidiaries, wherever located, including, but not limited
to, all merchandise, raw materials, parts, supplies, work-in-process and
finished goods intended for sale, together with all the containers, packing,
packaging, shipping and similar materials related thereto, and including such
inventory as is temporarily out of the Borrowers' or their Subsidiaries' custody
or possession, including inventory on the premises of others and items in
transit, and including any returns and repossessions upon any accounts,
documents, instruments or chattel paper relating to or arising from the sale of
inventory, and all substitutions and replacements therefor, and all additions
and accessions thereto, and all ledgers, books of account, records, computer
printouts, computer runs, and other computer-prepared information relating to
any of the foregoing, and any and all proceeds of any of the foregoing,
including without limitation proceeds of insurance policies thereon.
"Investment" when used with reference to any investment of any Person means
any investment of such Person so classified under GAAP, and, whether or not so
classified, includes (a) any loan or advance made by such Person to any other
Person, (b) any Guarantee, and (c) any ownership or similar interest in any
other Person; and the amount of any Investment shall be the original principal
or capital amount thereof less all cash returns of principal or equity thereof
(and without adjustment by reason of the financial condition of such other
Person).
"Issuing Lender" means Jackson National Life Insurance Company, a Michigan
insurance corporation.
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"Issuing Lender's Office" means the office of the Issuing Lender located at
the address designated on Schedule I hereto, or such other office as the Issuing
Lender may hereafter designate in writing to the other parties hereto.
"KAL" has the meaning specified in the Preamble.
"KAL B.V." means Makers of KAL, B.V., a Netherlands corporation which is a
Wholly-owned Subsidiary of KAL Seller and which, immediately following
consummation of the Transactions, will be a Wholly-owned Subsidiary of KAL.
"KAL Financial Statements" has the meaning specified in Section 5.5(a).
"KAL Seller" has the meaning specified in paragraph A of the Recitals.
"L/C Guarantee Fee" has the meaning set forth in Section 3.6.
"Lenders" means collectively the Original Lender and its successors,
assigns and transferees, including any Person who may subsequently become a
Lender under the terms of this Agreement; and "Lender" means any one of such
Lenders.
"Letter of Credit" shall mean any letter of credit or other similar
financial accommodation issued by the Letter of Credit Bank for the account of
any of the Borrowers or their Subsidiaries for any proper business of the
Borrowers or their Subsidiaries which is Guaranteed by the Issuing Lender
pursuant to a Letter of Credit Guarantee.
"Letter of Credit Bank" means the bank selected by the Borrowers to issue
letters of credit and other similar financial accommodations for the account of
any of the Borrowers or their Subsidiaries, which bank shall be reasonably
acceptable to the Issuing Lender.
"Letter of Credit Guarantee" shall mean each Guarantee issued by the
Issuing Lender pursuant to Section 2.7 hereof, at the request and for the
account of any of the Borrowers, to and in favor of the Letter of Credit Bank.
"Letter of Credit Limit" means an amount equal to $1,500,000.
"Letter of Credit Reserve" means, as of the time of determination, the
aggregate undrawn face amount of all outstanding Letters of Credit.
"LIBO Rate" means, for any Interest Period, a percentage rate per annum
equal to the offered rate per annum for deposits of Dollars for a one month
period that appears on Telerate Page 3750 as of 11:00 A.M. (London, England
time) two Business Days prior to the first day of such Interest Period. If no
such offered rate exists, such rate will be the rate of interest per annum, as
determined by the Agent (rounded upwards, if necessary, to the nearest 1/16 of
1%) at which deposits of Dollars in immediately available funds are offered
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at 11:00 A.M. (London, England time) two Business Days prior to the first day in
such Interest Period by major financial institutions reasonably satisfactory to
the Agent in the London interbank market for a one month period and for an
amount equal or comparable to the principal amount of the Loans outstanding on
such date of determination. If no such deposits are offered by such
institutions, such rate will be the rate in effect for the prior Interest
Period.
"LIBO Rate Loan" means, with respect to any Revolving Loan, Series A Term
Loan or Series B Term Loan, such Loan at any time when the interest rate
applicable to such Loan shall be equal to the LIBO Rate at the time in effect
plus the Applicable Margin.
"License Agreements" with respect to any Person means all license
agreements entered into by such Person, whether as licensor or licensee,
providing for the license of trademarks, patents, copyrights, technology and
related or similar rights, as the same may be renewed, extended or modified, and
all rights of such Person in connection with any of the foregoing and in
connection with any agreement related thereto.
"Lien" means any security interest, mortgage, pledge, hypothec, lien,
claim, charge, prior claim, encumbrance, assignment, trust, conditional sale or
title retention agreement, lessor's interest under a Capitalized Lease or
analogous instrument, in, of or on any of a Person's Property (whether held on
the date hereof or hereafter acquired), or any filed financing statement signed
by such Person which names such Person as the debtor, or the execution by such
Person of any security agreement or the like authorizing any other Person as the
secured party thereunder to file such a financing statement.
"Loans" shall mean collectively the Revolving Loans and the Term Loans, and
"Loan" shall mean any one of such Loans.
"Loan Documents" means this Agreement, the Security Documents, the Notes,
the Parent Guarantees, the Subsidiary Guarantees, the Intercreditor Agreement,
and all other agreements, instruments and documents now or hereafter executed
pursuant thereto or in connection therewith, each as amended, modified or
supplemented from time to time in accordance with the terms thereof.
"Majority Lenders" means (a) so long as any Revolving Loan Commitments
shall remain in effect or any Series A Term Loans shall remain outstanding, the
Lender or Lenders holding (i) at least 50.1% of the Aggregate Revolving Loan
Commitment, and (ii) at least 50.1% of the aggregate outstanding principal
amount of the Series A Term Loans, and (b) at all times thereafter, the Lender
or Lenders holding at least 50.1% of the aggregate outstanding principal amount
of the Series B Term Loans.
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"Material Adverse Effect" means any change or changes or effect or effects
that individually or in the aggregate are materially adverse to (i) the assets,
business, operations, revenues, income or condition (financial or otherwise) of
the Parent, the Borrowers and their Subsidiaries taken as a whole, (ii) the
Transactions, (iii) the ability of the Borrowers and the Parent to perform their
respective obligations under this Agreement, the Notes, and the other Loan
Documents, or (iv) the validity or enforceability of any of the Loan Documents
or the Related Documents or any rights or remedies under any thereof.
"Material Contracts" has the meaning specified in Section 5.23.
"Material Loss Amount" means $500,000.
"Maximum Revolving Amount" has the meaning set forth in Section 2.1(a).
"Mortgages" has the meaning set forth in Section 7.13(c).
"Mortgage Policies" has the meaning set forth in Section 7.13(c)(iii).
"Multiemployer Plan" means a multiemployer plan as defined in Section 3(37)
or Section 4001(a)(3) of ERISA or Section 414(f) of the Code contributed to by
the Parent, any of the Borrowers or any of their ERISA Affiliates.
"Natural Max" has the meaning specified in the Preamble.
"Natural Max Business" means the business of manufacturing, marketing,
distributing and selling diet and energy supplements and other food supplements
under the DietMax, EnerMax, GinsMax, Biogenics and Healthway names, the business
of printing labels for such products and similar items, and other activities
related to any of the foregoing, all as conducted by KAL Seller and Blue Ribbon
immediately prior to the Closing Date and as conducted by Natural Max on the
Closing Date after giving effect to the Transactions, and all assets of or
relating to such business acquired by Natural Max on the Closing Date or
acquired by it in the ordinary course of such business thereafter.
"Net Cash Proceeds" means, with respect to (a) an incurrence by the Parent,
any of the Borrowers or their Subsidiaries of any Indebtedness, (b) the issuance
and sale by the Parent of any of its Capital Stock, or (c) any sale, lease,
transfer or other voluntary or involuntary disposition of any Property of the
Parent, any of the Borrowers or any of their Subsidiaries, the aggregate amount
of cash consideration received by the Parent, the Borrowers and their
Subsidiaries in connection with such transaction after deduction of all
reasonable and customary fees, costs and expenses directly incurred by the
Parent, the Borrowers and their Subsidiaries in connection therewith, including,
without limitation, reasonable and customary underwriting discount, brokerage or
selling commissions, if any, taxes paid or reasonably anticipated to be
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payable as a result of such transaction, and the reasonable fees and
disbursements of counsel paid by the Parent, the Borrowers and their
Subsidiaries in connection therewith.
"New Facility" means a manufacturing and office facility to be constructed
by Nutraceutical on (a) a parcel of vacant land located in Morgan County, Utah,
which Nutraceutical has agreed to purchase pursuant to that certain Purchase
Agreement dated December 30, 1994, between Nutraceutical and Jo Ann L. Smith
Investment Company, a Utah limited partnership, and which is referred to in such
Purchase Agreement as the "Development Parcel," including furniture, fixtures
and Equipment to be attached to or used in such facility, or (b) other Property
acquired by Nutraceutical after the Closing Date and approved by the Majority
Lenders, which approval will not be unreasonably withheld.
"Non-Voting Common Stock" means the Non-Voting Common Stock, par value $.01
per share, of the Parent.
"Notes" shall mean collectively the Revolving Notes and the Term Notes,
including any notes of like tenor hereafter issued jointly and severally by the
Borrowers in substitution or exchange for any thereof.
"Officer's Certificate" means with respect to any corporation, a
certificate signed by an Authorized Representative of the specified corporation.
"Ogden Property" means the land, buildings and improvements owned by
Solaray and located at 2815 Industrial Drive, Ogden, Utah.
"Order" means any order, writ, injunction, decree, judgment, award,
determination or written direction or demand of any court, arbitrator or
Governmental Body.
"Original Lender" has the meaning specified in the Preamble.
"Other Taxes" has the meaning specified in Section 3.8(b).
"Parent" has the meaning specified in the Preamble.
"Parent Common Stock" means the Common Stock, the Non-Voting Common Stock,
the Class A Common Stock, the Class A Non-Voting Common Stock and the Class P
Common Stock, and any Capital Stock of any class of the Parent hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Parent.
"Parent Financial Statements" has the meaning specified in Section 5.5(a).
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"Parent Guarantees" means the Series A/Revolver Parent Guarantee and the
Series B Parent Guarantee.
"PBGC" means the Pension Benefit Guaranty Corporation, and any successor
agency or Governmental Body performing similar functions.
"Pension Plan" means an employee pension benefit plan, as defined in
Section 3(2) of ERISA, excluding a Multiemployer Plan, maintained by or
contributed to by the Parent or any of the Borrowers or their Subsidiaries or
ERISA Affiliates.
"Permitted IRB Financing" means Indebtedness incurred by the Borrowers in
connection with an issuance of industrial revenue bonds in order to finance up
to 75% of the cost of acquisition or construction of the land, buildings and
improvements comprising the New Facility, in an aggregate principal amount not
less than $3,000,000 nor more than $6,000,000.
"Permitted Liens" has the meaning set forth in Section 12.2.
"Permitted Refinancing" means any extension, renewal, refunding or
refinancing of all (but not part) of the Indebtedness incurred pursuant to or in
connection with the Revolving Loans, the Series A Term Loans and the Letter of
Credit Guarantees, or otherwise pursuant to this Agreement (other than any
Indebtedness represented by the Series B Term Loans), provided that (i) such
extension, renewal, refunding or refinancing shall not increase the aggregate
outstanding principal amount of the Indebtedness thereby extended, renewed,
refunded or refinanced (or, in the case of any revolving, letter of credit or
similar Indebtedness, shall not increase the maximum aggregate commitment with
respect thereto in effect immediately prior to such extension, renewal,
refunding or refinancing), (ii) the Indebtedness thereby incurred shall have a
final maturity date that is not earlier than the final maturity date of the
Indebtedness thereby extended, renewed, refunded or refinanced, (iii) the
documents pursuant to which such Indebtedness is incurred shall not impose on
the Parent, any of the Borrowers or their Subsidiaries rates of interest,
prepayment charges, closing fees or other fees or other amounts that are greater
than the respective amounts thereof payable under the terms of the documents
governing the Indebtedness thereby extended, renewed, refunded or refinanced as
in effect immediately prior to such extension, renewal, refunding or
refinancing, (iv) the documents pursuant to which such Indebtedness is incurred
shall not contain terms or conditions with respect to covenants, events of
default, remedies, representations and warranties or other provisions that,
taken as a whole, are more burdensome or restrictive with respect to the Parent,
the Borrowers and their Subsidiaries, or that impose more restrictive terms or
conditions, taken as a whole, with respect to payment of the Series B
Indebtedness, than the terms and conditions contained in the documents governing
the Indebtedness thereby extended, renewed, refunded or refinanced as in effect
immediately prior to such extension, renewal, refunding or refinancing, and (v)
the documents pursuant to
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which such Indebtedness is incurred shall not impose any Liens on Property of
the Parent, any of the Borrowers or their Subsidiaries which would not have been
subject to any Lien under the terms of the Indebtedness thereby extended,
rnewed, refunded or refinanced.
"Person" means and includes an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, a foundation, an
unincorporated organization or a Governmental Body or any department or agency
thereof.
"Plan" and "Plans" means any employee benefit plan as defined in Section
3(3) of ERISA, excluding a Multiemployer Plan, established or maintained for the
benefit of employees of the Parent, any of the Borrowers or their ERISA
Affiliates.
"Post-Default Rate" shall mean, in respect of any principal of any Loan
(including, without limitation, any unpaid Revolving Loan), prepayment charge
(if any) with respect thereto, accrued interest thereon, fees and any other
amounts payable by the Borrowers under this Agreement, any Note or any other
Loan Document, a rate per annum equal to 2.00% greater than the rate per annum
that would otherwise, in the absence of a Specified Event of Default, be
applicable in respect of such Loan during the period in which such Post-Default
Rate is applicable.
"Preferred Stock" means any class or series of Capital Stock of a Person
which is entitled to a preference or priority over any other class or series of
Capital Stock of such Person with respect to any distribution of such Person's
assets, whether with respect to dividends, or upon liquidation or dissolution,
or both.
"Premier" has the meaning specified in the Preamble.
"Premier Financial Statements" has the meaning specified in Section 5.5(a).
"Prepayment Premium" means a prepayment charge to be paid in connection
with any payment or prepayment required to be made pursuant to Section
4.1(b)(ii), (iii) or (iv) or Section 4.2(a). In any case where such payment or
prepayment is not made as a result of or connection with a Triggering Event,
such prepayment charge shall be in an amount, for any such payment or prepayment
required to be made during any of the periods described below, equal to (a) to
the extent such payment or prepayment is required to be applied to the principal
of the Series A Term Loans, the corresponding percentage shown opposite such
period, under the heading "Series A Non-Triggering," of the amount of such
payment or prepayment, and (b) to the extent such payment or prepayment is
required to be applied to the principal of the Series B Term Loans, the
corresponding percentage shown opposite such period, under the heading "Series B
Non-Triggering," of the amount of such payment or prepayment. In any case where
such payment or prepayment is made as a result of or in connection with a
Triggering Event, (c) to the extent such payment or prepayment is required to be
applied to the principal of the Series A Term Loans, the amount of such
prepayment charge shall be
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$0, and (d) to the extent such payment or prepayment is required to be applied
to the principal of the Series B Term Loans, such prepayment charge shall be in
an amount, for any such payment or prepayment required to be made during any of
the periods described below, equal to the corresponding percentage shown
opposite such period, under the heading "Series B Triggering," of the amount of
such payment or prepayment:
<TABLE>
<CAPTION>
Twelve Months Series A Series B Series B
Ending January 31, Non-Triggering Non-Triggering Triggering
- ---------------------- --------------- --------------- -----------
<S> <C> <C> <C>
1996 3.00% 7.00% 5.50%
1997 3.00% 6.25% 4.50%
1998 2.00% 5.25% 4.00%
1999 1.00% 4.00% 3.50%
2000 0.00% 3.00% 2.50%
2001 0.00% 2.25% 2.00%
2002 0.00% 1.50% 1.33%
2003 0.00% 0.75% 0.67%
2004 N/A 0.00% 0.00%
</TABLE>
"Property" with respect to any Person, means any interest in any kind of
property or asset, whether real, personal or mixed, tangible or intangible, of
such Person.
"Qualified Initial Public Offering" shall mean one or more public offerings
and sales (including the initial public offering and sale) by the Parent of
Parent Common Stock for cash pursuant to an effective registration statement or
effective registration statements under the Securities Act, other than any
public offering or sale pursuant to a registration statement on Form S-8 or
comparable form, provided that the aggregate price to the public of all such
Parent Common Stock sold by the Parent in such public offering or offerings
shall exceed $20,000,000.
"Qualified Institutional Investor" means any domestic or foreign bank,
savings bank, savings and loan association, trust company, insurance company,
employee benefit plan or trust, investment company registered under the
Investment Company Act of 1940, as amended, business development company (as
defined in that Act), registered securities broker or dealer, investment adviser
registered under the Investment Advisers Act of 1940, or other institutional
lender or institutional investor, if in each such case (i) such Person is acting
for its own account or the accounts of other Qualified Institutional Investors,
and (ii) such Person in the aggregate owns and invests on a discretionary basis
at least $100,000,000 in securities of issuers that are not Affiliates of such
Person, provided, that for such purposes any two or more Persons who are
Affiliates of each other shall be treated as a single Person.
"Qualified Recapitalization" means any recapitalization or reorganization
of the Parent or the Borrowers or their equity or debt securities as a result of
which,
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concurrently with or immediately after giving effect thereto, (i) all
outstanding Indebtedness and obligations of the Parent and the Borrowers
incurred pursuant to this Agreement are paid in full in cash and all obligations
of the Lenders to make Revolving Loans hereunder are terminated, (ii) not less
than $20,000,000 in cash or Cash Equivalents is paid as a dividend or
distribution pro rata to all holders (as of immediately prior to such
recapitalization or reorganization) of Parent Common Stock (including all
holders at such time of options, warrants or other rights to acquire Parent
Common Stock, who shall be treated for such purposes as if such holders owned
the shares of Parent Common Stock obtainable upon exercise of such options,
warrants or rights), (iii) the holders of the Fully Diluted Common Stock of the
Parent (including, without limitation, all options, warrants or other rights to
acquire such Capital Stock) immediately prior to such recapitalization or
reorganization shall continue to own, immediately after giving effect to such
recapitalization, at least 51% of the Fully Diluted Common Stock of the Parent,
and (iv) such recapitalization or reorganization shall not effect any material
change in the relative percentages of the Fully Diluted Common Stock of the
Parent owned by the holders of Fully Diluted Common Stock of the Parent
(including, without limitation, all options, warrants or other rights to acquire
such Capital Stock) immediately prior to giving effect to such recapitalization
or reorganization, as among such holders, unless such material change is the
result of action by the Lenders.
"Refinanced Indebtedness" has the meaning specified in Section 5.8(a).
"Related Documents" means the Acquisition Documents, the Loan Documents
(other than this Agreement), the Restated Advisory Agreement, the Restated
Stockholders Agreement and the Restated Registration Agreement, in each case as
in effect on the date hereof and as hereafter amended, modified or supplemented
in accordance with their respective terms.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder for which the 30-day notice requirement
applies.
"Restated Advisory Agreement" means that certain Amended and Restated
Advisory Agreement in the form of Exhibit F hereto, to be entered into on the
Closing Date pursuant to Section 7.18, among Nutraceutical, FWG, the Sponsor and
Solaray, as such agreement may from time to time be amended, modified or
supplemented in accordance with its terms.
"Restated Registration Agreement" means the Amended and Restated
Registration Agreement in the form of Exhibit T hereto, to be entered into on
the Closing Date pursuant to Section 7.18, by the Parent, Heller, the Original
Lender, the members of the Sponsor Group, and certain other parties, as such
agreement may hereafter from time to time be amended, modified or supplemented
in accordance with the terms thereof.
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"Restated Stockholders Agreement" means the Amended and Restated
Stockholders Agreement in the form of Exhibit D hereto, to be entered into on
the Closing Date pursuant to Section 7.18, by the Parent, Heller, the Original
Lender, the members of the Sponsor Group, and certain other parties, as such
agreement may hereafter from time to time be amended, modified or supplemented
in accordance with the terms thereof.
"Restricted Investment" means any Investment other than:
(a) any Investment in Cash Equivalents,
(b) any Investment set forth in Schedule 5.8B, the Parent Guarantee
and the Subsidiary Guarantees,
(c) any Investment by the Parent in the Capital Stock of, or loan or
advance to or Guarantee of the obligations of, Nutraceutical, any
Investment by any Borrower in the Capital Stock of, or loan or advance to
or Guarantee of the obligations of, any other Borrower (other than Natural
Max) or any Wholly-owned Subsidiary of any Borrower (other than Natural
Max), and any Investment by any Wholly-owned Subsidiary of any Borrower in
the Capital Stock of, or loan or advance to or Guarantee of the obligations
of, any Borrower (other than Natural Max) or any other Wholly-owned
Subsidiary of any Borrower (other than Natural Max); provided that nothing
herein shall be construed to prohibit intercompany loans and advances
between Natural Max and any other Borrower or Wholly-owned Subsidiary of
any Borrower made in the ordinary course of business,
(d) Investments by Solaray in the Capital Stock or Indebtedness of the
Solaray/Eastman Joint Venture, not to exceed $500,000 in the aggregate at
any time outstanding, provided that all certificates, notes or other
instruments evidencing any such Investment (including, without limitation,
if such joint venture shall be in the form of a limited partnership,
certificates representing limited partnership interests therein, if any,
and stock certificates representing shares of stock of any corporate
general partner thereof) shall upon receipt by Solaray be pledged and
delivered to the Collateral Agent as additional Collateral in accordance
with the terms of the Security Agreement, and
(e) Investments that constitute acquisitions of Capital Stock
permitted by the provisions of Section 12.6(g) hereof.
"Restricted Payment" means, with respect to any Person,
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(a) the declaration or payment of any dividend or other distribution
on, or the incurrence of any liability to make any other payment in respect
of, Capital Stock of such Person (other than one payable solely in the same
class of Capital Stock of such Person),
(b) any payment or distribution on account of the purchase,
redemption, defeasance (including in-substance or legal defeasance) or
other retirement by any Person of any Capital Stock of such Person, or of
any warrant, option or other right to acquire such Capital Stock (whether
directly or indirectly, and including, without limitation, any purchase or
other acquisition of such Capital Stock, or of any warrant, option or other
right to acquire such Capital Stock, by any Subsidiary of such Person),
(c) any other payment or distribution by such Person in respect of its
Capital Stock, whether directly or indirectly or through any Subsidiary of
such Person,
(d) any payment or distribution by such Person on account of the
principal of or prepayment charge, if any, or, upon the occurrence and
during the continuance of any Event of Default, interest or other amounts,
with respect to any Indebtedness of Parent, any Borrower or any of their
Subsidiaries which is subordinated in right of payment to the prior payment
of any of the Notes, and
(e) any management fee, consulting fee, advisory fee, investment
banking or transaction fee or commission or similar remuneration paid or
payable to any holder of Capital Stock of such Person or to any Affiliate
of any such holder, excluding directors' fees and executive compensation
and benefits payable in the ordinary course of business.
The amount of any Restricted Payment made in the form of Property shall be
deemed to be the Fair Market Value of such Property.
"Revolving Credit Transaction Date" means each Friday of each calendar week
during the term of this Agreement. If any such date is not a Business Day, such
Revolving Credit Transaction Date shall be deemed to be the first Business Day
next preceding such date.
"Revolving Loans" shall have the meaning ascribed thereto in Section 2.1(a)
hereof.
"Revolving Loan Commitment" shall mean, for each Lender, the obligation of
such Lender to make Revolving Loans (and to participate in Letters of Credit
Guarantees pursuant to Section 2.7(c) hereof) prior to the Revolving Loan
Termination Date in an aggregate amount at any one time outstanding up to but
not exceeding the amount determined by multiplying the Aggregate Revolving Loan
Commitment in effect at such time by such Lender's Revolving Loan Commitment
Percentage in effect at such time.
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"Revolving Loan Commitment Percentage" shall mean, with respect to any
Lender, the percentage set forth opposite such Lender's name on Schedule I
hereto as in effect from time to time.
"Revolving Loan Termination Date" means January 31, 2003, or any earlier
date on which this Agreement or the obligations of the Lenders to make Revolving
Loans may be terminated pursuant to Section 4.1(b), Section 4.2(b), Section 4.8
or Section 13.1 hereof.
"Revolving Notes" shall have the meaning ascribed to such term in Section
2.1(b) hereof.
"SEC" means the United States Securities and Exchange Commission and any
other agency or Governmental Body that may hereafter succeed to the functions
thereof.
"Securities Act" means as of any date the Securities Act of 1933, as
amended, or any similar Federal statute then in effect, and a reference to a
particular section thereof shall include a reference to the comparable section,
if any, of any such similar Federal statute.
"Security Agreement" has the meaning set forth in Section 7.13(a).
"Security Documents" has the meaning specified in Section 7.13.
"Sellers" has the meaning specified in the Recitals.
"Series A Maturity Date" means January 31, 2003, or such earlier date as
all of the principal amount of the Series A Term Notes shall become due and
payable by reason of acceleration of the maturity thereof or otherwise.
"Series A/Revolver Indebtedness" means (a) all obligations of the Borrowers
now or hereafter incurred with respect to payment of the principal amount of,
Prepayment Premiums with respect to, and interest and periodic fees payable on
the Revolving Loans, the Series A Term Loans, and the Letter of Credit
Guarantees, (b) all obligations of the Guarantors incurred pursuant to
Guarantees of such obligations now or hereafter executed pursuant to the terms
of this Agreement, and (c) all obligations of the Borrowers and the Guarantors
hereafter incurred with respect to payment of the principal amount of,
Prepayment Premium with respect to and interest payable on any Indebtedness
incurred by the Borrowers and the Guarantors pursuant to a Permitted
Refinancing.
"Series A/Revolver Parent Guarantee" means the Guarantee in the form of
Exhibit C-1 hereto to be executed and delivered on the Closing Date pursuant to
Section 7.12 hereof.
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"Series A/Revolver Subsidiary Guarantee" means a Guarantee to be executed
pursuant to Section 11.7 by each Person which becomes a Subsidiary of the Parent
after the Closing Date, substantially in the form of Exhibit E-1.
"Series A Term Loans" means collectively the Initial Series A Term Loans
and the Additional Series A Term Loans.
"Series A Term Notes" has the meaning specified in Section 2.4(a).
"Series B Indebtedness" means (a) all obligations of the Borrowers now or
hereafter incurred with respect to payment of the principal amount of,
Prepayment Premiums with respect to, and interest payable on the Series B Term
Loans, and (b) all obligations of the Guarantors incurred pursuant to Guarantees
of such obligations now or hereafter executed pursuant to the terms of this
Agreement.
"Series B Maturity Date" means January 31, 2004, or such earlier date as
all of the principal amount of the Series B Term Notes shall become due and
payable by reason of acceleration of the maturity thereof or otherwise.
"Series B Parent Guarantee" means the Guarantee in the form of Exhibit C-2
hereto to be executed and delivered on the Closing Date pursuant to Section 7.12
hereof.
"Series B Subsidiary Guarantee" means a Guarantee to be executed pursuant
to Section 11.7 by each Person which becomes a Subsidiary of the Parent after
the Closing Date, substantially in the form of Exhibit E-2.
"Series B Term Loans" has the meaning specified in Section 2.5(a).
"Series B Term Notes" has the meaning specified in Section 2.5(a).
"Shares" has the meaning specified in Section 2.5(b).
"Slow Moving Inventory" means, with respect to any finished goods product
carried in the Inventory of any of the Borrowers or their Subsidiaries
(excluding any internally developed new product (as opposed to an existing
product of a newly acquired business) first included in such Inventory within 12
months prior to the date of determination), items constituting in excess of a
twelve-month supply of Inventory of such product (as measured by the average
monthly sales of such product during the immediately preceding twelve months).
"Solaray" has the meaning specified in the Preamble.
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"Solaray/Eastman Joint Venture" means a joint venture (which shall be in
the form of a corporation, a limited liability company or a limited partnership
the general partner of which is a corporation) to be entered into after the
Closing Date by Solaray and Eastman Chemical Company ("Eastman"), as
contemplated by the Joint Research Agreement dated July, 1992, between Solaray
and Eastman, as amended, the outstanding Capital Stock of which will be owned
50% by Solaray and 50% by Eastman, which joint venture will be engaged solely in
the business of developing, constructing, operating and maintaining a plant for
the purpose of extracting carotene or carotene-containing substances from algae
found in the Great Salt Lake in Utah and adjacent ponds; provided that the
documents executed in connection with the formation or organization of such
joint venture shall in no event require Solaray to contribute capital or other
funds thereto in excess of $500,000 in the aggregate.
"Solaray Financial Statements" has the meaning specified in Section 5.5(a).
"Solvent" means, when used with respect to any Person, that (i) the fair
value of the property of such Person is greater than the total amount of
liabilities (including, without limitation, contingent liabilities) of such
Person, (ii) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liabilities of
such Person on its debts as they become absolute and matured, (iii) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (iv) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's assets
would constitute unreasonably small capital. For such purposes, any contingent
liability (including, without limitation, pending litigation, Guarantees,
pension plan liabilities and claims for federal, state, local and foreign taxes,
if any) is valued at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Specified Event of Default" means (i) any Event of Default referred to in
Section 13.1(a) or (b), (ii) any Event of Default referred to in Section 13.1(c)
resulting from a breach or violation of any of the provisions of Section 12.14,
(iii) any Event of Default referred to in Section 13.1(c) resulting from a
breach or violation of any of the provisions of Section 12.1, 12.2, 12.3, 12.4,
12.6, 12.7, 12.8, 12.11, 12.12 and 12.13 which shall continue without cure or
waiver for more than 30 days after the occurrence of such Event of Default, and
(iv) any Event of Default referred to in subsection (f) or subsection (g) of
Section 13.1.
"Sponsor" means Bain Capital, Inc., a Delaware corporation, and its
successors and assigns.
"Sponsor Group" means collectively Bain Capital Fund IV, L.P., a Delaware
limited partnership, Bain Capital Fund IV-B, L.P., a Delaware limited
partnership, BCIP Associates, a Delaware general partnership, and BCIP Trust
Associates, L.P., a
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Delaware limited partnership, in each case so long as such Person shall remain a
Controlled Person of the Sponsor or of any Person of which the Sponsor is a
Controlled Person.
"Statute" means any statute, ordinance, code, treaty, law, rule or
regulation of any Governmental Body.
"Subsidiary" means as to any Person (a) a corporation of which outstanding
shares of stock having ordinary voting power (other than stock having such power
only by reason of the happening of a contingency) to elect a majority of the
Board of Directors of such corporation are at the time owned, directly or
indirectly through one or more intermediaries, or both, by such Person and (b)
any partnership, association, joint venture or other business entity the
controlling interest in which is at the time owned, directly or indirectly
through one or more intermediaries, or both, by such Person.
"Subsidiary Guarantees" means the Series A/Revolver Subsidiary Guarantees
and the Series B Subsidiary Guarantees.
"Subsidiary Security Agreement" means, collectively, agreements
substantially in the form of Exhibits L-1 and L-2 hereto to be executed after
the Closing Date pursuant to Section 11.7 by any Person which becomes a
Subsidiary of the Parent, providing for each such Subsidiary to become a party
to, and an "Obligor" as defined in, each of the Security Agreement and the
Intellectual Property Security Agreement.
"Taking" shall have the meaning ascribed thereto in Section 1.14 of the
Mortgages.
"Taxes" has the meaning set forth in Section 3.8(a).
"Term Loans" means collectively the Series A Term Loans and the Series B
Term Loans.
"Term Notes" means collectively the Series A Term Notes and the Series B
Term Notes.
"Transactions" means the Acquisition, the Loans to be made on the Closing
Date, the repayment of the Refinanced Indebtedness, and the other transactions
contemplated to occur on or prior to the Closing Date by this Agreement, the
other Loan Documents, the Acquisition Documents and the other Related Documents.
"Transfer Agent" has the meaning specified in Section 14.
"Triggering Event" means (i) any Qualified Initial Public Offering, (ii)
any Qualified Recapitalization, (iii) any sale or transfer of Capital Stock of
the Parent, or merger or consolidation involving the Parent, which results
immediately after giving effect thereto in ownership by a Person or group (as
defined Section 13(d) of the
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Exchange Act and regulations promulgated thereunder) other than members of the
Sponsor Group, and Persons controlling, controlled by or under common control
with members of the Sponsor Group, of at least a majority of the Fully Diluted
Common Stock of the Parent, and (iv) any sale or transfer of all or
substantially all of the outstanding Capital Stock or all or substantially all
of the assets of the Borrowers to a Person or group (as defined Section 13(d) of
the Exchange Act) other than members of the Sponsor Group and Persons
controlling, controlled by or under common control with members of the Sponsor
Group.
"Type" has the meaning provided in Section 3.1.
"Underutilization Fee" has the meaning provided in Section 3.5.
"Voting Stock" with respect to any Person shall mean Capital Stock of such
Person of any class or classes, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of members of the
Board of Directors (or Persons performing similar functions) of such Person.
"Wholly-owned Subsidiary" shall mean, with respect to any Person, any
Subsidiary of such Person all of the Capital Stock (and all options, warrants,
conversion rights and other rights to subscribe for, purchase or acquire such
Capital Stock) of which, other than directors' qualifying shares, are owned,
beneficially and of record, by such Person and/or one or more Wholly-owned
Subsidiaries of such Person.
"Working Capital" means, as of any date of determination, the excess, if
any, of Consolidated Current Assets over Consolidated Current Liabilities.
Section 1.2. Accounting Terms. All terms used in this Agreement for
accounting purposes shall be applied on a consolidated basis for the Parent, the
Borrowers and their Subsidiaries. Any accounting terms not specifically defined
herein shall have the meanings customarily given them in accordance with GAAP as
in effect on September 30, 1994. Upon any change in GAAP from that in effect on
September 30, 1994 which is required or is elected (with the concurrence of the
Accountants) to be adopted by the Parent, then each quarterly or annual
compliance certificate thereafter delivered to the Lenders pursuant to Section
9(b) or 9(c)(ii) shall be accompanied by a reconciliation certified by the chief
financial officer of the Parent (or, in the case of the audited annual financial
statements, by the Accountants) showing in reasonable detail the impact of such
change in GAAP on the items contained in the financial statements delivered
pursuant to Section 9(a) or 9(c)(i) (as the case may be) for the corresponding
dates and periods and on each computation required to be made in order to
ascertain compliance by the Parent and its Subsidiaries as at the date and for
the period covered by such financial statements with the covenants set forth in
Sections 12.1, 12.4, 12.6, 12.11 and 12.14 hereof.
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Section 1.3. Rules of Construction. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Section or subsection. Reference herein to any Section
or subsection refers to such Section or subsection (as the case may be) hereof.
Words in the singular include the plural, and words in the plural include the
singular. Each covenant or agreement contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
or agreement contained herein, so that compliance with any one covenant or
agreement shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant or agreement. Where any provision
herein refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
Section 2. Loans.
Section 2.1. Revolving Credit Facility.
(a) Revolving Loans. Subject to the terms and conditions herein set forth,
the Lenders severally and not jointly agree (pro rata on the basis of each
Lender's Revolving Loan Commitment Percentage at the time in effect) to make
loans and advances to the Borrowers on a revolving credit basis (collectively,
the "Revolving Loans") from time to time on or after the Closing Date and prior
to the Revolving Loan Termination Date in an aggregate principal amount for all
Lenders combined at any time outstanding not in excess of the lesser of (i) the
Borrowing Base minus the Letter of Credit Reserve, and (ii) the Aggregate
Revolving Loan Commitment (such lesser amount being referred to herein as the
"Maximum Revolving Amount").
(b) Revolving Notes. The Revolving Loans made by each Lender shall be
evidenced by a note (collectively, together with any notes of like tenor
hereafter issued in substitution or exchange for any thereof, the "Revolving
Notes") executed and delivered by the Borrowers jointly and severally to such
Lender in substantially the form set forth in Exhibit A-1 hereto, in an original
principal amount equal to the Aggregate Revolving Loan Commitment as of the
Closing Date multiplied by such Lender's Revolving Loan Commitment Percentage.
(c) Lender's Books and Records. Each Lender, or the Agent on its behalf,
shall record on its books and records or on an allonge to such Lender's
Revolving Note the amount of each Revolving Loan made by it to the Borrowers,
and the interest rate applicable, all payments of principal and interest thereon
and the principal balance thereof from time to time outstanding; provided that
prior to the transfer of such Revolving Note such matters for each then
outstanding Revolving Loan shall be recorded on an allonge to such Revolving
Note. The record thereof, whether shown on such books and records of such Lender
or on an allonge to each Revolving Note, shall be conclusive as to all such
matters in the absence of manifest error; provided, however, that the failure of
any Lender to record any of the foregoing or any error in any such record shall
not limit or otherwise affect the obligations of the Borrowers to repay all
Loans made to it hereunder together with
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accrued interest and fees thereon and other amounts due hereunder in accordance
with all of the terms and provisions hereof. At the request of any Lender and
upon such Lender tendering to the Borrowers its Revolving Note for replacement
thereof, the Borrowers shall furnish a new Revolving Note to such Lender to
replace such outstanding Revolving Note and at such time the first notation
appearing on the allonge to such Revolving Note shall set forth the aggregate
unpaid principal amount of all Revolving Loans, if any, then outstanding
thereon.
Section 2.2. Revolving Loans.
(a) Revolving Loan Advances. Subject to the terms and conditions of
Section 7 or Section 8, as the case may be, and Section 2.3(a) hereof, advances
of Revolving Loans may be made on the Closing Date and thereafter from time to
time prior to the Revolving Loan Termination Date only on a Revolving Credit
Transaction Date.
(b) Revolving Loan Repayments. Subject to Section 2.3(b) hereof, Revolving
Loans may be repaid only on a Revolving Credit Transaction Date and the
principal amount thereof may thereafter be reborrowed from time to time pursuant
to Section 2.2(a).
(c) Minimum Amounts. Each Revolving Loan requested or repaid hereunder
shall be in the aggregate amount of $250,000 or any greater amount that is an
integral multiple of $50,000.
Section 2.3. Manner of Making Revolving Loans and Repayments.
(a) Borrowing Request. The Borrowers shall give notice to the Agent
substantially in the form of the Borrowing Request set forth in Exhibit G hereto
(each, a "Borrowing Request") (which notice shall be irrevocable once given) by
no later than 10:30 A.M. (Chicago time) on the date that is at least three
Business Days prior to the date of each requested Revolving Loan. Each such
notice shall specify (A) the Revolving Credit Transaction Date of the requested
Revolving Loan, and (B) the amount of the requested Revolving Loan. The
Borrowers agree that the Agent may rely on any such notice given by any Person
it in good faith believes is an Authorized Representative without the necessity
of independent investigation.
(b) Notice of Repayment. Notices by the Borrowers to the Agent of any
repayment of Revolving Loans shall be irrevocable and shall be effective only if
received by the Agent not less than three Business Days prior to the Revolving
Credit Transaction Date fixed for such repayment. Each such notice shall specify
the amount of the Revolving Loans to be repaid on such date. The Revolving Loans
to be repaid specified in any such notice shall become due and payable on the
date specified therein.
(c) Notice to the Lenders. The Agent shall give prompt telephonic or
telecopy notice to each of the Lenders:
(i) of any Borrowing Request received pursuant to clause (a) of this
Section 2.3 (or any such notice deemed to have been delivered by the
Borrowers pursuant
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to clause (d) of Section 2.7 hereof), and the Agent shall give notice to
the Borrowers by like means of the interest rate applicable thereto (but,
if such notice is given by telephone, the Agent shall confirm such rate in
writing) promptly after the Agent has made such determination, and
(ii) of any notice advising of any Revolving Loan repayment pursuant
to clause (b) of this Section 2.3.
(d) Disbursement of Revolving Loans. Not later than 1:00 P.M. (Chicago
time) on the date any Revolving Loan requested pursuant to clause (a) of this
Section 2.3 is to be made, each Lender, severally and not jointly, subject to
the terms and conditions of Section 7 or Section 8, as the case may be, shall
make available its pro rata portion of the requested Revolving Loan (determined
on the basis of such Lender's Revolving Loan Commitment Percentage) in funds
immediately available at the Borrowers' Account.
Section 2.4. Series A Term Loans.
(a) Initial Series A Term Loan. On the Closing Date, subject to the terms
and conditions set forth in Section 7, the Original Lender shall make a term
loan in the principal amount of $37,000,000 (collectively, the "Initial Series A
Term Loan") to the Borrowers, in funds immediately available at the Borrowers'
Account, in the principal amounts shown opposite the Original Lender's name in
the appropriate column in Schedule I hereto, which shall be repaid pursuant to
the terms and conditions hereof which are applicable to the Series A Term Loans.
The Initial Series A Term Loan shall be evidenced by a promissory note
(collectively, together with the promissory notes at any time evidencing
Additional Series A Term Loans, and any notes of like tenor hereafter issued in
substitution or exchange for any thereof, the "Series A Term Notes") executed by
the Borrowers jointly and severally in favor of such Lender in such principal
amount, and in substantially the form set forth in Exhibit A-2 hereto.
(b) Additional Series A Term Loans. At the option of the Borrowers,
subject to the terms and conditions set forth below, on dates selected by the
Borrowers as hereinafter provided (each an "Additional Series A Term Loan
Date"), each Lender severally and not jointly shall make separate term loans
(collectively, the "Additional Series A Term Loans") to the Borrowers, in funds
immediately available at the Borrowers' Account, in an amount for each Lender
which shall be in the same proportion to the aggregate amount of the Additional
Series A Term Loans made on the applicable Additional Series A Term Loan Date as
the outstanding principal amount of the Initial Series A Term Loan held by such
Lender bears to the aggregate outstanding principal amount of the Initial Series
A Term Loans; provided that:
(i) each Additional Series A Term Loan Date shall be a Revolving
Credit Transaction Date not earlier than April 1, 1995 and not later than
December 31, 1996, provided that not more than one Additional Series A Term
Loan Date shall occur during any month,
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(ii) the aggregate principal amount of Additional Series A Term Loans
made on all Additional Series A Term Loan Dates taken together shall not
exceed the amount (if any) by which $6,000,000 exceeds the aggregate
principal amount of any Permitted IRB Financing incurred by the Borrowers,
(iii) the Borrowers shall deliver to the Lenders at least three
Business Days prior to each Additional Series A Term Loan Date a written
request specifying such Additional Series A Term Loan Date and the
aggregate principal amount of Additional Series A Term Loans to be made on
such date (which shall in each case not be less than $1,000,000),
(iv) the representations and warranties contained in Section 5 and
elsewhere in this Agreement and the representations and warranties
contained in the other Loan Documents shall be true on and as of each
Additional Series A Term Loan Date with the same effect as if such
representations and warranties had been made on and as of such date, except
that any such representation or warranty which is expressly made only as of
a specified date need be true only as of such date,
(v) no Default or Event of Default shall have occurred and be
continuing as of any Additional Series A Term Loan Date both immediately
before and immediately after giving effect to the Additional Series A Term
Loan to be made on such date,
(vi) the Additional Series A Term Loans shall not violate any Order of
any court, arbitrator or Governmental Body, or any Statute of any
Governmental Body, at the time applicable to the Lenders,
(vii) on each Additional Series A Term Loan Date, the Borrowers shall
jointly and severally execute and deliver to each Lender an additional
Series A Term Note in favor of such Lender dated such Additional Series A
Term Loan Date in a principal amount equal to the Additional Series A Term
Loan being made by such Lender on such Additional Series A Term Loan Date,
and
(viii) on or prior to the first Additional Series A Term Loan Date,
Nutraceutical shall have acquired title to the land on which the New
Facility shall be intended to be situated, and shall have delivered to the
Collateral Agent pursuant to Section 11.6 an executed Mortgage thereon in
recordable form and a Mortgage Policy with respect thereto that satisfies
the requirements with respect to such policies set forth in Section
7.13(c)(iii); and the Agent shall receive on each Additional Series A Term
Loan Date, in form and substance satisfactory to the Agent, all
certificates, orders, authorizations, consents, affidavits, schedules,
instruments, security agreements, financing statements, mortgages and other
documents which are provided for hereunder or which the Agent may
reasonably request pursuant to Section 11.6 hereof.
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(c) Use of Proceeds. The proceeds of the Additional Series A Term Loans
shall be used solely to pay the construction or acquisition costs of the New
Facility. Promptly upon completion of the New Facility (and in no event later
than March 31, 1997), the Borrowers shall deliver to the Agent, at the
Borrowers' sole cost, (i) an updated Mortgage Policy that satisfies the
requirements with respect to such policies set forth in Section 7.13(c)(iii),
(ii) an updated ALTA survey in respect of the New Facility satisfying the
requirements for such surveys set forth in Section 7.13(c)(iv), (iii) a valid
certificate of occupancy with respect to each building comprising a part of the
New Facility, (iv) evidence of insurance with respect to the New Facility as
required by Section 11.4, and (v) an architect's certificate certifying that the
New Facility has been constructed in accordance with applicable Statutes.
Section 2.5. Series B Term Loans; Issuance of Shares.
(a) Series B Term Loan. On the Closing Date, subject to the terms and
conditions set forth in Section 7, the Original Lender shall make a term loan
(the "Series B Term Loan") to the Borrowers, in funds immediately available at
the Borrowers' Account, in the principal amount of $15,000,000, which shall be
repaid pursuant to the terms and conditions hereof which are applicable to the
Series B Term Loan. The Series B Term Loan shall be evidenced by a promissory
note (together with any notes of like tenor hereafter issued in substitution or
exchange for any thereof, the "Series B Term Notes") executed by the Borrowers
jointly and severally in favor of such Lender in such principal amount, and in
substantially the form set forth in Exhibit A-3 hereto.
(b) Issuance of Shares. In consideration of the making of the Series B Term
Loan, on the Closing Date, subject to the terms and conditions set forth in
Section 7, the Parent will issue and sell to the Original Lender 84,309 shares
of Non-Voting Common Stock (the "Shares") at a purchase price of $.01 per share,
against payment therefor in immediately available funds at such account of the
Parent as may be specified by the Parent by written notice at least one Business
Day prior to the Closing Date.
Section 2.6. Several Obligations; Remedies Independent. The failure of any
Lender to make any Loan to be made by it on the date specified therefor shall
not relieve any other Lender of its obligation to make its Loan or Loans on such
date, but neither any Lender nor the Agent shall be responsible for the failure
of any other Lender to make a Loan to be made by such other Lender, and no
Lender shall be responsible to the Agent or any other Lender for the failure by
such Lender to make any Loan required to be made by such Lender.
Section 2.7. Letter of Credit Guarantees.
(a) Upon written request from the Borrowers made at least three Business
Days prior to the date when any Revolving Loan would be permitted to be made
hereunder, provided there does not then exist a Default or an Event of Default,
and subject to the other
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terms and conditions herein set forth in Section 8 hereof, the revolving credit
facility herein provided may, in addition to Revolving Loans pursuant to Section
2.1(a) hereof, be utilized for the guarantee, pursuant to a guarantee agreement
substantially in the form of Exhibit U hereto or such other form as the Issuing
Lender may approve, by the Issuing Lender in favor of the Letter of Credit Bank
of the reimbursement obligations of the Borrowers or their Subsidiaries in
respect of Letters of Credit issued by the Letter of Credit Bank. Each such
written request shall be sent to the Issuing Lender at the Issuing Lender's
Office, with a copy to the Agent, and shall be accompanied by the proposed form
of the Letter of Credit to be guaranteed, which proposed Letter of Credit shall
be in form and substance reasonably acceptable to the Issuing Lender. Subject to
clause (b) hereof, the Letter of Credit Guarantee which is the subject of each
request may be either, in respect of a single proposed Letter of Credit in the
form accompanying such request, or in respect of more than one Letter of Credit
in such form and in an aggregate face amount as specified in such request, such
multiple Letters of Credit to be issued by the Letter of Credit Bank from time
to time during the term of, and as provided in, such Letter of Credit Guarantee.
(b) The Borrowers shall not (i) deliver any such request, if after giving
effect to the issuance of the Letter of Credit Guarantee which is the subject of
such request (A) the stated amount of all outstanding Letter of Credit
Guarantees would exceed the Letter of Credit Limit, (B) the term of such Letter
of Credit Guarantee would extend beyond the date which is thirty days prior to
the Revolving Loan Termination Date, (C) such Letter of Credit Guarantee would
be payable in a currency other than Dollars, or (D) the terms and conditions set
forth in Section 8 hereof will not have been satisfied on the date of such
issuance; or (ii) request that the Letter of Credit Bank issue any Letter of
Credit under any outstanding Letter of Credit Guarantee, if after giving effect
to the issuance of such Letter of Credit, (A) the aggregate undrawn face amount
of all Letters of Credit outstanding together with the aggregate amount of any
drawing thereunder which has not been reimbursed to the Letter of Credit Bank by
the Borrowers, would exceed the Letter of Credit Limit, (B) outstanding
Revolving Loans would exceed the Maximum Revolving Amount, (C) the term of such
Letter of Credit would extend beyond the date which is thirty days prior to the
Revolving Loan Termination Date, (D) such Letter of Credit would be payable in a
currency other than Dollars, or (E) the terms and conditions set forth in
Section 8 hereof will not have been satisfied on the date of such issuance.
(c) Immediately upon the issuance of each Letter of Credit Guarantee by the
Issuing Lender, each Lender shall be deemed to, and hereby agrees to, have
irrevocably purchased from the Issuing Lender a participation in such Letter of
Credit Guarantee and drawings thereunder, pro rata in an amount equal to such
Lender's Revolving Loan Commitment Percentage of the maximum amount which is or
at any time may become available to be drawn thereunder.
(d) In determining whether to honor any request for drawing under any
Letter of Credit Guarantee by the Letter of Credit Bank, the Issuing Lender
shall be responsible only to determine that the documentation required to be
delivered under such Letter of Credit Guarantee has been delivered and that it
complies on its face with the requirements of such Letter of Credit Guarantee.
In the event the Issuing Lender has determined to honor such a
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request for drawing, the Issuing Lender shall notify the Borrowers and the Agent
on or before the date on which the Issuing Lender intends to honor such drawing,
and the Borrowers shall reimburse the Issuing Lender on the day on which such
drawing is honored in an amount in same day funds equal to the amount of such
drawing; provided that, anything contained in this Agreement to the contrary
notwithstanding, (i) unless prior to the close of business of the Business Day
immediately preceding the date of such drawing (A) the Borrowers shall have
notified the Agent and the Issuing Lender that they intend to reimburse the
Issuing Lender for the amount of such drawing with funds other than the proceeds
of a Revolving Loan or (B) the Borrowers shall have delivered a Borrowing
Request pursuant to Section 2.3(a) requesting a Revolving Loan on or before such
date in an amount equal to the amount of such drawing, the Borrowers shall be
deemed to have delivered such a Borrowing Request to the Agent requesting a
Revolving Loan on the date on which such drawing is honored in an amount equal
to the amount of such drawing, and (ii) notwithstanding anything to the contrary
provided in Section 2.2(a) hereof, each Lender shall, on the date of such
drawing, make a Revolving Loan in the amount of its pro rata portion of such
requested Revolving Loan to be made in accordance with Section 2.3(d), the
proceeds of which shall be applied directly by the Borrowers to reimburse the
Issuing Lender for the amount of such drawing, provided further that, if for any
reason proceeds of such Revolving Loan are not received by the Issuing Lender on
such date in an amount equal to the amount of such drawing, the Borrowers shall
reimburse the Issuing Lender, on the Business Day immediately following the date
of such drawing, in an amount in same day funds equal to the excess of the
amount of such drawing over the aggregate amount of such Revolving Loan, if any,
which are so received, plus accrued interest on such amount at the Post-Default
Rate at the time applicable to Revolving Loans.
(e) If the Borrowers shall fail to reimburse the Issuing Lender, for any
reason, as provided in Section 2.7(d) above (including, without limitation, by
means of the making of Revolving Loans pursuant to the terms of Section 2.7(d)
above) in an amount equal to the amount of any drawing honored by the Issuing
Lender under a Letter of Credit Guarantee, the Issuing Lender shall promptly
notify each other Lender of the unreimbursed amount of such drawing and of such
other Lender's respective participation therein based on such Lender's Revolving
Loan Commitment Percentage. Each Lender shall make available to the Issuing
Lender an amount equal to its respective participation, in same day funds, at
the office of the Issuing Lender specified in such notice, not later than 1:00
P.M. (Chicago time) on the Business Day after the date notified by the Issuing
Lender. If any Lender fails to make available to the Issuing Lender the amount
of such Lender's participation in such Letter of Credit Guarantee as provided in
this Section 2.7(e), the Issuing Lender shall be entitled to recover such amount
on demand from such Lender together with interest at the Post-Default Rate at
the time applicable to Revolving Loans.
(f) The Borrowers shall be irrevocably and unconditionally obligated
forthwith without presentment, demand, notice, protest or other formalities of
any kind, to reimburse the Lenders, or the Agent on behalf of the Lenders, for
any amounts paid by them with respect to each Letter of Credit Guarantee,
including all fees, costs and expenses paid by the Lenders or the Agent on their
behalf to the Letter of Credit Bank. All amounts paid by the Lenders, or by the
Agent on behalf of the Lenders, with respect to Letters of Credit
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Guarantees that are not immediately repaid by the Borrowers with the proceeds of
a Revolving Loan or otherwise shall bear interest at the Post-Default Rate at
the time applicable to Revolving Loans. The Agent shall notify the Borrowers of
all such amounts, fees, costs and expenses paid or incurred by the Agent, the
Lenders and the Issuing Lender promptly after being notified of such amounts,
fees, costs and expenses by the applicable Lender or the Issuing Lender;
provided that any failure by the Agent to so notify the Borrowers shall not
diminish the Borrowers' obligations hereunder.
(g) The obligations of the Borrowers to reimburse the Lenders and the
Agent for payments made in accordance with the first sentence of Section 2.7(d)
with respect to any Letter of Credit Guarantee shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including the following circumstances: (i) any
lack of validity or enforceability of any Letter of Credit, any Letter of Credit
Guarantee or any other agreement; (ii) the existence of any claim, set-off,
defense or other right which the Borrowers or any of their Affiliates, or the
Agent or any Lender may at any time have against a beneficiary or any transferee
of any Letter of Credit (or any Persons for whom any such transferee may be
acting), the Agent, any Lender, the Letter of Credit Bank or any other Person,
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction (including any underlying transaction among the
Borrowers or any of their Affiliates and the beneficiary for which the Letter of
Credit was procured); (iii) any draft, demand, certificate or any other document
presented under any Letter of Credit or Letter of Credit Guarantee proving to be
forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; (iv) payment by the issuer
under any Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Letter of Credit; (v) any other circumstance or event whatsoever, which is
similar to any of the foregoing; or (vi) the fact that a Default or an Event of
Default shall have occurred and be continuing. The foregoing shall not affect
any rights that the Borrowers would otherwise have against the Issuing Lender
for its gross negligence or willful misconduct in determining whether to honor
any request for reimbursement of any drawing under any Letter of Credit
Guarantee as provided in Section 2.7(d).
(h) In addition to amounts payable as elsewhere provided in this Agreement,
the Borrowers hereby agree to protect, indemnify, pay and save the Agent and
each Lender harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses which the Agent or any Lender may
incur or be subject to as a consequence, direct or indirect, of (i) the
guarantee of any Letter of Credit by the Issuing Lender in favor of the Letter
of Credit Bank pursuant to a Letter of Credit Guarantee, other than as a result
of the gross negligence or willful misconduct of the Agent or such Lender as
determined by a court of competent jurisdiction or (ii) the failure of the
Issuing Lender or the Letter of Credit Bank to honor a demand for payment under
any Letter of Credit Guarantee or any Letter of Credit, as the case may be, as a
result of any act or omission, whether rightful or wrongful, of any present or
future Governmental Body.
(i) As between the Agent and the Lenders, on the one hand, and the
Borrowers, on the other hand, the Borrowers assume all risks of the acts and
omissions
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of, or misuse of any Letter of Credit Guarantee or Letter of Credit by
beneficiaries, of any Letter of Credit Guarantee or Letter of Credit, as the
case may be, except to the extent the same results from the gross negligence or
willful misconduct of the Agent or any Lender. In furtherance and not in
limitation of the foregoing, neither the Agent nor any Lender shall be
responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document by any party in connection with the application for
and issuance of any Letter of Credit or Letter of Credit Guarantee, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or Letter of Credit Guarantee or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
any Letter of Credit to comply fully with conditions required in order to demand
payment under such Letter of Credit; (iv) for errors, omissions, interruptions
or delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher; (v) for errors
in interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a payment
under any Letter of Credit or of the proceeds thereof; (vii) for the credit of
the proceeds of any drawing under any Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of the Agent or any Lender.
None of the above shall affect, impair or prevent the vesting of any of the
Agent's or any Lender's rights or powers hereunder. In furtherance and
extension of and not in limitation of, the specific provisions hereinabove set
forth, any action taken or omitted by the Agent or any Lender under or in
connection with any Letter of Credit Guarantee, if taken or omitted in good
faith (and without being grossly negligent), shall not impose upon the Agent or
any Lender any resulting liability to the Borrowers.
Section 3. Types of Loans; Interest Rates and Fees.
Section 3.1. Types of Loans. Loans hereunder are distinguished by "Type".
The "Type" of a Loan refers to whether such Loan is a LIBO Rate Loan or a Base
Rate Loan, each of which constitutes a Type.
Section 3.2. Interest Rates. Subject to Section 3.3 hereof, interest shall
accrue on the unpaid principal amount of each Loan during each Interest Period
in which such Loan is outstanding (a) if such Loan is then a LIBO Rate Loan, at
a rate per annum equal to the sum of the LIBO Rate in effect during such
Interest Period plus the Applicable Margin applicable to such Loan, and (b) if
such Loan is then a Base Rate Loan, at a rate per annum equal to the sum of the
Base Rate in effect during such Interest Period plus the Applicable Margin
applicable to such Loan. During any Interest Period, (A) either (i) all
Revolving Loans outstanding during such Interest Period shall be Base Rate Loans
or (ii) all Revolving Loans outstanding during such Interest Period shall be
LIBO Rate Loans, and (B) either (i) all Term Loans outstanding during such
Interest Period shall be Base Rate Loans or (ii) all Term Loans outstanding
during such Interest Period shall be LIBO Rate Loans. Unless the Borrowers shall
otherwise notify
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the Agent at least two Business Days prior to the Closing Date, all Term Loans
and Revolving Loans made on the Closing Date shall initially be LIBO Rate Loans.
Section 3.3. Post-Default Rate; Computations.
(a) Notwithstanding Section 3.2 hereof, upon the occurrence and during the
continuance of any Specified Event of Default, interest shall accrue on each
outstanding Loan (including, without limitation, on each unpaid Revolving Loan)
at the Post-Default Rate at the time applicable thereto on the entire unpaid
principal balance of such Loan (whether or not then due or payable), on any
prepayment charge then due and payable with respect thereto, on any overdue
interest accrued thereon (to the extent permitted by law), and on any other
overdue amounts payable by the Borrowers under this Agreement, the Notes or any
other Loan Document.
(b) All computations of interest and fees shall be made by the Agent on the
basis of a year of 360 days, in each case for the actual number of days a Loan
is outstanding occurring in the period for which such interest or fees are
payable (including the day an which any Loan is made but excluding the day on
which any Loan is repaid). Each determination by the Agent of an interest rate
or fee hereunder shall be conclusive and binding for all purposes, absent
manifest error.
Section 3.4. Payments of Interest.
(a) Accrued interest on each Revolving Loan and each Series A Term Loan
shall be payable in immediately available funds, monthly in arrears on the last
Business Day of each calendar month (each such date an "Interest Payment Date").
Accrued interest on each Series B Term Loan shall be payable in immediately
available funds, quarterly in arrears on the last Business Day of each January,
April, July and October of each year, commencing with the last Business Day of
April, 1995.
(b) Notwithstanding the foregoing, interest payable at the Post-Default
Rate shall be payable from time to time on demand.
(c) The Agent shall determine each interest rate applicable to the Loans
hereunder, and its determination thereof shall be conclusive and binding in the
absence of manifest error.
Section 3.5. Underutilization Fee. The Borrowers shall pay to each Lender
an underutilization fee (the "Underutilization Fee"), payable in immediately
available funds monthly in arrears on each Interest Payment Date, equal to 0.50%
per annum of the amount, if any, by which such Lender's Revolving Loan
Commitment has exceeded the aggregate average daily closing balance of such
Lender's Revolving Loans and such Lender's pro rata participation pursuant to
Section 2.7(c) in Letter of Credit Guarantees outstanding during the one-month
period since the immediately preceding Interest Payment Date (or, in the case of
the first such payment, since the Closing Date).
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Section 3.6. Letter Of Credit Guarantee Fee. The Borrowers shall pay
to the Lenders, pro rata in accordance with their respective Revolving Loan
Commitment Percentages, a Letter of Credit fee (the "L/C Guarantee Fee"),
payable monthly in arrears on the Interest Payment Date in each month during
which any Letter of Credit Guarantee remains outstanding, in an amount equal to
2.0% per annum of the average daily balance of the Letter of Credit Reserve
during such month.
Section 3.7. Interest Rate Limitation. Notwithstanding any provisions
of this Agreement, the Notes or the Security Documents, all of which have been
negotiated, executed and delivered in New York, in no event shall the amount of
interest paid or agreed to be paid by the Borrowers exceed an amount computed at
the highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement, the
Notes or the Security Documents at the time performance of such provision shall
be due, shall involve exceeding the interest rate limitation validly prescribed
by law which a court of competent jurisdiction may deem applicable hereto, then,
ipso facto, the obligations to be fulfilled shall be reduced to an amount
computed at the highest rate of interest permissible under applicable law, and
if for any reason whatsoever any Lender shall ever receive as interest an amount
which would be deemed unlawful under such applicable law such interest shall be
automatically applied to the payment of principal of such Lender's Loans
outstanding hereunder (whether or not then due and payable) and not to the
payment of interest, or shall be refunded to the Borrowers if such principal and
all other obligations of the Borrowers to such Lender have been paid in full.
Section 3.8. Net Payments.
(a) Any and all payments by the Borrowers hereunder shall be made free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding taxes imposed on or measured by any Lender's income or
capital, franchise taxes imposed on it, by the United States, by the
jurisdiction under the laws of which such Lender is organized or is doing
business to the extent such taxes arise out of doing business in such
jurisdiction, other than doing business in connection with this Agreement, or
any political subdivision of the United States or of such jurisdiction and, in
any case also excluding any Michigan single business tax, to the extent such tax
does not arise out of actions by the Lenders or the Collateral Agent under the
Security Documents after the occurrence or during the continuance of an Event of
Default, or any Michigan general intangibles tax (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If any of the Borrowers shall be required
by law to deduct any Taxes from or in respect of any sum payable hereunder to
such Lender, (i) except as provided in subsection (f) below, the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 3.8), such Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) such Borrower shall make such
deductions and (iii) such Borrower or the Parent shall pay the full amount
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deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, the Borrowers agree to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (other than any such taxes as are specifically excluded from the
definition of Taxes under Section 3.8(a)) that arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement (hereinafter referred to as "Other Taxes").
(c) The Borrowers and the Parent will jointly and severally indemnify each
Lender and the Agent for the full amount of Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.8 paid by such Lender or
the Agent (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. This indemnification
shall be made within 30 days from the date such Lender or the Agent (as the case
may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes or Other Taxes,
the Borrowers or the Parent will furnish to the Agent the original or a
certified copy of a receipt evidencing payment thereof.
(e) The Original Lender hereby represents that, as of the Closing Date,
all payments made to such Lender by the Borrowers pursuant to this Agreement are
not subject to United States withholding taxes. On or prior to the date on which
any Person organized under the laws of a jurisdiction outside the United States
and which is not a Lender on the Closing Date becomes a Lender pursuant to the
terms hereof, and annually thereafter or at such other times as the Agent or the
Borrowers may request, such Lender shall provide the Agent and the Borrowers
with the forms prescribed by the Internal Revenue Service certifying as to such
Lender's status as exempt from United States withholding taxes with respect to
all payments to be made to such Lender hereunder or other documents satisfactory
to the Borrowers and the Agent indicating that all payments to be made to such
Lender hereunder are not subject to such taxes because of an applicable tax
treaty. Unless the Borrowers have received forms or other documents satisfactory
to them indicating that payments to such Lender hereunder are not subject to
United States withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, the Borrowers may withhold taxes from payments to such
Lender at the applicable statutory rate and shall have no obligation to
indemnify such Lender for withholding taxes imposed by the United States
pursuant to subsections (a) or (c) of this Section 3.8.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 3.8 shall
survive the payment in full of principal and interest hereunder.
(g) Any Lender claiming any additional amounts payable pursuant to this
Section 3.8 shall use reasonable efforts to file any certificate or document
requested by the
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Borrowers or to change the jurisdiction of its applicable lending office if the
making of such a filing or change would avoid the need for or reduce the amount
of any such additional amounts that may thereafter accrue and, in the reasonable
judgment of such Lender, would not require such Lender to incur any cost or
expense or otherwise be disadvantageous or inconvenient to such Lender.
Section 4. Payments of Principal, Interest and Prepayment Premium.
Section 4.1. Mandatory Payments and Prepayments.
(a) Scheduled Payments of Term Loans. The principal amount of the Series A
Term Loans (excluding the Additional Series A Term Loans) shall be paid in
installments on the dates and in the respective aggregate amounts shown below:
<TABLE>
<CAPTION>
Date of Payment Amount of Payment
--------------- -----------------
<S> <C>
April 30, 1998 $1,750,000
July 31, 1998 1,750,000
October 31, 1998 1,750,000
January 31, 1999 1,750,000
April 30, 1999 1,750,000
July 31, 1999 1,750,000
October 31, 1999 1,750,000
January 31, 2000 1,750,000
April 30, 2000 1,750,000
July 31, 2000 1,750,000
October 31, 2000 1,750,000
January 31, 2001 1,750,000
April 30, 2001 1,750,000
July 31, 2001 1,750,000
October 31, 2001 1,750,000
January 31, 2002 1,750,000
April 30, 2002 2,250,000
July 31, 2002 2,250,000
October 31, 2002 2,250,000
January 31, 2003 2,250,000
</TABLE>
In the event that the Lenders shall make Additional Series A Term Loans,
there shall become due and payable on each of the foregoing dates, in addition
to the amounts set forth above in respect of the Initial Series A Term Loans, an
amount of the principal of the Additional Series A Term Loans equal in the
aggregate, in the case of each such date occurring on or after April 30, 1998
and on or before January 31, 2002, to 4.6875% of the aggregate original
principal amount of the Additional Series A Term Loans, and in the case of each
such date occurring on or after April 30, 2002, to 6.25% of the aggregate
original principal amount of the Additional Series A Term Loans. No
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Prepayment Premium shall be payable in connection with any payment made pursuant
to this Section 4.1(a).
(b) In addition to the scheduled principal payments set forth in
subsection (a) above, the Borrowers shall make the following mandatory
prepayments of principal:
(i) Excess Cash Flow. Simultaneously with the delivery of the audited
consolidated financial statements of the Parent and its Subsidiaries for
each fiscal year of the Parent in accordance with Section 9(c) hereof,
commencing with the fiscal year ending September 30, 1995, the Parent shall
deliver to the Agent an Officer's Certificate containing a calculation in
reasonable detail of the amount of Excess Cash Flow for such fiscal year
(except that, in the case of the fiscal year ending September 30, 1995, the
applicable fiscal period for purposes of the calculation required by this
Section 4.1(b)(i) shall be the period from the Closing Date to and
including September 30, 1995). Not later than the earlier of (A) 15 days
after the delivery of such Officer's Certificate and (B) 90 days after the
end of such fiscal year, the Borrowers shall pay to the Lenders in
immediately available funds, an amount equal to 50% of such Excess Cash
Flow, together with unpaid interest accrued on such amount to the date of
such payment but without Prepayment Premium.
(ii) Capital Stock or Indebtedness Net Sales Proceeds. At least five
Business Days prior to any date on which (A) the Parent shall issue or sell
any of its Capital Stock (but only to the extent that the Net Cash Proceeds
of such issuance or sale, when aggregated with the Net Cash Proceeds of all
other issuances and sales by the Parent of its Capital Stock made after the
Closing Date, shall exceed $3,000,000), or (B) the Parent, any of the
Borrowers or any of their Subsidiaries shall incur any Indebtedness (other
than Indebtedness incurred pursuant to, or permitted by Section 12.1 of,
this Agreement), the Borrowers shall deliver to the Agent an Officer's
Certificate setting forth in reasonable detail a description of such
issuance or sale of Capital Stock or incurrence of Indebtedness (as the
case may be), and stating the date such issuance or sale of Capital Stock
or incurrence of Indebtedness is expected to occur and the amount of the
Net Cash Proceeds expected to be received by the Parent or the Borrowers or
their respective Subsidiaries (as the case may be) in connection therewith;
provided that, notwithstanding the foregoing, if any such transaction will
result in a Change in Control, the provisions of Section 4.1(b)(iv) shall
govern. Concurrently with the receipt by the Parent or the Borrowers or
their respective Subsidiaries (as the case may be) of such Net Cash
Proceeds, the entire amount of such Net Cash Proceeds shall be paid to the
Lenders in immediately available funds, together with unpaid interest
accrued on such amount to the date of such payment and the applicable
Prepayment Premium. Nothing in this paragraph shall be construed to permit,
or to waive any required consent with respect to, any transaction that is
prohibited by another provision of this Agreement or the other Loan
Documents.
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(iii) Asset Sales. At least five Business Days prior to each date
on which the Parent, any of the Borrowers or any of their Subsidiaries is
to receive any Net Cash Proceeds of the sale, lease, transfer or other
disposition of any Property of the Parent, the Borrowers or any of their
Subsidiaries (excluding (x) sales of Inventory in the ordinary course of
business, and (y) any sale or disposition of Property made pursuant to and
in accordance with the provisions of Section 12.6(d)), the Borrowers shall
deliver to the Agent an Officer's Certificate setting forth in reasonable
detail a description of such sale, lease, transfer or other disposition,
stating the date such transaction is expected to occur and the amount of
the Net Cash Proceeds expected to be received by the Parent, the applicable
Borrower or the applicable Subsidiary (as the case may be) in connection
therewith, and identifying all necessary waivers or consents required under
the provisions of this Agreement, if any, in order to consummate such
transaction. If all such necessary waivers and consents have been obtained
(it being understood that the Lenders shall be under no obligation to grant
any such consent or waiver) such transaction may be consummated and
concurrently with the receipt by the Parent, the applicable Borrower or the
applicable Subsidiary (as the case may be) of such Net Cash Proceeds, the
entire amount of such Net Cash Proceeds shall be paid to the Lenders in
immediately available funds to be applied to prepay the Loans in such
principal amount, together with an additional amount to be applied to the
unpaid interest accrued on such amount to the date of such payment and the
applicable Prepayment Premium; provided that no Prepayment Premium shall be
required to the extent that any Net Cash Proceeds of a sale or disposition
of the Natural Max Business are received and applied to the principal
amount of the Series A Term Loans.
(iv) Change of Control. At least 15 days prior to the occurrence of
any Change of Control, or, if the Parent or the Borrowers do not then have
knowledge that a Change of Control may occur, within two Business Days
after the Parent or any Borrower obtains such knowledge (but in no event
later than 15 days prior to the occurrence of such Change of Control), the
Parent or the Borrowers shall give written notice of such Change of Control
(a "Change of Control Notice") to the Agent, which notice shall describe
such Change of Control in reasonable detail and shall specify the date on
which such Change of Control is expected to occur. The holders of a
majority in principal amount of the outstanding Series A Term Loans and
Revolving Loans shall have the option, exercisable by written notice to the
Borrowers within ten days after receipt of the Change of Control Notice
(which option shall be deemed to have been exercised if no such notice is
given by such holders within such ten-day period), to require prepayment in
full of such Loans in immediately available funds concurrently with such
Change of Control (including, without limitation, interest accrued on such
Loans to the date of such payment and all fees, expenses, charges, costs,
indemnities and other amounts payable in connection therewith under this
Agreement or the other Loan Documents, and the applicable Prepayment
Premium, if any); and the holders of a majority in principal amount of the
outstanding Series B Term Loans shall have the option, exercisable
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by written notice to the Borrowers within ten days after receipt of the
Change of Control Notice (which option shall be deemed to have been
exercised if no such notice is given by such holders within such ten-day
period), to require prepayment in full of such Loans in immediately
available funds concurrently with such Change of Control (including,
without limitation, interest accrued on such Loans to the date of such
payment and all fees, expenses, charges, costs, indemnities and other
amounts payable in connection therewith under this Agreement or the other
Loan Documents, and the applicable Prepayment Premium, if any). Upon any
payment pursuant to this Section 4.1(b)(iv) of the entire outstanding
principal amount of the Series A Loans and the Revolving Loans, all
Revolving Loan Commitments shall automatically terminate without further
notice by the Agent or any Lender.
Amounts of principal prepaid pursuant to this Section 4.1(b) (other than in
the case of a payment pursuant to Section 4.1(b)(iv)) shall be applied, first,
to reduce the outstanding principal balance of the Series A Term Loans until the
Series A Term Loans shall have been paid in full, and thereafter shall be
applied to the outstanding principal balance of the Series B Term Loans;
provided that on such date as all Series A Term Loans and all Series B Term
Loans shall have been paid or prepaid in full hereunder, the entire unpaid
principal balance of all outstanding Revolving Loans shall be due and payable in
full and all Revolving Loan Commitments shall terminate without further notice
by the Agent or any Lender. All prepayments of the Series A Term Loans made
pursuant to this Section 4.1(b) shall be applied to reduce, pro rata, the
amounts of the remaining scheduled payments of principal of the Series A Term
Loans thereafter becoming due and payable pursuant to Section 4.1(a).
(c) Mandatory Prepayments of the Revolving Loans. The principal amount of
the Revolving Loans shall be paid at the times and in the amounts required by
Section 4.4 hereof.
(d) Allocation of Prepayments. All payments and prepayments under this
Section 4.1 of less than the entire outstanding amount of the Loans shall be
allocated (a) with respect to amounts to be applied to the Series A Term Loans,
among the Lenders holding Series A Term Loans pro rata in accordance with the
respective principal amounts of the Series A Term Loans at the time held by
them, (b) with respect to amounts to be applied to the Revolving Loans, among
the Lenders holding Revolving Loans pro rata in accordance with their respective
Revolving Loan Commitment Percentages at the time in effect, and (c) with
respect to amounts to be applied to the Series B Term Loans, among the Lenders
holding Series B Term Loans pro rata in accordance with the respective principal
amounts of the Series B Term Loans at the time held by them.
Section 4.2. Optional Prepayments; Conversion of Loans.
(a) Upon written notice given as provided in Section 4.3 and subject to
the provisions of subsection (b) of this Section 4.2, the Borrowers, at their
option, at any time and from time to time (but not more than once during each
fiscal quarter of the
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Parent) may prepay all or any part of the principal amount of the Term Loans (in
an amount of at least $250,000 or any greater amount which is an integral
multiple of $50,000), together with unpaid interest accrued on the amount so
prepaid to the date of such prepayment and the applicable Prepayment Premium, if
any; provided, however, that a Prepayment Premium shall be required in respect
of prepayments made pursuant to this Section 4.2(a) only on the amount, if any,
by which (i) the aggregate amount of all prepayments made pursuant to this
Section 4.2(a) during any fiscal year of the Parent (other than the fiscal year
ending September 30, 1995), when taken together with the amount of any payment
made during such fiscal year pursuant to Section 4.1(b)(i) (in each case
excluding payments of accrued interest thereon), exceeds (ii) 100% of the Excess
Cash Flow for the immediately preceding fiscal year of the Parent (or, in
respect of prepayments made hereunder during the fiscal year ending September
30, 1996, 100% of the Excess Cash Flow for the period from the Closing Date to
and including September 30, 1995).
(b) Amounts prepaid pursuant to Section 4.2(a) shall be applied, first, to
the outstanding principal balance of the Series A Term Loans until the Series A
Term Loans shall have been paid in full, and thereafter shall be applied to the
outstanding principal balance of the Series B Term Loans; provided that on such
date as all Series A Term Loans and all Series B Term Loans shall have been paid
or prepaid in full hereunder, the entire unpaid principal balance of all
outstanding Revolving Loans shall be due and payable in full and all Revolving
Loan Commitments shall terminate without further notice by the Agent or any
Lender. All prepayments of the principal amount of the Series A Term Loans
pursuant to this Section 4.2 shall be applied to reduce, pro rata, the amounts
of the remaining scheduled payments of principal of the Series A Term Loans
thereafter becoming due and payable pursuant to Section 4.1(a). All payments and
prepayments under this Section 4.2 of less than the entire outstanding amount of
the Loans shall be allocated (a) with respect to amounts to be applied to the
Series A Term Loans, among the Lenders holding Series A Term Loans pro rata in
accordance with the respective principal amounts of the Series A Term Loans at
the time held by them, and (b) with respect to amounts to be applied to the
Series B Term Loans, among the Lenders holding Series B Term Loans pro rata in
accordance with the respective principal amounts of the Series B Term Loans at
the time held by them.
(c) On the last day of any Interest Period, upon written notice given as
provided in Section 4.3, the Borrowers at their option (A) may (i) Convert the
entire outstanding amount of the Revolving Loans (if then LIBO Rate Loans) into
Base Rate Loans, or (ii) Convert the entire outstanding amount of the Revolving
Loans (if then Base Rate Loans) into LIBO Rate Loans, and/or (B) may (i) Convert
the entire outstanding amount of the Term Loans (if then LIBO Rate Loans) into
Base Rate Loans, or (ii) Convert the entire outstanding amount of the Term Loans
(if then Base Rate Loans) into LIBO Rate Loans.
(d) Except as otherwise permitted or required by this Agreement, the
Borrowers shall not make any prepayments of principal with respect to the Loans.
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Section 4.3. Notice of Prepayment or Conversion.
(a) Notices by the Borrowers to the Agent of any prepayments or
Conversions of Loans pursuant to Section 4.2(a) or (c) shall be irrevocable and
shall be effective only if received by the Agent not less than five Business
Days nor more than ten Business Days prior to the date fixed for such prepayment
or the date of such Conversion, as the case may be.
(b) Each such notice shall specify (i) whether each Loan being prepaid or
Converted is a Series A Term Loan, a Series B Term Loan or a Revolving Loan,
(ii) the Type of the Loan to be prepaid or Converted (and, in the case of a
Conversion, the Type of Loan to result from such Conversion), (iii) whether such
notice is in respect of a prepayment or a Conversion of such Loan, (iv) if given
in connection with a prepayment, the provision of this Agreement pursuant to
which such prepayment is proposed to be made, and (v) the date of such
prepayment or Conversion. In the case of a prepayment, such notice shall also
specify the amount of principal to be prepaid and the amount of interest thereon
and Prepayment Premium (if any) to be paid in connection therewith, and shall
contain a calculation showing the extent, if any, to which the amount of such
prepayment, when taken together with the aggregate amount of all other
prepayments made pursuant to Section 4.2(a) during the same fiscal year of the
Parent and the amount of any payment made during such fiscal year pursuant to
Section 4.1(b)(i) (in each case excluding payments of accrued interest thereon),
exceeds 100% of the Excess Cash Flow for the immediately preceding fiscal year
of the Parent (or, in the cash of prepayments made during the fiscal year ending
September 30, 1996, 100% of the Excess Cash Flow for the period from the Closing
Date to and including September 30, 1995). In the event that the Borrowers at
any time shall fail to Convert any Loan as provided in this Section 4.3, such
Loan (x) if outstanding as a Base Rate Loan, will continue as a Base Rate Loan
or (y) if outstanding as a LIBO Rate Loan, will continue as a LIBO Rate Loan.
(c) Notice of any prepayment having been so given, the aggregate principal
amount of the Term Loans so to be prepaid as specified in such notice, together
with interest accrued thereon to such date fixed for prepayment, and the
applicable Prepayment Premium (if any), shall become due and payable on the
specified prepayment date.
Section 4.4. Mandatory Prepayment of Revolving Loans. Anything herein to
the contrary notwithstanding, the aggregate outstanding principal amount of the
Revolving Loans shall not at any time exceed the Maximum Revolving Amount as
from time to time determined (in accordance with the most recently delivered
Borrowing Base Certificate), and no Revolving Loan may be requested unless after
giving effect thereto the Borrowers are in compliance with the foregoing
requirement. In the event that the aggregate outstanding principal amount of the
Revolving Loans shall at any time and for any reason (including, without
limitation, a decrease in the amount of the Borrowing Base, a reduction in the
Aggregate Revolving Loan Commitment, or an increase in the Letter of Credit
Reserve) exceed the Maximum Revolving Amount then in effect, the
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Borrowers shall, without notice or demand, pay within two Business Days after
the date such excess is determined the amount of such excess to the Lenders (pro
rata in accordance with their respective Revolving Loan Commitment Percentages)
as a prepayment of the principal amount of the Revolving Loans, together with
all unpaid interest accrued on the amount of such excess to the date of such
payment but without prepayment charge or premium. Upon any determination by the
Borrowers that a prepayment of the Revolving Loans is required pursuant to this
Section 4.4, the Borrowers shall immediately notify the Agent and the Lenders in
writing of such determination, specifying the amounts of principal and interest
required to be prepaid hereunder and the date on which such prepayment will
occur.
Section 4.5. Maturity of Loans. The unpaid principal balance of the
Revolving Loans, together with all unpaid interest and fees accrued thereon and
all other amounts payable in respect thereof, shall become due and payable in
full on the Revolving Loan Termination Date. The unpaid principal balance of
the Series A Term Loans, together with all unpaid interest accrued thereon and
all other amounts payable in respect thereof, shall become due and payable in
full on the Series A Maturity Date. The unpaid principal balance of the Series
B Term Loans, together with all unpaid interest accrued thereon and all other
amounts payable in respect thereof, shall become due and payable in full on the
Series B Maturity Date.
Section 4.6. Surrender of Notes; Notation Thereon. Subject to the
provisions of Section 16.1, the Borrowers may, as a condition of payment of all
or any part of the principal of, prepayment charge (if any) and interest on, any
Loan, require the Lender holding such Loan to present the Note or Notes
evidencing such Loan for notation of such payment and, if such Loan be paid in
full, require the surrender of the corresponding Note or Notes.
Section 4.7. Purchase of Notes. Neither the Parent nor any of the
Borrowers will, nor will any of them permit any of their Subsidiaries or
Affiliates to, acquire directly or indirectly by purchase or prepayment or
otherwise any of the outstanding Notes except by way of payment or prepayment in
accordance with the provisions of such Notes and of this Agreement.
Section 4.8. Changes of Commitments.
(a) The Borrowers may terminate or reduce the amount of the Aggregate
Revolving Loan Commitment at any time or from time to time, provided that (i)
the Borrowers shall give written notice to the Agent of each such termination or
reduction at least 15 days prior to the effective date thereof, which notice
shall specify such effective date and the amount of such reduction, (ii) each
partial reduction of the Aggregate Revolving Loan Commitment shall be in an
aggregate amount at least equal to $1,000,000, and (iii) the Aggregate Revolving
Loan Commitment may be reduced pursuant to this Section 4.8(a) not more than one
time in any fiscal year of the Parent.
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(b) The Aggregate Revolving Loan Commitment shall (whether used or unused)
automatically be reduced as provided in Section 4.1(b) hereof.
(c) Reductions in the Aggregate Revolving Loan Commitment shall be
allocated among the Lenders pro rata in accordance with their respective
Revolving Loan Commitment Percentages at the time in effect. The Aggregate
Revolving Loan Commitment once terminated or reduced may not be reinstated.
Section 5. Representations and Warranties of the Borrowers and the Parent.
The Borrowers and the Parent, jointly and severally, represent and warrant to
the Lenders that:
Section 5.1. Corporate Existence and Power. Each of the Parent, the
Borrowers and their Subsidiaries (a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (b) is duly qualified to do business in each additional
jurisdiction where the failure to so qualify would have a Material Adverse
Effect, and (c) has all requisite corporate power to own its Properties and to
carry on its business as now being conducted and as proposed to be conducted,
and to execute, deliver and perform its obligations under, in the case of each
of the Borrowers, this Agreement, the Notes, and the other Related Documents to
which it is a party; in the case of the Parent, this Agreement, the Parent
Guarantees, the Security Agreement and the other Related Documents to which it
is a party; and in the case of each Subsidiary of the Borrowers which is not a
Borrower, the Subsidiary Guarantees, the Subsidiary Security Agreement and the
other Related Documents to which it is a party. Set forth in Schedule 5.1 (as in
effect on the Closing Date or as amended or supplemented from time to time by
written notice to the Agent on or prior to any date as of which this
representation is made or remade or deemed to have been made or remade) is a
true and complete list of the Parent, the Borrowers and each of their
Subsidiaries, setting forth as to each such corporation all jurisdictions in
which such corporation is incorporated and all jurisdictions in which each such
corporation is qualified to do business as a foreign corporation.
Section 5.2. Corporate Authority. The execution, delivery and performance
by each Borrower of this Agreement, the Notes and the other Related Documents to
which it is a party, by the Parent of this Agreement, the Parent Guarantees, the
Security Agreement and the other Related Documents to which it is a party, and
by each Subsidiary of the Borrowers which is not a Borrower of the Subsidiary
Guarantees, the Subsidiary Security Agreement and the other Related Documents to
which it is a party, are within the respective corporate powers of such Persons
and have been duly authorized by all necessary corporate action on the part of
the respective Boards of Directors and stockholders of each of them.
Section 5.3. Binding Effect. This Agreement, the Notes and each of the
other Related Documents to which any Borrower is a party have been duly executed
and delivered by such Borrower and are the legal, valid and binding obligations
of such Borrower, enforceable against such Borrower in accordance with their
respective terms;
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this Agreement, the Parent Guarantees, the Security Agreement and the other
Related Documents to which the Parent is a party have been duly executed and
delivered by the Parent and are the legal, valid and binding obligations of the
Parent, enforceable against the Parent in accordance with their respective
terms; and the Subsidiary Guarantees, the Subsidiary Security Agreements and the
other Related Documents to which each Subsidiary of the Borrowers which is not a
Borrower is respectively a party, have been duly executed and delivered by such
Subsidiary and are the legal, valid and binding obligations of such Subsidiary,
enforceable against such Subsidiary in accordance with their terms.
Section 5.4. Capital Stock.
(a) On the Closing Date, after giving effect to the Transactions, the
authorized Capital Stock of the Parent consist of 13,000 shares of Class A
Common Stock, none of which is issued or outstanding, 13,000 shares of Class A
Non-Voting Common Stock, none of which is issued or outstanding, 200,000 shares
of Class P Common Stock, of which 102,000 shares are issued and outstanding,
2,000,000 shares of Common Stock, of which 918,000 shares are issued and
outstanding, and 620,000 shares of Non-Voting Common Stock, of which 84,309
shares (constituting all of the Shares) will upon completion of the Transactions
be issued and outstanding, and all such issued and outstanding shares of Parent
Common Stock are validly issued, fully paid and non-assessable and owned, of
record and beneficially, by the respective Persons and in the respective amounts
set forth in Schedule 5.4, free and clear of all preemptive rights, Liens,
restrictions and limitations except as provided herein or in the Restated
Stockholders Agreement or as set forth in Schedule 5.4. On the Closing Date,
after giving effect to the Transactions, (i) except as set forth on Schedule 5.4
or as provided in the Certificate of Incorporation of the Parent, there are no
outstanding shares of Capital Stock of the Parent or other securities
convertible into or exchangeable for any of such shares of Capital Stock, (ii)
except as set forth on Schedule 5.4 or as provided in the Heller Warrants or the
Acquisition Agreement, there are no outstanding options, warrants or other
rights to subscribe for, purchase or acquire any shares of Capital Stock of the
Parent, nor any agreements (contingent or otherwise) providing for the issuance
of, or any calls, commitments or claims of any character relating to, any
Capital Stock of the Parent or any securities convertible into or exchangeable
for any of its Capital Stock, and (iii) except as provided in the Restated
Stockholders Agreement, there are no outstanding options or rights (whether or
not currently exercisable) on the part of any holder of shares of Capital Stock
of the Parent, or any holder of options, warrants or other rights to subscribe
for, purchase or acquire any shares of Capital Stock of the Parent, to redeem or
to sell or transfer to the Parent or any of its Subsidiaries any such shares,
options, warrants or rights now held or hereafter acquired by such holder.
(b) The issuance and sale of the Shares are within the corporate powers of
the Parent and have been duly authorized by all necessary corporate action on
the part of its Board of Directors and stockholders, and the Shares will, when
issued and delivered against payment therefor as herein provided, be duly and
validly issued, fully
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paid and non-assessable and subject to no Liens in respect of the issuance
thereof. The shares of Common Stock issuable upon conversion of the Shares have
been duly and validly reserved for issuance upon such conversion and, when
issued and delivered upon such conversion as provided in the Certificate of
Incorporation of the Parent, will be duly authorized, validly issued, fully paid
and non-assessable and subject to no Liens in respect of the issuance thereof.
(c) On the Closing Date, after giving effect to the Transactions, except
as contemplated by the Restated Stockholders Agreement or in Schedule 5.4, the
Parent will not be subject to any obligation (contingent or otherwise) to
repurchase, acquire or retire any of its Capital Stock, any securities
convertible into or exchangeable for any of its Capital Stock, or any options,
warrants or other rights to subscribe for, purchase or acquire any of its
Capital Stock.
(d) On the Closing Date, after giving effect to the Transactions, except
pursuant to the Restated Registration Agreement, neither the Parent nor any
Borrower is required to file, nor has it filed, pursuant to Section 12 of the
Exchange Act, any registration statement relating to any class of its debt or
equity securities. Neither the Parent nor, to its knowledge, any of its
stockholders is a party to any agreement relating to the issuance, voting, sale,
transfer, registration or disposition of the Parent's Capital Stock, except for
the Restated Stockholders Agreement and the Restated Registration Agreement.
Section 5.5. Business Operations and Other Information; Financial
Condition.
(a) The Borrowers have delivered to the Agent true and complete copies of
the following financial statements: (i) the audited consolidated balance sheets
of Solaray and its Subsidiaries as of September 30, 1994, 1993, 1992, 1991 and
1990 and the related audited statements of income, shareholder's equity and cash
flows (or, in the case of the financial statements for 1992, 1991 and 1990, the
related audited statements of earnings and retained earnings and cash flows) for
each of the fiscal periods then ended, together with the notes thereto and the
reports thereon of Price Waterhouse (in the case of the financial statements for
1994 and 1993), Grant Thornton (in the case of the financial statements for
1992), and Nuttall & Co. (in the case of the financial statements for 1991 and
1990) (collectively, the "Solaray Financial Statements"), (ii) the unaudited
balance sheets of Premier as of December 31, 1993, 1992, 1991 and 1990, and the
related unaudited statements of operations, retained earnings and cash flows for
the years then ended, together with the notes thereto (the "Premier Financial
Statements"), (iii) the audited balance sheets of KAL Seller as of December 31,
1993 and 1992, and the related audited statements of income, stockholders'
equity and cash flows for the years then ended and for the year ended December
31, 1991, together with the notes thereto and the report thereon of Price
Waterhouse, and the unaudited balance sheet of KAL Seller as of September 30,
1994 and the related unaudited statements of income, stockholders' equity and
cash flows for the twelve months then ended, together with the notes thereto and
the review letter thereon of Price Waterhouse (the "KAL Financial Statements"),
and (iv) the audited
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balance sheet of the Parent as of September 30, 1994 and the related audited
statements of income, shareholder's equity and cash flows for the fiscal period
then ended, together with the notes thereto and the report thereon of Price
Waterhouse (the "Parent Financial Statements"). True and complete opies of the
Solaray Financial Statements, the Premier Financial Statements, the KAL
Financial Statements and the Parent Financial Statements are attached hereto as
Schedule 5.5A. The Information Memorandum correctly describes, as of the date
thereof, in all material respects the businesses, operations and principal
Properties of the Borrowers and their Subsidiaries, except in respect of changes
effected by the Transactions. The Solaray Financial Statements have been
prepared in accordance with GAAP consistently applied throughout the periods
involved, and present fairly, in all material respects, the consolidated
financial position of Solaray and its Subsidiaries as at each of the dates of
the balance sheets contained therein and the consolidated income, shareholder's
equity and cash flows (or, in the case of the years 1992, 1991 and 1990, the
consolidated earnings and retained earnings and cash flows) of Solaray and its
Subsidiaries for each of the respective periods then ended. The Premier
Financial Statements have been prepared in accordance with GAAP consistently
applied throughout the periods involved, and present fairly, in all material
respects, the financial position of Premier as at each of the dates of the
balance sheets contained therein and the results of operations, retained
earnings and cash flows of the Premier for each of the respective periods then
ended. Except as specified in Schedule 5.5A, the KAL Financial Statements have
been prepared in accordance with GAAP consistently applied throughout the
periods involved, and present fairly, in all material respects, the financial
position of KAL Seller as at each of the dates of the balance sheets contained
therein and the income, stockholders' equity and cash flows of KAL Seller for
each of the respective periods then ended. The Parent Financial Statements have
been prepared in accordance with GAAP consistently applied throughout the
periods involved, and present fairly, in all material respects, the consolidated
financial position of the Paren and its Subsidiaries as at each of the dates of
the balance sheets contained therein and the consolidated income, shareholder's
equity and cash flows for the fiscal period then ended. As of the date of each
of the balance sheets included in the Solaray Financial Statements, to the
Borrowers' knowledge, neither Solaray nor any of its Subsidiaries had any
material Indebtedness or liability, absolute or contingent, liquidated or
unliquidated, except Indebtedness and liabilities reflected or reserved against
on such respective balance sheets or described in the notes thereto. As of the
date of each of the balance sheets included in the Premier Financial Statements,
to the Borrowers' knowledge, Premier had no material Indebtedness or liability,
absolute or contingent, liquidated or unliquidated, except Indebtedness and
liabilities reflected or reserved against on such respective balance sheets or
described in the notes thereto. As of the date of each of the balance sheets
included in the KAL Financial Statements, to the Borrowers' knowledge, KAL
Seller had no material Indebtedness or liability, absolute or contingent,
liquidated or unliquidated, except Indebtedness and liabilities reflected or
reserved against on such respective balance sheets or described in the notes
thereto. As of the date of the balance sheet included in the Parent Financial
Statements, to the Parent's knowledge, neither the Parent nor any of its
Subsidiaries
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had any material Indebtedness or liability, absolute or contingent, liquidated
or unliquidated, except Indebtedness and liabilities reflected or reserved
against on such respective balance sheets or described in the notes thereto.
Since September 30, 1994, there has been no Material Adverse Effect.
(b) Attached hereto as Schedule 5.5B is a true and complete copy of the
latest (as of the Closing Date) projections of the consolidated net income and
cash flow of the Parent and its Subsidiaries (assuming completion of the
Transactions) for each of the five fiscal years in the period ending September
30, 1999. Such projections have been prepared by management of the Parent on the
basis of assumptions, set forth in Schedule 5.5B, which such management
reasonably believes are fair and reasonable in light of the historical financial
performance of the Parent, the Borrowers and their predecessors and of current
and reasonably foreseeable business conditions (it being understood that any
projections as to future events are not to be viewed as facts or as a guarantee
of future performance and that actual results during the period or periods
covered may differ from such projected results).
(c) Attached hereto as Schedule 5.5C is a true and complete copy of a pro
forma balance sheet of the Parent and its Subsidiaries on a consolidated basis,
prepared by the Parent on the basis of the historical audited consolidated
balance sheet of the Parent and its Subsidiaries as of September 30, 1994 as
though the Transactions had been completed immediately prior to such date. Such
pro forma balance sheet fairly presents in all material respects the
consolidated financial position of the Parent and its Subsidiaries as of the
close of business on such date on a pro forma basis as if the Transactions had
been completed immediately prior to such date, and contains all pro forma
adjustments necessary in order to fairly reflect such assumption.
(d) Attached as Schedule 5.5D is a true and complete statement of the
sources and uses of all funds to be received or expended by the Parent, the
Borrowers and their Subsidiaries in connection with the Transactions, including,
without limitation, an itemized statement of all costs and expenses expected to
be incurred in connection with the Transactions.
(e) The Parent was duly organized and incorporated on September 17, 1993.
On the Closing Date immediately after giving effect to the Transactions, the
Parent is not engaged in any material business or activities other than the
management of the business of the Borrowers and their Subsidiaries, and has no
material liabilities (other than pursuant to the Loan Documents, the other
Related Documents and the Executive Agreements) and owns no material assets
other than the outstanding Capital Stock of Nutraceutical.
Section 5.6. Subsidiaries. On the Closing Date, after giving effect to the
Acquisition and the other Transactions, (i) the Parent does not directly own any
Capital Stock of any Person other than Nutraceutical and will not indirectly own
any Capital Stock of any Person other than the Borrowers and Subsidiaries listed
in Schedule 5.1,
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(ii) Nutraceutical does not directly or indirectly own any Capital Stock of any
Person other than the other Borrowers and their Subsidiaries as listed in
Schedule 5.1, (iii) all outstanding Capital Stock of each Borrower and each
Subsidiary of any Borrower has been duly and validly issued, and is fully paid
and non-assessable and (in the case of Nutraceutical) is owned of record and
beneficially by the Parent, or (in the case of each Borrower other than
Nutraceutical) is owned of record and beneficially by Nutraceutical, or (in the
case of any such Subsidiary (other than any Borrower)) is owned of record and
beneficially by one or more Borrowers and/or one or more of such Subsidiaries,
(iv) each of the Parent and the Borrowers has good title to all of the Capital
Stock it owns of each of its respective Subsidiaries, free and clear in each
case of any Lien other than Permitted Liens, and (v) there are no securities
outstanding that are convertible into or exchangeable for any Capital Stock of
any of the Borrowers or any of their Subsidiaries, nor are there outstanding any
options, warrants or other rights to subscribe for, purchase or acquire any such
Capital Stock, nor do there exist any agreements (contingent or otherwise)
providing for the issuance of, or any calls, commitments or claims of any
character relating to, any Capital Stock of any of the Borrowers or of any of
their Subsidiaries or any securities convertible into or exchangeable for any
such Capital Stock. Immediately after giving effect to the Transactions, none of
the Borrowers or their respective Subsidiaries is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any of
its Capital Stock, any securities convertible into or exchangeable for any of
its Capital Stock, or any options, warrants or other rights to subscribe for,
purchase or acquire any of its Capital Stock.
Section 5.7. Litigation; No Violation of Governmental Orders or Laws.
(a) Except as set forth in Schedule 5.7, as of the Closing Date after
giving effect to the Transactions, there are no actions, suits, investigations
or proceedings pending, or, to the best knowledge of the Borrower after due
inquiry, threatened against or affecting the Parent, any of the Borrowers or any
of their Subsidiaries or against any officer or director of any of them (i)
arising under the Federal Food, Drug and Cosmetic Act or any other Statute
regulating the manufacture, distribution or sale of foods, food supplements,
drugs or cosmetics or the packaging or labeling thereof, or (ii) which,
individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect, or (iii) which seek to enjoin, or otherwise prevent the
consummation of, any of the Transactions or to recover any damages or obtain any
relief as a result of any of the Transactions in any court or before any
arbitrator of any kind or before or by any Governmental Body. The actions, suits
and other matters listed in Schedule 5.7 are not individually or in the
aggregate reasonably likely to have a Material Adverse Effect.
(b) Set forth in Schedule 5.7 is a listing and description as of the
Closing Date after giving effect to the Transactions of all pending (or, to the
knowledge of any of the Borrowers, threatened) product liability claims against
the Parent, any of the Borrowers or any of their Subsidiaries (including,
without limitation, a summary of the procedural status thereof, status of
settlement discussions, if any, and other significant
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matters). Such claims are not individually or in the aggregate reasonably likely
to have a Material Adverse Effect.
(c) The reserve for product warranty claims on the books and records of
the Parent, the Borrowers and their Subsidiaries was established in accordance
with GAAP, and neither the Parent nor any Borrower has any reason to believe
such reserve is inadequate or that the warranty experience with respect to
recently introduced products will differ significantly from that of prior
products.
(d) None of the Parent, the Borrowers and their Subsidiaries is in default
under or in violation of any Order of any court, arbitrator or Governmental Body
or of any Statute promulgated by the United States of America, by any state
thereof or by any other domestic or foreign Governmental Body (including,
without limitation, the Federal Food, Drug and Cosmetic Act, any rules and
regulations promulgated by the FDA and any other Statute regulating the
manufacture, distribution or sale of foods, food supplements, drugs or cosmetics
or the packaging or labeling thereof, and any state or local Statute regulating
the manufacture, distribution or sale of foods, food supplements, drugs or
cosmetics or the packaging or labeling thereof), except for such defaults and
violations as, individually and in the aggregate, could not reasonably be
expected to have a Material Adverse Effect; and except as set forth in Schedule
5.7 (as in effect on the Closing Date or as amended or supplemented by written
notice to the Agent on or prior to any date as of which this representation is
made or remade or deemed to have been made or remade), none of them is subject
to or a party to any Order of any court or Governmental Body arising out of any
action, suit or proceeding under any Statute respecting foods, food supplements,
drugs or cosmetics or the packaging or labeling thereof, or similar matters.
Section 5.8. Outstanding Indebtedness; Investments.
(a) Schedule 5.8A sets forth a correct and complete list and description
of all Existing Indebtedness as of the Closing Date and all Liens securing such
Existing Indebtedness, indicating as to each item whether such Indebtedness and
Liens will be discharged and paid in full on the Closing Date (all such
Indebtedness, the "Refinanced Indebtedness") or will remain outstanding after
the Closing Date (all such Indebtedness, the "Continuing Indebtedness").
(b) As of the Closing Date after giving effect to the Transactions, (i) no
Default or Event of Default has occurred and is continuing, and (ii) no default
or event of default has occurred and is continuing under the terms of any of the
documents pursuant to or in connection with which any of the Continuing
Indebtedness was incurred.
(c) Schedule 5.8B sets forth a correct and complete list of all
Investments of the Borrowers, their Subsidiaries and the Parent outstanding or
existing on the Closing Date after giving effect to the Transactions.
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Section 5.9. No Conflicts with Agreements, Statutes, Orders, Etc. Except as
disclosed on Schedule 5.9, neither the execution and delivery of this Agreement,
the Notes, the Parent Guarantee, the Subsidiary Guarantees, the Security
Documents or the other Related Documents, nor the fulfillment of or compliance
with the terms and provisions hereof or thereof, will conflict with, or result
in a breach or violation of any of the terms, conditions or provisions of, or
constitute a default under, the charter or by-laws of the Parent, any Borrower
or any of their Subsidiaries or any material contract, agreement, mortgage,
indenture, lease, instrument, Statute or Order to which any of them or any of
their respective assets is subject, or (except pursuant to the Security
Documents) result in the creation of any Lien on any Properties of any of them.
Section 5.10. Consents, Etc. No consent, approval or authorization of or
declaration, registration or filing with any Governmental Body or any
nongovernmental Person (including, without limitation, any creditor or
stockholder of the Parent, any Borrower or any of their Subsidiaries, and also
including, without limitation, any consent, approval, authorization, declaration
or filing or the expiration of any waiting period under the Hart-Scott-Rodino
Anti-Trust Improvements Act of 1976) is required in connection with the
execution or delivery of this Agreement, the Notes, the Parent Guarantee, the
Subsidiary Guarantees, the Security Documents, the Acquisition Documents or the
other Related Documents by the respective parties thereto or the performance by
such parties of their respective obligations thereunder, or in connection with
the consummation of the Transactions, or as a condition to the legality,
validity or enforceability of this Agreement, the Notes, the Parent Guarantee,
the Subsidiary Guarantees, the Security Documents, the Acquisition Documents or
the other Related Documents, except for such consents, approvals,
authorizations, declarations, registrations or filings as are listed in Schedule
5.10, all of which have been or will on or prior to the Closing Date be obtained
and are or will then be in full force and effect.
Section 5.11. Title to Properties; Equipment.
(a) Schedule 5.11 sets forth a true and complete list and brief
description of all real Property owned or leased by each of such Persons on the
Closing Date after giving effect to the Transactions, together with a true and
complete list of all leases of real Property to which any of such Persons is a
party, identifying the parties to each such lease and the Property to which it
relates. True and complete copies of all such leases, together with all
amendments, modifications and supplements thereto to the date hereof, have been
delivered to the Original Lender or its representative. Each Borrower and each
of such Borrower's Subsidiaries has (i) good and marketable fee simple title to
its respective real Properties (other than real Properties which are leased from
others), subject to no Lien of any kind except Permitted Liens and (ii) good
title to all of its Equipment and other personal Property and assets (other than
Properties and assets leased from others), subject to no Lien of any kind except
Permitted Liens. Each of such Persons enjoys peaceful and undisturbed possession
under all such leases to which it is a party, none of which contains any unusual
or burdensome provisions which could reasonably be expected to have a Material
Adverse Effect, and all such leases are valid and subsisting and in full force
and effect. None of such
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Persons is in material breach or violation of the terms of any of such leases,
and after due inquiry the Borrowers know of no material breach or violation of
any of such leases by any third party.
(b) The Equipment and other tangible Properties of each of such Persons
are fit for the use for which they are being put by each of such Persons in the
ordinary course of its business, are in good condition and repair, ordinary wear
and tear excepted, and are currently used or usable in the Borrowers' or their
Subsidiaries' business. Except as set forth in Schedule 5.29, none of the
personal Property owned by any of such Persons is located or stored on sites
other than those listed on Schedule 5.29.
Section 5.12. Taxes. Each of the Parent, the Borrowers and their
Subsidiaries has prepared and timely filed, or on behalf of each of such Persons
there have been filed, all required federal, state, local and foreign tax
returns which are required to have been filed by or on behalf of such Persons,
which returns were prepared on a basis consistent with its financial records and
all taxes shown thereon to be due have been timely paid in full, except where
such taxes are being diligently contested in good faith by appropriate
proceedings and adequate book reserves have been established with respect
thereto in accordance with GAAP. Except as disclosed on Schedule 5.12, as of the
Closing Date no material tax Liens have been filed and no material claims are
being asserted with respect to any such taxes. Except as disclosed on Schedule
5.12, as of the Closing Date no material tax assessment against any such Person
has been proposed and all of their respective tax liabilities are adequately
provided for on their respective books and financial statements in accordance
with GAAP. As of the Closing Date, the federal income tax returns of such
Persons have been audited by the Internal Revenue Service, and such audits have
been completed, or the statute of limitations has run, for all taxable periods
ending on or before September 30, 1990 (or September 30, 1988 if there has been
a substantial understatement of taxable income), and all deficiencies,
assessments, interest and penalties proposed as a result of any such audits have
been paid in full. No issue has been raised in any such examination that, by
application of similar principles, may reasonably be expected to result in the
assertion of a material deficiency for any other taxable year not so examined.
None of such Persons has taken any reporting position for which it does not have
a reasonable basis or anticipates any further material tax liability with
respect to its taxable years that have not been closed.
Section 5.13. Related Documents. The Borrowers have delivered to the Agent
and its special counsel true and correct copies of the Acquisition Documents and
each of the other Related Documents (including all Exhibits and Schedules
thereto) as now in effect, including all amendments, modifications and
supplements thereto, and of each document, certificate or statement required to
be executed or delivered by any party thereunder (there being no amendments or
modifications to such Related Documents, and no waiver of any rights thereunder
by the Parent, any of the Borrowers or any of their Subsidiaries, nor of any
condition to the obligations of such Persons under any thereof, except as
heretofore disclosed to the Agent in writing). This Agreement and the Related
Documents constitute (a) the only agreements relating to
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the Transactions to which any of the Borrowers, their Subsidiaries or the Parent
is a party and (b) the Acquisition Documents are the only agreements and
documents relating to the Acquisition of which any of the Borrowers or the
Parent has knowledge.
Section 5.14. Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to the Agent or the Lenders in writing by or
on behalf of the Parent or the Borrowers in connection herewith, including the
Related Documents, contained, as of its respective date, or now contains, any
untrue statement of a material fact or as of any such date omitted, or now
omits, to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to the
Parent or any Borrower (other than matters of a general economic or political
nature) which now has or in the future could reasonably be expected to have (so
far as the Parent or such Borrower can reasonably foresee) a Material Adverse
Effect.
Section 5.15. Offering of Securities. None of the Borrowers nor the Parent
nor any of their representatives has, directly or indirectly, offered any of the
Notes or any security similar to any of them for sale to, or solicited any
offers to buy any of the Notes or any security similar to any of them from, or
otherwise approached or negotiated with respect thereto with, more than 15
Persons including the Original Lender, and no such Person has taken or will take
any action which would subject the issuance or sale of any of the Notes to the
provisions of Section 5 of the Securities Act, or violate the provisions of any
securities or Blue Sky laws of any applicable jurisdiction.
Section 5.16. Broker's or Finder's Commissions. Except for (i) closing fees
in respect of the Transactions payable on the Closing Date to the Sponsor and
FWG in the respective amounts set forth in the first sentence of paragraph 4 of
the Restated Advisory Agreement as in effect on the Closing Date, and (ii) other
fees set forth in Schedule 5.16, no broker's or finder's fee or commission will
be payable by the Parent, any Borrower or any of their Subsidiaries with respect
to any of the Transactions. The Borrowers and the Parent agree, jointly and
severally, to indemnify the Agent and the Lenders and to hold them harmless
against any loss, cost, claim or liability (including, without limitation,
reasonable attorneys' fees and disbursements for the investigation and defense
of claims) arising out of or relating to any such actual or alleged fee or
commission.
Section 5.17. Labor Matters.
(a) As of the Closing Date after giving effect to the Transactions, except
as disclosed in Schedule 5.17 hereto, no employee of any Borrower, of any of
their Subsidiaries or of the Parent has any written employment agreement or, to
the Parent's and the Borrowers' best knowledge after due inquiry, any oral
employment agreement or understanding with any of such Persons and no employee
has any written severance agreements.
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(b) Except as disclosed in Schedule 5.17 hereto, (i) each of the Parent,
the Borrowers and their Subsidiaries is in material compliance with all
applicable Statutes and Orders respecting employment and employment practices,
terms and conditions of employment and wages and hours, and, to the Parent's and
the Borrowers' best knowledge after due inquiry, none of such Persons is engaged
in any unlawful labor or employment practice nor has received any notice of a
complaint, charge or allegation to the contrary; (ii) there is no labor strike,
dispute, slowdown or work stoppage pending or, to the Parent's and the
Borrowers' best knowledge after due inquiry, threatened against or affecting any
of such Persons; and (iii) no material grievance or arbitration proceeding
arising out of or under any collective bargaining agreement to which any of such
Persons is a party or subject is pending.
(c) Except as disclosed in Schedule 5.17 hereto (as in effect on the
Closing Date or as amended or supplemented from time to time by written notice
to the Agent on or prior to any date as of which this representation is made or
remade or deemed to have been made or remade), no present or former employee or
independent contractor of the Parent, any of the Borrowers or any of their
Subsidiaries has any pending claim against any of them for violation of any
Statute or contract relating to employment, including, without limitation,
discrimination on any basis, any violation of occupational safety or health
standards, or any violation of the Worker Adjustment Retraining and Notification
Act.
(d) As of the Closing Date after giving effect to the Transactions, there
are no collective bargaining agreements in effect covering employees of the
Parent, any of the Borrowers or any of their Subsidiaries.
Section 5.18. Environmental Matters. Except for matters which have not had,
and are not likely to have, individually or in the aggregate, a Material Adverse
Effect:
(a) there is no pending Environmental Matter relating to the Parent, any
of the Borrowers or any of their Subsidiaries, or any of their respective
Properties, and after due inquiry the Parent and the Borrowers are aware of no
facts that could result in any such Environmental Matter. None of the Parent,
the Borrowers or any of their Subsidiaries has agreed to assume by contract or
otherwise any liability of any other Person for cleanup, compliance, or required
Capital Expenditures in connection with any Environmental Matter arising prior
to the date hereof;
(b) the Properties used, owned, leased, operated, managed or controlled at
any time by each of the Parent, the Borrowers and their Subsidiaries (including,
without limitation, the New Facility at all times after it is constructed or
acquired) are free of contamination from Hazardous Materials, including, without
limitation, any contamination of the associated air, soil, groundwater or
surface waters, and are free of any other potentially harmful chemical or
physical conditions;
(c) each of the Parent, the Borrowers and their Subsidiaries is in
compliance with all applicable Environmental Laws, has cured any past violations
or alleged
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violations of Environmental Laws to the satisfaction of Governmental
Bodies, is not currently in receipt of any notice of violation, is not currently
in receipt of any notice of any potential liability for cleanup of Hazardous
Materials and is not now subject to any investigation or information request by
a Governmental Body concerning Hazardous Materials or any Environmental Laws.
Each of the Parent, the Borrowers and their Subsidiaries holds and is in
compliance with all governmental permits, licenses, and authorizations necessary
to operate their businesses that relate to siting, wetlands, coastal zone
management, air emissions, discharges to surface or ground water, discharges to
any sewer or septic system, noise emissions, solid waste disposal or the
generation, use, transportation or other management of Hazardous Materials. To
the best knowledge of the Parent and the Borrowers after due inquiry, neither
the Parent nor any of the Borrowers nor any of their Subsidiaries has at any
time generated, manufactured, refined, recycled, discharged, emitted, released,
buried, processed, produced, reclaimed, stored, treated, transported, or
disposed of any Hazardous Materials except in compliance with all applicable
Statutes and Orders, including permit requirements;
(d) no real Property used, owned, leased, operated, managed or controlled
by any of the Borrowers or their Subsidiaries is (i) listed or proposed for
listing on the National Priorities List under CERCLA or is (ii) listed in the
Comprehensive Environmental Response, Compensation, Liability Information System
List promulgated pursuant to CERCLA, or on any comparable list maintained by any
Governmental Body;
(e) no Properties of any of the Borrowers or their Subsidiaries are subject
to any Lien or claim for Lien in favor of any Person as a result of any
Environmental Matter or response thereto;
(f) to the best knowledge of the Borrowers after due inquiry, no Hazardous
Materials, including leachate and effluents, generated, disposed of,
transported, managed or released by any of the Borrowers or their Subsidiaries
have caused or will cause in whole or in part any contamination or injury to the
Environment, any Person, any natural resource or any Property, including,
without limitation, Property through which or to which such materials were
shipped. To the best knowledge of the Borrowers after due inquiry, none of the
Borrowers nor any of their Subsidiaries has handled, transported, disposed of or
managed any Hazardous Material in any manner that may form the basis for any
present or future Environmental Matter, and none of such Persons has any
material liabilities, absolute or contingent, on the date hereof with respect
thereto; and
(g) to the best knowledge of the Borrowers after due inquiry, all
facilities where any Person has treated, stored, disposed of, reclaimed, or
recycled any Hazardous Material on behalf of any of the Borrower or their
Subsidiaries are in compliance in all material respects with all applicable
Environmental Laws.
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Section 5.19. Possession of Franchises, Licenses, Etc. Except as set
forth in Schedule 5.19 hereto, each of the Parent, the Borrowers and their
Subsidiaries is in possession of all material permits, registrations, licenses
or other authorizations of governmental authorities required for the conduct of
its business and the ownership of its respective Properties, including, without
limitation, all required food, drug and cosmetics registrations with the FDA and
any comparable state Governmental Body, and their respective businesses are
being conducted in accordance with the material requirements of such permits,
registrations, licenses or other authorizations of governmental authorities in
effect on the date hereof, and after due inquiry the Borrowers and the Parent
are not aware of any condition that would prevent the renewal of such permits,
registrations, licenses or other authorizations or cause any of them or their
respective Subsidiaries to incur any material costs to renew such permits,
registrations, licenses or other authorizations.
Section 5.20. Intellectual Property. Set forth in Schedule 5.20 is
an accurate and complete list, as of the Closing Date after giving effect to the
Transactions, of all patents, trademarks, trade names, service marks and
copyrights owned by or used in the business of the Parent or any of the
Borrowers or their Subsidiaries, and all applications therefor, specifying with
respect to each such item the owner thereof, the registration or application
number thereof, the jurisdiction by or in which such item has been issued or
registered or in which an application therefor has been filed, if any, the date
of such issuance, registration or application, and the expiration date thereof.
The Parent, the Borrowers and their Subsidiaries own and have good title to all
items of Intellectual Property, free from Liens, which are necessary for the
present and planned future conduct of their respective businesses. Except as
set forth in Schedule 5.20, (i) to the best knowledge of the Borrowers, none of
the present or contemplated products or operations of the Parent, the Borrowers
or any of their Subsidiaries, or the use by the Parent, the Borrowers or any of
their Subsidiaries of any of such Intellectual Property, infringes or otherwise
violates any Intellectual Property owned by any other Person, and (ii) there is
no pending or, to the best knowledge of the Borrowers, threatened claim, demand,
litigation, investigation, arbitration or other proceeding against or affecting
the Parent, any of the Borrowers or any of their Subsidiaries contesting the
right of any of them to manufacture, distribute or sell any such product or to
engage in any such operation, or to use any of such Intellectual Property.
Section 5.21. Margin Regulations; Use of Proceeds. None of the
Parent, the Borrowers and their Subsidiaries owns or now intends to acquire any
"margin stock" as defined in Regulation G of the Board of Governors of the
Federal Reserve System (12 CFR 207). The proceeds of the Loans will be used to
finance the cash portion of the purchase price to be paid pursuant to the
Acquisition, to pay fees and expenses incurred by the Parent and the Borrowers
in connection with the Acquisition, to repay the Refinanced Indebtedness in
full, and for working capital and other corporate purposes of the Borrowers and
their Subsidiaries. No part of the proceeds of the Loans will be used, and no
part of the proceeds of any loans repaid with the proceeds of the Loans was
used, directly or indirectly, for the purpose of buying or carrying any margin
stock within the meaning of Regulation G of the Board of Governors of the
Federal
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Reserve System (12 CFR 207), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve the Borrowers,
any of their Subsidiaries or the Parent in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220). As used in this Section, the term
"purpose of buying or carrying" has the meaning assigned thereto in the
aforesaid Regulation G.
Section 5.22. Compliance with ERISA. Set forth in Schedule 5.22 is a true
and complete list of all material bonus, deferred compensation, incentive
compensation, stock purchase, stock option, employment, consulting, severance or
termination pay, hospitalization or other medical, life or other insurance, or
retirement plan, program, agreement or arrangement, and other Plans maintained
or contributed to by the Parent or the Borrowers. None of the Parent, the
Borrowers or their Subsidiaries or ERISA Affiliates maintains or contributes to,
or has ever maintained or contributed to, any Multiemployer Plan or Pension Plan
that is subject to Section 412 of the Code, Section 302 of ERISA or Title IV of
ERISA. Except as set forth on Schedule 5.22:
(a) neither any Plan nor any trust created thereunder, nor any trustee
or administrator thereof, has, to the best knowledge of the Parent or the
Borrowers after due inquiry, engaged in a prohibited transaction (as such term
is defined in Section 4975 of the Code or described in Section 406 of ERISA)
that could subject the Parent or any of the Borrowers to any material tax or
penalty on prohibited transactions imposed under said Section 4975 or Section
502(i) of ERISA;
(b) the Parent, the Borrowers and their Subsidiaries and ERISA Affiliates,
and all Plans contributed to or maintained by any of them, are in compliance
with all applicable provisions of ERISA and the Code and with the applicable law
and administrative requirements of any relevant jurisdiction and the regulations
and published interpretations thereunder, including, without limitation, the
provisions of ERISA and the Code requiring continuation coverage under Plans
which are group health plans subject to COBRA or any similar Statute, except
where noncompliance could not reasonably be expected to have a Material Adverse
Effect;
(c) there are no liabilities under the Plans that are employee welfare
benefit plans (as defined in Section 3(1) of ERISA) providing for medical,
health, life or other welfare benefits that are not insured by fully paid non-
assessable insurance policies, except for liabilities that in the aggregate
could not reasonably be expected to have a Material Adverse Effect, and no such
Plan provides for continued medical, health, life or other welfare benefits for
employees after they leave the employment of the Parent or the Borrowers or any
of their Subsidiaries or ERISA Affiliates (other than any such welfare benefits
required to be provided under COBRA or other similar Statute); and
(d) each Pension Plan intended to be qualified under Section 401(a) of the
Code as currently in effect is, and has been determined by the Internal Revenue
Service to be, qualified under Section 401(a) of the Code. The related trust of
any Pension Plan intended to be exempt from federal income tax under Section
501(a) of the Code is, and has been
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determined by the Internal Revenue Service to be, so exempt. All required
reports and descriptions of the Plans (including but not limited to Form 5500
Annual Reports, Summary Annual Reports and Summary Plan Descriptions) have been
timely filed and distributed. Any notices required by ERISA or the Code or any
other state or federal law or any ruling or regulation of any state or federal
administrative agency with respect to such Pension Plans, including but not
limited to any notices required by Section 606 of ERISA and Section 4980B of the
Code, have been appropriately given, except where noncompliance could not
reasonably be expected to have a Material Adverse Effect.
Section 5.23. Material Contracts. Schedule 5.23 contains a list of each
supply agreement, requirements contract, customer agreement, franchise
agreement, lease, License Agreement, distribution agreement, joint venture
agreement, asset purchase agreement, stock purchase agreement, merger agreement,
agency or advertising agreement, credit agreement, loan agreement, note purchase
agreement, security agreement, mortgage, trust deed, trust indenture, promissory
note, Guarantee, letter of credit or other agreement or instrument relating to
the borrowing of money or the extension of credit (excluding this Agreement, the
Notes and the other Loan Documents), or other contract, agreement or commitment
(other than any purchase order entered into in the ordinary course of business,
lease of real Property listed on Schedule 5.11 or labor, employment and employee
benefit agreement, contract or plan listed on Schedule 5.17 or Schedule 5.22) to
which the Parent, any of the Borrowers or any of their Subsidiaries is a party
on the Closing Date after giving effect to the Transactions, and which is
material to the business, assets or operations of the Parent, the Borrowers and
their Subsidiaries taken as a whole (collectively, the "Material Contracts").
True and complete copies of each of the Material Contracts, with all amendments,
modifications and supplements thereto to the date hereof, have previously been
furnished by the Borrowers to the Original Lender or its representatives. Each
of the Material Contracts is, and on the Closing Date after giving effect to the
Transactions will be, valid, subsisting and in full force and effect, and except
as disclosed on Schedule 5.23, to the Parent's and the Borrowers' best knowledge
after due inquiry, neither the Parent nor any of the Borrower nor any of their
Subsidiaries is in material default under any of the Material Contracts, nor has
any such default under any of the Material Contracts been asserted by any other
party thereto, and there has not occurred any event which, with the giving of
notice or the passage of time, or both, would constitute such a default. None of
the Parent, the Borrowers and their Subsidiaries has transferred or subordinated
any of its rights or interests in any of the Material Contracts, and such rights
and interests are subject to no Liens except Permitted Liens and Liens created
by the Security Documents. On the Closing Date, after giving effect to the
Transactions, none of the Parent, the Borrowers or their Subsidiaries is a party
to any Material Contract or be subject to any restriction contained in the
charter or by-laws of any of them which has or is reasonably likely to have a
Material Adverse Effect.
Section 5.24. Customers; Suppliers. Except as disclosed on Schedule 5.24
(as in effect on the Closing Date or as amended or supplemented from time to
time by written notice to the Agent on or prior to any date as of which this
representation is
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made or remade or deemed to have been made or remade), since October 28, 1993,
(i) no significant customer (or group of customers which in the aggregate is
significant) or any distributor of the Borrowers or any of its Subsidiaries has
given any of the Borrowers or any of their Subsidiaries notice or, to the
knowledge of the Borrowers, has taken any other action which has given the
Borrowers any reason to believe that such customer (or group of customers) or
distributor will cease to purchase products or services or reduce significantly
the amount of products and services purchased from any of the Borrowers or any
such Subsidiary, and (ii) no significant supplier or vendor (or group of
suppliers or vendors which in the aggregate is significant) of the Borrowers or
their Subsidiaries has given the Borrowers or their Subsidiaries notice or, to
the knowledge of the Borrowers, has taken any other action which has given the
Borrowers any reason to believe that such supplier or vendor (or group of
suppliers or vendors) will cease to supply or restrict the amount supplied or
adversely change its price or terms to the Borrowers or their Subsidiaries of
any products or services. For such purposes, a customer (or group of customers)
or distributor shall be deemed "significant" if such customer (or group of
customers) or distributor has accounted for more than 5% of the total net
revenues of the Borrowers and their Subsidiaries on a consolidated basis during
the current fiscal year, and a supplier or vendor (or group of suppliers or
vendors) shall be deemed "significant" if such supplier or vendor (or group of
suppliers or vendors) has accounted for more than 5% of the total cost of goods
sold of the Borrowers and their Subsidiaries on a consolidated basis during the
current fiscal year.
Section 5.25. Insurance. Schedule 5.25 sets forth as of the Closing Date
after giving effect to the Transactions a true and complete list and brief
descriptions of all policies of workers compensation, general liability, product
liability, fire, property, casualty, marine, business interruption, errors and
omissions, flood, earthquake and other insurance carried by the Borrowers and
their Subsidiaries on the Closing Date after giving effect to the Transactions,
true and complete copies of which policies have been previously delivered to the
Agent. On the Closing Date after giving effect to the Transactions, such
policies are in full force and effect, and none of such Persons has received
notice of cancellation with respect to any such policy; the aggregate coverage
limit with respect to all such product liability insurance policies is not less
than $25,000,000, and the deductible amount or self-insured retention with
respect to such product liability insurance policies does not exceed $0 per year
in the aggregate; and all premiums payable with respect to all such policies
have been paid through the Closing Date.
Section 5.26. Solvency. Each of the Parent and the Borrowers, and each of
their Subsidiaries, is Solvent on the Closing Date after giving effect to the
Transactions and the application of the net proceeds of the Loans.
Section 5.27. Status under Certain Laws. Neither the Parent nor any of the
Borrowers nor any of their Subsidiaries is, or will be after giving effect to
the Transactions, an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning
of the Investment
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Company Act of 1940, as amended, or a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended. Neither the Parent nor any of
the Borrowers nor any of their Subsidiaries is subject to regulation as a
"common carrier" or "contract carrier" or any similar classification by the
Interstate Commerce Commission or under the Statutes of any state. Neither the
Parent nor any of the Borrowers nor any of their Subsidiaries is subject to
regulation under any other Statute which limits its ability to incur
Indebtedness.
Section 5.28. Foreign Assets Control Regulations. Neither the Parent nor
any of the Borrowers nor any of their Subsidiaries nor, to the best of the
Parent's and the Borrowers' knowledge after due inquiry, any Affiliate of the
Parent, is, or will be after consummation of the transactions contemplated by
this Agreement and application of the proceeds of the Loans, by reason of being
a "national" of a "designated foreign country" or a "specially designated
national" within the meaning of the Regulations of the Office of Foreign Assets
Control, United States Treasury Department (31 C.F.R., Subtitle B, Chapter V),
or for any other reason, in violation of, any United States Federal Statute or
Presidential Executive Order concerning trade or other relations with any
foreign country or any citizen or national thereof or the ownership or operation
of any Property.
Section 5.29. Places of Business. (i) The principal place of business and
the chief executive office of the Parent, of each Borrower and of each
Subsidiary of any Borrower is located at the respective locations listed in
Schedule 5.29 (as said Schedule may be supplemented from time to time by timely
notices delivered pursuant to Section 12.18 hereof), (ii) the books and records
(including, without limitation, all records of Accounts) of the Borrowers and
their Subsidiaries are located only at the respective locations set forth with
respect to each Borrower and each Subsidiary in Schedule 5.29 (as said Schedule
may be supplemented from time to time by timely notices delivered pursuant to
Section 12.18 hereof) and designated therein as locations of Accounts, (iii)
Inventory of each Borrower and each Subsidiary of any Borrower is located only
at the locations set forth with respect to such Borrower or Subsidiary in
Schedule 5.29 (as said Schedule may be supplemented from time to time by timely
notices delivered pursuant to Section 12.18 hereof) and designated therein as
locations of Inventory, except for Inventory which is currently in transit to
such locations, (iv) Equipment of the Borrowers and their Subsidiaries is
located only at the locations set forth with respect to such Borrower or
Subsidiary in Schedule 5.29 (as said Schedule may be supplemented from time to
time by timely notices delivered pursuant to Section 12.18 hereof) and
designated therein as locations of Equipment, and (v) Farm Products (as defined
in the Security Agreement) of the Borrowers and their Subsidiaries are located
only at the locations set forth with respect to such Borrower or Subsidiary in
Schedule 5.29 (as said Schedule may be supplemented from time to time by timely
notices delivered pursuant to Section 12.18 hereof) and designated therein as
locations of Farm Products. As of the Closing Date after giving effect to the
Transactions, except as disclosed in Schedule 5.29, no Inventory is in the
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possession or control of any warehouseman, bailee or any of the Borroers' or
their Subsidiaries' agents or processors.
Section 5.30. Other Names. As of the Closing Date after giving effect to
the Transactions, the business conducted by the Borrowers, the Parent and their
Subsidiaries is not being and has not been conducted under any corporate, trade
or fictitious name other than those names listed on Schedule 5.30.
Section 5.31. Certain Transactions. Except as set forth on Schedule 5.31
hereto, immediately following the consummation of the Transactions, none of the
Borrowers nor their Subsidiaries nor the Parent will be indebted in any amount
whatsoever, directly or indirectly, to any of their respective officers,
directors or shareholders or to any of the respective spouses or children of any
of such Persons, except with respect to salaries and related employee
compensation and management fees accrued in the ordinary course of business; and
except as set forth on Schedule 5.31, none of such officers, directors or
shareholders, or any member of their immediate families, will be indebted to the
Parent, any Borrower or any Subsidiary of any Borrower in any amount whatsoever
or will have any direct or indirect ownership interest in any other firm or
corporation which competes with any Borrower, the Parent or any of their
Subsidiaries. Except as set forth on Schedule 5.31 hereto, immediately following
the consummation of the Transactions, no officer, director or shareholder of any
Borrower, the Parent or any of their Subsidiaries, or any member of their
immediate families, will be, directly or indirectly, interested in any Material
Contract (other than this Agreement and the Related Documents) with any
Borrower, the Parent or any of their Subsidiaries.
Section 5.32. Eligible Accounts Warranties. With respect to all Accounts
reflected in any Borrowing Base Certificate delivered to the Lenders or the
Agent pursuant to the terms hereof, the Borrowers and the Parent jointly and
severally represent and warrant that, as of the date of such Borrowing Base
Certificate: (a) such Accounts are genuine, are in all respects what they
purport to be, and are not evidenced by a judgment; (b) such Accounts represent
undisputed, bona fide transactions completed in accordance with the terms and
provisions contained in the documents delivered to the Lenders with respect
thereto; (c) the amounts reflected on the applicable Borrowing Base Certificate
and on the Borrowers' and their Subsidiaries' books and records and all invoices
and statements which may be delivered to the Lenders with respect thereto are
actually and absolutely owing solely to the Borrowers or their Subsidiaries and
are not in any way contingent (except with respect to Accounts in connection
with which Account Debtors are entitled to return Inventory solely on the basis
of the quality of such Inventory); (d) no payments have been made in respect of
such Accounts or the portion thereof reflected in such Borrowing Base
Certificate; (e) there are no setoffs, counterclaims or disputes asserted or, to
the best of the Borrowers' knowledge, existing with respect thereto and no
Borrower has made any agreement with any Account Debtor obligated in respect of
any such Accounts for any deduction therefrom except a discount or allowance
allowed by the Borrowers or their Subsidiaries in the ordinary course of its
business for prompt payment; (f) to the best of
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the Borrowers' knowledge, there are no facts, events or occurrences which in any
way impair the validity or enforcement thereof or tend to reduce the amount
payable thereunder as shown on the respective Borrowing Base Certificate, the
Borrowers' and their Subsidiaries' books and records and all invoices and
statements delivered to the Lenders with respect thereto; (g) to the best of the
Borrowers' knowledge, allAccount Debtors obligated in respect of any such
Accounts have the capacity to contract and are Solvent; (h) to the best of the
Borrowers' knowledge, there are no voluntary or involuntary proceedings pending
against any Account Debtor which is obligated in respect of any such Accounts
under any chapter of the Bankruptcy Code; and (i) to the best of the Borrowers'
knowledge, such Accounts meet all of the other conditions required to be
satisfied in order to constitute Eligible Accounts.
Section 5.33. Eligible Inventory Warranties. With respect to Inventory
reflected in any Borrowing Base Certificate hereafter delivered to the Lenders
or the Agent pursuant to the terms hereof, the Borrowers and the Parent jointly
and severally represent and warrant that, as of the date of such Borrowing Base
Certificate: (a) the Borrowers and their Subsidiaries have good title to such
Eligible Inventory and such Inventory is not subject to any Lien whatsoever,
except for the prior, first and valid, fully perfected security interest granted
to the Lenders hereunder or Permitted Liens; (b) such Eligible Inventory is
located only in the United States at the locations listed on Schedule 5.29
hereto and identified as locations of Inventory (as said Schedule may be
supplemented from time to time by timely notices delivered pursuant to Section
12.18 hereof); (c) such Inventory is of good and merchantable quality, free from
any defects, and such Inventory is not subject to any licensing, patent,
royalty, trademark, trade name or copyright agreement which would prohibit, or
impose a material burden or expense upon, the completion in manufacture and sale
or other disposition of such Inventory by a Person other than the Borrowers or
their Subsidiaries; (d) the completion in manufacture and sale or other
disposition of such Inventory by a Person other than the Borrowers or their
Subsidiaries would not require the consent of any Person or constitute a breach
of any contract to which any Borrower is a party or to which the Inventory is
subject; and (e) such Inventory meets all of the other conditions required to be
satisfied in order to constitute Eligible Inventory.
Section 5.34. Depositary Accounts. Schedule 5.34 hereto contains a true and
complete list of all Depositary Accounts maintained or which will be maintained
on the Closing Date, after giving effect to the Transactions, by Parent, any
Borrower or any of their Subsidiaries, setting forth the name and address of
each bank, savings institution or other depositary institution at which each
such account is maintained and stating the title and account number of such
account.
Section 6. Representations of the Original Lender. The Original Lender
hereby represents that it is acquiring the Notes and the Shares hereunder for
its own account and/or one or more separate accounts maintained by it for the
purpose of investment and not with a view to or for sale in connection with any
distribution thereof; provided that the disposition of the Original Lender's
Property shall at all times be and remain within its control.
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Section 7. Conditions Precedent to Initial Disbursement of Loans. The
obligations of the Original Lender to disburse the Initial Series A Term Loans
and the Series B Term Loans on the Closing Date and to make the initial
Revolving Loan to be made by it hereunder on the Closing Date are subject to the
satisfaction, on or before the Closing Date, of the following conditions:
Section 7.1. Proceedings Satisfactory. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Agent and its special counsel, and the Agent and its special
counsel shall have received all such counterpart originals or certified or other
copies of such documents as the Agent or its special counsel may reasonably
request, including, without limitation:
(i) certificates dated as of a recent date as to the good standing and
payment of taxes of the Parent, each Borrower and each of their
Subsidiaries in each jurisdiction where any of such Persons is incorporated
or is authorized to do business as a foreign corporation;
(ii) certified copies of the certificate or articles of incorporation
of the Parent, each Borrower and each of their Subsidiaries, with all
amendments thereto;
(iii) certified copies of the by-laws of the Parent, each Borrower
and each of their Subsidiaries, with all amendments thereto;
(iv) certified copies of resolutions of the Board of Directors of
each Borrower authorizing the execution, delivery and performance of this
Agreement, the Notes and the Related Documents to which such Borrower is a
party;
(v) certified copies of resolutions of the Board of Directors of the
Parent authorizing the execution, delivery and performance of this
Agreement and the Related Documents to which the Parent is a party;
(vi) certificates as to the incumbency and signatures of each of the
officers of the Parent, the Borrowers and their Subsidiaries who shall
execute this Agreement or any Note or Related Document on behalf of such
respective party.
Section 7.2. Delivery of Notes and Shares. There shall have been delivered
to the Original Lender one or more Term Notes and one or more Revolving Notes,
each duly executed by the Borrowers jointly and severally and dated the Closing
Date, in the respective principal amounts, having the maturity and as otherwise
provided herein. The Parent shall have duly issued and delivered to the Original
Lender stock certificates representing the Shares, registered in the name of the
Original Lender.
Section 7.3. Opinion of Counsel to the Borrowers. The Original Lender shall
have received from Kirkland & Ellis, counsel for the Parent and the Borrowers,
and from
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such local counsel as the Original Lender may require, one or more legal
opinions addressed to the Original Lender, the Agent and the Collateral Agent
and dated the Closing Date substantially to the effect of the matters set forth
in Exhibits H-1 and H-2, respectively. Such opinion or opinions shall also cover
such other matters incident to the matters herein contemplated as the Agent may
reasonably request.
Section 7.4. Discharge of Refinanced Indebtedness. All principal amounts,
prepayment charge, if any, accrued interest, and fees, charges and other
obligations of the Parent, the Borrowers and its Subsidiaries in respect of the
Refinanced Indebtedness shall have been paid and discharged in full, and the
Agent shall have received the originals or copies authenticated to its
satisfaction of (i) all promissory notes outstanding in connection therewith,
duly cancelled by the respective payees thereof, (ii) duly executed discharge
letters and receipts evidencing payment in full of all amounts due thereunder,
(iii) duly executed releases and UCC-3 Termination Statements satisfactory in
form and substance to the Agent, effectively releasing and discharging all Liens
incurred in connection with such Indebtedness (including duly cancelled stock
powers), in proper form for filing or recording, as applicable and (iv) such
other documents as the Agent may reasonably request in order to evidence the
discharge of such Indebtedness and obligations and the release of such Liens.
Section 7.5. Initial Borrowing Base Certificate. At least two Business Days
prior to the Closing Date, the Borrowers shall have delivered to the Agent a
duly completed and executed Borrowing Base Certificate satisfactory in form and
substance to the Agent with respect to the Eligible Accounts and Eligible
Inventory owned by the Borrowers and their Subsidiaries as of a date not earlier
than the last day of the calendar month immediately preceding the Closing Date.
The Borrowing Base, as shown on such initial Borrowing Base Certificate, shall
be not less than $10,000,000.
Section 7.6. Representations and Warranties True; Certificates. The
representations and warranties contained in Section 5 and elsewhere in this
Agreement and the representations and warranties contained in the other Loan
Documents shall be true on and as of the Closing Date with the same effect as if
such representations and warranties had been made on and as of the Closing Date,
except that any such representation or warranty which is expressly made only as
of a specified date need be true only as of such date. Each of the Parent and
the Borrowers shall have performed all material agreements on its part required
to be performed under this Agreement and the Related Documents on or prior to
the Closing Date; there shall exist on the Closing Date no Default or Event of
Default; the Borrowers and the Parent shall each have delivered to the Original
Lender an Officer's Certificate, dated the Closing Date, to such effect and to
the effects specified in the foregoing clauses of this Section 7.6 and in
Sections 7.7 through 7.10, inclusive; and the Agent shall have received such
certificates or other evidence as it may request to establish that the proceeds
of the Loans made on the Closing Date will be applied as contemplated by Section
5.21.
Section 7.7. Acquisition. All conditions to the consummation of the
Acquisition set forth in the Acquisition Agreement shall have been satisfied,
and the Acquisition
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shall have been duly consummated in accordance with the applicable provisions of
the Acquisition Agreement. The Agent shall have received such certificates and
other evidence with respect to the foregoing as it shall request. The aggregate
amount of all fees, costs and expenses incurred by the Parent and the Borrowers
in connection with the Acquisition and the other Transactions contemplated to
occur on the Closing Date shall not exceed $4,500,000.
Section 7.8. Absence of Material Adverse Change, Etc. Since September 30,
1994, no change or changes shall have occurred to the business, operations,
Properties, assets, income, prospects or condition, financial or otherwise, of
the Parent, the Borrowers and their Subsidiaries, taken as a whole, which the
Agent reasonably believes in good faith constitutes or is likely to have a
Material Adverse Effect.
Section 7.9. Consents and Approvals. All necessary consents, approvals and
authorizations of, and declarations, registrations and filings with,
Governmental Bodies and nongovernmental Persons required in order to consummate
the Acquisition, the Loans and the other Transactions shall have been obtained
or made and shall be in full force and effect.
Section 7.10. Absence of Litigation, Orders, Etc. There shall not be
pending or, to the knowledge of the Borrowers or the Parent, threatened, any
action, suit, proceeding, governmental investigation or arbitration against or
affecting the Borrowers, their Subsidiaries or the Parent or the respective
assets or Property of any of such Persons not disclosed on Schedule 5.7 (and, as
to any action, suit, proceeding, governmental investigation or arbitration so
disclosed, there shall not have occurred since the date of this Agreement any
development) which seeks to enjoin or restrain any of the Transactions or which
the Agent reasonably believes in good faith has had or is likely to have a
Material Adverse Effect. No Order of any court, arbitrator or Governmental Body
shall be in effect which purports to enjoin or restrain any of the Transactions
or which the Agent reasonably believes in good faith constitutes or is likely to
have a Material Adverse Effect.
Section 7.11. Legal Investment. The making of the Loans shall be permitted
by the laws and regulations of the jurisdictions to which the Original Lender is
subject, without reference to any "basket" provisions of such laws such as New
York Insurance Law Section 1405(a)(8); and the Agent shall have received such
certificates or other evidence as it may request to establish compliance with
this condition.
Section 7.12. Parent Guarantees. The Parent shall have executed and
delivered to the Original Lender the Series A/Revolver Parent Guarantee and the
Series B Parent Guarantee.
Section 7.13. Security Documents. The Collateral Agent shall have received
each of the following documents, which shall be satisfactory to the Collateral
Agent in form and substance in all respects (collectively, as in effect on the
date hereof and as
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hereafter from time to time amended, modified or supplemented in accordance with
their respective terms, the "Security Documents"):
(a) A Pledge and Security Agreement in the form of Exhibit I (as amended,
modified or supplemented from time to time in accordance with its terms, the
"Security Agreement"), duly executed by each of the Borrowers and the Parent and
dated the Closing Date, together with
(i) duly executed financing statements in proper form for filing
under the Uniform Commercial Code in all jurisdictions that the Agent may
deem necessary or desirable in order to perfect and protect the Liens
created by the Security Agreement, covering the Collateral described in the
Security Agreement, and
(ii) stock certificates representing all of the issued and
outstanding shares of Capital Stock of each Subsidiary of the Parent or any
Borrower, accompanied by stock powers satisfactory to the Agent in form and
substance duly executed by the Parent or such Borrower (as the case may be)
in blank.
(b) The Intellectual Property Security Agreement in the form of Exhibit J
(as amended, modified or supplemented from time to time in accordance with its
terms, the "Intellectual Property Security Agreement"), duly executed by the
Parent and each Borrower, together with duly executed Assignments in proper form
for filing with the United States Patent and Trademark Office and any necessary
state and foreign patent or trademark offices.
(c) Deeds of trust, trust deeds and mortgages each in substantially the
form of Exhibit M-1 (with appropriate local variations) and covering each real
Property owned by the Borrowers (collectively, each as amended, modified or
supplemented from time to time in accordance with its terms, the "Mortgages"),
duly executed by the applicable Borrower, together with:
(i) such certificates, affidavits, questionnaires or returns as shall
be required in connection with the recording or filing of the Mortgages and
evidence that all mortgage recording taxes, filing fees and recording
charges incurred in connection with the filing or recording of the
Mortgages and the financing statements described in subparagraph (ii) below
have been paid,
(ii) duly executed financing statements covering all fixtures located
on premises subject to the Mortgages, in proper form for recording in all
filing or recording offices that the Agent may deem necessary or desirable
in order to create valid and perfected first priority Liens (or, with
respect to the Series B Term Loans, second priority Liens) on the Property
described therein in favor of the Collateral Agent,
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(iii) extended coverage title insurance policies ("Mortgage Policies")
issued by Lawyers Title Insurance Corporation to the Collateral Agent, in
form acceptable to the Agent and its special counsel, with such
endorsements and in amounts acceptable to the Agent and its special
counsel, insuring each of the Mortgages to be valid and perfected first
priority Liens on the Property described therein (or, with respect to the
Series B Term Loans, second priority Liens), free and clear of all defects
(including, but not limited to, mechanics' and materialmen's liens) and
encumbrances, other than the "Permitted Exceptions" and Permitted Liens
scheduled in the Mortgage for such Property, dated the Closing Date, paid
for by the Borrowers and providing for such other affirmative insurance and
with such reinsurance with such other title insurers as the Collateral
Agent and its special counsel may deem necessary or desirable, and with
such affidavits, certificates and instruments of indemnification as shall
be reasonably required to induce the title insurers to issue the Mortgage
Policies,
(iv) ALTA surveys, dated October 22, 1993, updated by visual
inspection to a date not more than 30 days before the Closing Date,
certified to the Collateral Agent and the Original Lender and the issuer of
the Mortgage Policies in a manner satisfactory to the Agent by a land
surveyor duly registered and licensed in the states in which the Property
described in such surveys is located and acceptable to the Agent, showing
all buildings and other improvements, any off-site improvements, the
location of any easements, parking spaces, rights of way, building set-back
lines and other dimensional regulations and the absence of encroachments,
either by such improvements or on to such Property, and other defects,
other than the "Permitted Exceptions" and Permitted Liens scheduled in the
Mortgage for such Property and other defects acceptable to the Collateral
Agent,
(v) an appraisal of each real Property subject to a Mortgage by an
appraiser satisfactory to the Collateral Agent,
(vi) evidence satisfactory to the Collateral Agent that there does not
exist any violation of any law, regulation or order affecting the real
Properties subject to the Mortgages, including, without limitation, those
laws, regulations and Orders relating to zoning, subdivision and building
restrictions, and
(vii) evidence that all other action that the Collateral Agent may
deem necessary or desirable in order to create valid and perfected first
priority Liens (or, with respect to the Series B Term Loans, second
priority Liens) on the Property described in the Mortgages has been taken.
(d) A Depositary Bank Agreement in the form of Exhibit N hereto with
each bank, savings institution, money market fund or other depositary
institution at which any of the Depositary Accounts are located as shown in
Schedule 5.34, in each case duly executed by such institution and by the Parent
or the applicable Borrower, together with duly executed financing statements in
proper form for filing under the Uniform
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Commercial Code and all other documents required thereby or which may be
necessary or appropriate to grant to the Collateral Agent valid, enforceable and
perfected first priority Liens (or, with respect to the Series B Term Loans,
second priority Liens) in the Depositary Accounts.
(e) Such consents, approvals and authorizations of, and declarations,
registrations and filings with, Governmental Bodies, and such consents, waivers,
amendments, estoppel letters, subordination and nondisturbance agreements, and
other agreements and confirmations of bailees, lessors of real and personal
Property owned or used by the Parent or any of the Borrowers, and of other
nongovernmental third parties, as the Collateral Agent may deem necessary or
desirable in connection with the use, occupancy or operation of the real
Properties subject to the Mortgages (including, without limitation, certificates
of occupancy) or otherwise in order to protect the rights and interests of the
Collateral Agent in the Collateral.
(f) Searches, by a Person satisfactory to the Agent, of the Uniform
Commercial Code, judgment and tax lien filings which may have been filed with
respect to any Property of the Parent or the Borrowers confirming that all such
Property consisting of personal Property is (or will be upon release of the
Liens securing the Refinanced Indebtedness) subject to no Liens except Permitted
Liens.
(g) Evidence satisfactory to the Collateral Agent that valid policies of
insurance are in full force and effect in accordance with the requirements of
Section 11.4 hereof, in each case naming the Collateral Agent as loss payee and
the Collateral Agent, the Agent and the Original Lender as additional insured,
as their interests may appear.
Section 7.14. Solvency Certificate. The Original Lender shall have received
a certificate of an Authorized Representative or a Vice President of the Parent
and each of the Borrowers, addressed to it and dated the Closing Date, in the
form of Exhibit V, certifying that after giving effect to the Transactions
(including, without limitation, the issuance and sale of the Notes and the
application of the net proceeds thereof in accordance with the terms of this
Agreement) and based on, among other things, a valuation of the business and
assets of each Borrower, each Borrower is Solvent.
Section 7.15. Charters and By-Laws. On or prior to the Closing Date, the
Certificate of Incorporation of each Borrower shall read in full as set forth in
Exhibit O, the Certificate of Incorporation of the Parent shall read in full as
set forth in Exhibit P, the By-Laws of each Borrower shall read in full as set
forth in Exhibit Q and the by-laws of the Parent shall read in full as set forth
in Exhibit R, and each of them shall be in full force and effect. The charters
and by-laws (or partnership agreement) of each Subsidiary of each Borrower shall
be acceptable in form and substance to the Agent.
Section 7.16. Fees Payable at Closing. Special counsel to the Original
Lender shall have received the legal fees and expenses required to be paid or
reimbursed by the Borrowers as provided in Section 16.3 in connection with their
representation of the
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Agent, the Collateral Agent and the Original Lender in connection with the
issuance and sale of the Notes and the other transactions contemplated by this
Agreement and the Security Documents.
Section 7.17. Environmental Audit. The Original Lender and the Collateral
Agent shall have received an environmental site assessment report with respect
to all material real Properties owned, leased or used by the Borrowers by
outside environmental engineers that are reasonably satisfactory to the Original
Lender in its sole discretion.
Section 7.18. Restatements of Certain Documents. Nutraceutical and the
other parties thereto shall have duly executed and delivered the Restated
Advisory Agreement in the form set forth in Exhibit F, and such agreement as so
amended and restated shall be in full force and effect. The Parent and the other
respective parties thereto shall have duly executed and delivered the Restated
Registration Agreement in the form set forth in Exhibit T and the Restated
Stockholders Agreement in the form set forth in Exhibit D, and such agreements
as so amended and restated shall be in full force and effect. The Heller
Warrants shall have been amended in a manner satisfactory in form and substance
to the Original Lender.
Section 7.19. Intercreditor Agreement. The Intercreditor Agreement in the
form of Exhibit W shall have been duly executed and delivered by the parties
thereto.
Section 7.20. Process Agent Acceptance. The Original Lender shall have
received evidence satisfactory to it that Prentice Hall Corporation System, Inc.
has accepted its appointment as agent for purposes of accepting service of
process for the Borrowers and the Parent pursuant to Section 16.13 hereof.
Section 7.21. Private Placement Number. An application for private
placement numbers for the Notes shall have been delivered to Standard & Poor's
Corporation.
Section 7.22. Wire Instructions. The Agent shall have received not less
than five Business Days prior to the Closing Date wire instructions from the
Borrowers as to all wire transfers to be effected on the Closing Date, which
shall be in form and substance satisfactory to the Agent, and shall include the
information as to the Term Loans and the Shares required pursuant to Sections
2.4 and 2.5 hereof, the information as to any Revolving Loan to be made on the
Closing Date as required under Section 2.3 hereof, and shall reflect the manner
of payment of (i) all amounts outstanding under the Existing Indebtedness being
repaid on the Closing Date, and (ii) all fees and expenses in connection with
the Transactions to be paid by the Borrowers on the Closing Date.
Section 8. Conditions Precedent to Each Revolving Loan. The obligations of
each Lender to make any Revolving Loan or to issue any Letter of Credit
Guarantee shall be subject to the satisfaction, on or before the date of such
Revolving Loan or the
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date of issuance of such Letter of Credit Guarantee (as the case may be), of the
following additional conditions:
Section 8.1. Borrowing Request. The Agent shall have received a Borrowing
Request with respect to such Revolving Loan in accordance with the provisions of
Section 2.3(a) hereof or shall have received a proper request for the issuance
of a Letter of Credit Guarantee in accordance with the provisions of Section
2.7(a) (as the case may be); provided that with respect to the initial Revolving
Loan to be made on the Closing Date, no such notice shall be required and the
Borrowers shall be deemed to have duly requested a Revolving Loan in the amount
of $4,190,000.
Section 8.2. Representations and Warranties True. The representations and
warranties contained in Section 5 and elsewhere in this Agreement and the
representations and warranties contained in the other Loan Documents shall be
true on and as of the date of such Revolving Loan or Letter of Credit Guarantee
with the same effect as if such representations and warranties had been made on
and as of such date, except that any such representation or warranty which is
expressly made only as of a specified date need be true only as of such date.
Each request by the Borrowers for a Revolving Loan or for the issuance of any
Letter of Credit Guarantee shall be deemed to be a representation and warranty
by the Borrowers on the date of such Revolving Loan or Letter of Credit
Guarantee (as the case may be) as to the matters referred to in this Section 8.2
and in Sections 8.3 and 8.4 hereof.
Section 8.3. No Default or Event of Default. On the date such Revolving
Loan is made or of the issuance of such Letter of Credit Guarantee (as the case
may be), both immediately before and immediately after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing or would
result from such Revolving Loan or such Letter of Credit Guarantee, as the case
may be.
Section 8.4. Credit Limit Not Exceeded. The aggregate outstanding principal
amount of the Revolving Loans, after giving effect to such Revolving Loan or to
the undrawn face amount of the Letter of Credit Guaranteed by such Letter of
Credit Guarantee (as the case may be), shall not exceed the Maximum Revolving
Amount. The aggregate undrawn face amount of all outstanding Letters of Credit,
after giving effect to the issue of such Letter of Credit Guarantee, shall not
exceed the Letter of Credit Limit.
Section 8.5. Legal Prohibitions. Such Revolving Loan or the issuance of
such Letter of Credit Guarantee (as the case may be) shall not violate any Order
of any court, arbitrator or Governmental Body, or any Statute of any
Governmental Body, at the time applicable to the Lenders.
Section 8.6. Other Requirements. The Agent shall have received, in form and
substance satisfactory to the Agent, all certificates, orders, authorizations,
consents, affidavits, schedules, instruments, security agreements, financing
statements,
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mortgages and other documents which are provided for hereunder, or which the
Agent may at any time reasonably request after reasonable notice.
Section 9. Financial Statements and Information. So long as any of the
Loans shall be outstanding and until the Revolving Loan Termination Date, the
Parent will furnish to the Agent, in duplicate:
(a) Monthly Statements. As soon as available and in any event within 30
days after the end of each month (or, with respect to each of the first six
monthly financial statements delivered after the Closing Date, 40 days after the
end of such month), copies of (i) the consolidated balance sheet of the Parent
and its Subsidiaries as of the end of such month, and the related consolidated
statements of income, shareholder's equity and cash flows for such month and for
the portion of the fiscal year of the Parent ended with the last day of such
month, and (ii) separate unconsolidated statements of income of the Parent, of
each Borrower and of each Subsidiary of the Borrowers which is formed or
acquired after the Closing Date as permitted by this Agreement, for such month
and for the portion of the fiscal year of the Parent ended with the last day of
such month, all in reasonable detail and stating in comparative form (x) the
consolidated figures as of the end of and for the corresponding date and period
in the previous fiscal year and (y) the corresponding figures from the
consolidated budget of the Parent and its Subsidiaries for such period, all
Certified by the chief financial officer of the Parent;
(b) Quarterly Compliance Statements. Together with the monthly financial
statements delivered pursuant to subsection (a) of this Section 9 for each of
the third, sixth and ninth months in each fiscal year of the Parent, a written
statement of the chief financial officer of the Parent setting forth
computations in reasonable detail showing whether or not as at the end of such
accounting period there was compliance with Sections 12.1, 12.4, 12.6, 12.11 and
12.14;
(c) Annual Statements; Accountant's Statement. As soon as available and in
any event within 90 days after the end of each fiscal year of the Parent,
(i) copies of the audited consolidated and unaudited consolidating
balance sheets of the Parent and its Subsidiaries as of the end of such
fiscal year, and of the related audited consolidated and unaudited
consolidating statements of income, shareholder's equity and cash flows for
such fiscal year, together with the notes thereto, all in reasonable detail
and stating in comparative form (A) the respective audited consolidated and
unaudited consolidating figures as of the end of and for the previous
fiscal year and (B) the corresponding unaudited figures from the
consolidated budget of the Parent and its Subsidiaries for such fiscal
year, (I) in the case of each of such audited consolidated financial
statements, accompanied by a report thereon of Price Waterhouse or other
independent public accountants of recognized national standing selected by
the Parent and reasonably acceptable to the Majority Lenders (the
"Accountants"), which report shall be unqualified as to going
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concern and scope of audit and shall state that such consolidated financial
statements present fairly the consolidated financial position of the Parent
and its Subsidiaries as at the end of such fiscal year and the consolidated
results of their operations and shareholder's equity and cash flows for
such fiscal year in conformity with GAAP applied on a consistent basis, and
that the examination by the Accountants in connection with such
consolidated financial statements has been made in accordance with
generally accepted auditing standards, and (II) in the case of such
consolidating financial statements, Certified by the chief financial
officer of the Parent;
(ii) written statement of the Accountants (i) setting forth
computations in reasonable detail showing whether or not as at the end of
such fiscal year there was compliance with Sections 12.4 and 12.14 of this
Agreement, (ii) setting forth computations in reasonable detail
demonstrating the amount of the Parent's Excess Cash Flow for such fiscal
year, and (iii) stating that in making the examination necessary for their
report on such financial statements nothing came to their attention to
cause them to have knowledge of any default by the Parent or the Borrowers
in the fulfillment of any of the terms, covenants, provisions or conditions
of Sections 12.4 or 12.14 of this Agreement, or if such Accountants shall
have obtained knowledge of any such default, specifying the nature and
status thereof;
(d) Officer's Certificate. Concurrently with the delivery of each
compliance statement furnished pursuant to subsection (b) or (c)(ii) of this
Section 9, an Officer's Certificate of the Parent stating that, based upon such
examination or investigation and review of this Agreement and other Related
Documents as in the opinion of the signer is necessary to enable the signer to
express an informed opinion with respect thereto, no default by the Parent or
any Borrower or any of their Subsidiaries in the fulfillment of any of the
terms, covenants, provisions or conditions of this Agreement or any of the
Related Documents exists or has existed during such period or, if such a default
shall exist or have existed, the nature and period of existence thereof and what
action the Parent or such Borrower or such Subsidiary, as the case may be, has
taken, is taking or proposes to take with respect thereto;
(e) Management Discussion and Analysis. Together with each delivery of a
compliance statement pursuant to subsection (b) of this Section 9 (commencing
with the first full fiscal quarter of the Parent occurring after the Closing
Date) and each delivery of annual financial statements of the Parent pursuant to
subsection (c) of this Section 9, a management discussion and analysis of the
results of operations and financial condition of the Parent and its Subsidiaries
at the end of and for the period covered by such financial statements, in
reasonable detail, describing any significant events relating to the Parent and
its Subsidiaries occurring during such fiscal period and discussing the reasons
for any significant variations from budget for the current fiscal year or from
the corresponding figures contained in the Parent's financial statements for
comparable periods of its immediately preceding fiscal year (which
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discussion and analysis shall include, without limitation, information in
reasonable detail concerning the status and activities of the Solaray/Eastman
Joint Venture);
(f) Borrowing Base Certificate. Not later than five Business Days
following the last Business Day of each calendar month (or, in the case of the
first six calendar months following the Closing Date, not later than 15 calendar
days after the end of such month), the Borrowers shall deliver to the Agent a
certificate in the form of Exhibit S hereto ("Borrowing Base Certificate")
showing the Borrowing Base as of the close of business on the last Business Day
of the immediately preceding calendar month, certified as complete and correct
on behalf of the Borrowers by an Authorized Representative of the Borrowers;
(g) Requested Borrowing Base Information. At any time when an Event of
Default shall have occurred and be continuing, upon the request of the Agent,
the Borrowers on each Business Day (or at such greater intervals as the Agent
may specify) shall provide the Agent with a Borrowing Base Certificate with
respect to the Borrowers and their Subsidiaries in form and substance reasonably
satisfactory to the Agent. The Borrowers shall, and shall cause each of their
Subsidiaries to, furnish copies of any other reports or information, in a form
and with such specificity as is reasonably satisfactory to the Agent, concerning
Accounts and Inventory included, described or referred to in such Borrowing Base
Certificates and any other documents in connection therewith reasonably
requested by the Agent, including, without limitation, copies of all invoices
prepared in connection with such Accounts;
(h) Parent Securityholder Information. Promptly after the same are
available and in any event within 15 days thereof, copies of all such proxy
statements, financial statements, notices and reports as the Parent or any of
the Borrowers shall send or make available generally to any of their
securityholders, and copies of all regular and periodic reports and of all
registration statements (other than on Form S-8 or a similar form) which any of
the Borrowers or the Parent may file with the SEC or with any securities
exchange;
(i) Accountant's Management Letters. Promptly after the receipt thereof by
any Borrower or the Parent, and in any event within 15 days thereof, copies of
any reports as to material inadequacies in accounting controls (including
reports as to the absence of any such inadequacies) submitted to any such
corporation by the Accountants in connection with any audit of such corporation
made by the Accountants;
(j) Notice of Default. Promptly (and in any event within 5 days) after
becoming aware of (i) the existence of any Default or Event of Default, an
Officer's Certificate of the Parent or the Borrowers specifying the nature and
period of existence thereof and what action the Parent or the Borrowers are
taking or propose to take with respect thereto; or (ii) any Indebtedness of any
Borrower, the Parent or any of their Subsidiaries being declared due and payable
before its expressed maturity, or any holder of such Indebtedness having the
right to declare such Indebtedness due and payable before its expressed
maturity, because of the occurrence of any default (or any
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event which, with notice and/or the lapse of time, shall constitute any such
default) under such Indebtedness, an Officer's Certificate of the Parent or the
applicable Borrower describing the nature and status of such matters and what
action the Parent or such Borrower or any such Subsidiary is taking or proposes
to take with respect thereto;
(k) ERISA Events. Promptly and in any event within 30 days after the
Parent or any of the Borrowers know that a Reportable Event with respect to any
Pension Plan has occurred, that any Pension Plan or Multiemployer Plan is or is
reasonably likely to be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA, or that the Parent or the Borrowers or any of
their Subsidiaries or ERISA Affiliates will or may incur any material liability
to or on account of a Pension Plan or Multiemployer Plan under Title IV of ERISA
or any other material liability under ERISA has been asserted against any of the
Borrowers or any of their Subsidiaries or ERISA Affiliates, an Officer's
Certificate of the Parent or such Borrower setting forth information as to such
occurrence and what action, if any, the Parent or such Borrower or such
Subsidiary or ERISA Affiliate is required or proposes to take with respect
thereto, together with any notices concerning such occurrences which are (a)
required to be filed by the Parent or such Borrower or such Subsidiary or ERISA
Affiliate or the plan administrator of any such Pension Plan controlled by the
Parent or such Borrower or such Subsidiary or ERISA Affiliate with the Internal
Revenue Service or the PBGC, or (b) received by the Parent or such Borrower or
such Subsidiary or ERISA Affiliate from any plan administrator of a Pension Plan
not under their control or from a Multiemployer Plan;
(l) ERISA Reports. Promptly upon request by the Lenders, a copy of each
annual report (Form 5500 Series) of any Pension Plan prepared by the Parent, any
of the Borrowers or any of their Subsidiaries;
(m) Material Adverse Effect. Promptly after becoming aware of any Material
Adverse Effect with respect to which notice is not otherwise required to be
given pursuant to this Section 9, an Officer's Certificate of the Borrowers or
the Parent setting forth the details of such Material Adverse Effect and stating
what action the Borrowers or the Parent of any of their Subsidiaries has taken
or proposes to take with respect thereto;
(n) Litigation. Promptly (and in any event within 15 days) after the
Parent or any Borrower knows of (i) the institution of, or threat of, any
material action, suit, proceeding, governmental investigation or arbitration
against or affecting the Parent or the Borrowers or any of their Subsidiaries or
any Property of any of them, or (ii) any material development in any such
action, suit, proceeding, governmental investigation or arbitration, which, in
either case, if adversely determined, is likely to have a Material Adverse
Effect, an Officer's Certificate of the Parent or the Borrowers describing the
nature and status of such matter in reasonable detail;
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(o) Prepayment of Indebtedness. At least 15 days prior to the voluntary
prepayment of any material Indebtedness of the Borrowers or the Parent or any of
their Subsidiaries (excluding Indebtedness arising hereunder), or the amendment
or other modification of any of the terms of payment of principal of, or
interest on, any such Indebtedness, an Officer's Certificate of the Borrowers or
the Parent describing the nature and status of such matters and what action the
Borrowers or the Parent or any such Subsidiary is taking or proposes to take
with respect thereto;
(p) Budget. As soon as available but in no event later than the first day
of each fiscal year of the Parent, a copy of a consolidated and consolidating
budget of the Parent and its Subsidiaries prepared by the Parent for such fiscal
year, and all amendments thereto which may be in effect from time to time;
(q) Insurance Report; Insurance Certificates. (i) At least once in each
fiscal year of the Parent, not later than 30 days after the beginning of such
fiscal year, an Officer's Certificate of the Parent setting forth all material
insurance coverage maintained by the Borrowers, the Parent and their
Subsidiaries as of the date of such certificate and of all insurance planned to
be maintained by such Persons in such fiscal year, including, without
limitation, a description in reasonable of all changes in insurance coverage
from that in effect during the prior fiscal year, and (ii) within 30 days after
each renewal of any insurance carried by the Borrowers, the Parent or any of
their Subsidiaries, certificates evidencing renewals of such insurance;
(r) Intellectual Property Report. At least once during each fiscal quarter
of the Parent, a report as to any new License Agreements, or Trademarks, Patents
and Copyright registrations or applications and the other matters required
pursuant to Section 5.1 of the Intellectual Property Security Agreement,
together with any instruments of assignment with respect thereto required
thereunder;
(s) Casualty; Taking. Promptly following, and in any event within ten (10)
Business Days of any Casualty or Taking involving Property of the Parent or any
of its Subsidiaries with a value equal to or greater than the Material Loss
Amount, an Officer's Certificate of the Parent describing the nature and status
of such occurrence; and
(t) Other Requested Information. Any other information, including
financial statements and computations, relating to the performance of
obligations arising under this Agreement and/or the affairs of the Borrowers or
the Parent or any of their Subsidiaries that the Agent may from time to time
reasonably request and which is capable of being obtained, produced or generated
by the Borrowers or the Parent or such Subsidiary or of which any of them has
knowledge, including, without limitation, an aged trial balance of all Accounts
of the Borrowers and their Subsidiaries as of such date, indicating which
Accounts are current, up to 30, 31 to 60, 61 to 90 and 91 days or more past the
invoice date and the payment due date thereof, and an itemized listing of the
Inventory of the Borrowers and their Subsidiaries, and, promptly after the
creation
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or receipt thereof, all material documents relating to the formation and
operation of the Solaray/Eastman Joint Venture.
The Parent will keep at its principal executive office a true copy of this
Agreement and each of the Related Documents (each as at the time in effect), and
cause the same to be available for inspection at said office during normal
business hours by any holder of any of the Notes or any prospective purchaser of
any thereof designated by the holder thereof.
Section 10. Inspection of Properties and Books; Confidentiality.
(a) So long as any of the Loans shall be outstanding and until the
Revolving Loan Termination Date, the Lenders shall have the right to visit and
inspect any of the Properties of the Parent, the Borrowers and their respective
Subsidiaries, to examine their books of account and records, to make copies and
extracts therefrom and to discuss their affairs, finances and accounts with, and
to be advised as to the same by, its and their officers and employees, and its
and their independent public accountants (whose reasonable fees and expenses
shall be paid by the Parent, the Borrowers or such Subsidiary and by this
provision each such Person authorizes its accountants to discuss its affairs,
finances and accounts, whether or not any of its representatives are present),
all upon reasonable prior notice to the Borrowers and at such reasonable times
and intervals as the Lenders may desire. Upon the occurrence and during the
continuance of any Default or Event of Default, the Borrowers will pay the
reasonable out-of-pocket expenses of the Lenders in connection with each such
visit and inspection. The Lenders may meet with the senior management of the
Parent and the Borrowers at least quarterly to discuss the Borrowers', their
Subsidiaries' and the Parent's assets, operations and prospects. The Borrowers,
each of its Subsidiaries and the Parent will likewise afford the Lenders the
opportunity to obtain any information, to the extent it possesses such
information or can acquire it without unreasonable effort or expense, that may
be necessary to verify the accuracy of any of the representations and warranties
made by each of them hereunder.
(b) All documents and information obtained by the Lenders pursuant to this
Section 10 and the foregoing Section 9 shall be held confidential in accordance
with the Lenders' customary procedures for handling such confidential
information, provided that each Lender shall in any event have the right to
deliver copies of any such documents, and to disclose any such information, to
(i) its directors, officers, trustees, partners, employees, agents and
professional consultants, (ii) any other Lender, (iii) any Person to which such
Lender offers to sell any Loan or any part thereof or interest or participation
therein (provided such Person agrees to keep such information confidential on
the terms set forth in this Section 10(b)), (iv) any Person from which such
Lender offer to purchase any security of the Parent or any of its Subsidiaries,
(v) any federal or state regulatory authority having jurisdiction over the
Lenders, (vi) the National Association of Insurance Commissioners or any similar
organization, and (vii) any other Person to which such delivery or disclosure
may be necessary or appropriate (a) in compliance with any Statute or Order
applicable to such Lender,
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(b) in response to any subpoena or other legal process or informal
investigative demand, (c) in connection with any litigation to which such Lender
is a party, or (d) in connection with the enforcement of the rights and remedies
of the Lenders at any time when an Event of Default shall have occurred and be
continuing.
Section 11. Affirmative Covenants. The Parent and the Borrowers jointly and
severally covenant and agree that, at all times until all of the Loans shall
have been paid in full and the Revolving Loan Termination Date shall have
occurred:
Section 11.1. Payment of Principal, Prepayment Charge, Interest and Fees;
Compliance With Agreements. The Borrowers will duly and punctually pay the
principal of, prepayment charge (if any) and interest and fees on the Loans in
accordance with the terms of the Notes and this Agreement. Each of the Parent,
the Borrowers and their Subsidiaries will comply with all of the covenants,
agreements and conditions contained in this Agreement and the Related Documents
to which they are respectively parties.
Section 11.2. Payment of Taxes and Claims. Each of the Parent and the
Borrowers will, and will cause each of their respective Subsidiaries to, pay
before they become delinquent:
(i) all taxes (including excise taxes), assessments and governmental
charges or levies imposed upon it or its income or profits or upon the
Property, real, personal or mixed, of each of them, or upon any part
thereof;
(ii) all claims for labor, materials and supplies which, if unpaid,
might result in the creation of a Lien upon the Property of any of them;
and
(iii) all claims, assessments, or levies required to be paid by any of
them pursuant to any agreement, contract, law, ordinance or governmental
rule or regulation governing any pension, retirement, profit-sharing or any
similar plan;
provided, that items of the foregoing description (other than taxes which are
imposed on real Property owned by any of the Borrowers or their Subsidiaries
after the occurrence and during the continuance of a Default or Event of
Default) need not be paid while being diligently contested in good faith and in
an appropriate manner so long as (i) adequate book reserves or other appropriate
provision have been established with respect thereto in accordance with GAAP and
(ii) neither the Parent's nor any Borrower's nor any such Subsidiary's title to
or right to use its Property is materially adversely affected by such non-
payment. The Parent and each of the Borrowers will timely file, and will cause
their Subsidiaries to file, all Federal and state tax returns and informational
returns required to be filed in connection with the payment of taxes and claims
required by this Section 11.2. If an Event of Default shall have occurred and be
continuing and any such contested items shall have resulted in a Lien or claim
upon any of the Borrowers' or any of their Subsidiaries' Property, the
Collateral Agent may, at its election (but shall not be obligated
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to), (a) procure the release and discharge of any such Lien or claim and any
judgment or decree thereon, without inquiring into or investigating the amount,
validity or enforceability of such Lien or claim and (b) effect any settlement
or compromise of the same, and any amounts expended by the Collateral Agent in
connection therewith including premiums paid or security furnished in connection
with the issuance of any surety company bonds, shall be reimbursed by the
Borrowers within five Business Days after demand therefor by the Collateral
Agent.
Section 11.3. Maintenance of Properties and Corporate Existence; Fiscal
Year. Each of the Parent and the Borrowers will, and will cause each of their
respective Subsidiaries to:
(a) maintain its Property in good condition, reasonable wear and tear
excepted, and make all necessary renewals, repairs, replacements, additions,
betterments, and improvements thereto consistent with the historical practices
of such Persons;
(b) keep true books of records and accounts in which full and correct
entries will be made of all its business transactions and will reflect in its
financial statements adequate accruals and appropriations to reserves;
(c) maintain the same fiscal year and the same fiscal quarters at all
times during and after the fiscal year ended September 30, 1995;
(d) do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights and powers and franchises
including, without limitation thereof, any necessary qualification or licensing
in any foreign jurisdiction; provided that this subsection (d) shall not
prohibit any transaction expressly permitted by Section 12.6(a);
(e) comply with all applicable Statutes, Orders, franchises,
authorizations, licenses and permits of, and all applicable restrictions imposed
by, any Governmental Body, in respect of the conduct of its business and the
ownership of its Properties (including, without limitation, all Environmental
Laws and all applicable Statutes, Orders, authorizations and permits relating to
foods, food supplements, drugs or cosmetics or the packaging or labeling
thereof, fair labor standards, equal employment opportunities and occupational
health and safety), except where noncompliance therewith individually and in the
aggregate could not reasonably be expected to result in a Material Adverse
Effect; and
(f) keep any Property it owns or operates free of contamination from
Hazardous Materials and any other potentially harmful chemical or physical
conditions which could have a Material Adverse Effect. If the Parent, any
Borrower or any of their Subsidiaries receives notice or becomes aware of any
material Environmental Matter or material contamination with Hazardous Materials
that relates to any of them or their respective Properties, the Parent or the
Borrowers will promptly notify the Agent thereof
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in writing, describing such Environmental Matter or contamination in reasonable
detail, and upon request of the Agent will provide the Agent with such reports,
certificates, engineering studies or other written material or data as the Agent
may require so as to satisfy the Agent that the Parent, the Borrowers and their
Subsidiaries are in compliance with their obligations under this Agreement. In
the event that the Borrowers or the Parent provide such notice to the Agent, the
Majority Holders shall have the right to employ, or to require the Borrowers or
any of its Subsidiaries at their expense to employ, a qualified environmental
consultant acceptable to such holders to conduct an environmental review, audit,
assessment or report concerning the Borrowers' and their Subsidiaries'
operations and Property. Each of the Parent and the Borrowers covenants and
agrees to cooperate fully with such consultant in any such audits, including,
without limitation, by providing such access to the Parent's, the Borrowers' and
their Subsidiaries' books, records, Properties, employees and agents and by
furnishing such written and oral information as such consultant may reasonably
request in connection with any such audits.
Section 11.4. Insurance.
(a) The Parent and the Borrowers will, and will cause each of their
Subsidiaries to, carry and maintain in full force and effect at all times with
financially sound and reputable insurers, rated AA (Class 12) or better by A.M.
Best & Co. (or, as to workers' compensation or similar insurance, in an
insurance fund or by self-insurance authorized by the jurisdiction in which its
operations are carried on): (i) all workers' compensation or similar insurance
as may be required under the laws of any jurisdiction, (ii) business
interruption insurance covering risk of loss as a result of the cessation for
all or any part of one year of all or any substantial part of the business
conducted by it, (iii) insurance against such other risks as are usually insured
against by corporations of established reputation engaged in the same or similar
businesses and similarly situated, including, without limitation, fire,
casualty, flood, public liability and products liability insurance, and (iv)
with respect to the Collateral consisting of real Property (including fixtures)
or of Inventory, Equipment or other insurable personal Property of the Borrowers
and their Subsidiaries, insurance against loss by fire, explosion, theft and
such other casualties as may be reasonably satisfactory to the Agent and
insurance insuring the Borrowers and their Subsidiaries against liability for
personal injury and property damage relating to such Collateral.
(b) Insurance specified in clauses (a)(ii) and (iii) of this Section 11.4
shall be maintained in such amounts (and with co-insurance, deductibles and
self-insured retention, if any) as such insurance is usually carried by
corporations of established reputation engaged in the same or similar businesses
and similarly situated; provided that the Borrowers and their Subsidiaries shall
at all times carry and have in full force and effect policies of product
liability insurance in such aggregate amount, and with deductibles or self-
insured retention not exceeding such aggregate amount per year, as is in effect
on the Closing Date, or such lesser coverage or greater deductible as the Agent
may agree from time to time.
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(c) Insurance specified in clause (a)(iv) of this Section 11.4 shall (i)
be maintained in such form and amounts and having such coverage as may be
reasonably satisfactory to the Agent, (ii) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Agent of written notice
thereof, (iii) name the Collateral Agent as loss payee in respect of all
property casualty insurance, and the Agent, the Collateral Agent and each
Lender, as additional insured, as its interests may appear in respect of all
such liability insurance, (iv) provide for waivers of subrogation by the
respective issuers in favor of the Collateral Agent for the benefit of the
Lenders and (v) be reasonably satisfactory to the Agent in all other respects.
The Borrowers hereby direct, and shall cause each of their Subsidiaries to
direct, all insurers under such policies of insurance to pay all proceeds of
such property casualty insurance policies directly to the Collateral Agent for
the benefit of the Lenders following any actual or constructive loss of any
Property of the Borrowers or any of their Subsidiaries by reason of fire,
explosion, theft or other casualty occurrence (each a "Casualty"); provided
that, if the amount of such loss or damage is less than the Material Loss
Amount, such proceeds may be paid by such insurers directly to the Borrowers or
such Subsidiaries.
(d) In the event of a Casualty (or a Taking) with respect to Property of
the Borrowers and their Subsidiaries which is equal to or greater than the
Material Loss Amount, the Collateral Agent shall have the right, but not the
obligation, to settle insurance claims (and condemnation proceeds or awards, as
the case may be), with respect to such Property; provided, however, the
Collateral Agent shall have the right, but not the obligation, to settle all
such claims (and proceedings) with respect to any Property of the Borrowers and
their Subsidiaries following the occurrence and during the continuance of an
Event of Default. If the Collateral Agent elects not to settle such claim or
proceeding, the Borrowers shall do so; provided, however, any settlement of any
such claim or proceeding reached by the Borrowers shall be subject to the
Collateral Agent's prior written approval. The Collateral Agent will endeavor to
consult with the Borrowers in connection with the Collateral Agent's exercise of
any such right; provided that the failure of the Collateral Agent to so consult
with the Borrowers after the occurrence and during the continuance of a Default
or Event of Default shall not subject the Collateral Agent to any liability
hereunder.
(e) Should the Borrowers or any of their Subsidiaries fail to obtain,
maintain or renew any insurance required pursuant to this Section 11.4, or to
pay the premiums therefor, or to deliver to the Agent proper evidence thereof
beyond any applicable notice and cure period, if any, for the performance of
such actions, the Collateral Agent, at its sole option and without any
obligation may procure such insurance, and any sums expended by it to procure
any such insurance shall be repaid by Borrowers, together with any late charge
imposed by any such insurer, if applicable, within five (5) Business Days after
receipt of bills therefor from the Collateral Agent.
Section 11.5. Further Assurances. Each of the Parent and the Borrowers
covenants that it shall, and shall cause its Subsidiaries to, (i) promptly upon
request by the Agent, correct, and cause each Subsidiary promptly to correct,
any material defect or error that may be discovered in any Loan Document or in
the execution,
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acknowledgment or recordation thereof, and (ii) promptly upon request by the
Agent, do, execute, acknowledge, deliver, record, re-record, file, re-file,
register and re-register, and cause any such Subsidiary promptly to do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and re-
register, any and all such further acts, deeds, conveyances, pledge agreements,
mortgages, deeds of trust, trust deeds, assignments, estoppel certificates,
financing statements and continuations thereof, termination statements, notices
of assignment, transfers, certificates, assurances and other instruments as the
Agent may reasonably require from time to time in order (a) to carry out more
effectively the purposes of this Agreement or any other Loan Document, (b) to
subject to the Liens and security interests created by any of the Security
Documents any of the Borrowers' and their Subsidiaries' Properties, rights or
interests covered or now or hereafter intended to be covered by any of the
Security Documents, (c) to perfect and maintain the validity, effectiveness and
priority of any of the Security Documents and the Liens and security interests
intended to be created thereby, and (d) better to assure, convey, grant, assign,
transfer, preserve, protect and confirm to the Lenders the rights granted or now
or hereafter intended to be granted to it under any Loan Document or under any
other instrument executed in connection with or pursuant to any Loan Document.
Section 11.6. After Acquired Real Property. Without affecting the
obligations of any of the Parent, the Borrowers or their Subsidiaries under any
of the Security Documents, in the event that any of such Persons at any time
after the Closing Date acquires any interest in any real Property including,
without limitation, (i) any leasehold interest, (ii) any such interest in land,
buildings or improvements comprising or intended to comprise a part of the New
Facility (each such interest, an "After Acquired Property"), and (iii) any other
fee interest in real Property, such Person shall immediately provide written
notice thereof to the Agent, setting forth with specificity a description of the
interest acquired, the location of the After Acquired Property, any structures
or improvements thereon and (except where such After Acquired Property is a
leasehold interest) an appraisal of the current value of such real Property (the
"Current Value"). As soon as practicable thereafter, with respect to any such
Property which the Collateral Agent at the direction of the Majority Lenders
determines is material, such Person shall execute and deliver to the Collateral
Agent (A) a mortgage or trust deed substantially in the form of Exhibit M-1
(with appropriate local variations and, in the case of the Mortgage on the New
Facility, appropriate provisions to reflect that such After Acquired Property
will be under construction) in the case of such a material fee interest or in
the case of any interest in the New Facility, or (B) a leasehold deed of trust
in the form of Exhibit M-2 hereto, in the case of such a material leasehold
interest, in each case reasonably satisfactory in form and substance to counsel
to the Agent, together with such of the other documents and instruments
described in Section 7.13(c) as the Agent shall require, and (C) in the case of
such a material leasehold interest, shall cause the lessor thereof to enter into
a recognition agreement in favor of the Collateral Agent in substantially the
form of Exhibit M-3 hereto. In no event shall the title insurance policy for
such After Acquired Property be in an amount which is less than the Current
Value of such After Acquired Property.
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Each lease hereafter entered into with respect to any such leasehold interest
shall specify which improvements, if any, are owned by the lessor and which
improvements, if any, are owned by the lessee. The applicable Borrower or
Subsidiary shall also deliver one or more opinions of counsel to such Borrower
or Subsidiary (including opinions of local counsel) covering such legal matters
with respect to such mortgages, trust deeds and other instruments and documents
as the Agent may reasonably request. The Borrowers shall pay all fees and
expenses, including, without limitation, attorneys' fees and expenses of counsel
for the Lenders, the Collateral Agent and the Agent, and all title insurance
charges and premiums, in connection with its obligations under this Section
11.6.
Section 11.7. Future Guarantors and Securing Subsidiaries. Promptly upon
any Person becoming a direct or indirect Subsidiary of any of the Borrowers, the
Borrowers shall immediately provide written notice thereof to the Agent, setting
forth with specificity a description of such Subsidiary and of all material real
and personal Property owned or leased by it. In the event that such Subsidiary
shall own or lease any interest in real Property, such interest shall be deemed
to be After Acquired Property and the Borrowers shall promptly cause such
Subsidiary to comply with all of the provisions of Section 11.6 with respect
thereto. The Borrowers shall also promptly cause such Subsidiary to execute and
deliver to the Lenders a Series A/Revolver Subsidiary Guarantee substantially in
the form of Exhibit E-1 hereto, a Series B Subsidiary Guarantee substantially in
the form of Exhibit E-2 hereto, and a Subsidiary Security Agreement
substantially in the form of Exhibit L hereto, together with such financing
statements and other documents as shall in the sole opinion of the Agent be
necessary or advisable in order that such Subsidiary grant to the Collateral
Agent valid and perfected first priority Liens (or, with respect to outstanding
Series B Term Loans, valid and perfected second priority Liens) in all of the
personal Property of such Subsidiary, subject to Permitted Liens. The Borrowers
shall also deliver to the Collateral Agent pursuant to the Security Agreement or
the appropriate Subsidiary Security Agreement stock certificates representing
all of the Capital Stock of such Subsidiary held by the Borrowers or by any
other Subsidiary of the Borrowers, accompanied by stock powers duly executed in
blank. The Borrowers shall also identify all Depositary Accounts maintained by
such Subsidiary and shall deliver to the Collateral Agent a Depositary Account
Agreement with respect to each such Depositary Account, duly executed by such
Subsidiary and by the bank or other depositary institution at which such
Depositary Account is maintained. The Borrowers or such Subsidiary shall also
deliver one or more opinions of counsel to the Borrowers or such Subsidiary
(including opinions of local counsel) covering such legal matters with respect
to such agreements and other instruments and documents as the Agent may
reasonably request. All of such agreements, instruments, opinions and documents
shall be reasonably satisfactory in form and substance in all respects to
counsel to the Agent, the Collateral Agent and the Lenders.
Section 11.8. New Depositary Accounts. Immediately following the
establishment by the Parent, any of the Borrowers or any of their Subsidiaries
of any new Depositary Account not in existence on the Closing Date, the Parent,
the
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applicable Borrower or such Subsidiary (as the case may be) shall deliver to the
Collateral Agent (i) a written notice stating the name and address of the bank
or depositary institution at which such Depositary Account is maintained and
identifying the type and number of such Depositary Account, and (ii) a
Depositary Account Agreement with respect to that Depositary Account duly
executed by the Parent, the applicable Borrower or the applicable Subsidiary (as
the case may be) and such bank or depositary institution.
Section 11.9. Interest Rate Protection Agreements. The Borrowers shall
enter into, not later than 60 days after the Closing Date, and shall at all
times during the three years thereafter be party to, one or more Interest Rate
Protection Agreements (which shall be reasonably acceptable to the Agent) with
one or more banks or other financial institutions acceptable to the Agent, which
effectively enable each of the Borrowers to protect itself against fluctuations
in interest rates (with respect to a maximum interest rate of 11.75% per annum
with respect to Interest Rate Protection Agreements relating to the Series A
Term Loans, and with respect to a maximum interest rate of 12.50% per annum with
respect to Interest Rate Protection Agreements relating to the Series B Term
Loans) with respect to at least 50% of the original principal amount of the
Series A Term Loans and at least 50% of the original principal amount of the
Series B Term Loans.
Section 11.10. Compliance with Terms of Leaseholds. Each of the Parent
and the Borrowers covenants that it will, and will cause each of its
Subsidiaries to, make all payments and otherwise perform all other material
obligations in respect of all leases of real Property, keep such leases in full
force and effect and not allow such leases to lapse or be terminated, in each
case, other than in accordance with terms thereof relating to termination
without liability, or any rights to renew such leases to be forfeited or
cancelled, except to the extent the failure to do any of the foregoing would not
reasonably be expected to have a Material Adverse Effect, notify the Agent of
any default by any party with respect to such leases and cooperate with the
Agent in all respects to cure any such default, and cause each of its
Subsidiaries to do so.
Section 11.11. ERISA Covenants. The Borrowers and the Parent will (i)
continue to meet the ERISA representations and warranties set forth under
Section 5.22 of this Agreement, (ii) not establish, adopt or contribute to (x)
any Pension Plan that is subject to the funding requirements of Section 302 of
ERISA or Section 412 of the Code, or (y) any Multiemployer Plan, in each case
with respect to employees of the Borrowers or any of their Subsidiaries or ERISA
Affiliates, except in the case of any such Plans maintained or contributed to by
any business or Person acquired pursuant to the provisions of Section 12.6(g)
hereof, which Plans are acquired as part of the acquisition of such business or
Person, but only so long as the aggregate annual amount of contributions and
payments which will be required to be made by the Parent and its Subsidiaries
pursuant to such Plans as a result of such acquisition is not material to the
business and operations of the Parent and its Subsidiaries taken as a whole, and
(iii) not establish or adopt an employee welfare benefit plan as defined in
Section 3(1) of ERISA that provides for employer-provided continued welfare
benefits
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(excluding cash severance payments) for any group or class of employees after
they leave the employment of the Borrowers or any of their Subsidiaries or ERISA
Affiliates (other than any such benefits required to be provided by COBRA or
other similar Statute).
Section 12. Negative and Maintenance Covenants. The Parent and the
Borrowers jointly and severally covenant and agree that, at all times until all
of the Loans shall have been paid in full and the Revolving Loan Termination
Date shall have occurred:
Section 12.1. Restrictions on Indebtedness. The Parent and the Borrowers
will not, and will not permit any of their Subsidiaries to, incur, create,
assume or suffer to exist any Indebtedness, other than the following:
(a) Indebtedness incurred pursuant to this Agreement and the Notes;
(b) Indebtedness incurred pursuant to a Permitted Refinancing;
(c) Continuing Indebtedness;
(d) Indebtedness of a Borrower owing to another Borrower or to a Wholly-
owned Subsidiary of any Borrower, and Indebtedness of a Wholly-owned Subsidiary
of any Borrower owing to any Borrower or to another Wholly-owned Subsidiary of
any Borrower;
(e) additional Indebtedness of any Borrower or of any Subsidiary of any
Borrower, provided that the aggregate principal amount of Indebtedness incurred
in any fiscal year pursuant to this subsection (e) shall not exceed $500,000,
and the aggregate outstanding principal amount of such Indebtedness shall at no
time exceed $1,000,000;
(f) Indebtedness of the Borrowers incurred pursuant to any Interest Rate
Protection Agreement entered into in accordance with the provisions of Section
11.9;
(g) Indebtedness of any Borrower to the Letter of Credit Bank in respect
of Letters of Credit; provided, that such Indebtedness shall not exceed the
Letter of Credit Limit;
(h) Indebtedness of the Parent, the Borrowers and their Subsidiaries in
respect of Permitted Liens referred to in subsections (a) through (h),
inclusive, of Section 12.2; and
(i) Indebtedness of Nutraceutical incurred pursuant to a Permitted IRB
Financing; provided that (x) at the time such Indebtedness is incurred and both
immediately before and immediately after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing, and (y) the aggregate
principal amount of such Indebtedness shall not be greater than the amount, if
any, by which $6,000,000
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exceeds the aggregate principal amount of the Additional Series A Term Loans, if
any, outstanding at the time such Indebtedness is incurred.
Section 12.2. Restrictions on Liens. The Parent and the Borrowers will
not, and will not permit any of their Subsidiaries to, create, assume or suffer
to exist any Lien upon any of their Property or assets whether now owned or
hereafter acquired, except the following (herein collectively referred to as
"Permitted Liens"):
(a) Liens for taxes, assessments, governmental charges or claims, the
payment of which is not at the time required by Section 11.2;
(b) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law incurred in the ordinary
course of business for sums not yet delinquent or being diligently contested in
good faith, if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor;
(c) Liens (other than any Lien imposed by ERISA) incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(d) Any attachment or judgment Lien (including judgment or appeal bonds)
which shall, within 30 days after the entry thereof, have been discharged,
bonded or execution thereof stayed pending appeal, or which shall have been
discharged or bonded within 30 days after the expiration of any such stay;
(e) Leases or subleases granted to others not interfering with the
ordinary conduct of the business of the Borrowers or their Subsidiaries;
(f) Easements, rights-of-way, restrictions and other similar charges or
encumbrances which do not, individually or in the aggregate, materially
interfere with the ordinary conduct of the business of the Borrowers or their
Subsidiaries at any location;
(g) Any interest, title or Lien of a lessor under any permitted operating
lease;
(h) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the importation of
goods;
(i) Liens (including Liens created pursuant to Capitalized Leases)
existing on the date hereof and described in Schedule 5.8A as securing
Continuing Indebtedness;
(j) Liens incurred pursuant to the Security Documents;
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(k) Liens (including Capitalized Leases) in respect of Property acquired
or constructed or improved by the Borrowers or their Subsidiaries after the
Closing Date, which Liens exist or are created at the time of acquisition or
completion of construction or improvement of such Property or within 60 days
thereafter, to secure Indebtedness incurred pursuant to Section 12.1(e), but any
such Lien shall cover only the Property so acquired or constructed and any
improvements thereto (and any real Property on which such Property is located,
if such Property is a building, improvement or fixture);
(l) Liens securing Indebtedness incurred pursuant to Section 12.1(b) or
Section 12.1(f);
(m) Liens on the land, buildings and improvements comprising the New
Facility to secure Indebtedness of Nutraceutical incurred pursuant to Section
12.1(i), which Liens may be senior and prior to the Liens thereon created by the
Mortgage on the New Facility; provided that the holder or holders of such Liens
shall enter into an intercreditor agreement with the Collateral Agent reasonably
satisfactory in form and substance to the Agent (and the Lenders hereby agree to
direct the Collateral Agent to enter into such intercreditor agreement)
providing for, among other things, (i) subordination of the Liens created by the
Mortgage on the New Facility to the Liens securing such Indebtedness incurred
pursuant to Section 12.1(i), and (ii) written notice to the Collateral Agent of,
and rights on the part of the Collateral Agent or the Lenders to cure, any
breach, default or event of default arising under the terms of the documents
pursuant to or in connection with which such Liens and Indebtedness are created
or incurred; and
(n) other Liens not permitted under any of the foregoing provisions of
this Section 12.2, provided that the aggregate amount of all Liens permitted
under this subsection (n) shall at no time exceed $50,000;
provided, however, that except as provided in subsection (m) of this Section
12.2, any Lien in respect of a Mortgaged Property shall be permitted hereunder
only if permitted under the provisions of the Mortgage thereon.
Section 12.3. Sales and Leasebacks. The Parent and the Borrowers will not,
and will not permit any of their Subsidiaries to, enter into any arrangements
with any lender or investor or to which such lender or investor is a party
providing for the leasing by any Borrower or such Subsidiary of real or personal
Property which has been or is to be sold or transferred by such Borrower or such
Subsidiary to such lender or investor or to any Person to whom funds have been
or are to be advanced by such lender or investor on the security of such
Property or rental obligations of such Borrower or such Subsidiary.
Section 12.4. Capital Expenditures.
(a) Except for Excluded Capital Expenditures, as defined below, the Parent
and the Borrowers will not, and will not permit any of their Subsidiaries to,
make or
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incur any Capital Expenditure or any contractual commitment with respect to any
Capital Expenditure if, after giving effect thereto, the aggregate amount of all
Capital Expenditures by Parent, the Borrowers and their Subsidiaries during any
fiscal period of the Parent set forth below (excluding Excluded Capital
Expenditures), would exceed the amount set forth opposite such period:
<TABLE>
<CAPTION>
Fiscal Period Amount
------------ ------
<S> <C>
Closing Date to and including September 30, 1995 $1,500,000
Fiscal year ending September 30, 1996 1,800,000
Fiscal year ending September 30, 1997 2,000,000
Each fiscal year ending thereafter 1,800,000
</TABLE>
Notwithstanding the foregoing, if the Capital Expenditures expended in any
fiscal period shall be less than the maximum amount thereof permitted to be
expended in such period pursuant to the provisions of this Section 12.4(a)
(without taking into account Excluded Capital Expenditures and the provisions of
this paragraph), then an amount thereof equal to the lesser of (i) the
difference between such maximum amount and the amount thereof actually so
expended during such period or (ii) 50% of such maximum amount, may be carried
forward and expended in the immediately succeeding fiscal period (but not in any
subsequent fiscal period), in addition to the amount that would otherwise be
permitted to be expended in such immediately succeeding period under the
provisions of this Section 12.4(a) (without taking into account Excluded Capital
Expenditures and the provisions of this paragraph).
(b) For purposes of this Section 12.4, the term "Excluded Capital
Expenditures" shall mean and include Capital Expenditures not to exceed
$6,000,000 in the aggregate which may be expended by the Borrowers on or prior
to December 31, 1996 to pay for the cost of construction and/or acquisition of
the New Facility.
(c) Notwithstanding the provisions of subsection (a) of this Section 12.4,
no commitment for any new Capital Expenditures shall be made at any time when a
Default or Event of Default shall have occurred and shall be continuing.
Section 12.5. Transactions with Affiliates. The Parent and the Borrowers
will not, and will not permit any of their Subsidiaries to, directly or
indirectly, except in the case of transactions among the Parent, the Borrowers
and their Wholly-owned Subsidiaries, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any Property or the rendering of any service), with any Affiliate of
the Parent or any Borrower or any such Subsidiary except in the ordinary course
of business and on terms that are not less favorable to the Parent, such
Borrower or such Subsidiary, as the case may be, than those that would be
obtainable at the time in an arms' length transaction with any Person who is not
such an Affiliate; provided that this Section 12.5 shall not be deemed to
prohibit any transaction or payment expressly permitted by Section 12.11 or any
transaction or
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payment expressly permitted or required by the Restated Advisory Agreement or
the Executive Agreements.
Section 12.6. Consolidation, Merger or Disposition of Assets;
Acquisitions. The Parent and the Borrowers will not, and will not permit any of
their Subsidiaries to, enter into any transaction of merger or consolidation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, license, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or any part of the business,
Property or fixed assets of the Parent or the Borrowers or any such Subsidiary,
whether now owned or hereafter acquired, or acquire by purchase or otherwise any
of the outstanding Capital Stock of, or all or substantially all of the
business, Property or fixed assets of, any Person, except that:
(a) (i) any Borrower (other than Nutraceutical) may be merged or
consolidated into another Borrower, or (if a Wholly-owned Subsidiary of
Nutraceutical) may be liquidated, wound up or dissolved, or all or substantially
all of its business, Property or assets may be conveyed, sold, leased,
transferred or otherwise disposed of, in one transaction or a series of
transactions, to another Borrower, and (ii) any Wholly-owned Subsidiary of any
Borrower may be merged or consolidated with or into any Borrower or with or into
another Wholly-owned Subsidiary of any Borrower or be liquidated, wound up or
dissolved, or all or substantially all of its business, Property or assets may
be conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to any Borrower or to another Wholly-
owned Subsidiary of any Borrower; provided, however, that (w) in the case of any
such merger or consolidation involving a Borrower, a Borrower (other than
Natural Max) shall be the continuing or surviving corporation, (x) immediately
before and immediately after any such consolidation, merger, conveyance, sale,
lease, transfer or other disposition, no Default or Event of Default shall have
occurred and be continuing, (y) no disposition under this subsection (a) shall
release any Borrower from liability in respect of the Loans, and (z) in no event
shall any Property or assets (including, without limitation, any Capital Stock
of any Borrower or of any Subsidiary of any Borrower) be conveyed, sold, leased,
transferred or otherwise disposed of to Natural Max by any other Borrower or by
any Subsidiary of any Borrower;
(b) any Borrower and any Subsidiary of any Borrower may in the ordinary
course of its business sell or otherwise dispose of Inventory owned by such
Borrower or such Subsidiary;
(c) any Borrower and any Subsidiary of any Borrower may sell or otherwise
dispose of, in the ordinary course of business, Property that is worn out or
obsolete or no longer used in the business of such Borrower or such Subsidiary,
in an amount not to exceed $200,000 per annum for all of the Borrowers and their
Subsidiaries in the aggregate;
(d) any Borrower and any Subsidiary of any Borrower may sell or otherwise
dispose of Property if, within 180 days after the date of such sale or
disposition, such
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Borrower or such Subsidiary shall use the Net Cash Proceeds of such sale or
disposition to purchase similar Property to be used in the ordinary course of
business of the Borrowers and their Subsidiaries, provided that the aggregate
amount of Property of all of the Borrowers and their Subsidiaries permitted to
be sold pursuant to this subsection (d) shall not exceed $750,000 per year;
(e) Solaray may sell the Ogden Property, provided that the Net Cash
Proceeds of such sale shall be applied in accordance with the provisions of
Section 4.1(b)(iii) hereof;
(f) Nutraceutical may sell all (but not less than all) of the Capital
Stock of Natural Max, or Natural Max may sell all or substantially all of its
assets (and/or may sell separately all or substantially of the assets acquired
by Natural Max from Blue Ribbon on the Closing Date), provided that the Net Cash
Proceeds of such sale shall be applied in accordance with the provisions of
Section 4.1(b)(iii) hereof; and
(g) the Borrowers (other than Natural Max) may make acquisitions of all of
the outstanding Capital Stock of any corporation or all or substantially all of
the business and assets of any corporation or other Person, provided that in
each case all of the following conditions are satisfied:
(i) the aggregate purchase price paid in connection with such
acquisitions (in whatever form paid, including, without limitation, Cash,
Cash Equivalents, other Property, including promissory notes and other
evidences of Indebtedness, valued at Fair Market Value as of the date of
such acquisition, shares of Capital Stock of the Parent issued in
connection with such acquisition, or warrants or rights to acquire such
Capital Stock, in each case valued at Fair Market Value as of the date of
such acquisition, and any Indebtedness assumed in connection with such
acquisition or to which any corporation so acquired is subject at the time
of such acquisition) (x) shall not exceed (A) $3,000,000 in respect of all
such acquisitions made during the period from the Closing Date to and
including September 30, 1995, (B) $4,000,000 in respect of all such
acquisitions made during the fiscal year of the Parent ending on September
30, 1996, and (C) $5,000,000 in respect of all such acquisitions made
during any subsequent fiscal year of the Parent, and (y) shall not exceed
in the aggregate, for all such acquisitions made after the Closing Date,
the greater of (A) $5,000,000 or (B) an amount equal to 50% of the
aggregate amount of Excess Cash Flow for all full fiscal years of the
Parent (or, in the case of the fiscal year ending September 30, 1995, the
period from the Closing Date to and including such date) completed after
the Closing Date;
(ii) in the case of any such acquisition of Capital Stock, the
corporation so acquired shall be, immediately after such acquisition, a
Wholly-owned Subsidiary of Nutraceutical or another Borrower (other than
Natural Max), or, in the case of any such acquisition of assets, such
assets shall be acquired by a newly formed Wholly-owned Subsidiary of
Nutraceutical or another
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Borrower (other than Natural Max) which, immediately following such
acquisition, shall own no material assets other than the assets so
acquired, and, in either event, such acquired or newly formed Subsidiary
shall promptly comply with all of the applicable provisions of Section 11.7
hereof;
(iii) both immediately before and immediately after giving effect to
any such acquisition, no Default or Event of Default shall have occurred
and be continuing;
(iv) immediately after giving effect to each such acquisition, the
amount by which the Maximum Revolving Amount exceeds the aggregate
outstanding principal amount of the Revolving Loans shall be not less than
$4,000,000, as shown by a Borrowing Base Certificate as of the date of such
acquisition which shall be delivered to the Agent at the time of such
acquisition or promptly thereafter;
(v) immediately after giving effect to each such acquisition, the
corporation or business and assets thereby acquired shall be engaged solely
in such businesses and activities as the Borrowers would then be permitted
to conduct under the provisions of Section 12.10 hereof;
(vi) the EBITDA of the Parent for the period of four consecutive full
fiscal quarters of the Parent most recently ended prior to the date of such
acquisition (or, in the case of any such acquisition occurring on or prior
to March 31, 1996, the period from the Closing Date to and including the
last day of the fiscal quarter of the Parent most recently ended prior to
the date of such acquisition) shall not be less than the aggregate amount
of Adjusted Core EBITDA for such period; and
(vii) the Borrowers shall deliver to the Agent, (x) at least 15
days prior to the date of completion of such acquisition, a written notice
describing such acquisition in reasonable detail, including, without
limitation, a description of the form and amount of all consideration to be
paid in connection with such acquisition and of any Indebtedness to be
incurred, created, assumed or guaranteed by any Person in connection
therewith, which notice shall also set forth calculations and other
information in reasonable detail showing compliance with the conditions
contained in the foregoing clauses (i) through (vi), inclusive, of this
subsection (g) and shall be accompanied by all financial statements,
budgets, projections and other documents relied upon by the Parent in
connection therewith, and (y) promptly upon request by the Agent, such
other documents and information with respect to such acquisition as the
Agent may reasonably request.
Section 12.7. Sale or Discount of Receivables. The Parent and the Borrowers
will not, and will not permit any of their Subsidiaries to, directly or
indirectly, sell with or
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without recourse, or discount or otherwise sell any of their respective notes or
accounts receivable.
Section 12.8. Certain Contracts. The Parent and the Borrowers will not, and
will not permit any of their Subsidiaries to, enter into or be a party to:
(a) any contract providing for the making of loans, advances or capital
contributions to any Person, or for the purchase of any Property from any Person
in each case primarily in order to enable such Person to maintain working
capital, net worth or any other balance sheet condition or to pay debts,
dividends or expenses, or
(b) any contract for the purchase of materials, supplies or other
Property or services if such contract (or any related document) requires that
payment for such materials, supplies or other Property or services shall be made
regardless of whether or not delivery of such materials, supplies or other
Property or services is ever made or tendered, or
(c) any contract to rent or lease (as lessee) any real or personal Property
if such contract (or any related document) provides that the obligation to make
payments thereunder is absolute and unconditional under conditions not
customarily found in commercial leases then in general use or requires that the
lessee purchase or otherwise acquire securities or obligations of the lessor
(provided that this clause (c) shall not be construed to prevent any Borrower or
any Subsidiary of any Borrower from being a party to or complying with any
provision of any lease to which it is a party on the date hereof), or
(d) any contract for the sale or use of materials, supplies or other
Property, or the rendering of services, if such contract (or any related
document) requires that payment for such materials, supplies or other Property,
or the use thereof, or payment for such services, shall be subordinated to any
Indebtedness (of the purchaser or user of such materials, supplies or other
Property or the Person entitled to the benefit of such services) owed or to be
owed to any Person, or
(e) except as permitted by Section 12.1, any other Guarantee or contract
which, in economic effect, is substantially equivalent to a Guarantee.
Section 12.9. No Amendment of Charter, By-Laws. Without the prior written
consent of the Majority Lenders, none of the Borrowers will, nor will permit any
of their Subsidiaries to, amend or modify their respective charters or by-laws.
Without the prior written consent of the Majority Lenders, the Parent will not
amend or modify its charter or by-laws in any way that could reasonably be
expected to impair or adversely affect any of the rights and remedies of the
Lenders or the Collateral Agent with respect to Indebtedness of the Parent
incurred pursuant to this Agreement or the other Loan Documents or with respect
to any Liens securing such Indebtedness.
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Section 12.10. Conduct of Business. The Borrowers will not, and will not
permit any of their Subsidiaries to, engage in any business or activity other
than the business of manufacturing, marketing, distributing and selling
vitamins, minerals, other food supplements, herbal products, teas, homeopathic
remedies, and personal care products (other than make-up) of the types
customarily carried by independent natural health food stores, and businesses or
activities substantially similar or related thereto, including printing of
labels and other items substantially in the manner and to the extent such
activities are conducted by the Borrowers or their predecessors on the Closing
Date after giving effect to the Transactions. The Parent will not engage in any
business other than the management of the business of the Borrowers and their
Subsidiaries nor will it own any assets other than the Capital Stock of
Nutraceutical and any contract rights under Related Documents to which the
Parent is a party. The Borrowers will not permit KAL B.V. to engage in any
material business or own any material assets unless the Borrowers shall first
pledge and deliver to the Collateral Agent as additional Collateral at least 65%
of the outstanding Capital Stock of KAL B.V. pursuant to such documentation as
shall be reasonably acceptable to the Collateral Agent. Natural Max will not
engage in any material business other than the Natural Max Business or own any
material assets other than the assets of the Natural Max Business.
Section 12.11. Restricted Payments and Restricted Investments. The Parent
and the Borrowers will not, and will not permit any of their Subsidiaries to,
directly or indirectly, make any Restricted Payment, except:
(a) Restricted Payments from any Borrower to the Parent or to any other
Borrower, or from any Subsidiary of any Borrower to the Parent or to any
Borrower or Wholly-owned Subsidiary of any Borrower;
(b) so long as such payments are not at the time prohibited under the
provisions of the Intercreditor Agreement, regularly scheduled interest payments
on the Series B Term Notes in the amounts and at the times such interest
payments are required to be made pursuant to the terms of this Agreement and
such Notes;
(c) fees payable to the Sponsor and FWG pursuant to and in accordance with
the terms of paragraphs 3 and 4 of the Restated Advisory Agreement as in effect
on the Closing Date, and any other fees and expenses expressly provided for in
the Restated Advisory Agreement as in effect on the Closing Date; provided, that
in no event shall any such fees be paid at a time when an Event of Default
referred to in Section 13.1(a) or (b), or an Event of Default referred to in
Section 13.1(c) resulting from a breach or violation of Section 12.14, or an
Event of Default referred to in subsection (f) or subsection (g) of Section
13.1, shall have occurred and be continuing after giving effect thereto, but
such fees may be accrued during the continuance of such Event of Default and
such accrued fees may be paid thereafter at such time when no such Event of
Default exists or would exist after giving effect thereto;
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(d) payments in connection with repurchases by the Parent of Parent Common
Stock (or of options or rights to purchase Parent Common Stock) issued to
officers, directors and key employees of the Parent, the Borrowers or their
Subsidiaries pursuant to employee benefit plans or compensatory arrangements
adopted in the ordinary course of business, provided that (i) at the time any
such payments are made and after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing, (ii) no such amounts shall be
paid at any time when such payment shall violate any provision of the Delaware
General Corporation Law applicable to repurchases by a corporation of its
Capital Stock, and (iii) the aggregate amount of consideration paid in respect
of such repurchases (exclusive of the cancellation of Indebtedness owed to the
Parent in connection with the issuance of such Parent Common Stock) shall not
exceed, in any fiscal year of the Parent, $250,000 in cash plus $250,000 in
principal amount of promissory notes of the Parent issued to the sellers of such
Parent Common Stock, provided that any such promissory notes (A) shall mature
not earlier than six months following the Series B Maturity Date, (B) shall bear
interest at a fixed rate of interest per annum equal to the applicable federal
rate on the date of issuance for obligations of such maturity published from
time to time by the Internal Revenue Service, (C) shall provide that no payment
of the principal amount thereof shall be made unless and until the entire
principal amount of the Notes, and all interest (including, without limitation,
interest accruing after the commencement of a proceeding in respect of any
Borrower under Chapter 11 of the Bankruptcy Code, whether or not such interest
is allowed as a claim), fees, expenses and other amounts payable under this
Agreement or the Notes, shall first have been paid in full and the obligations
of the Lenders hereunder shall have been terminated, (D) shall provide that no
principal, interest or other amounts shall be paid thereon at any time unless,
both immediately before and immediately after giving effect to such payment, no
Default or Event of Default shall have occurred and be continuing, and (E) shall
contain the other provisions set forth in Exhibit K hereto;
(e) loans to officers, directors and key employees of the Parent, the
Borrowers and their Subsidiaries to finance the issuance and sale to such
Persons of shares of Parent Common Stock pursuant to employee benefit plans and
compensatory arrangements adopted in the ordinary course of business; provided
that such loans shall in each case be secured by a pledge of such shares in
favor of the Parent; and
(f) loans and advances by the Parent, the Borrowers and their Subsidiaries
to officers and employees of such Persons to pay expenses incurred in the
ordinary course of business, in an amount not to exceed $200,000 per year in the
aggregate.
None of the Borrowers nor the Parent will declare any dividend or other
distribution on any shares of its Capital Stock payable more than 90 days after
the date of declaration thereof.
The Parent and the Borrowers will not make, and will not permit any of
their Subsidiaries to make, directly or indirectly, any Restricted Investment
(other than any
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transaction constituting a Restricted Investment which is expressly permitted by
the foregoing provisions of this Section 12.11).
Section 12.12. Disqualified Capital Stock; Issuance of Shares. The Parent
will not at any time issue or have outstanding any Disqualified Capital Stock.
The Borrowers will not, and will not permit any of their Subsidiaries to, (i)
issue, sell or otherwise dispose of any shares of Capital Stock of any of them
except (in the case of Nutraceutical) to the Parent or (in the case of any
Borrower other than Nutraceutical) to any other Borrower (other than Natural
Max) or (in the case of any Subsidiary of any Borrower) to any Borrower (other
than Natural Max) or to a Wholly-owned Subsidiary of any Borrower (other than
Natural Max), or (ii) issue or have outstanding any shares of Preferred Stock.
Section 12.13. Disposition of Capital Stock and Indebtedness of
Subsidiaries. The Parent will not sell or otherwise dispose of any shares of
Capital Stock or Indebtedness of Nutraceutical. No Borrower will sell or
otherwise dispose of any shares of Capital Stock or Indebtedness of any other
Borrower (other than Natural Max) or of any Subsidiary of any Borrower, and will
not permit any such Subsidiary to sell or otherwise dispose of any shares of
Capital Stock or Indebtedness of any Subsidiary of such Subsidiary, in each case
other than to a Borrower (other than Natural Max) or to a Wholly-owned
Subsidiary of a Borrower (other than Natural Max).
Section 12.14. Financial Covenants.
(a) Minimum Consolidated Net Worth. The Parent will not permit Consolidated
Net Worth, determined as of the end of each fiscal quarter of the Parent
commencing with the fiscal quarter ending September 30, 1995, to be less than
the sum of $11,000,000 plus 75% of the aggregate Consolidated Net Income of the
Parent for all fiscal quarters of the Parent in the period from the Closing Date
to and including the date of determination (disregarding for such purposes (i)
the portion of the first such fiscal quarter occurring prior to the Closing Date
and (ii) any fiscal quarter of the Parent during such period for which the
Parent shall have a Consolidated Net Loss).
(b) Maintenance of Fixed Charge Coverage. The Parent will not permit the
ratio of (i) Cash Flow Available for Fixed Charges, to (ii) Fixed Charges,
measured as of any date set forth below for the period of four consecutive full
fiscal quarters of the Parent ended on such date, to be less than the ratio set
forth opposite such date; provided, however, that for each of the dates set
forth below occurring on or prior to December 31, 1995, the applicable measuring
period shall be the period from the Closing Date to and including such date:
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<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----------
<S> <C>
September 30, 1995 1.60 : 1.00
December 31, 1995 1.70 : 1.00
March 31, 1996 1.80 : 1.00
June 30, 1996 1.80 : 1.00
September 30, 1996 1.90 : 1.00
December 31, 1996 1.90 : 1.00
March 31, 1997 1.90 : 1.00
June 30, 1997 1.95 : 1.00
September 30, 1997 2.00 : 1.00
December 31, 1997 2.00 : 1.00
March 31, 1998 2.10 : 1.00
June 30, 1998 1.60 : 1.00
September 30, 1998 1.25 : 1.00
December 31, 1998 1.10 : 1.00
March 31, 1999 1.00 : 1.00
June 30, 1999 1.00 : 1.00
September 30, 1999 1.05 : 1.00
December 31, 1999 1.05 : 1.00
March 31, 2000 and each
fiscal quarter end thereafter 1.05 : 1.00
</TABLE>
(c) Interest Expense Coverage Ratio. The Parent will not permit the
Interest Expense Coverage Ratio, measured as of each date set forth below for
the period of four consecutive full fiscal quarters of the Parent ended on such
date, to be less than the corresponding amount set forth opposite such date;
provided, however, that for each of the dates set forth below occurring on or
prior to December 31, 1995, the applicable measuring period shall be the period
from the Closing Date to and including such date:
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<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----------
<S> <C>
September 30, 1995 1.80 : 1.00
December 31, 1995 2.00 : 1.00
March 31, 1996 2.00 : 1.00
June 30, 1996 2.00 : 1.00
September 30, 1996 2.20 : 1.00
December 31, 1996 2.25 : 1.00
March 31, 1997 2.25 : 1.00
June 30, 1997 2.30 : 1.00
September 30, 1997 2.40 : 1.00
December 31, 1997 2.50 : 1.00
March 31, 1998 2.50 : 1.00
June 30, 1998 2.70 : 1.00
September 30, 1998 2.80 : 1.00
December 31, 1998 3.00 : 1.00
March 31, 1999 3.20 : 1.00
June 30, 1999 3.40 : 1.00
September 30, 1999 and each
fiscal quarter end thereafter 3.60 : 1.00
</TABLE>
(d) Minimum EBITDA. The Parent will not permit its EBITDA, measured
as of each date set forth below for the period of four consecutive full fiscal
quarters of the Parent ended on such date, to be less than the corresponding
amount set forth opposite such date; provided, however, that for each of the
dates set forth below occurring on or prior to December 31, 1995, the applicable
measuring period shall be the period from the Closing Date to and including such
date:
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<TABLE>
<CAPTION>
Fiscal Quarter Ended Amount
-------------------- ------
<S> <C>
June 30, 1995 $ 2,500,000
September 30, 1995 7,500,000
December 31, 1995 11,000,000
March 31, 1996 12,750,000
June 30, 1996 13,250,000
September 30, 1996 14,175,000
December 31, 1996 14,250,000
March 31, 1997 14,500,000
June 30, 1997 14,750,000
September 30, 1997 15,000,000
December 31, 1997 15,250,000
March 31, 1998 15,500,000
June 30, 1998 16,125,000
September 30, 1998 17,000,000
December 31, 1998 17,250,000
March 31, 1999 18,000,000
June 30, 1999 19,000,000
September 30, 1999 and each
fiscal quarter end thereafter 20,000,000
</TABLE>
(e) Series A/B Indebtedness Leverage Ratio. The Parent will not permit the
ratio of (i) Consolidated Series A/B Indebtedness as of each date set forth
below to (ii) EBITDA of the Parent for the period of four consecutive full
fiscal quarters of the Parent ended on such date, to be greater than the
corresponding amount set forth opposite such date:
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<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----
<S> <C>
March 31, 1996 4.55 : 1.00
June 30, 1996 4.38 : 1.00
September 30, 1996 4.09 : 1.00
December 31, 1996 4.00 : 1.00
March 31, 1997 4.00 : 1.00
June 30, 1997 4.00 : 1.00
September 30, 1997 3.80 : 1.00
December 31, 1997 3.75 : 1.00
March 31, 1998 3.75 : 1.00
June 30, 1998 3.75 : 1.00
September 30, 1998 3.10 : 1.00
December 31, 1998 3.00 : 1.00
March 31, 1999 2.80 : 1.00
June 30, 1999 2.50 : 1.00
September 30, 1999 and each
fiscal quarter end thereafter 2.30 : 1.00
</TABLE>
(f) Total Indebtedness Leverage Ratio. The Parent will not permit the
ratio of (i) Consolidated Total Indebtedness as of each date set forth below to
(ii) EBITDA of the Parent for the period of four consecutive full fiscal
quarters of the Parent ended on such date, to be greater than the corresponding
amount set forth opposite such date:
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<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----
<S> <C>
March 31, 1996 5.70 : 1.00
June 30, 1996 5.50 : 1.00
September 30, 1996 5.20 : 1.00
December 31, 1996 5.15 : 1.00
March 31, 1997 5.07 : 1.00
June 30, 1997 5.00 : 1.00
September 30, 1997 4.90 : 1.00
December 31, 1997 4.80 : 1.00
March 31, 1998 4.60 : 1.00
June 30, 1998 4.40 : 1.00
September 30, 1998 4.00 : 1.00
December 31, 1998 3.95 : 1.00
March 31, 1999 3.70 : 1.00
June 30, 1999 3.40 : 1.00
September 30, 1999 and each
fiscal quarter end thereafter 3.10 : 1.00
</TABLE>
Section 12.15. Amendments to Certain Documents. The Borrowers and the
Parent will not, and will not permit any of their Subsidiaries to, consent to or
request any amendment, modification or supplement to or waiver of any provision
of any of the Acquisition Documents or the Restated Advisory Agreement without
in each case having obtained the specific prior written consent of the Majority
Lenders, if such amendment, modification, supplement or waiver could reasonably
be expected materially to impair or adversely affect any of the rights and
remedies of the Lenders or the Collateral Agent with respect to Indebtedness
incurred pursuant to this Agreement or the other Loan Documents or with respect
to any Liens securing such Indebtedness.
Section 12.16. Limitation on Dividend Restrictions Affecting Subsidiaries.
Except pursuant to this Agreement, the Borrowers will not, and will not permit
any of their Subsidiaries directly or indirectly to create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction
which by its terms restricts the ability of any such Borrower or Subsidiary to
(a) pay dividends or make any other distributions on such Borrower's or such
Subsidiary's Capital Stock, (b) pay any Indebtedness owed to the Parent or any
other Borrower or any other Subsidiary of any Borrower, (c) make any loans or
advances to the Parent or any other Borrower or any such other Subsidiary or (d)
transfer any of its Property to the Parent or any Borrower or any such other
Subsidiary.
Section 12.17. Acquisition of Margin Securities. The Parent and the
Borrowers will not, and will not permit any of their Subsidiaries to, own,
purchase or acquire (or enter into any contract to purchase or acquire) any
"margin security" as defined by
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any regulation of the Board of Governors of the Federal Reserve System as now in
effect or as the same may hereafter be in effect unless, prior to any such
purchase or acquisition or entering into any such contract, the Agent shall have
received an opinion of counsel satisfactory to it to the effect that such
purchase or acquisition will not cause this Agreement or the Loans to be in
violation of Regulations G, U or X or any other regulation of such Board then in
effect.
Section 12.18. Collateral Locations; Corporate Names. Neither the
location of the principal place of business and chief executive office of the
Parent, of any Borrower or of any Subsidiary of any Borrower, nor the locations
of Collateral as set forth on Schedule 5.29 hereto, shall be changed, nor shall
there be established additional places of business or additional locations at
which Collateral is stored, kept or processed, nor shall the Parent, any
Borrower or any Subsidiary of any Borrower conduct business under any corporate
name other than the names listed on Schedule 5.30, without in each case the
prior written consent of the Majority Lenders, unless (i) the Borrowers shall
give to the Agent at least 30 days prior notice of any such changed chief
executive office or changed or additional places of business or locations of
Collateral or change of corporate name, and (ii) prior to making any such change
of location, place of business, chief executive office or corporate name or
establishing such new place of business or location of Collateral, the Borrowers
shall execute and file, and shall cause each of its Subsidiaries to execute and
file, any additional financing statements or other documents or notices
reasonably required by the Agent in order to preserve the perfection of security
interests in such Collateral and, if such location is not owned by any Borrower
or any Subsidiary, the Borrowers shall obtain, and shall cause its Subsidiaries
to obtain, for the Collateral Agent such duly executed estoppel letters,
subordination and nondisturbance or other agreements and confirmations of any
lessors of, or bailees in respect of, such location as may be reasonably
required by the Agent (each such letter, agreement or confirmation that is
accepted by the Collateral Agent is referred to herein as an "Estoppel Letter,"
and shall be substantially in the form of Exhibit X-1 in the case of lessors or
Exhibit X-2 in the case of bailees). Following the occurrence of an Event of
Default, the Borrowers shall, upon the request of the Agent, notify any such
warehouseman, bailee or processor which has not already delivered an Estoppel
Letter to the Collateral Agent, of the Liens created in favor of the Collateral
Agent for the benefit of the Lenders, and shall instruct such Person to hold
such Inventory for the Collateral Agent's account subject to the Collateral
Agent's instructions.
Section 13. Events of Default.
Section 13.1. Events of Default; Remedies. If any of the following events
(herein called "Events of Default") shall have occurred and be continuing
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or by operation of law or otherwise), that is to say:
(a) the Borrowers shall default in the due and punctual payment or
prepayment of all or any part of the principal of any Note when and as the same
shall
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become due and payable, whether at stated maturity, by acceleration, by notice
of prepayment or otherwise;
(b) the Borrowers shall default in the due and punctual payment of any
interest, prepayment charge or fees payable in respect of any Note when and as
the same shall become due and payable, and such default shall continue for a
period of five days;
(c) the Borrowers or the Parent shall default in the performance or
observance of any of the covenants, agreements or conditions contained in
Section 12.1, 12.2, 12.3, 12.4, 12.6, 12.7, 12.8, 12.11, 12.12, 12.13 or 12.14
of this Agreement;
(d) the Borrowers or the Parent shall default in the performance or
observance of any of the covenants, agreements or conditions contained in this
Agreement (other than those referred to in any subsection of this Section 13.1
other than this subsection (d)), or in the performance or observance of any of
the covenants, agreements or conditions contained in any of the Security
Documents or other Loan Documents, and such default shall continue for a period
of 30 days;
(e) the Parent, any Borrower or any Subsidiary of any Borrower shall fail
to pay any principal of, premium or interest on or any other amount payable in
respect of Indebtedness of such Persons (other than Indebtedness incurred
pursuant to this Agreement) that is outstanding in a principal amount of at
least $250,000 in the aggregate when the same becomes due and payable (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise),
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness; or any
other event shall occur or condition shall exist under any agreement or
instrument relating to any such Indebtedness and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness or any such Indebtedness
shall be declared to be due and payable or required to be prepaid (other than by
a regularly scheduled required prepayment), redeemed, purchased or defeased, or
an offer to prepay, redeem, purchase or defease such Indebtedness shall be
required to be made, in each case prior to the stated maturity thereof;
(f) any Borrower or the Parent or any of their Subsidiaries shall (i)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its Property, (ii) be generally unable to pay its debts as such debts
become due, (iii) make a general assignment for the benefit of its creditors,
(iv) commence a voluntary case under the United States Bankruptcy Code (as now
or hereafter in effect), (v) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vi) fail to controvert in a
timely or appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under such Bankruptcy Code, (vii) admit in
writing its inability to pay its debts generally as such debts become due,
(viii) take any action under the laws
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of its jurisdiction of organization analogous to any of the foregoing, or (ix)
take any requisite action for the purpose of effecting any of the foregoing;
(g) a proceeding or case shall be commenced, without the application or
consent of any Borrower or the Parent or any of their Subsidiaries in any court
of competent jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding up of any Borrower, the Parent or any of such Subsidiaries
or composition or readjustment of the debts of any of them, (ii) the appointment
of a trustee, receiver, custodian, liquidator or the like of any Borrower, the
Parent or any of their Subsidiaries or of all of any substantial part of assets
of any of them, or (iii) similar relief in respect of any Borrower, the Parent
or any of their Subsidiaries under any law providing for the relief of debtors,
and such proceeding or case shall continue undismissed, or unstayed and in
effect, for a period of 30 days; or an order for relief shall be entered in an
involuntary case under such Bankruptcy Code, against any Borrower or the Parent
or any of their Subsidiaries; or action under the laws of the jurisdiction of
organization of any of any Borrower or the Parent or any of their Subsidiaries
analogous to any of the foregoing shall be taken with respect to any Borrower or
the Parent or any of their Subsidiaries and shall continue undismissed, or
unstayed and in effect, for a period of 30 days;
(h) final judgment for the payment of money shall be rendered by a court
of competent jurisdiction against any Borrower or the Parent or any of their
Subsidiaries, and such Borrower or the Parent or such Subsidiary, as the case
may be, shall not discharge the same or provide for its discharge in accordance
with its terms, or procure a stay of execution thereof, within 30 days from the
date of entry thereof and within said period of 30 days, or such longer period
during which execution of such judgment shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal, and such
judgment together with all other such judgments shall exceed in the aggregate
$100,000;
(i) any non-monetary Order shall be rendered against the Parent, any
Borrower or any of their Subsidiaries that would be reasonably expected to have
a Material Adverse Effect, taking into account that any third party bound by an
insurance or indemnity agreement may be accountable for performance under such
Order, and either (x) enforcement proceedings shall have been commenced by any
Person upon such Order or (y) there shall be any period of ten consecutive days
during which a stay of enforcement of such Order, by reason of a pending appeal
or otherwise, shall not be in effect;
(j) any representation or warranty set forth in Section 5 of this
Agreement shall prove to be false or incorrect or breached in any material
respect on the date as of which made (or remade pursuant to Section 8.2 hereof);
or any other material representation, warranty, certification or statement made
by or on behalf of the Parent, the Borrowers or any of them or any officer of
any of them in this Agreement or in any Borrowing Base Certificate, Officer's
Certificate or other certificate, instrument, financial statement or other
document now or hereafter delivered by any such Person hereunder
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or pursuant to or in connection with any provision hereof by any such Person in
any of the foregoing cases shall prove to be false or incorrect or breached in
any material respect on the date as of which made;
(k) any Reportable Event shall occur which could constitute grounds for
termination by the PBGC of any Pension Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any such
Pension Plan and such Reportable Event is not corrected and such determination
is not revoked within thirty (30) days after any Borrower has knowledge, or has
reason to have knowledge, thereof; or any proceedings shall be instituted by the
PBGC to terminate any Pension Plan or to appoint a trustee to administer any
Pension Plan; or a trustee shall be appointed by the appropriate United States
District Court to administer any Pension Plan; or any Pension Plan shall be
terminated by its sponsor; or there shall occur a complete or partial withdrawal
from any Multiemployer Plan by the Parent, any Borrower, or any of their
respective Subsidiaries or ERISA Affiliates (including any transaction described
in, and meeting the requirements of, Section 4204 of ERISA); where in any such
case any of the foregoing events or the liability of the Parent or the Borrowers
resulting therefrom could reasonably be expected to have a Material Adverse
Effect;
(l) any provision of any of the Loan Documents shall, for any reason, not
be or shall cease to be in full force and effect, or not be, or be asserted in
writing by any Borrower or the Parent not to be, valid, binding and enforceable
against any Person purported to be bound by it; or
(m) any of the Security Documents shall not give or shall cease to give
the Collateral Agent the Liens, rights, powers and privileges purported to be
created thereby (including, without limitation, a valid, enforceable and
perfected first priority (or, with respect to the Series B Term Loans, second
priority) security interest in, and Lien on, all of the Collateral subject
thereto, in favor of the Collateral Agent, superior to and prior to the rights
of all third Persons, and subject to no other Liens except to the extent
expressly permitted herein or therein);
then (i) upon the occurrence of any Event of Default described in subsection (f)
or (g), the unpaid principal amount of all outstanding Loans, together with the
interest and fees accrued thereon, and, as liquidated damages and not as a
penalty, an amount equal to the applicable Additional Amount, shall
automatically become immediately due and payable, and this Agreement and all
Revolving Loan Commitments shall thereupon automatically terminate, without
presentment, demand, notice, declaration, protest or other requirements of any
kind, all of which are hereby expressly waived, or (ii) upon the occurrence of
any other Event of Default, (x) the Lender or Lenders holding at least 50.1% of
the Aggregate Revolving Loan Commitment may, by written notice to the Borrowers,
terminate all of the outstanding Revolving Loan Commitments and declare the
unpaid principal amount of all outstanding Revolving Loans to be, and the same
shall forthwith become, immediately due and payable, together with the interest
and fees accrued thereon and, as liquidated damages and not as a penalty, the
applicable
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Additional Amount, all without presentment, demand, further notice, protest or
other requirements of any kind, all of which are hereby expressly waived, (y)
the Lender or Lenders holding at least 50.1% of the outstanding principal amount
of the Series A Term Loans may, by written notice to the Borrowers, declare the
unpaid principal amount of all outstanding Series A Term Loans to be, and the
same shall forthwith become, immediately due and payable, together with the
interest and fees accrued thereon and, as liquidated damages and not as a
penalty, the applicable Additional Amount, all without presentment, demand,
further notice, protest or other requirements of any kind, all of which are
hereby expressly waived, and (z) the Lender or Lenders holding at least 50.1% of
the outstanding principal amount of the Series B Term Loans may, by written
notice to the Borrowers, declare the unpaid principal amount of all outstanding
Series B Term Loans to be, and the same shall forthwith become, immediately due
and payable, together with the interest accrued thereon and, as liquidated
damages and not as a penalty, the applicable Additional Amount, all without
presentment, demand, further notice, protest or other requirements of any kind,
all of which are hereby expressly waived.
The provisions of this Section 13.1 are subject, however, to the condition
that if, at any time after the Loans shall have so become due and payable, the
Borrowers shall pay all arrears of interest on the Loans (at the applicable
Post-Default Rate) and all payments on account of the principal of and
prepayment charge (if any) and fees on the Loans which shall have become due
otherwise than by acceleration, and all Events of Default (other than nonpayment
of principal of, prepayment charge (if any) and accrued interest and fees on the
Loans solely by virtue of acceleration) shall be remedied or waived pursuant to
Section 16.2, then, and in every such case, the Majority Lenders, by written
notice to the Borrowers, may rescind and annul any such acceleration and its
consequences with respect to the Loans; but no such action shall affect any
subsequent Default or Event of Default or impair any right consequent thereon.
Section 13.2. Suits for Enforcement; Remedies Against Collateral. If any
Event of Default shall have occurred and be continuing, then (a) the holder of
any Note may proceed to protect and enforce its rights, either by suit in equity
or by action at law, or both, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the exercise of
any power granted in this Agreement, and (b) at the direction of the Majority
Lenders, the Collateral Agent may avail itself of all of the rights and remedies
of a secured creditor under the applicable provisions of the Security Documents
or at law or in equity or otherwise.
Section 13.3. Remedies Cumulative. No remedy herein conferred upon the
Lenders or the Collateral Agent is intended to be exclusive of any other remedy
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
Section 13.4. Remedies Not Waived. No course of dealing between the
Borrowers or the Parent and the Lenders or the Collateral Agent and no delay or
failure
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in exercising any rights hereunder or under any Note in respect thereof shall
operate as a waiver of any Lender's or the Collateral Agent's rights.
Section 13.5. Cash Collateral for Letters of Credit. If an Event of
Default exists or this Agreement shall be terminated for any reason, then the
Agent, on behalf of the Lenders entitled thereto, may demand (which demand shall
be deemed to have been delivered automatically upon any acceleration of the
Loans and other obligations hereunder pursuant to Section 13.1 hereof), and the
Borrowers shall thereupon deliver to the Collateral Agent, on behalf of the
Lenders entitled thereto, an amount of cash equal to the aggregate undrawn face
amount of all Letters of Credit then outstanding. The Collateral Agent, on
behalf of the Lenders entitled thereto, may at any time apply any or all of such
cash and cash collateral to the payment of any or all of the Borrowers'
obligations hereunder, including without limitation to the payment of any or all
of the Borrowers' reimbursement liabilities to the Persons issuing any Letter of
Credit. Pending such application, the Collateral Agent may (but shall not be
obligated to) invest the same in an interest bearing account in the Collateral
Agent's name, for the benefit of the Lenders entitled thereto, under which
deposits are available for immediate withdrawal, at such bank or depositary
institution as the Collateral Agent may, in its discretion, select.
Section 14. Registration, Exchange, and Transfer of Notes. Nutraceutical,
not personally but solely in its capacity as transfer agent for itself and the
other Borrowers (the "Transfer Agent"), will keep at its principal executive
office a register, in which, subject to such reasonable regulations as it may
prescribe, but at its expense (other than transfer taxes, if any), the Transfer
Agent will provide for the registration and transfer of Notes. Whenever any
Note or Notes shall be surrendered either at the principal executive office of
the Transfer Agent or at the place of payment named in the Note, for transfer or
exchange, accompanied (if so required by the Transfer Agent) by a written
instrument of transfer in form reasonably satisfactory to the Transfer Agent
duly executed by the holder thereof or by such holder's attorney duly authorized
in writing, the Transfer Agent will cause the Borrowers jointly and severally to
execute and deliver in exchange therefor a new Note or Notes in such
denominations as may be requested by such holder, of like tenor and in the same
aggregate unpaid principal amount as the aggregate unpaid principal amount of
the Note or Notes so surrendered. Any Note issued in exchange for any other
Note or upon transfer thereof shall carry the rights to unpaid interest and
interest to accrue which were carried by the Note so exchanged or transferred,
and neither gain nor loss of interest shall result from any such transfer or
exchange. Any transfer tax or governmental charge relating to such transaction
shall be paid by the holder requesting the exchange. The Transfer Agent and the
Borrowers and their respective agents may treat the Person in whose name any
Note is registered as the owner of such Note for the purpose of receiving
payment of the principal of, prepayment charge (if any) and interest and other
amounts on such Note and for all other purposes whatsoever, whether or not such
Note be overdue.
Section 15. Lost, Stolen, Damaged and Destroyed Notes. At the request of
any holder of any Note, the Transfer Agent will cause the Borrowers to issue and
deliver at
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their expense, in replacement of any Note or Notes lost, stolen, damaged or
destroyed, upon surrender thereof, if mutilated, a new Note or Notes in the same
aggregate unpaid principal amount, and otherwise of the same tenor, as the Note
or Notes so lost, stolen, damaged or destroyed, duly executed jointly and
severally by the Borrowers. The Transfer Agent may condition the replacement of
a Note or Notes reported by the holder thereof as lost, stolen, damaged or
destroyed, upon the receipt from such holder of an indemnity or security
reasonably satisfactory to the Transfer Agent; provided, that if such holder
shall be an institutional lender or institutional investor, an unsecured
agreement of indemnity shall be sufficient for purposes of this Section.
Section 16. Miscellaneous.
Section 16.1. Home Office Payment. Notwithstanding anything to the
contrary in this Agreement or in the Notes, the Borrowers agree that they shall
cause all payments of principal, prepayment charge (if any), fees, and interest
on the Notes to be made to the Original Lender in the manner and to the
addresses specified in Schedule I hereto, or in such other manner or to such
other address as the Agent or the Original Lender may designate in writing.
Prior to the sale, transfer or disposition of any interest in the Loans, the
Lender effecting such sale, transfer or other disposition will make a notation
on the applicable Note or Notes of the portion of the principal amount paid or
prepaid and the date to which interest has been paid thereon or surrender the
same in exchange for a new Note or Notes of the same tenor and of authorized
denominations in aggregate principal amount equal to the aggregate unpaid
principal amount of the Note or Notes so surrendered, duly executed by the
Borrowers. The Borrowers shall enter into an agreement similar to that
contained in this Section with any other Lender that is an institutional lender
or institutional investor.
Section 16.2. Amendment and Waiver.
(a) Any term, covenant, agreement or condition of this Agreement, the
Notes or the other Loan Documents may, with the written consent of the Borrowers
and the Parent, be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Majority Lenders (and, in the case of any such amendment or waiver
that affects the rights of the holders of the Series B Term Loans, by the
holders of a majority in principal amount of such Loans), except that:
(i) without the express written consent of all of the Lenders
affected thereby, no such amendment or waiver shall (A) extend or waive the
Revolving Loan Termination Date, or extend the time or waive any
requirement for the reduction or termination, of the Aggregate Revolving
Loan Commitment, or increase the amount of any Lender's Revolving Loan
Commitment Percentage, (B) extend or waive the Series A Maturity Date or
the Series B Maturity Date, or extend the date fixed for the payment of
principal of or interest or Prepayment Premium on any Loan, (C) reduce the
amount of any such payment of principal,
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interest or Prepayment Premium, (D) extend any date fixed for the payment,
or reduce the amount of, any fee payable to the Lenders, (E) modify the
rights or obligations of the Borrowers to prepay Loans, (F) modify the
terms of this Section 16.2, or (G) modify the definition of the term
"Majority Lenders"; and
(ii) no such waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon.
(b) Any amendment or waiver pursuant to subsection (a) of this Section
16.2 shall apply equally to all Lenders and shall be binding upon them, upon
each future Lender, and upon the Borrowers and the Parent, in each case whether
or not a notation thereof shall have been placed on any Note.
Section 16.3. Expenses. The Parent and the Borrowers jointly and severally
agree, whether or not the transactions hereby contemplated shall be consummated,
to pay and save each of the Lenders and the Agent harmless against any and all
liability for the payment of all reasonable fees, costs and expenses incurred in
connection with this Agreement, the Security Documents, the Notes and the other
instruments and the transactions hereby contemplated, including without
limitation all such reasonable fees, costs and expenses incurred after the
Closing Date with respect to the enforcement of any provision of any such
agreement or instrument or the collection of any sums due thereunder (including,
without limitation, the reasonable fees and expenses of attorneys and
accountants retained by the Lenders or the Collateral Agent for such purposes),
any proposed amendments, supplements or waivers (whether or not the same shall
be signed or shall become effective) under or in respect of any such agreement
or instrument, any workout or restructuring of the Indebtedness or capital
structure of the Borrowers or their Subsidiaries (whether or not the same shall
be consummated or shall become effective) under or in respect of any such
agreement or instrument and any other agreements and instruments prepared in
connection therewith and the consideration of any legal questions relevant
thereto, all taxes, fees and other charges incurred in connection with the
filing or recording of any Security Documents, all expenses incurred in
connection with the reproduction of such agreements and instruments and all
stamp and other similar taxes (together in each case with interest and
penalties, if any) which may be payable in respect of the execution and delivery
of such agreement or instruments, or the issuance, delivery or acquisition by
the Lenders of any Note or otherwise pursuant to this Agreement, and the
reasonable fees and disbursements of Sonnenschein Nath & Rosenthal and of any
special or local counsel in connection with preparation of such agreements and
instruments, the rendering of legal opinions, and the transactions hereby and
thereby contemplated (including, without limitation, in connection with any such
enforcement, amendment, supplement, waiver, workout, restructuring or
consideration of legal questions), and the fees and expenses of any successor
Collateral Agent that may hereafter be appointed to serve in such capacity
pursuant to Section 16.5 and of counsel to such Collateral Agent. The
obligations of the Parent and the Borrowers under this Section 16.3 shall
survive the termination of this Agreement and of the obligations of the Lenders
to make Loans or advances hereunder, the payment or
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transfer of any Loan, the enforcement of any provision hereof or thereof or
collection of any amount due hereunder or thereunder, any such amendments or
waivers and any such consideration of legal questions.
Section 16.4. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by or on
behalf of any party to this Agreement or otherwise in connection herewith, shall
(i) survive the execution and delivery of this Agreement and the delivery of the
Notes and the making of the Loans, and shall continue in effect as long as any
of the Loans are outstanding and (ii) be deemed to be material and to have been
relied upon by the Lenders, regardless of any investigation made by such Lenders
or the Agent or on their behalf.
Section 16.5. Successors and Assigns; Successor Collateral Agent;
Successor Agent.
(a) Successors and Assigns. All representations, warranties, covenants and
agreements in this Agreement contained by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not, except that no Lender
shall be obligated to make any Loan to any Person other than the Borrowers. The
provisions of this Agreement are intended to be for the benefit of all Persons
who may from time to time be Lenders hereunder, and shall be enforceable by any
such Lender, whether or not an express assignment to such Lender of rights under
this Agreement has been made, provided, however, that the benefit of Sections 9,
10, 15 (as to satisfactory indemnity), and 16.1 shall be limited to registered
holders of the Notes.
(b) Subsequent and Additional Lenders. The Original Lender and any
subsequent Lender may at any time sell or assign to any Person (each an
"Assignee") all or any part of its interests in the Loans, the Notes and the
obligations of Parent, the Borrowers and their Subsidiaries under this
Agreement, the Notes and the other Loan Documents, and each such Assignee shall
assume the obligations of the assigning Lender hereunder and thereunder
(including, without limitation, the obligation of such Person to make Revolving
Loans), to the extent provided in such assignment, and to the extent of such
assumption such assigning Lender shall be released from its obligations
hereunder and thereunder. Upon execution and delivery of such an instrument,
such Assignee shall be a party to this Agreement and shall have the rights and
obligations of a Lender to the extent of such assignment. Upon the consummation
of any assignment pursuant to this Section 16.5(b), the Lenders and the
Borrowers shall make appropriate arrangements so that, if required, new Notes
shall be issued to the assigning Lender and the Assignee. The assigning Lender
shall give the Borrowers prior written notice of the date that any such
assignment shall become effective, which date shall be no less than ten days
after the date such notice is given. Notwithstanding the foregoing, no Lender
shall sell or transfer any Loan or interest therein at any time except (i) to a
Person controlling, controlled by or under common control with such Lender or
(ii) to a Qualified Institutional Investor; and no Lender shall transfer any
Loan or interest therein at any time to any Person which, to the knowledge
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of such Lender (without independent investigation), (x) is engaged in the
business of business of manufacturing, marketing, distributing and selling
vitamins, minerals, herbal products, teas, homeopathic remedies, and personal
care products (other than make-up) of the types customarily carried by
independent specialty health food stores, in direct competition with the
business of the Borrowers and their Subsidiaries or (y) beneficially owns more
than 10% of the Voting Stock of any corporation which is so engaged in such
business.
(c) Successor Collateral Agent. The initial Collateral Agent may resign as
Collateral Agent hereunder upon 30 days' notice to the Borrowers and the
Lenders. If the initial Collateral Agent shall resign as Collateral Agent under
this Agreement and the Security Documents, then the Majority Lenders during such
30 day period (i) shall either (A) appoint from and among the Lenders a
successor collateral agent, or (B) appoint Wilmington Trust Company or such
other Person as may be reasonably satisfactory to the Majority Lenders, as a
successor collateral agent; (ii) shall enter into, execute and deliver (and the
Parent and the Borrowers shall, and shall cause each of their Subsidiaries to,
enter into, execute and deliver), a collateral agency agreement in form and
substance satisfactory to the Majority Lenders and such successor collateral
agent containing terms and provisions which are commercially reasonable and are
in form and substance customary for transactions of such type; and (iii) shall
promptly take (and the Parent and the Borrowers shall, and shall cause each of
their Subsidiaries to, promptly take), all such actions as may be necessary or
appropriate in the reasonable judgment of the Majority Lenders, and at the sole
cost and expense of the Borrowers, to transfer to and vest in such successor
collateral agent all right, title and interest of the Collateral Agent in the
Collateral, for the ratable benefit of the Lenders, including, without
limitation, the execution, acknowledgment, delivery, filing, registration, and
recording of appropriate instruments of assignment and transfer, notices,
amendments and supplements to the Security Documents, UCC financing statements
and continuations thereof, and fixture filings, all in such manner as to carry
out the purposes hereof, together with one or more opinions of counsel
(including opinions of local counsel) covering such legal matters with respect
to such instruments and agreements as the Agent may reasonably request;
whereupon such successor collateral agent shall succeed to the rights, powrs and
duties of the Collateral Agent under the Security Documents, and the term
"Collateral Agent" shall mean such successor collateral agent, effective upon
its acceptance of such appointment, and the former Collateral Agent's rights,
powers and duties as Collateral Agent shall be terminated without any other or
further act or deed on the part of such former Collateral Agent. Thereafter,
the terms and provisions of any collateral agency agreement entered into
pursuant to this Section 16.5(c) shall govern as to the right of such successor
Collateral Trustee to resign as Collateral Trustee for the benefit of the
Lenders under the Security Documents.
(d) Successor Agent. The Agent may resign as Agent hereunder upon 30 days'
notice to the Borrowers and the Lenders. If the Agent shall resign as Agent
under this Agreement, then the Majority Lenders during such 30 day period shall
appoint from among the Lenders a successor agent, whereupon such successor agent
shall succeed
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to the rights, powers and duties of the Agent, and the term "Agent" shall mean
such successor agent, effective upon its appointment, and the former Agent's
rights, powers and duties as Agent shall be terminated without any other or
further act or deed on the part of such former Agent or any of the other parties
to this Agreement.
Section 16.6. Notices. All communications provided for hereunder shall be
in writing and delivered by hand or sent by first class mail or sent by telecopy
(with such telecopy to be confirmed promptly in writing sent by first class
mail), sent
(i) if to the Agent, the Collateral Agent or any Lender, to the
address or telecopy number set forth for such Person for such
communications on Schedule I hereto, or to such other address or telecopy
number as the Agent, the Collateral Agent or such Lender may have
designated to the Parent or the Borrowers in writing;
(ii) if to the Borrowers, or any of them, to:
Nutraceutical Corporation
1104 Country Hills Drive, Suite 300
Ogden, Utah 84403
Attention: President
Telecopy No.: (801) 621-3284;
(iii) if to the Parent, to:
Nutraceutical International Corporation
1104 Country Hills Drive, Suite 300
Ogden, Utah 84403
Attention: President
Telecopy No.: (801) 621-3284;
or to such other address or addresses or telecopy number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. All such communications shall be deemed to have been given or
made when so delivered by hand or sent by telecopy, or three Business Days after
being so mailed. It is understood and agreed that Nutraceutical shall act as
agent on behalf of itself and each of the other Borrowers for purposes of giving
and receiving any notices or other communications required or permitted to be
given by or to the Borrowers pursuant to this Agreement or any of the other Loan
Documents.
Section 16.7. Indemnification. In consideration of the execution and
delivery of this Agreement by the Lenders, each of the Parent and the Borrowers,
jointly and severally, hereby agrees to defend, indemnify, exonerate and hold
each Lender, the Collateral Agent and the Agent, and each of their respective
officers, directors, stockholders, affiliates, employees and agents (herein
collectively called the "Indemnitees") free and harmless from and against any
and all actions, causes of
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<PAGE>
action, suits, losses, liabilities and damages, and expenses of any kind
whatsoever, including, without limitation, reasonable counsel fees and
disbursements (herein collectively called the "Indemnified Liabilities"),
incurred by the Indemnitees or any of them as a result of, or arising out of or
relating to:
(i) the execution, delivery and performance of the Acquisition
Documents and the consummation of the Transactions contemplated thereby,
(ii) the execution, delivery, performance or enforcement of this
Agreement, the Notes, any Related Document, or any instrument or document
contemplated hereby or thereby by any of the Indemnitees, or any act, event
or transaction related or attendant thereto or contemplated hereby or
thereby, or any action or inaction by any Indemnitee under or in connection
therewith, or
(iii) any Environmental Matter, any Environmental Law or the actual or
alleged existence or release of any Hazardous Material,
except to the extent that such liabilities shall have resulted from the
respective Indemnitee's gross negligence or willful misconduct, and if and
to the extent that the foregoing undertaking may be unenforceable for any
reason, each of the Borrowers and the Parent hereby agrees to make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The
obligations of the Borrowers and the Parent under this Section 16.7 shall
survive the termination of this Agreement and the obligations of the
Lenders to make Loans and advances hereunder, the payment or transfer of
any Loan and the enforcement of any provision hereof or thereof.
Section 16.8. Integration and Severability. This Agreement embodies the
entire agreement and understanding among the Lenders, the Parent and the
Borrowers, and supersedes all prior agreements and understandings relating to
the subject matter hereof. In case any one or more of the provisions contained
in this Agreement or in any instrument contemplated hereby for such date, or any
application thereof, shall be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and therein, and any other application thereof, shall not in any way be
affected or impaired thereby.
Section 16.9. Joint and Several Liability.
(a) The liability of the Borrowers for all amounts due to the Lenders under
this Agreement shall be joint and several regardless of which Borrower actually
receives any Loans, Letter of Credit Guarantees or other financial
accommodations hereunder or the amount of such Loans, Letter of Credit
Guarantees or financial accommodations received or the manner in which Agent and
the Lenders account for such Loans, Letter of Credit Guarantees or other
financial accommodations on their books and records. Each Borrower's
obligations with respect to Loans made to it or Letter of Credit Guarantees
issued for its account, and related fees, costs and
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<PAGE>
expenses, and each Borrower's obligations arising as a result of the joint and
several liability of the Borrowers hereunder, with respect to Loans made to the
other Borrowers hereunder or Letter of Credit Guarantees issued for the account
of the other Borrowers hereunder, together with the related fees, costs and
expenses, shall be separate and distinct obligations, all of which are primary
obligations of each Borrower.
(b) Each Borrower's obligations arising as a result of the joint and
several liability of the Borrowers hereunder with respect to the Loans, Letter
of Credit Guarantees or other financial accommodations made to the other
Borrowers hereunder shall, to the fullest extent permitted by law, be
unconditional irrespective of (i) the validity of enforceability, avoidance or
subordination of the obligations of the other Borrowers or of any promissory
note or other document evidencing all of any part of the obligations of the
other Borrowers, (ii) the absence of any attempt to enforce such obligations
against any of the other Borrowers, any Guarantor, or any other security
therefor, or the absence of any other action to enforce the same, (iii) the
waiver, consent, extension, forbearance or granting of any indulgence by the
Lenders with respect to any provision of any instrument evidencing such
obligations of the other Borrowers, or any part thereof, or any other agreement
now or hereafter executed by the other Borrowers and delivered to the Lenders,
(iv) the failure by the Collateral Agent to take any steps to perfect and
maintain its security interest in, or to preserve its rights to, any security or
collateral for such obligations of the other Borrowers, (v) the Lenders'
election, in any proceeding instituted under the Bankruptcy Code, of the
application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or
grant of a security interest by the other Borrowers, as debtor-in-possession
under Section 364 of the Bankruptcy Code, (vii) the disallowance of all or any
portion of the Lenders' claim(s) for repayment of such obligations of the other
Borrowers under Section 502 of the Bankruptcy Code, or (viii) any other
circumstance which might constitute a legal or equitable discharge or defense of
a Guarantor or of the other Borrowers. With respect to each Borrower's
obligations arising as a result of the joint and several liability of the
Borrowers hereunder with respect to the Loans, Letter of Credit Guarantees or
other financial accommodations made to the other Borrowers hereunder, such
Borrower waives, until such obligations shall have been paid in full and the
Loan Agreement shall have been terminated, any right to enforce any right of
subrogation or any remedy which the Agent and the Lenders now have or may
hereafter have against any Borrower, any endorser or any Guarantor of all or any
part of such obligations, and any benefit of, and any right to participate in,
any security or collateral given to the Collateral Agent to secure payment of
such obligations or any other liability of the Borrowers to the Collateral Agent
and the Lenders.
(c) Upon any Event of Default, the Lenders and the Collateral Agent may, at
their sole election, proceed directly and at once, without notice, against any
Borrower to collect and recover the full amount, or any portion of, the joint
and several obligations of the Borrowers hereunder with respect to the Loans,
Letter of Credit Guarantees or other financial accommodations made to the
Borrowers hereunder, without first proceeding against any other Borrower or any
other Person, or against any security or collateral for such obligations. Each
Borrower consents and agrees that
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<PAGE>
neither the Collateral Agent nor any Lender shall be under any obligation to
marshall any assets in favor of such Borrower or against or in payment of any or
all of such obligations.
(d) In order to provide for just and equitable contribution among the
Borrowers in the event any payment or distribution is made by any of them on
account of the joint and several obligations of the Borrowers with respect to
the Loans, Letter of Credit Guarantees or other financial accommodations made to
the Borrowers hereunder, each Borrower shall be entitled to a contribution and
indemnity from all of the other Borrowers, jointly and severally, for all
payments made by such Borrower in discharging such obligations (including,
without limitation, payments made by it pursuant to this subsection (d)) to the
extent that the aggregate amount of all such payments by such Borrower shall
exceed the aggregate amount of all proceeds of Loans and other benefits received
by it under this Agreement and the other Loan Documents.
(e) Notwithstanding the foregoing provisions of this Section 16.9, the
liability of each Borrower other than Nutraceutical with respect to the Loans,
Letter of Credit Guarantees or other financial accommodations made to the
Borrowers hereunder (including, without limitation, obligations of such Borrower
incurred pursuant to subsection (d) of this Section 16.9) shall not exceed at
any time the greater of (i) 95% of the Determined Net Assets (as hereinafter
defined) of such Borrower at the time of delivery hereof and (ii) 95% of the
Determined Net Assets of such Borrower at the time of any payment of such
obligations. As used herein, the term "Determined Net Assets" means at any time
the lesser of (x) the amount by which the fair value of the assets of such
Borrower exceeds the total amount of liabilities (including, without limitation,
contingent liabilities) of such Borrower at such time, and (y) the amount by
which the present fair salable value of the assets of such Borrower at such time
exceeds the amount that will be required to pay the probable liability of such
Borrower on its debts as they become absolute and matured. Contingent
liabilities of the Borrowers (including, without limitation, liabilities in
respect of Guarantees, pension and other employee benefit plans and pending or
threatened litigation and claims) shall be valued at amounts which, in light of
all the facts and circumstances existing at the time, represent amounts which
can reasonably be expected to become actual or matured liabilities.
Section 16.10. Payments Due on Days not Business Days. Except as otherwise
provided herein, whenever any payment on or in respect of the Loans shall be
stated to be due on a day other than a Business Day, that payment shall be made
on the next succeeding Business Day and the extension of time shall be included
in the computation of interest due thereon.
Section 16.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same instrument.
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<PAGE>
Section 16.12. Governing Law. THIS AGREEMENT, THE NOTES, THE PARENT
GUARANTEE AND THE SUBSIDIARY GUARANTEES SHALL BE CONSTRUED IN ACCORDANCE WITH
AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 16.13. Submission to Jurisdiction; Waiver of Service and Venue.
(a) EACH OF THE PARENT AND THE BORROWER CONSENTS AND AGREES TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK,
STATE OF NEW YORK, AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON
CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN, AND AGREES THAT,
EXCEPT AS PROVIDED IN SUBSECTION (c) OF THIS SECTION 16.13, ANY DISPUTE
CONCERNING THE RELATIONSHIP BETWEEN THE LENDERS OR ANY HOLDER OF NOTES, ON THE
ONE HAND, AND PARENT OR THE BORROWER, ON THE OTHER HAND, OR THE CONDUCT OF ANY
PARTY IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE SHALL BE HEARD ONLY IN THE
COURTS DESCRIBED ABOVE.
(b) EACH OF THE PARENT AND THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO
PARENT OR THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION 16.6, AND SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE
BEEN SO DEPOSITED IN THE U.S. MAILS, OR, AT THE OPTION OF ANY HOLDER OF NOTES,
BY SERVICE UPON PRENTICE HALL CORPORATION SYSTEM, INC., WHICH EACH OF PARENT AND
THE BORROWER IRREVOCABLY APPOINTS AS SUCH PERSON'S AGENT FOR THE PURPOSE OF
ACCEPTING SERVICE OF PROCESS WITHIN THE STATE OF NEW YORK. IN ADDITION, THE
LENDERS AGREE TO PROMPTLY FORWARD BY REGISTERED MAIL ANY PROCESS SO SERVED UPON
SAID AGENT TO THE PARENT AND THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION
16.6. EACH OF THE PARENT AND THE BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS
AS AFORESAID.
(c) NOTHING IN THIS SECTION 16.13 SHALL AFFECT THE RIGHT OF THE LENDERS TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
THE LENDERS OR ANY HOLDER OF NOTES TO BRING ANY ACTION OR PROCEEDING AGAINST
PARENT OR THE BORROWER OR THE PROPERTY OF EITHER OF THEM IN THE COURTS OF ANY
OTHER JURISDICTION.
Section 16.14. Waiver of Right to Trial by Jury. EACH OF THE PARENT, THE
BORROWER AND THE LENDERS HEREBY WAIVES ANY RIGHT TO TRIAL BY
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<PAGE>
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM IN RESPECT TO
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE. EACH OF THE PARENT, THE BORROWERS AND THE LENDERS HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
NUTRACEUTICAL CORPORATION
By: /s/ FRANK W. GAY II
----------------------------
Its: President
SOLARAY, INC.
By: /s/ FRANK W. GAY II
----------------------------
Its: Chairman of the Board
MAKERS OF KAL, INC.
By: /s/ FRANK W. GAY II
----------------------------
Its: President
NATURAL MAX, INC.
By: /s/ FRANK W. GAY II
----------------------------
Its: President
PREMIER ONE PRODUCTS, INC.
By: /s/ FRANK W. GAY II
----------------------------
Its: Chairman of the Board
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<PAGE>
NUTRACEUTICAL INTERNATIONAL
CORPORATION
By: /s/ FRANK W. GAY II
----------------------------
Its: President
JACKSON NATIONAL LIFE
INSURANCE COMPANY
By: /s/ P. B. PHEFFER
----------------------------
Its: SR. V.P. & C.F.O.
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<PAGE>
Exhibit 10.2
------------
NUTRACEUTICAL INTERNATIONAL CORPORATION
NUTRACEUTICAL CORPORATION
SOLARAY, INC.
MAKERS OF KAL, INC.
PREMIER ONE PRODUCTS, INC.
NATURAL MAX, INC.
in each case
c/o Nutraceutical Corporation
1104 Country Hills Drive, Suite 300
Ogden, Utah 84403
Attention: President
As of September 29, 1995
JACKSON NATIONAL LIFE INSURANCE COMPANY
c/o PPM America Inc., as Agent
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
Attention: Private Placements
Telecopy No.: (312) 634-0054
Re: Waiver and Amendment to Revolving Credit and Term Loan Agreement
----------------------------------------------------------------
Ladies and Gentlemen:
Reference is made in this waiver and amendment letter (this "Waiver
and Amendment") to the Revolving Credit and Term Loan Agreement, dated as of
January 31, 1995 (the "Loan Agreement"), among Nutraceutical Corporation
("Nutraceutical"), Solaray, Inc. ("Solaray"), Makers of KAL, Inc. ("KAL"),
Natural Max, Inc. ("Natural Max"), Premier One Products, Inc. ("Premier";
Nutraceutical, Solaray, KAL, Natural Max, and Premier, are each referred to
herein individually as a "Borrower" and, collectively, as the "Borrowers"),
Nutraceutical International Corporation (the "Parent") and Jackson National Life
Insurance Company (the "Original Lender"). All capitalized terms used in this
Waiver and Amendment and not otherwise defined herein shall have the meanings
ascribed thereto in the Loan Agreement.
Each of the Borrowers and the Parent have requested that you waive and
amend certain of the provisions of the Loan Agreement as more specifically set
forth herein in order to permit Monarch Nutritional Laboratories, Inc., a
Delaware corporation and a Wholly-owned Subsidiary of Nutraceutical ("Monarch"),
to acquire the business and substantially all of the property and assets (the
"Asset Purchase") of Monarch Nutritional Laboratories, Inc., a Utah corporation
(the "Seller"), pursuant to the Asset Purchase Agreement, dated as of September
29, 1995 (the "Asset Purchase
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 2
Agreement"), among the Seller, the Seller's shareholders, Monarch and the
Parent, and we understand you are willing to do so on the terms and conditions
hereof. Accordingly, each of the Borrowers, the Parent and, by your acceptance
hereof, the Original Lender, hereby agree as follows:
1. Waivers. Effective as of the Effective Date (as hereinafter defined),
the following provisions of the Loan Agreement are waived for the purposes set
forth below:
(a) Section 12.1. Section 12.1 of the Loan Agreement is waived solely
to permit the Parent to issue its promissory note in the form of Exhibit A
to the Asset Purchase Agreement; and
(b) Section 12.6(g)(i). Section 12.6(g)(i) of the Loan Agreement is
waived solely to permit Monarch and the Parent to enter into the Asset
Purchase Agreement and to pay the Cash Portion and the Deferred Portion of
the purchase price under, and as those terms are defined in, the Asset
Purchase Agreement.
2. Amendments. Effective as of the Effective Date, the following
provisions of the Loan Agreement are amended as provided below:
(a) Section 1. The definition of the term "Adjusted Core EBITDA"
in Section 1 of the Loan Agreement is amended by adding the following
parenthetical immediately before the proviso at the end of the definition
of the term "Assumed Baseline EBITDA" in clause (i) of said definition:
"(Notwithstanding the foregoing, the Assumed Baseline EBITDA with
respect to the business acquired by Monarch Nutritional Laboratories,
Inc., a Delaware corporation and a wholly-owned subsidiary of
Nutricutical, from Nutritional Laboratories, Inc., a Utah corporation,
shall be the adjusted historical EBITDA of such business for the
period of four consecutive full fiscal quarters ended on September 30,
1995, which the parties hereto agree is $2,350,000.)";
(b) Section 12.11(a). Section 12.11(a) of the Loan Agreement is
amended by adding the following proviso to the end of said subsection:
"; provided, however, that no Restricted Payment shall be made to the
Parent at a time when an Event of Default
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 3
referred to in Section 13.1(a) or (b), or an Event of Default referred
to in subsection (f) or subsection (g) of Section 13.1, shall have
occurred and be continuing or if the making of such Restricted Payment
would result in a Default or an Event of Default";
(c) Section 12.14(d). Section 12.14(d) of the Loan Agreement is
amended by deleting the minimum EBITDA amounts in said Section set forth
opposite the date December 31, 1995 and the last day of each fiscal quarter
of the Parent thereafter and replacing such minimum amounts as follows:
<TABLE>
<CAPTION>
<S> <C>
"December 31, 1995 11,225,000
March 31, 1996 13,250,000
June 30, 1996 14,000,000
September 30, 1996 15,275,000
December 31, 1996 15,375,000
March 31, 1997 15,625,000
June 30, 1997 15,900,000
September 30, 1997 16,200,000
December 31, 1997 16,500,000
March 31, 1998 16,750,000
June 30, 1998 17,475,000
September 30, 1998 18,400,000
December 31, 1998 18,750,000
March 31, 1999 19,600,000
June 30, 1999 20,700,000
September 30, 1999
and each fiscal quarter
end thereafter 21,800,000."; and
</TABLE>
(d) Schedules. Schedules 5.1 and 5.29 to the Loan Agreement are
hereby deleted and the revised Schedules 5.1 and 5.29 attached hereto are
substituted in their place.
3. Conditions to Effectiveness. This Waiver and Amendment shall become
effective on the date (the "Effective Date") on which the Agent shall have
received each of the following documents, each in form and substance
satisfactory to the Agent:
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 4
(a) counterparts of this Waiver and Amendment, duly executed by each
of the Borrowers, the Parent, Monarch and Au Naturel, Inc. ("Au Naturel";
Monarch and Au Naturel are collectively referred to herein as the
"Subsidiary Guarantors");
(b) certificates dated as of a recent date as to the good standing
and payment of taxes of Monarch in each jurisdiction where Monarch is
incorporated or in which the business of Monarch, after giving effect to
the Asset Purchase, requires it to qualify to do business;
(c) a copy of the charter documents, together with all the amendments
thereto, of Monarch, certified as of a recent date by the Secretary of
State of Delaware;
(d) a certificate dated the Effective Date, from the Secretary of
Monarch, certifying:
(i) no amendment to Monarch's certificate of incorporation;
(ii) a copy of the by-laws of Monarch;
(iii) the resolutions of the Board of Directors of Monarch
authorizing the execution, delivery and performance of this Waiver and
Amendment and each document to which it is to become a party as
required hereby; and
(iv) the incumbency and signature of officers of Monarch
authorized to execute and deliver the documents contemplated hereby.
(e) copies of the Asset Purchase Agreement together with all
schedules and exhibits thereto, and each other agreement, instrument,
certificate and opinion delivered by the Parent, Monarch, the Seller and
each other party thereto in connection therewith, certified as true,
correct and complete by an Authorized Representative of the Parent;
(f) an Officer's Certificate of the Parent, dated the Effective Date,
certifying as to the matters set forth in Section 4 hereof and that the
Asset Purchase has been consummated;
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 5
(g) a Series A/Revolver Subsidiary Guarantee duly executed by
Monarch;
(h) a Series B Subsidiary Guarantee duly executed by Monarch;
(i) a Subsidiary Security Agreement duly executed by the Parent, each
of the Borrowers, each of the Subsidiary Guarantors and the Collateral
Agent;
(j) form UCC-1 financing statements naming Monarch, as debtor, and
the Collateral Agent, as secured party, duly executed by Monarch in proper
form for filing with each of:
(i) the county recorder of Ogden County, Utah;
(ii) the Secretary of State for the State of Utah, and
(iii) the Secretary of State for the State of Delaware;
(k) a Subsidiary Intellectual Property Security Agreement duly
executed by the Parent, each of the Borrowers, each of the Subsidiary
Guarantors and the Collateral Agent;
(l) an Assignment for Security (Patents), together with a related
Power of Attorney in favor of the Collateral Agent, in the form of
Appendices II and IV of the Intellectual Property Security Agreement,
respectively, each duly executed by Monarch;
(m) an Estoppel Letter duly executed by Orluff Opheikens, or its
successor as the landlord of the Seller's Ogden, UT facility;
(n) stock certificates representing all of the outstanding Capital
Stock of Monarch, together with stock powers duly executed in blank by
Nutraceutical; and
(o) satisfactory evidence of payment of the fees and expenses of
counsel to the Lenders incurred in connection with the preparation of this
Waiver and Amendment.
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 6
4. Representations and Warranties; No Default or Event of Default. Each
of the Borrowers and the Parent hereby represents, warrants, covenants and
agrees as follows:
(a) on the Effective Date immediately after giving effect to this
Waiver and Amendment, the representations and warranties contained in
Section 5 and elsewhere in the Loan Agreement and the representations and
warranties contained in the other Loan Documents shall be true and correct
on and as of the Effective Date with the same effect as if such
representations and warranties had been made on and as of the Effective
Date, except that any such representation or warranty which is expressly
made only as of a specified date need be true only as of such date;
(b) on the Effective Date immediately after giving effect to this
Waiver and Amendment, no Default or Event of Default shall have occurred
and be continuing;
(c) the execution and delivery by each of the Borrowers, the Parent
and each of the Subsidiary Guarantors of this Waiver and Amendment and the
Loan Documents entered into by each of them in connection herewith and the
performance by each of the Borrowers and the Parent of the Loan Agreement,
as modified by this Waiver and Amendment and the performance by each of the
Borrowers, the Parent and each of the Subsidiary Guarantors of each of the
other Loan Documents entered into by each of them in connection herewith
(i) are within their respective corporate powers, (ii) have been duly
authorized by all necessary corporate action on the part of the respective
Boards of Directors and stockholders of each of them, and (iii) do not
require the consent or approval of, or any registration filing or
declaration with, any Governmental Body or non-governmental Person; and
(d) each of this Waiver and Amendment, the Loan Agreement as modified
by this Waiver and Amendment and such other Loan Documents to which any of
the Borrowers, the Parent or the Subsidiary Guarantors are a party is the
legal, valid and binding obligation of each of the them, respectively,
enforceable against each of them in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws relative to or affecting the
enforcement of creditors' rights generally in effect from time to time and
by general principles of equity.
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 7
5. Effect of Waiver and Amendment. Except as specifically provided herein
or in the other Loan Documents entered into in connection herewith, this Waiver
and Amendment does not in any way amend, modify, affect or impair the terms,
conditions and other provisions of the Loan Agreement, the Notes or the other
Loan Documents, or the obligations of each of the Borrowers, the Parent and the
Subsidiary Guarantors thereunder, and all terms, conditions and other provisions
of the Loan Agreement, the Notes and the other Loan Documents shall remain in
full force and effect except to the extent specifically waived or amended
pursuant to the provisions of this Waiver and Amendment or such other Loan
Documents. If any representation or warranty in this Waiver and Amendment or in
the Officer's Certificate delivered pursuant to Section 3 hereof shall fail to
be true and correct in any material respect, such failure shall automatically,
and without the requirement of any notice to any of the Borrowers or the Parent,
constitute an Event of Default under the Loan Agreement.
6. Acknowledgement of Parent Guarantees and Subsidiary Guarantees. By its
execution and delivery of this Waiver and Amendment, each of the Subsidiary
Guarantors and the Parent hereby acknowledges and consents to the execution and
delivery by each of the Borrowers of this Waiver and Amendment, and agrees that
the terms "Revolving Loan Obligations", "Series A Term Loan Obligations" and
"Series B Term Loan Obligations" as used in each of the Subsidiary Guarantees
and the Parent Guarantees, respectively, shall be deemed to include all
obligations of each Borrower under the Loan Agreement and the other Loan
Documents as modified herein or in the other Loan Documents delivered hereunder.
7. Further Assurances. Each of the Borrowers and the Parent covenants
that it shall, and shall cause Monarch to, promptly upon request by the Agent,
do, execute, acknowledge, deliver, record, re-record, file, re-file, register
and re-register any and all such further acts, deeds, conveyances, pledge
agreements, mortgages, deeds of trust, trust deeds, assignments, estoppel
certificates, financing statements and continuations thereof, termination
statements, notices of assignment, transfers, certificates, assurances and other
instruments as the Agent may reasonably require from time to time.
8. Counterparts. This Waiver and Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, and all of which
taken together shall be deemed to constitute one and the same instrument.
9. Governing Law. THIS WAIVER AND AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 8
10. Headings. Section headings are included herein for convenience of
reference only and shall not constitute a part of this Waiver for any other
purposes.
11. Waivers and Modifications. Any term, covenant, agreement or condition
of this Waiver may, with the consent of the parties hereto, be amended, or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), by one or more substantially
concurrent written instruments signed by the parties hereto.
[The remainder of this page has been intentionally left blank.]
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 9
If the foregoing is acceptable, please sign and return a copy of this
Waiver and Amendment to indicate your agreement to the terms hereof.
Very truly yours,
NUTRACEUTICAL CORPORATION
SOLARAY, INC.
MAKERS OF KAL, INC.
PREMIER ONE PRODUCTS, INC.
NATURAL MAX, INC.
By:/s/ Frank W. Gay II
-------------------
Title: Chairman
of each Borrower
NUTRACEUTICAL INTERNATIONAL
CORPORATION
By:/s/ Frank W. Gay II
-------------------
Title: Chairman
Acknowledged and Agreed by each of
the Subsidiary Guarantors as of the
date first above written
MONARCH NUTRITIONAL
LABORATORIES, INC.
By:/s/ Frank W. Gay II
-------------------
Title:
AU NATUREL, INC.
By: /s/ Frank W. Gay
-----------------
Title: Chairman
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 10
<PAGE>
Nutraceutical International Corporation
Waiver and Amendment
As of September 29, 1995
Page 11
Accepted and Agreed as
of the date first above written
JACKSON NATIONAL LIFE
INSURANCE COMPANY
By: (signature illegible)
-----------------------
Title: Vice-President
<PAGE>
Exhibit 10-3
------------
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
-------------------------------------------
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement") is made
and entered into as of January 31, 1995, by and among Nutraceutical
International Corporation (f/k/a Nutraceutical Corporation), a Delaware
corporation (the "Company"), Heller Financial, Inc., a Delaware corporation
("Heller"), Jackson National Life Insurance Company, a Michigan insurance
corporation ("JNL"), and each of the Persons listed on Schedule I attached
hereto (the "Bain Group") (Heller, JNL and the Bain Group are collectively
referred to herein as the "Stockholders," and each as a "Stockholder"). This
Agreement amends, restates and supersedes that certain Stockholders Agreement
dated as of October 28, 1993, by and among the Company, Heller and the Bain
Group. Unless otherwise indicated herein, capitalized terms used herein are
defined in paragraph 10 hereof.
The Company, as of the date hereof, is authorized by its Certificate of
Incorporation to issue capital stock consisting of 13,000 shares of its Class A
Common Stock, par value $.01 per share (the "Class A Common"), 13,000 shares of
its Class A Non-Voting Common Stock, par value $.01 per share (the "Class A Non-
Voting Common"), 200,000 shares of its Class P Common Stock, par value $.01 per
share (the "Class P Common"), 2,000,000 shares of its Common Stock, par value
$.01 per share ("Common"), and 620,000 shares of its Non-Voting Common Stock,
par value $.01 per share ("Non-Voting Common"). The Class A Common, the Class A
Non-Voting Common, the Class P Common, the Non-Voting Common and the Common are
collectively referred to herein as "Common Stock."
The Company's wholly-owned subsidiary, Nutraceutical Corporation (f/k/a
Nutraceutical Newco, Inc.), a Delaware corporation ("Nutraceutical"), its
Subsidiaries, the Company and JNL are parties to a Revolving Credit and Term
Loan Agreement dated January 31, 1995 (the "Credit Agreement") whereby, subject
to the terms and conditions set forth therein, JNL has agreed to make certain
revolving credit and term loans and other financial accommodations to
Nutraceutical and its Subsidiaries. The execution and delivery of this Agreement
by the Company is a condition to JNL's obligation to consummate the transactions
contemplated by the Credit Agreement.
<PAGE>
The parties hereto desire to enter into this Agreement to establish the
composition of the Company's Board of Directors (the "Board"), restrict the
sale, assignment, transfer, encumbrance or other disposition of the Common Stock
and to provide for certain rights and obligations in respect thereto as
hereinafter provided.
NOW, THEREFORE, the parties to this Agreement hereby agree as follows:
1. Voting Agreement.
(a) From and after the date of this Agreement and until the provisions of
this paragraph 1 cease to be effective, as in effect on the date hereof, each
holder of Stockholder Shares shall vote all of his Stockholder Shares (provided
that such Stockholder Shares then have voting rights) and shall take all other
necessary or desirable actions within his control (whether in his capacity as a
stockholder or officer of the Company or otherwise, and including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), and
the Company shall take all necessary and desirable actions within its control
(including, without limitation, calling special board and stockholder meetings),
so that:
(i) the authorized number of directors on the Board shall be
established by the holders of a majority of the Bain Shares held by the
Bain Group and its Affiliates (the "Bain Holders");
(ii) the Bain Holders shall have the right in any election for
directors to the Board to select all representatives to the Board;
(iii) the removal from the Board (with or without cause) or any
representative designated hereunder by the Bain Holders shall be at the
Bain Holder's written request, but only upon such written request and under
no other circumstances; and
(iv) in the event that any representative designated hereunder by the
Bain Holders for any reason ceases to serve as a member of the Board during
his term of office, the resulting vacancy on the Board shall be filled by a
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<PAGE>
representative designated by the Bain Holders, as provided hereunder.
(b) The provisions of this paragraph 1 shall terminate automatically
and be of no further force and effect upon the first to occur of (i) a Qualified
Public Offering or (ii) an Approved Sale.
2. Restrictions on Transfer of Stockholder Shares.
(a) Transfer of Stockholder Shares. The holders of Stockholder Shares
(other than the Bain Group) shall not sell, transfer, assign, pledge or
otherwise dispose of (a "Transfer") any interest in any Stockholder Shares,
except Transfers pursuant to this paragraph 2 or paragraphs 3 or 5 below.
(b) Participation Rights. At least 30 days prior to any Transfer of
any class of Common Stock by the Bain Group (other than a Transfer among members
of the Bain Group or their Affiliates or to an employee of the Company or its
Subsidiaries), the Bain Group will deliver a written notice (the "Sale Notice")
to the Company and the other Stockholders (the "Other Stockholders"), specifying
in reasonable detail the identity of the prospective transferee(s) and the terms
and conditions of the Transfer. The Other Stockholders may elect to participate
in the contemplated Transfer by the Bain Group by delivering written notice to
the Bain Group within 30 days after delivery of the Sale Notice. If any Other
Stockholders have elected to participate in such Transfer, the Bain Group and
such Other Stockholders will be entitled to sell in the contemplated Transfer a
number of Stockholder Shares of the same class proposed to be sold by the Bain
Group (the "Offered Class") equal to the product of (i) the quotient determined
by dividing the percentage of Stockholder Shares of the Offered Class owned by
such person by the aggregate percentage of Stockholder Shares of the Offered
Class owned by the Bain Group, the Other Stockholders and any other stockholders
of the Company participating in such sale multiplied by (ii) the number of
Stockholder Shares of the Offered Class to be sold in the contemplated Transfer.
The sale by all Stockholders electing to participate in such sale will be on the
same terms and at sale prices equal to (i) in the case of Class A Common or
Class A Non-Voting Common, the same price per share as paid to the Bain Group
for the Class P Common held by the Bain Group and (ii) in the case
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<PAGE>
of Non-Voting Common, the same price per share as paid to the Bain Group for the
Common held by the Bain Group. Solely for the purposes of this paragraph 2(b),
Class A Common and Class A Non-Voting Common will be deemed to be in the same
class as the Class P Common and the Non-Voting Common will be deemed to be in
the same class as the Common. In addition, solely for purposes of this paragraph
2(b), in the case of any Transfer involving all or any portion of the Bain
Group's Class P Common, a portion of JNL's Common and Non-Voting Common equal to
the quotient determined by dividing the number of shares of Class P Common to be
Transferred by the Bain Group by the number of shares of Common Stock held by
the Bain Group immediately prior to such Transfer shall be deemed to be in the
same class as the Class P Common, provided that the price per share to be paid
to the holder of any such JNL Common or Non-Voting Common shall be reduced by
the amount of any preference (i.e., any Unreturned Original Cost and Unpaid
Yield (as each such term is defined in the Company's Certificate of
Incorporation)) then available to a holder of Class P Common set forth in the
Company's Certificate of Incorporation as in effect immediately prior to such
Transfer.
For example (by way of illustration only), if the Sale Notice contemplated
a sale of 100 Stockholder Shares by the Bain Group, and if the Bain Group
at such time owns 30% of all Stockholder Shares and if one Other
Stockholder elects to participate and owns 20% of all Stockholder Shares,
the Bain Group would be entitled to sell 60 shares (30% / 50% x 100 shares)
and the Other Stockholder would be entitled to sell 40 shares (20% / 50% x
100 shares).
The Bain Group shall use best efforts to obtain the agreement of the prospective
transferee(s) to the participation of the Other Stockholders in any contemplated
Transfer and to the inclusion (in the case of Heller) of the Warrants in the
contemplated Transfer, and no Stockholder shall transfer any of its Stockholder
Shares to the prospective transferee(s) if the prospective transferee(s)
declines to allow the participation of the Other Stockholders or the inclusion
of the Warrants. If any portion of the Warrants are included in any Transfer of
Stockholder Shares under this sub paragraph 2(b), the purchase price for such
Warrants shall be equal to the full purchase price determined hereunder for the
Stockholder
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<PAGE>
Shares covered by the portion of the Warrant to be transferred, reduced by the
aggregate exercise price for such shares.
(c) Permitted Transfers. The restrictions contained in this Section 2
shall not apply to (i) any Transfer of Stockholder Shares by any Stockholder
among its Affiliates, (ii) a Public Sale, (iii) an Approved Sale, (iv) any
Transfer by JNL (A) to any Person who acquires all or substantially all of the
assets of JNL or (B) to any Person who acquires from JNL a portion of the loans
granted under the Credit Agreement, pro rata based on the principal amount of
such loans acquired, (v) any Transfer by Heller to any Person who acquires all
or substantially all of the assets of Heller, (vi) a Transfer pursuant to
paragraph 2(d) below, (vii) a Transfer of Stockholder Shares by any Stockholder
pursuant to the laws of descent and distribution or among such Stockholder's
Family Group, (viii) a Transfer pursuant to paragraph 2(b) above, (ix) a
Transfer pursuant to paragraph 2(e) below or (x) a Transfer pursuant to
paragraph 2(f) below; provided that, the restrictions contained in this
Agreement will continue to be applicable to the Stockholder Shares after any
Transfer pursuant to clauses (i), (iv), (v), (vi), (vii), (viii), (ix) and (x)
above and the transferees of such Stockholder Shares shall agree in writing to
be bound by the provisions of this Agreement. Upon the Transfer of Stockholder
Shares pursuant to this paragraph 2(c), the transferor will deliver a written
notice to the Company, which notice will disclose in reasonable detail the
identity of such transferee.
(d) Right of First Refusal. Except in the case of a Transfer
permitted by paragraph 2(c)(i), (ii), (iii), (iv), (viii) or (ix), at least 30
days prior to making any Transfer of shares of any class of Common Stock, each
holder of JNL Shares shall deliver a written notice (the "JNL Offer Notice") to
the Company and the Bain Group. The JNL Offer Notice shall disclose in
reasonable detail the proposed number of shares and the class of Common Stock to
be transferred, the identity of the transferee and the proposed terms and
conditions of the Transfer. First, the Company may elect to purchase all (but
not less than all) of the shares of such class or classes of Common Stock
specified in the JNL Offer Notice at the price and on the terms specified
therein by delivering written notice of such election to such holder of JNL
Shares and the Bain Group as soon as practical but in any event within ten days
after the delivery of the JNL Offer Notice. If the Company has not elected to
purchase all of the shares of Common Stock within such
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<PAGE>
ten-day period, each member of the Bain Group may elect to purchase all
(but not less than all) of his or its Pro Rata Share (as defined below) of such
shares of Common Stock specified in the JNL Offer Notice at the price and on the
terms specified therein by delivering written notice of such election to such
holders of the JNL Shares as soon as practical but in any event within 20 days
after delivery of the JNL Offer Notice. Any shares of Common Stock not elected
to be purchased by the end of such 20-day period shall be reoffered for the ten-
day period prior to the expiration of the 30-day period after the delivery of
the JNL Offer Notice (the "Election Period") by such holders of the JNL Shares
on a pro rata basis to the other members of the Bain Group who have elected to
purchase their Pro Rata Share. If the Company or any member of the Bain Group
has elected to purchase shares of Common Stock from such holders of the JNL
Shares, the transfer of such shares shall be consummated as soon as practical
after the delivery of the election notices, but in any event within 30 days
after the expiration of the Election Period. In the event that the Company and
the members of the Bain Group have not elected to purchase all of the shares of
Common Stock being offered, such holders of the JNL Shares may, within 60 days
after the expiration of the Election Period, transfer all such shares of Common
Stock identified in the JNL Offer Notice to the party or parties identified in
the JNL Offer Notice at a price no less than the price per share specified in
the JNL Offer Notice and on other terms no more favorable to the transferees
than offered to the Company and the members of the Bain Group in the JNL Offer
Notice. The purchase price specified in any JNL Offer Notice shall be payable
solely in cash or Marketable Securities at the closing of the transaction. Each
Stockholder's "Pro Rata Share" shall be based upon such Stockholder's
proportionate ownership of all shares of such class of Common Stock on a fully-
diluted basis.
(e) Regulatory First Offer Right. At least 30 days prior to making any
Transfer that is or may be required by either Heller or JNL to comply with any
federal or state law or any rule or regulation of any governmental or public
body or authority, Heller or JNL (as the case may be) shall deliver a written
notice (the "Offer Notice") to the Company and the Bain Group. The Offer Notice
shall disclose in reasonable detail the proposed number of Heller Shares or JNL
Shares (as the case may be) to be transferred and the proposed sale price, terms
and conditions of the Transfer. First, the Company may elect to purchase all
(but not less than
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<PAGE>
all) of the Heller Shares or the JNL Shares (as the case may be) specified in
the Offer Notice at the price and on the terms specified therein by delivering
written notice (the "Company Notice") of such election to Heller or JNL (as the
case may be) and the Bain Group as soon as practical but in any event within ten
days after the delivery of the Offer Notice. If the Company has not elected to
purchase all of the Heller Shares or the JNL Shares (as the case may be) within
such ten-day period, the Bain Group may elect to purchase all (but not less than
all) of the Heller Shares or the JNL Shares (as the case may be) specified in
the Offer Notice at the price and on the terms specified therein by delivering
written notice (the "Bain Notice") of such election to Heller or JNL (as the
case may be) as soon as practical but in any event within 20 days after delivery
of the Offer Notice. If the Company or the Bain Group have elected to purchase
Heller Shares or JNL Shares (as the case may be) from Heller or JNL (as the case
may be), the transfer of such shares shall be consummated as soon as practical
after the delivery of the Company Notice or Bain Notice, but in any event within
30 days after the delivery of either such notice. To the extent that neither the
Company nor the Bain Group have elected to purchase all of the Heller Shares or
the JNL Shares (as the case may be) being offered, Heller or JNL (as the case
may be) may, within 60 days after a delivery of the Offer Notice, transfer such
Heller Shares or JNL Shares (as the case may be) to one or more third parties at
a price no less than the price per share specified in the Offer Notice and on
other terms no more favorable to the transferees than offered to the Company and
the Bain Group in the Offer Notice. The purchase price specified in any Company
Notice or Bain Notice shall be payable solely in cash at the closing of the
transaction or, if mutually agreed upon by the parties, in installments over
time.
(f) Heller First Offer Right. On or after October 28, 1999, at least
20 days prior to making any Transfer of any Heller Shares, Heller shall deliver
a written notice (the "Heller Offer Notice") to the Company, the Bain Group and
the holders of the JNL Shares. The Heller Offer Notice shall disclose in
reasonable detail the proposed number of Heller Shares to be transferred and the
proposed sale price, terms and conditions of the Transfer. First, the Company
may elect to purchase all (but not less than all) of the Heller Shares specified
in the Heller Offer Notice at the price and on the terms specified therein by
delivering written notice (the "Company Purchase Notice") of such election to
Heller,
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<PAGE>
the Bain Group and the holders of the JNL Shares as soon as practical but in any
event within five days after the delivery of the Heller Offer Notice. If the
Company has not elected to purchase all of the Heller Shares pursuant to the
Heller Offer Notice within such five-day period, the Company may deliver a
written notice (the "Company Election") to Heller, each member of the Bain Group
and each holder of JNL Shares within five days after delivery of the Heller
Offer Notice disclosing the proposed purchase price (the "Floor Price"), terms
and conditions on which the Company is willing to purchase all of the Heller
Shares. If the Company and Heller have not agreed to consummate the purchase and
sale of the Heller Shares offered pursuant to this paragraph 2(f) (either
pursuant to the Heller Offer Notice or the Company Election), each member of the
Bain Group and each holder of JNL Shares may elect to purchase all (but not less
than all) of its Pro Rata Purchase Amount (as defined below) of the Heller
Shares specified in the Heller Offer Notice at the price and on the terms
specified therein by delivering written notice (the "Heller Purchase Notice") of
such election to Heller as soon as practical but in any event within 15 days
after delivery of the Heller Offer Notice. Any Heller Shares not elected to be
purchased by the end of such 15-day period shall be reoffered for the 5-day
period prior to the expiration of the 20-day period after the delivery of the
Heller Offer Notice (the "Purchase Election Period") by Heller on a pro rata
basis to the other members of the Bain Group or the other holders of JNL Shares
who have elected to purchase their Pro Rata Purchase Amount. If the Company, any
member of the Bain Group or any holder of JNL Shares has elected to purchase
Heller Shares, the transfer of such shares shall be consummated as soon as
practical after the delivery of the Company Purchase Notice, the Company
Election or the Heller Purchase Notice, but in any event within 30 days after
the expiration of the Purchase Election Period. To the extent that neither the
Company, the Bain Group nor the holders of JNL Shares have elected to purchase
all of the Heller Shares being offered, Heller may, within 120 days after a
delivery of the Heller Offer Notice, transfer all or any portion of such Heller
Shares to one or more third parties at a price no less than the Floor Price per
share specified in the Company Election and on other terms no more favorable to
the transferees than offered to Heller in the Company Election; provided, that
Heller may not transfer Heller Shares to more than five transferees pursuant to
this Section 2(f). The purchase price specified in any Company Purchase Notice,
Heller Purchase Notice or Company Election
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<PAGE>
shall be payable solely in cash at the closing of the transaction or, if
mutually agreed upon by the parties, in installments over time. The Company, the
Bain Group, the holders of JNL Shares and their respective Affiliates agree to
maintain the confidentiality of the information contained in the Heller Offer
Notice and the Company Election, except where required by law or legal process
and except for information which becomes a matter of public knowledge other than
as a result of disclosure by the Company, the Bain Group, the holders of JNL
Shares or their respective Affiliates. Each member of the Bain Group's or each
holder of JNL Shares' "Pro Rata Purchase Amount" shall be based upon each such
Stockholder's proportionate ownership of all shares of Common Stock held by all
such Stockholders.
(g) Termination of Restrictions. The restrictions set forth in this
paragraph 2 shall continue with respect to each Stockholder Share until the
earlier of (i) the date on which such Stockholder Share has been transferred in
a Public Sale, (ii) the consummation of an Approved Sale (as defined in
paragraph 3 below) or (iii) the consummation of a Qualified Public Offering (as
defined in paragraph 10 below).
3. Sale of the Company.
(a) If the Board and the holders of a majority of the shares of Common
Stock then outstanding approve a sale of all or substantially all of the
Company's assets determined on a consolidated basis or a sale of all or
substantially all of the Company's outstanding capital stock (whether by merger,
recapitalization, consolidation, reorganization, combination or
otherwise) to any Independent Third Party or group of Independent Third Parties
(collectively an "Approved Sale"), each holder of Stockholder Shares will
consent to and raise no objections against such Approved Sale. If the Approved
Sale is structured as (i) a merger or consolidation, each holder of Stockholder
Shares will waive any dissenters rights, appraisal rights or similar rights in
connection with such merger or consolidation or (ii) sale of stock, each holder
of Stockholder Shares will agree to sell all of his Stockholder Shares and
rights to acquire Stockholder Shares on the terms and conditions approved by the
Board and the holders of a majority of the Stockholder Shares then outstanding.
Each holder of Stockholder Shares will take all necessary or desirable actions
in connection with the consummation of the Approved Sale as
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<PAGE>
requested by the Company. If the Approved Sale will result in the distribution
of equity securities to the holders of Stockholder Shares, upon the request of a
holder of Stockholder Shares, the Company shall offer such holder non-voting
equity securities in lieu of voting securities.
(b) The obligations of the holders of Common Stock with respect to an
Approved Sale are subject to the satisfaction of the following conditions: (i)
upon the consummation of the Approved Sale, each holder of Common Stock will
receive the same form of consideration and the same portion of the aggregate
consideration that such holders of Common Stock would have received if such
aggregate consideration had been distributed by the Company in complete
liquidation pursuant to the rights and preferences set forth in the Company's
Certificate of Incorporation as in effect immediately prior to such Approved
Sale; (ii) if any holders of a class of Common Stock are given an option as to
the form and amount of consideration to be received, each holder of such class
of Common Stock will be given the same option; (iii) each holder of then
currently exercisable rights to acquire shares of a class of Common Stock will
be given an opportunity to exercise such rights prior to the consummation of the
Approved Sale and participate in such sale as holders of such class of Common
Stock; (iv) the maximum indemnification liability pursuant to the Approved Sale
shall not exceed the total purchase price of the Common Stock and each holder of
Stockholder Shares shall not be subject to any such indemnification liability in
excess of such holder's proportionate share of the net proceeds from such sale;
and (v) no selling stockholder shall be obligated to make general
representations or warranties regarding the business and affairs of the Company.
(c) In the event JNL holds at least a majority of the JNL Shares which
JNL originally acquired pursuant to the Credit Agreement, and in the event of an
Approved Sale of the Company in which either (i) the consideration to be
distributed to the JNL Shares will be less than 80% in Cash Equivalents
(provided that, if any non Cash Equivalents consideration will become Cash
Equivalents (either contractually or otherwise, e.g., upon the undertaking of a
third party to register securities) within a 180-day period after the
consummation of such Approved Sale, for purposes of this clause (i), such non
Cash Equivalents consideration shall be deemed to be Cash Equivalents
consideration), or (ii) the consideration to be distributed to the JNL Shares
includes any consideration which is
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<PAGE>
not Cash Equivalents and the receipt and retention of any such non Cash
Equivalents consideration for holders of JNL Shares shall not be permitted by
the laws and regulations of the jurisdictions to which such holders are subject,
without reference to any "basket" provisions of such laws such as New York
Insurance Law Section 1405(a)(8) or will result in a violation of any statute,
law, rule or regulation, or any judgment, order or decree of any governmental
authority or governmental or nongovernmental regulatory body applicable to said
holders or their assets, then the holders of a majority of the JNL Shares will
have the option to elect to receive in lieu of the consideration otherwise to be
distributed an amount in cash with respect to an Approved Sale determined in
accordance with this paragraph 3(c). The holders of the majority of JNL Shares
shall elect the foregoing option, if at all, by giving notice of such election
(the "Sale Election Notice") to the Company within 15 days after the Company
gives notice to the holders of the JNL Shares setting forth the consideration to
be received by the holders of the JNL Shares upon consummation of an Approved
Sale. Upon such election by the holders of the JNL Shares, the Company and the
holders of the JNL Shares shall mutually agree on the fair market value of the
non Cash Equivalents to be received with respect to an Approved Sale, or, if
they fail to mutually agree, an Independent Investment Banking Firm will be
engaged within 30 days of the Sale Election Notice to determine the fair market
value of the non Cash Equivalents to be received by the holders of the JNL
Shares. Within ten days of the notice by the Company of the determination of the
fair market value of the non Cash Equivalents, the holders of the JNL Shares
shall either elect by notice to the Company to accept the Cash Payment (defined
below) or to accept the consideration otherwise to be distributed to the holders
of the JNL Shares. If Section 3(c)(ii) applies, then the Cash Payment shall be
in cash equal to the fair market value, as determined above, of the respective
non Cash Equivalents. If Section 3(c)(i) applies, and Section 3(c)(ii) does not
apply, then the Cash Payment shall be in the form of: (y) non Cash Equivalents
as otherwise provided for up to 20% of the total consideration to be distributed
upon an Approved Sale with respect to JNL Shares and (z) cash for the remainder
on a pro rata basis for the fair market value, as determined above, with respect
to JNL Shares. In the event the holders of a majority of the JNL Shares either
elect to accept the Cash Payment or accept the consideration otherwise to be
distributed upon an Approved Sale in lieu of the foregoing Cash Payment, the
Company and the holders of the JNL Shares shall each,
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<PAGE>
respectively, pay one half of all fees and expenses of such Independent
Investment Banking Firm. Any decision of the Independent Investment Banking
Firm shall be final and binding on the parties to this Agreement and may be
specifically enforced by legal proceedings. The holders of the JNL Shares
hereby acknowledge and agree that the terms of Section 3(a) apply to any
Approved Sale of the Company.
(d) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Stockholder Shares will,
at the request of the Company, appoint a purchaser representative (as such term
is defined in Rule 501 of the Securities Act) reasonably acceptable to the
Company. If any holder of Stockholder Shares appoints a purchaser
representative designated by the Company, the Company will pay the fees of such
purchaser representative, but if any holder of Stockholder Shares declines to
appoint the purchaser representative designated by the Company, such holder will
appoint another purchaser representative, and such holder will be responsible
for the fees of the purchaser representative so appointed.
(e) Except as set forth in paragraph (c) above, holders of Stockholder
Shares will bear their pro-rata share (based upon the number of shares sold) of
the reasonable out-of-pocket costs of any sale of Stockholder Shares pursuant to
an Approved Sale to the extent such costs are incurred for the benefit of all
holders of Common Stock and are not otherwise paid by the Company or the
acquiring party. Costs incurred by holders of Stockholder Shares on their own
behalf will not be considered costs of the transaction hereunder.
(f) The provisions of this paragraph 3 will terminate upon completion
of the Public Offering of the Common Stock.
4. Limited Preemptive Rights.
-------------------------
(a) Except for the issuance or sale of securities (i) to officers,
employees, directors or consultants (excluding Bain Capital, Inc., its employees
and its Affiliates) of the Company or
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<PAGE>
its Subsidiaries, so long as such securities have a purchase price or exercise
price equal to or greater than the Fair Market Value of the Common Stock or the
underlying Common Stock on the date of issuance or grant of such security, (ii)
pursuant to an underwritten Public Offering, (iii) as consideration (in whole or
in part) for an acquisition consummated after the date of this Agreement, (iv)
which were previously held by management of the Company or any Subsidiary of the
Company and were reacquired by the Company pursuant to a put or call arrangement
with such managers and are then being reissued and offered to (A) other managers
of the Company or any Subsidiary of the Company (excluding Bain Capital, Inc.,
its employees and its Affiliates) or (B) each of the Company's then existing
stockholders, on a pro rata basis, at or above the lesser of the cost of such
repurchase or the fair market value of such security at the date of such
reissuance, or (v) upon the exercise or conversion of any options, warrants or
securities outstanding on the date hereof or issued after the date hereof in
compliance with the provisions of this paragraph 4, if the Company authorizes
the issuance or sale of any of its securities (other than as a dividend on the
outstanding Common Stock) to any Person, the Company shall first offer to sell
to each holder of Stockholder Shares (other than the holders of the Warrants,
prior to the exercise thereof) a portion of such stock or securities equal to
the quotient determined by dividing (x) the number of shares of Common Stock
held by such holder of Stockholder Shares (other than the holders of the
Warrants, prior to the exercise thereof) by (y) the total number of shares of
outstanding Common Stock on a fully diluted basis, assuming exercise or
conversion of all options, warrants and convertible securities (prior to giving
effect to any anti-dilution adjustment with respect to any such options,
warrants or convertible securities). Each holder of Stockholder Shares shall be
entitled to purchase such stock or securities at the most favorable price and on
the most favorable terms as such stock or securities are to be offered to such
Person. The purchase price for all stock and securities offered to each holder
of Stockholder Shares shall be payable in cash by wire transfer of immediately
available funds.
(b) In order to exercise its purchase rights hereunder, each holder
of Stockholder Shares must within 15 days after receipt of written notice from
the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a
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written notice to the Company describing its election hereunder. Upon the
election of any holder of Stockholder Shares, the Company shall offer such
holder non-voting stock or securities in lieu of voting stock or securities.
(c) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such stock or securities which the holder of
Stockholder Shares has not elected to purchase during the 90 days following such
expiration on terms and conditions no more favorable to the purchasers thereof
than those offered to holders of Stockholder Shares. Any stock or securities
offered or sold by the Company to any Person after such 90-day period must be
reoffered to each holder of Stockholder Shares pursuant to the terms of this
paragraph.
(d) The rights under this paragraph 4 will terminate upon completion
of a Qualified Public Offering (as defined below) of the Common Stock.
5. Public Offering. In the event that the Board and the holders of a
majority of the shares of Common Stock then outstanding and having a right to
vote approve an initial public offering and sale of Common Stock (a "Public
Offering") pursuant to an effective registration statement under the Securities
Act, the holders of Stockholder Shares will take all necessary or desirable
actions in connection with the consummation of the Public offering. In the event
that such Public Offering is an underwritten offering and the managing
underwriters advise the Company in writing that in their opinion the Common
Stock structure will adversely affect the marketability of the offering, each
holder of Stockholder Shares will consent to and vote for a recapitalization,
reorganization and/or exchange of the Common Stock into securities that the
managing underwriters, the Board and holders of a majority of the shares of
Common Stock then outstanding find acceptable and will take all necessary or
desirable actions in connection with the consummation of the recapitalization,
reorganization and/or exchange; provided that the resulting securities reflect
and are consistent with the economic values reflected by the rights and
preferences set forth in the Company's Certificate of Incorporation as in effect
immediately prior to such Public Offering and at the request of a holder of
Stockholder Shares, the Company shall offer such holder non-voting securities in
lieu of voting securities; provided further, that nothing herein shall be deemed
to compel a
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<PAGE>
holder of Stockholders Shares to convert or exchange the class of securities it
holds or has a right to hold immediately prior to the Public Offering into a
class of securities the mere ownership of which would cause such holder to be in
violation of any law, rule or regulation to which it is subject.
6. Legend. (a) Each certificate evidencing Stockholder Shares and
each certificate issued in exchange for or upon the Transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
Transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
TRANSFER RESTRICTIONS PURSUANT TO AN AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT DATED AS OF JANUARY 31, 1995, AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS.
A COPY OF SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE
BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
(b) The Company shall imprint such legend on certificates evidencing
Stockholder Shares outstanding prior to the date hereof. The legend set forth
above shall be removed from the certificates evidencing any shares which cease
to be Stockholder Shares in accordance with paragraph 9 hereof.
7. Additional Restrictions on Transfer.
-----------------------------------
(a) The certificates representing the Heller Shares and the JNL Shares
will bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
(b) No holder of Heller Shares or JNL Shares may sell, transfer or
dispose of any Heller Shares or JNL Shares (except
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pursuant to an effective registration statement under the Securities Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration nor
qualification under the Securities Act and applicable state securities laws is
required in connection with such transfer.
8. Transfer. Prior to Transferring any Stockholder Shares (other
than in a Public Sale or in an Approved Sale) to any person or entity, the
transferring Stockholder shall cause the prospective transferee to execute and
deliver to the Company and the other Stockholders a counterpart of this
Agreement.
9. Covenants.
---------
(a) Information. Prior to the consummation of a Public Offering, the
Company shall deliver to each Qualified Holder of Stockholder Shares:
(i) Monthly Statements. As soon as available and in any event within
30 days (provided that, for the first six monthly financial statements to
be delivered after the date hereof, such financial statements shall not be
required to be delivered until 40 days after the end of such month) after
the end of each month, copies of the consolidated balance sheet of the
Company as of the end of such month, the related consolidated statements of
income, shareholder's equity and cash flows and separate unconsolidated
statements of income for such month and for the portion of the fiscal year
of the Company ended with the last day of such month, all in reasonable
detail and stating in comparative form (A) the consolidated figures as of
the end of and for the corresponding date and period in the previous fiscal
year and (B) the corresponding figures from the consolidated budget of the
Company and its Subsidiaries for such period. Such financial statements
shall be (A) prepared in accordance with generally accepted accounting
principles applied on a consistent basis and (B) certified as complete and
correct by the chief financial or accounting officer or chief executive
officer of the Company.
(ii) Annual Statements. As soon as available and in any event within
90 days after each fiscal year end of the
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<PAGE>
Company, copies of the audited consolidated and unaudited consolidating
balance sheets of the Company and its Subsidiaries as of the end of such
fiscal year, and of the related audited consolidated statements of income
(and in the case of such statements of income, the unaudited consolidating
statements), shareholder's equity and cash flows for such fiscal year,
together with notes thereto, all in reasonable detail and stating in
comparative form (A) the audited consolidated and unaudited consolidating
figures as of the end of and for the previous fiscal year and (B) the
corresponding figures from the consolidated budget of the Company and its
Subsidiaries for such fiscal year, (x) in the case of the audited
consolidated financial statements, accompanied by a report thereon of an
independent public accountant of recognized national standing selected by
the Company, which report shall be unqualified as to going concern and
scope of audit and shall state that such consolidated financial statements
present fairly the consolidated financial position of the Company and its
Subsidiaries as of the end of such fiscal year and the consolidated results
of their operations, shareholder's equity and cash flows in conformity with
generally accepted accounting principles applied on a consistent basis and
that such examination has been made in accordance with generally accepted
auditing standards, and (y) in the case of the consolidating financial
statements, certified as complete and correct by the chief financial or
accounting officer or chief executive officer of the Company.
(b) Reservation of Common Stock. The Company will at all times
reserve and keep available, solely for issuance, sale and delivery upon the
exercise of the Warrants, the conversion thereof into voting Common Stock or the
conversion of Non-Voting Common Stock into voting Common Stock, (A) in the case
of any Warrants exercisable for Class A Non-Voting Common, a number of shares of
Class A Non-Voting Common issuable upon the exercise of any such Warrants and a
number of shares of Class A Common equal to the number of shares of Class A
Common issuable upon conversion of such Class A Non-Voting Common, (B) in the
case of any Warrants exercisable for Non-Voting Common, a number of shares of
Non-Voting Common issuable upon the exercise of any such Warrants and a number
of shares of Common equal to the number of shares of Common issuable upon
conversion of such Non-Voting Common, (C) in the case of any Warrants
exercisable for Common, a number of shares of
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<PAGE>
Common issuable upon the exercise of any such Warrants, and (D) in the case of
any Non-Voting Common issued, a number of shares of Common issuable upon
conversion of such Non-Voting Common. All shares of Common Stock issuable upon
the exercise of the Warrants or upon the conversion of any Common Stock issuable
upon exercise of any Warrants or otherwise, when such Common Stock is issued or
converted, shall be validly issued and fully paid and non-assessable with no
liability on the part of the holders thereof. The Company shall not at any time
while any Warrants are outstanding allow the par value of its Common Stock to
exceed the then effective exercise price of any of the Warrants.
(c) Interested Transactions. The Company will not and will not permit
any of its Subsidiaries to (without the affirmative vote of at least a majority
of (A) the Heller Shares and (B) the JNL Shares):
(i) enter into or permit to exist any material transaction with the
Bain Group or an Affiliate of the Bain Group, except (i) as set forth in
the Advisory Agreement as in effect on the date hereof or (ii) transactions
in the ordinary course of and pursuant to the reasonable requirements of
the business of the Company or any of its Subsidiaries upon fair and
reasonable terms which are fully disclosed to each Qualified Holder and are
no less favorable to the Company or such Subsidiary than would be obtained
in a comparable arm's length transaction with a Person that is not a member
of the Bain Group or an Affiliate of the Bain Group; provided however, that
nothing in this Section 9(c) shall require the Company to seek such an
affirmative vote to enter into any transactions contemplated in the
Advisory Agreement; or
(ii) engage to any material extent in any business other than the
manufacture, sale, marketing and distribution of vitamins, minerals, other
food supplements, herbal products, teas, homeopathic remedies and personal
care products which are typically found in natural health food stores and
businesses and activities substantially similar or related thereto.
(d) Delivery of Public Information. At all times after the Company
has filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the
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<PAGE>
Securities Act or the Securities Exchange Act, the Company shall deliver to each
Qualified Holder, a copy of the Company's Annual Report on Form 10-K, a copy of
each of the Company's Quarterly Reports on Form 10-Q and a copy of each of the
Company's Current Reports on Form 8-K. The deliveries required pursuant to the
preceding sentence shall be sent within ten days after the due date of any such
filing (or in the case of any Current Report on Form 8-K, as and when made) with
the Securities and Exchange Commission.
10. Definitions.
-----------
"Advisory Agreement" shall mean that certain Amended and Restated
Advisory Agreement dated as of the date hereof, by and among Nutraceutical
Corporation (f/k/a Nutraceutical Newco, Inc.), Solaray, Inc., Bain Capital, Inc.
and F.W. Gay & Sons.
"Affiliate" of a Stockholder means any other person, entity or
investment fund controlling, controlled by or under common control with the
Stockholder and, in the case of a Stockholder which is a partnership, any
partner of the Stockholder.
"Bain Shares" means (i) any Common Stock purchased by the Bain Group
pursuant to the Purchase Agreement, (ii) any shares of Common Stock otherwise
acquired by the Bain Group and (iii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clauses
(i) or (ii) by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares constituting Bain Shares, such
shares will cease to be Bain Shares when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, or (y) sold to the public through a
broker, dealer or market maker pursuant to Rule 144 (or by similar provision
then in force) under the Securities Act.
"Cash Equivalents" means cash and Marketable Securities.
"Certificate of Incorporation" means the Company's certificate of
incorporation in effect at the time as of which any determination is being made.
-19-
<PAGE>
"Fair Market Value" means the fair market value of the Common Stock or
any warrants, options or other rights to purchase or subscribe for Common Stock
as determined by the Board in its good faith judgment; provided, that if the
holders of a majority of the JNL Shares then outstanding object to the
determination of Fair Market Value made by the Board, Fair Market Value shall be
determined by an Independent Investment Banking Firm, whose determination shall
be final and binding upon the Company and the holders of the JNL Shares;
provided further, that to the extent such Independent Investment Banking Firm's
determination of Fair Market Value is within 5% of the Fair Market Value
determination made by the Board, the Board's determination of Fair Market Value
shall be final and binding upon the Company and the holders of the JNL Shares.
The holders of the JNL Shares shall pay the fees and expenses of any Independent
Investment Banking Firm retained to make a determination of Fair Market Value
pursuant to Section 4 of this Agreement.
"Family Group" means a stockholder's spouse and descendants (whether
or not adopted) and any trust solely for the benefit of the Stockholder and/or
the Stockholder's spouse and/or descendants.
"Heller Shares" means (i) any Class A Non-Voting Common or Non-Voting
Common issued upon the exercise of the Heller Warrants, (ii) any Class A Common
or Common issued upon the conversion of any Class A Non-Voting Common or Non-
Voting Common issued upon the exercise of the Heller Warrants, (iii) any shares
of Common Stock otherwise acquired by Heller and (iv) any equity securities
issued or issuable with respect to the securities referred to in clauses (i),
(ii) and (iii) by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, a Person will be deemed to be a
holder of Heller Shares whenever such Person has the right to acquire such
Heller Shares (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restriction or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected. As to any particular shares constituting Heller Shares, such shares
will cease to be Heller Shares when they have been (x) effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them, or (y)
-20-
<PAGE>
sold to the public through a broker, dealer or market maker pursuant to Rule 144
(or by similar provision then in force) under the Securities Act.
"Heller Warrants" means those two warrants of the Company of the
Company dated October 28, 1993, each as amended on October 31, 1994 and on the
date hereof, whereby Heller has the right to acquire the number of shares of
Common Stock set forth therein.
"Independent Investment Banking Firm" means a nationally recognized
investment banking firm which is not an Affiliate of the Company or any
shareholder of the Company, selected by the Company with the approval of holders
of a majority of the JNL Shares (which approval shall not be unreasonably
withheld); provided that one representative of the holders of a majority of the
JNL Shares shall be entitled to participate in and be a part of any discussions
with such Independent Investment Banking Firm and the holders of a majority of
the JNL Shares will be named as a client of record of such Independent
Investment Banking Firm.
"Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis (a "5% Owner"), who is not controlling,
controlled by or under common control with any such 5% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for
the benefit of such 5% Owner and/or such other Persons. The term "Independent
Third Party" shall not include any Person who is an officer, director or
employee of Bain Capital, Inc.
"JNL Shares" means (i) any Common Stock issued pursuant to the Credit
Agreement, (ii) any shares of Common Stock otherwise acquired by JNL and (iii)
any equity securities issued or issuable with respect to the securities referred
to in clauses (i) or (ii) by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular shares constituting JNL Shares,
such shares will cease to be JNL Shares when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, or (y) sold to the public through a
broker, dealer or market maker pursuant to Rule 144 (or by similar provision
then in force) under the Securities Act.
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<PAGE>
"Marketable Securities" means any of the following: U.S. Treasury
notes and securities traded on the New York Stock Exchange, Inc., or any
national stock exchange or quoted in the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation System.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Purchase Agreement" means that certain Stock Purchase Agreement dated
as of October 28, 1993 between the Company and the Bain Group, whereby the Bain
Group purchased the number of shares of Common Stock set forth opposite each
Stockholder's name on the Schedule of Purchasers attached thereto.
"Qualified Holder" means any holder (or group of Affiliate holders) of
outstanding shares of Common Stock representing 2% or more of the outstanding
shares of Common Stock of any class.
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of the Company's Common
Stock having an aggregate value of at least $20 million and the listing of the
Common Stock on the New York Stock Exchange, the American Stock Exchange or the
National Association of Securities Dealers, Inc. Automated Quotation System.
"Registration Agreement" means that certain Amended and Restated
Registration Agreement dated as of the date hereof between the Company and
certain of its stockholders.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
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<PAGE>
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.
"Stockholder Shares" means the Bain Shares, the Heller Shares and the
JNL Shares.
"Subsidiary" means with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors is at
the time owned or controlled, directly or indirectly, by that Person or one or
more of the other Subsidiaries of that Person or a combination thereof, or (ii)
if a partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries of
that Person or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of partnership, association or other business entity gains
or losses or shall be or control the managing director or general partner of
such partnership, association or business entity.
"Warrants" means the Heller Warrants.
11. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Stockholder Shares as the owner
of such shares for any purpose.
12. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company, the holders of at
least a majority of the then outstanding Bain Shares, the holders of at least a
majority of the then outstanding Heller Shares and the holders of at least a
majority of the then outstanding JNL Shares. The failure of any party to enforce
any of the provisions of this
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<PAGE>
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
14. Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement, the Purchase Agreement, the Warrants and the
Registration Agreement embody the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
15. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
16. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
17. Remedies. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that the Company and any Stockholder shall have the right to
injunctive relief, in addition to all of its rights and remedies at law or in
equity, to enforce the provisions of this Agreement. Nothing contained in this
Agreement shall be construed to confer upon any Person who is not
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<PAGE>
a signatory hereto any rights or benefits, as a third party beneficiary or
otherwise.
18. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or received by certified mail,
return receipt requested, or sent by reputable overnight courier service
(charges prepaid) to the Company, Heller or JNL at the respective addresses set
forth below and to any other recipient at the address indicated in the Company's
records and to any subsequent holder of Stockholder Shares subject to this
Agreement at such address as indicated by the Company's records, or at such
address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party. Notices will be deemed
to have been given hereunder when delivered personally, three days after deposit
in the U.S. mail (for delivery by certified mail, return receipt requested) and
one day after deposit with a reputable overnight courier service. The
Company's, Heller's and JNL's addresses are:
Nutraceutical International Corporation
c/o Clarte Capital, L.L.C.
185 South State Street
Suite 930
Salt Lake City, Utah 84111
Attention: Frank W. Gay II
Bruce R. Hough
With a copy to:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Robert C. Gay
Geoffrey Rehnert
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: James L. Learner
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<PAGE>
To Heller:
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Portfolio Manager
Portfolio Organization
Corporate Finance Group
With a copy to:
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Legal Department
Portfolio Organization
Corporate Finance Group
To JNL:
Jackson National Life Insurance Company
c/o PPM America, Inc.
225 West Wacker Drive
Suite 1200
Chicago, Illinois 60606
Attention: Private Placements
With a copy to:
Sonnenschein Nath & Rosenthal
1221 Avenue of the Americas
New York, New York 10022
Attention: Philip A. Haber
19. Governing Law. The corporate law of the State of Delaware will
govern all issues concerning the relative rights of the Company and its
stockholders. All other issues concerning this Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the law of any jurisdiction other than the State of New York.
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<PAGE>
20. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Stockholders Agreement on the day and year first above written.
NUTRACEUTICAL INTERNATIONAL CORPORATION
By: /s/Bruce R. Hough
-------------------------------
Its: Vice President
-------------------------------
BAIN CAPITAL FUND IV, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
-------------------------------
Its: Managing Director
-------------------------------
BAIN CAPITAL FUND IV-B, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
------------------------------
Its: Managing Director
-------------------------------
<PAGE>
BCIP ASSOCIATES
By: /s/ Robert C. Gay
------------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ Robert C. Gay
------------------------------
A General Partner
F.W. GAY & SONS
By: /s/ Frank W. Gay II
-------------------------------
Its: Partner
------------------------------
/s/ James L. Learner
-----------------------------------
James L. Learner
HELLER FINANCIAL, INC.
By: (signature illegible)
-------------------------------
Its: Vice President
-------------------------------
JACKSON NATIONAL LIFE
INSURANCE COMPANY
<PAGE>
By: /s/ P.B. Pheffer
-------------------------------
Its: Sr. V.P. & CFO
------------------------------
<PAGE>
SCHEDULE I
Bain Group
----------
Bain Capital Fund IV, L.P.
Bain Capital Fund IV-B, L.P.
BCIP Associates
BCIP Trust Associates, L.P.
F.W. Gay & Sons
James L. Learner
<PAGE>
Exhibit 10-4
------------
AMENDED AND RESTATED REGISTRATION AGREEMENT
-------------------------------------------
THIS AMENDED AND RESTATED REGISTRATION AGREEMENT (this "Agreement") is
made and entered into as of January 31, 1995, by and among Nutraceutical
International Corporation (f/k/a Nutraceutical Corporation), a Delaware
corporation (the "Company"), the Persons listed on Schedule A attached hereto
(the "Bain Stockholders"), Heller Financial, Inc., a Delaware corporation
("Heller"), Jackson National Life Insurance Company, a Michigan insurance
corporation ("JNL"), and the Persons listed on Schedule B attached hereto (the
"Other Stockholders") (the Bain Stockholders, Heller, JNL and the Other
Stockholders are collectively referred to herein as the "Stockholders," and each
as a "Stockholder"). This Agreement amends, restates and supersedes that
certain Registration Agreement dated as of October 28, 1993, by and among the
Company, the Bain Stockholders, Heller and certain other persons. Unless
otherwise provided in this Agreement, capitalized terms used herein shall have
the meanings set forth in paragraph 9 hereof.
The Company's wholly-owned subsidiary, Nutraceutical Corporation
(f/k/a Nutraceutical Newco, Inc.), a Delaware corporation ("Nutraceutical"), its
Subsidiaries, the Company and JNL are parties to a Revolving Credit and Term
Loan Agreement dated January 31, 1995 (the "Credit Agreement") whereby, subject
to the terms and conditions set forth therein, JNL has agreed to make certain
revolving credit and term loans and other financial accommodations to
Nutraceutical and its Subsidiaries. The execution and delivery of this
Agreement by the Company is a condition to JNL's obligation to consummate the
transactions contemplated by the Credit Agreement.
The parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. At any time, the holders of a majority
of the Bain Registrable Securities may request registration under the Securities
Act of all or part of their Registrable Securities on Form S-1 or any similar
long-form
<PAGE>
registration ("Long-Form Registrations") or, if available, on Form S-2 or S-3 or
any similar short-form registration ("Short-Form Registrations"). In addition,
Heller may request registration under the Securities Act of all or a part of the
Heller Registrable Securities pursuant to a Long-Form Registration or Short-Form
Registration under circumstances set forth in paragraph 1(d) below. Each request
for a Demand Registration shall specify the approximate number of Registrable
Securities requested to be registered and the anticipated per share price range
for such offering. Within ten days after receipt of any such request, the
Company will give written notice of such requested registration to all other
holders of Registrable Securities and, subject to paragraph 1(e) below, will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 30 days
after the receipt of the Company's notice. All registrations requested pursuant
to this paragraph 1(a) are referred to herein as "Demand Registrations."
(b) Long-Form Registrations. The holders of a majority of the Bain
Registrable Securities will be entitled to request three Long-Form Registrations
in which the Company will pay all Registration Expenses. A registration will
not count as one of the permitted Long-Form Registrations until it has become
effective, and the last Long-Form Registration will not count as one of the
permitted Long-Form Registrations unless the holders of Registrable Securities
initially requesting such registration have been able to register and sell at
least 90% of the Registrable Securities initially requested to be registered by
such holders; provided that in any event the Company will pay all Registration
Expenses in connection with any registration initiated as a Long-Form
Registration whether or not it has become effective. All Long-Form
Registrations shall be underwritten registrations.
(c) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to paragraph 1(b), the holders of a majority of
the Bain Registrable Securities will be entitled to request unlimited Short-Form
Registrations in which the Company will pay all Registration Expenses. Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. After the Company has become subject to the
reporting requirements of the Securities Exchange
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Act, the Company will use its best efforts to make Short-Form Registrations
available for the sale of Registrable Securities.
(d) Heller Demand Registration Rights. At any time after the
Company's Common Stock is publicly traded on any national securities exchange or
quoted as a NASDAQ "National Market Security," the holders of a majority of the
Heller Registrable Securities will be entitled to request one Long-Form
Registration in which the Company will pay all Registration Expenses (the
"Heller Demand Registration"); provided that the Company will not be obligated
to effect such Heller Demand Registration unless the holders of the Heller
Registrable Securities request to include at least 50% of the Heller Registrable
Securities. A registration will not count as one of the permitted Heller Demand
Registrations until it has become effective, and unless the holders of Heller
Registrable Securities initially requesting such registration have been able to
register and sell at least 75% of the Heller Registrable Securities initially
requested to be registered by such holders; provided that in any event the
Company will pay all Registration Expenses in connection with any registration
initiated as a Heller Demand Registration whether or not it has become
effective. All Heller Demand Registrations which are Long-Form Registrations
shall be underwritten registrations. The Heller Demand Registration will be a
Short-Form Registration if the Company is permitted to use any applicable short
form.
(e) Priority on Demand Registrations. The Company will not include in
any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of a majority of (i) the Bain
Registrable Securities included in such registration, in the case of any Demand
Registration other than a Heller Demand Registration, and (ii) the Heller
Registrable Securities in the case of a Heller Demand Registration. If a Demand
Registration is an underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested to be
included in such offering exceeds the number of Registrable Securities and other
securities, if any, which can be sold therein without adversely affecting the
marketability of the offering, (i) in the case of any Demand Registration other
than a Heller Demand Registration, the Company will include in such registration
prior to the inclusion of any securities which are not Registrable
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Securities the number of Registrable Securities requested to be included which
in the opinion of such underwriters can be sold without adversely affecting the
marketability of the offering, pro rata among the respective holders thereof on
the basis of the number of shares of Registrable Securities owned by each such
holder; provided that if, after the exercise of a Heller Demand Registration,
Heller still holds a portion of the Heller Registrable Securities, the Company
will include such remaining Heller Registrable Securities in such registration
prior to the inclusion of any other Registrable Securities and (ii) in the case
of a Heller Demand Registration, the Company will include in such registration
(A) first, the securities the holders of Heller Registrable Securities propose
to sell, pro rata among the respective holders thereof on the basis of the
number of shares of Registrable Securities owned by each such holder, (B)
second, the Registrable Securities requested to be included in such registration
by the other holders of Registrable Securities, pro rata among such other
holders on the basis of the number of shares of Registrable Securities owned by
each such holder, and (C) third, other securities requested to be included in
such registration.
(f) Restrictions on Demand Registrations. The Company will not be
obligated to effect any Demand Registration within six months after the
effective date of a previous Demand Registration. The Company may postpone for
up to six months the filing or the effectiveness of a registration statement for
a Demand Registration if the Company and the holders of at least a majority of
the Registrable Securities agree that such Demand Registration would reasonably
be expected to have an adverse effect on any proposal or plan by the Company or
any of its Subsidiaries to engage in any acquisition of assets (other than in
the ordinary course of business) or any merger, consolidation, tender offer or
similar transaction; provided, however, that in such event, the holders of
Registrable Securities initially requesting such Demand Regis tration will be
entitled to withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and the Company will pay all Registration Expenses in connection with
such registration.
(g) Selection of Underwriters. The holders of a majority of the Bain
Registrable Securities included in any Demand Registration other than a Heller
Demand Registration will have the
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right to select the investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval which will not be unreasonably
withheld. The Company will have the right to select the investment banker(s) and
manager(s) to administer any Heller Demand Registration, subject to the approval
of a majority of the Heller Registrable Securities included in any Heller Demand
Registration, which will not be unreasonably withheld.
(h) Other Registration Rights. Except as provided in this Agreement,
the Company will not grant to any Person the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of a majority of the Bain Registrable Securities.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any
of its securities (including any proposed registration of the Company's
securities by any third party) under the Securities Act (other than pursuant to
a Demand Registration or a registration on Form S-4 or S-8 or any successor or
similar forms) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), whether or
not for sale for its own account, the Company will give prompt written notice to
all holders of Registrable Securities of its intention to effect such a
registration and, subject to paragraph 2(c) and (d) below, will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 30 days after the receipt
of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing (with a copy to each party hereto
requesting registration of Registrable Securities) that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely
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affecting the marketability of such offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the number of shares owned by each such holder (provided that if, after
the exercise of a Heller Demand Registration, Heller still holds a portion of
the Heller Registrable Securities, the Company will include such remaining
Heller Registrable Securities in such registration prior to the inclusion of any
other Registrable Securities), and (iii) third, other securities requested to be
included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company will include
in such registration (i) first, the securities requested to be included therein
by the holders requesting such registration and the Registrable Securities
requested to be included in such registration, pro rata among the holders of
such securities on the basis of the number of shares owned by each such holder
(provided that if, after the exercise of a Heller Demand Registration, Heller
still holds a portion of the Heller Registrable Securities, the Company will
include such remaining Heller Registrable Securities in such registration prior
to the inclusion of any other securities), and (ii) second, other securities
requested to be included in such registration.
(e) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-4 or S-8 or any successor form), whether on
its own behalf or at the request of any holder or holders of such securities,
until a period of at
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least six months has elapsed from the effective date of such previous
registration.
3. Holdback Agreements.
(a) To the extent not inconsistent with applicable law, each holder
of Registrable Securities agrees not to effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities, options or rights convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 180-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-4 or S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to cause each holder of its
Common Stock, or any securities convertible into or exchangeable or exercisable
for Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
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(a) prepare and (within 60 days after the end of the period within
which requests for registration may be given to the Company) file with the
Securities and Exchange Commission a registration statement with respect to such
Registrable Securities and thereafter use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the holders of a majority of
the Registrable Securities covered by such registration statement copies of all
such documents proposed to be filed, which documents will be subject to review
of such counsel);
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of either (i) not less than six months (subject
to extension pursuant to paragraph 7(b)) or, if such registration statement
relates to an underwritten offering, such longer period as in the opinion of
counsel for the underwriters a prospectus is required by law to be delivered in
connection with sales of Registrable Securities by an underwriter or dealer or
(ii) such shorter period as will terminate when all of the securities covered by
such registration statement have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement (but in any event not before the expiration of any
longer period required under the Securities Act), and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
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(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the discovery of the happening of
any event as a result of which, the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and, at the request of any such
seller, the Company will prepare and furnish to such seller a reasonable number
of copies of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable
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<PAGE>
Securities (including, without limitation, effecting a stock split or a
combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Securities and Exchange Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(l) obtain a comfort letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by comfort
letters as the holders of a majority of the Registrable Securities being sold
reasonably request (provided that such Registrable Securities constitute at
least 10% of the securities covered by such registration statement); and
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<PAGE>
(m) provide a legal opinion of the Company's outside counsel, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), with respect to the registration statement, each
amendment and supplement thereto, the prospectus included therein (including the
preliminary prospectus) and such other documents relating thereto in customary
form and covering such matters of the type customarily covered by legal opinions
of such nature.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne as provided in this Agreement, except
that the Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the NASD
automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
included in such registration.
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(c) To the extent Registration Expenses are not required to be paid by
the Company, each holder of securities included in any registration hereunder
will pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so allocable
will be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered
for each seller.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless, to the extent
permitted by law, each holder of Registrable Secu rities, its officers and
directors and each Person who controls such holder (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities, joint or
several, to which such holder or any such director or officer or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon (i)
any untrue or alleged untrue statement of material fact contained (A) in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or (B) in any application or other document or
communication (in this paragraph 6 collectively called an "application")
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify any securities covered by such registration statement under the "blue
sky" or securities laws thereof, or (ii) any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse such holder and each such
director, officer and controlling person for any legal or any other expenses
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission, made in such registration statement, any such
prospectus or preliminary prospectus or any amendment or supplement thereto, or
in any application, in reliance upon, and in conformity
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with, written information prepared and furnished to the Company by such holder
expressly for use therein or by such holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same. In connection with an underwritten offering, the Company will
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will severally indemnify and
hold harmless the Company, its directors and officers and each other Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities, joint or several, to which such holder or
any such director or officer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon (i) any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or in
any application or (ii) any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
made in such registration statement, any such prospectus or preliminary
prospectus or any amendment or supplement thereto, or in any application, in
reliance upon and in conformity with written information prepared and furnished
to the Company by such holder expressly for use therein, and such holder will
reimburse the Company and each such director, officer and controlling Person for
any legal or any other expenses incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the obligation to indemnify will be
individual to each holder and will be limited to the net
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amount of proceeds received by such holder from the sale of Registrable
Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The parties
hereto agree to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's or
such other party's indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations.
(a) No Person may participate in any registration hereunder which is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements (including, without
limitation, pursuant to the terms of any over-allotment or "green shoe" option
requested by the managing underwriter(s)) and (ii) completes and executes all
questionnaires (provided that, in the case of any selling stockholder who does
not actively
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participate in the management of the Company, such questionnaire will be limited
to information pertinent to such Person in his or its capacity as a selling
stockholder), powers of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
Notwithstanding the foregoing, the parties hereto shall not be obligated to
engage in any transaction which would result in a violation of any federal or
state securities laws or subject any such party to disgorgement under Section
16(b) of the Securities Exchange Act.
(b) Each Person that is participating in any registration hereunder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in paragraph 4(e) above, such Person will forthwith
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person's receipt of the copies of a
supplemented or amended prospectus as contemplated by such paragraph 4(e). In
the event the Company shall give any such notice, the applicable time period
mentioned in paragraph 4(b) during which a Registration Statement is to remain
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to this paragraph to
and including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph 4(e).
8. Current Public Information. At all times after the Company has
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company will file all reports required to be filed by it under
the Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, and will take such
further action as any holder or holders of Registrable Securities may reasonably
request, all to the extent required to enable such holders to sell Registrable
Securities pursuant to Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission.
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9. Definitions.
"Bain Registrable Securities" means (i) any shares of Common Stock
issued to the Bain Stockholders pursuant to the Purchase Agreement, (ii) any
equity securities issued or issuable directly or indirectly with respect to the
securities referred to in clause (i) by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, including a recapitalization or exchange
and (iii) any other shares of Common Stock held by Persons holding securities
described in clause (i) or (ii) above; provided, however, that in the event that
pursuant to such recapitalization or exchange equity securities are issued which
do not participate in the residual equity of the Company ("Non-Participating
Securities"), such Non-Participating Securities will not be Registrable
Securities. As to any particular shares constituting Bain Registrable
Securities, such shares will cease to be Bain Registrable Securities when they
have been (x) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, or (y) sold to the
public through a broker, dealer or market maker pursuant to Rule 144 (or by
similar provision then in force) under the Securities Act.
"Class A Common" means the Class A Common Stock, par value $.01 per
share, of the Company.
"Class A Non-Voting Common" means the Class A Non-Voting Common Stock,
par value $.01 per share, of the Company.
"Class P Common" means the Class P Common Stock, par value $.01 per
share, of the Company.
"Common" means the Common Stock, par value $.01 per share, of the
Company.
"Common Stock" means collectively the Class A Non-Voting Common, Class
A Common, Non-Voting Common, Class P Common and Common.
"Heller Registrable Securities" means (i) any Common Stock issued
upon the conversion of any Class A Non-Voting Common or Non-Voting Common issued
upon the exercise of the Heller
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Warrants, (ii) any equity securities issued or issuable directly or indirectly
with respect to the securities referred to in clause (i) by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, including a
recapitalization or exchange and (iii) any other shares of Common Stock held by
Persons holding securities described in clauses (i) and (ii) above; provided,
however, that in the event that pursuant to such recapitalization or exchange
Non-Participating Securities are issued, such Non-Participating Securities will
not be Registrable Securities. As to any particular shares constituting Heller
Registrable Securities, such shares will cease to be Heller Registrable
Securities when they have been (x) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
or (y) sold to the public through a broker, dealer or market maker pursuant to
Rule 144 (or by similar provision then in force) under the Securities Act.
"Heller Warrants" means those two warrants of the Company dated
October 28, 1993, each as amended on October 31, 1994 and on the date hereof,
whereby Heller has the right to acquire the number of shares of Common Stock set
forth therein.
"JNL Registrable Securities" means (i) any shares of Common Stock
issued to JNL pursuant to the Credit Agreement, (ii) any equity securities
issued or issuable directly or indirectly with respect to the securities
referred to in clause (i) by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization, including a recapitalization or exchange and (iii) any
other shares of Common Stock held by Persons holding securities described in
clauses (i) and (ii) above; provided, however, that in the event that pursuant
to such recapitalization or exchange Non-Participating Securities are issued,
such Non-Participating Securities will not be Registrable Securities. As to any
particular shares constituting JNL Registrable Securities, such shares will
cease to be JNL Registrable Securities when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, or (y) sold to the public through a
broker, dealer or market maker pursuant to Rule 144 (or by similar provision
then in force) under the Securities Act.
-17-
<PAGE>
"KAL Purchase Agreement" means that certain Asset Purchase Agreement
dated as of November 16, 1994, by and among the Company, Makers of KAL, Inc., a
Delaware corporation, Makers of KAL, Inc., a California corporation (c/k/a Old
KAL, Inc.) and certain other persons.
"Management Agreements" means (i) that certain Executive Stock
Agreement dated October 28, 1993, between the Company and Jeffrey A. Hinrichs,
(ii) those certain Executive Stock Agreements dated July 8, 1994, between the
Company and each of (A) James Selander, (B) Farley Quist, (C) Daren Peterson,
and (D) Brent Roth, (iii) that certain Consultant Stock Agreement dated October
28, 1993, between the Company and Bruce R. Hough, (iv) that certain Option
Agreement dated as of October 31, 1994, between the Company and Marshall G.
Campbell, and (v) those certain Option Agreements dated as of November 15, 1994,
between the Company and each of (A) Frank W. Gay II, (B) Bruce R. Hough, and (C)
Jeffrey A. Hinrichs.
"Myers Warrants" means any warrants issued or to be issued to William
E. Myers, Jr., Brian E. Sanderson or David Harvey.
"Non-Voting Common" means the Class A Non-Voting Common Stock, par
value $.01 per share, of the Company.
"Other Registrable Securities" means (i) any shares of Common Stock
issued to the Other Stockholders pursuant to the Management Agreements, (ii)
any shares of Common Stock issued upon exercise of the Myers Warrants, (iii) any
shares of Common Stock issued to the Other Stockholders pursuant to the KAL
Purchase Agreement, (iv) any shares of Common Stock issued to employees of the
Company after the date hereof, which sale has been approved by the Company's
board of directors and identified as being subject to this Agreement, (v) any
equity securities issued or issuable directly or indirectly with respect to the
securities referred to in clauses (i), (ii), (iii) and (iv) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, including a
recapitalization or exchange and (vi) any other shares of Common Stock held by
Persons holding securities described in clauses (i), (ii), (iii), (iv) or (v)
above; provided, however, that in the event that pursuant to such
recapitalization or exchange Non-Participating Securities are issued, such Non-
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<PAGE>
Participating Securities will not be Registrable Securities. As to any
particular shares constituting Other Registrable Securities, such shares will
cease to be Other Registrable Securities when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, or (y) sold to the public through a
broker, dealer or market maker pursuant to Rule 144 (or by similar provision
then in force) under the Securities Act.
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
"Purchase Agreement" means that certain Stock Purchase Agreement dated
as of October 28, 1993 between the Company and the Bain Stockholders, whereby
the Bain Stockholders purchased the number of shares of Common Stock set forth
opposite each Stockholder's name on the Schedule of Purchasers attached thereto.
"Registrable Securities" means collectively Bain Registrable
Securities, Heller Registrable Securities, JNL Registrable Securities and Other
Registrable Securities. For purposes of this Agreement, a Person will be deemed
to be a holder of Registrable Securities whenever such Person has the right to
acquire such Registrable Securities (upon conversion or exercise in connection
with a transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
"Subsidiary" means with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any
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<PAGE>
contingency) to vote in the election of directors is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed
to have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership,
association or business entity.
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Purchase Agreement.
10. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. The Company will
not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would adversely
affect the marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Remedies. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto shall have the right to injunctive relief,
in addition to all of its other rights and remedies at law or in equity, to
enforce the provisions of this Agreement.
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<PAGE>
(d) Amendments and Waivers; Joinder. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company, holders of a majority of the Registrable
Securities, holders of a majority of the Heller Registrable Securities and
holders of a majority of the JNL Registrable Securities; provided, however, that
in the event that such amendment or waiver would treat a holder or group of
holders of Registrable Securities in a manner different from any other holders
of Registrable Securities, then such amendment or waiver will require the
consent of such holder or the holders of a majority of the Registrable
Securities of such group adversely treated. Any employee of the Company who
holds Other Registrable Securities may become a party to this Agreement upon
execution and delivery of a joinder agreement between such employee and the
holders of at least a majority of the Registrable Securities.
(e) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are for
the benefit of the holders of Registrable Securities (or any portion thereof) as
such shall be for the benefit of an enforceable by any subsequent holder of any
Registrable Securities (or of such portion thereof), subject to the provisions
respecting the minimum numbers or percentages of shares of Registrable
Securities (or of such portion thereof) required in order to be entitled to
certain rights, or take certain actions, contained herein.
(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(g) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need
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<PAGE>
not contain the signatures of more than one party, but all such counterparts
taken together will constitute one and the same Agreement.
(h) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(i) Governing Law. The corporate law of the State of Delaware will
govern all issues concerning the relative rights of the Company and its
stockholders. All other issues concerning this Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the law of any jurisdiction other than the State of New York.
(j) Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when personally delivered or
received by certified mail, return receipt requested, or sent by guaranteed
overnight courier service. Such notices, demands and other communications will
be sent to the Bain Stockholders, the Other Stockholders and the holders of the
Myers Warrants at the addresses indicated in the Company's records and to the
Company, Heller and JNL at the addresses indicated below:
Nutraceutical International Corporation
c/o Clarte Capital, L.L.C.
185 South State Street
Suite 930
Salt Lake City, Utah 84111
Attention: Frank W. Gay II
Bruce R. Hough
with a copy to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: James L. Learner
-22-
<PAGE>
To Heller:
---------
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Portfolio Manager
Portfolio Organization
Corporate Finance Group
with a copy to:
--------------
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Legal Department
Portfolio Organization
Corporate Finance Group
To JNL:
------
Jackson National Life Insurance Company
c/o PPM America, Inc.
225 West Wacker Drive
Suite 1200
Chicago, Illinois 60606
Attention: Private Placements
with a copy to:
--------------
Sonnenschein Nath & Rosenthal
1221 Avenue of the Americas
New York, New York 10022
Attention: Philip A. Haber
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Registration Agreement on the day and year first above written.
NUTRACEUTICAL INTERNATIONAL
CORPORATION
By: /s/ Frank W. Gay II
-------------------------------
Its: Chairman
------------------------------
BAIN CAPITAL FUND IV, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
------------------------------
Its: Managing Director
------------------------------
BAIN CAPITAL FUND IV-B, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
------------------------------
Its: Managing Director
------------------------------
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<PAGE>
BCIP ASSOCIATES
By: /s/ Robert C. Gay
------------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ Robert C. Gay
------------------------------
A General Partner
HELLER FINANCIAL, INC.
By: (signature illegible)
-------------------------------
Its: Vice President
-------------------------------
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: /s/ P.B. Pheffer
---------------------------------
Its: Sr. V.P. & C.F.O.
-------------------------------
Makers of KAL, INC., A California
corporation
By: /s/ Stephon Weldon
---------------------------------
Its: President
-----------------------------
<PAGE>
F. W. GAY & SONS
By: /s/ Frank W. Gay II
------------------------------
Its: Partner
------------------------------
/s/ Jeffrey A. Hinrichs
----------------------------------
Jeffrey A. Hinrichs
/s/ Bruce R. Hough
----------------------------------
Bruce R. Hough
/s/ James L. Learner
----------------------------------
James L. Learner
/s/ Frank W. Gay II
----------------------------------
Frank W. Gay II
(unsigned)
----------------------------------
Marshall G. Campbell
/s/ James Selander
----------------------------------
James Selander
/s/ Farley Quist
----------------------------------
Farley Quist
<PAGE>
/s/ Daren Peterson
----------------------------------
Daren Peterson
/s/ Brent Roth
----------------------------------
Brent Roth
/s/ William E. Myers, Jr.
----------------------------------
William E. Myers, Jr.
/s/ Brian E. Sanderson
----------------------------------
Brian E. Sanderson
/s/ David Harvey
----------------------------------
David Harvey
<PAGE>
Schedule A
----------
The Bain Stockholders
---------------------
Bain Capital Fund IV, L.P.
Bain Capital Fund IV-B, L.P.
BCIP Associates, L.P.
BCIP Trust Associates, L.P.
F. W. Gay & Sons
James L. Learner
<PAGE>
Schedule B
----------
The Other Stockholders
----------------------
Old KAL, Inc.
Frank W. Gay II
Bruce R. Hough
Jeffrey A. Hinrichs
Marshall G. Campbell
James Selander
Farley Quist
Daren Peterson
Brent Roth
William E. Myers, Jr.
Brian E. Sanderson
David Harvey
<PAGE>
EXHIBIT 10-5
------------
INVESTOR AGREEMENT
------------------
THIS AGREEMENT is made as of January 31, 1995, by and among
Nutraceutical International Corporation (f/k/a Nutraceutical Corporation), a
Delaware corporation (the "Company"), Makers of KAL, Inc., a California
corporation ("Investor"), Bain Capital Fund IV, L.P., a Delaware limited
partnership, Bain Capital Fund IV-B, L.P., a Delaware limited partnership, BCIP
Associates, a Delaware partnership, and BCIP Trust Associates, L.P., a Delaware
limited partnership.
The Company and Investor have entered into that certain Asset Purchase
Agreement dated as of November 16, 1994 (the "Purchase Agreement"), by and among
the Company, Investor, Makers of KAL, Inc., a Delaware corporation, and the
stockholders of Investor, pursuant to which the Investor received 108,000 shares
of the Company's Common Stock, par value $.0l per share (the "Common"), as part
of the consideration for Investor's assets. The Common issued pursuant to the
Purchase Agreement is referred to herein as "Investor Stock." Certain
definitions are set forth in paragraph 3 of this Agreement.
The parties hereto agree as follows:
1. Restrictions on Transfer of Investor Stock.
(a) Retention of Investor Stock. Investor shall not sell, transfer,
assign, pledge or otherwise dispose of (a "Transfer") any interest in any
Investor Stock, except Transfers pursuant to this paragraph 1, an Approved Sale,
a Public Sale or the consummation of a Public Offering.
(b) Participation Rights. At least 30 days prior to any Transfer of
any class of Common Stock by Bain (other than a Transfer among members of Bain
or its Affiliates that have agreed to be bound by this Agreement or to an
employee of the Company or its Subsidiaries), Bain will deliver a written notice
(the "Sale Notice") to Investor, specifying in reasonable detail the identity of
the prospective transferees) and the terms and conditions of the Transfer. The
Investor may elect to participate in the contemplated Transfer by Bain by
delivering written notice to the Bain within 30 days after delivery of the Sale
Notice. If Investor has elected to participate in such Transfer, each of Bain
and Investor will be entitled to sell in the contemplated Transfer, at the same
price and on the same terms, a number of shares of the same class of Common
Stock proposed to be sold by Bain equal to the product of (i) the quotient
determined by dividing the percentage of such class of Common Stock owned by
Investor by the aggregate percentage of Common Stock owned by Bain, Investor and
any other stockholder of the Company participating in such sale and (ii) the
number of shares of Common Stock to be sold in the contemplated Transfer.
(c) Permitted Transfers. The restrictions contained in this Section
1 shall not apply to a Transfer of Investor Stock (i) pursuant to the laws of
descent and distribution or
<PAGE>
(ii) among such Investor's Affiliates (it being acknowledged and agreed by the
parties hereto that the Investor's Affiliates shall in any event include Stephen
N. Weldon and William T. Logan and each of their respective spouses and any
family trust now or hereafter established by either of them); provided that the
restrictions contained in this Agreement will continue to be applicable to the
Investor Stock after any Transfer and the transferees of such Investor Stock
shall agree in writing to be bound by the provisions of this Agreement. Upon
the Transfer of Investor Stock pursuant to this paragraph 1(c), the transferor
will deliver a written notice to the Company, which notice will disclose in
reasonable detail the identity of such transferee.
(d) First Offer Right. On or after October 28, 1999, at least 30
days prior to making any Transfer of any Investor Stock, Investor shall deliver
a written notice (the "Offer Notice") to the Company and Bain. The Offer Notice
shall disclose in reasonable detail the proposed number of shares of Investor
Stock to be transferred and the proposed sale price, terms and conditions of the
Transfer. First, the Company may elect to purchase all (but not less than all)
of the Investor Stock specified in the Offer Notice at the price and on the
terms specified therein by delivering written notice (the "Company Purchase
Notice") of such election to Investor and Bain as soon as practical but in any
event within ten days after the delivery of the Offer Notice. If the Company
has not elected to purchase all of the Investor Stock within such ten-day
period, Bain may elect to purchase all (but not less than all) of the Investor
Stock specified in the Offer Notice at the price and on the terms specified
therein by delivering written notice (the "Bain Purchase Notice") of such
election to Investor as soon as practical but in any event within 20 days after
delivery of the Offer Notice. If the Company or Bain have elected to purchase
the Investor Stock from Investor, the transfer of such shares shall be
consummated as soon as practical after the delivery of the Company Purchase
Notice or Bain Purchase Notice, but in any event within 30 days after the
delivery of either such notice. To the extent that neither the Company nor Bain
have elected to purchase all of the Investor Stock being offered, Investor may,
within 60 days after a delivery of the Offer Notice, transfer all or any portion
of such Investor Stock to one or more third parties at a price no less than the
price per share specified in the Offer Notice and on other terms no more
favorable to the transferees than offered to the Company and Bain in the Offer
Notice; provided, that Investor may not transfer Investor Stock to more than
five transferees pursuant to this paragraph 1(d). The purchase price specified
in any Company Purchase Notice or Bain Purchase Notice shall be payable solely
in cash at the closing of the transaction or, if mutually agreed upon by the
parties, in installments over time.
(e) Termination of Restrictions. The restrictions set forth in this
paragraph 1 shall continue with respect to each share of Investor Stock until
the earlier of (i) the date on which such share of Investor Stock has been
transferred in a Public Sale, (ii) the consummation of an Approved Sale or (iii)
the consummation of a Qualified Public Offering.
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<PAGE>
2. Additional Restrictions on Transfer.
(a) The certificates representing the Investor Stock will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER
AGREEMENTS SET FORTH IN AN INVESTOR AGREEMENT BETWEEN THE COMPANY AND
AN INVESTOR DATED AS OF JANUARY 31, 1995. A COPY OF SUCH AGREEMENT
MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE
OF BUSINESS WITHOUT CHARGE."
(b) No holder of Investor Stock may sell, transfer or dispose of any
Investor Stock (except pursuant to an effective registration statement under the
1933 Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
3. Definitions.
"1933 Act" means the Securities Act of 1933, as amended from time to
time.
"Affiliate" of a Person means any other person, entity or investment
fund controlling, controlled by or under common control with the Person and, in
the case of a Person which is a partnership, any partner of the Person.
"Bain" means Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P.,
BCIP Associates and BCIP Trust Associates, L.P.
"Common Stock" means the Company's Class P Common Stock, par value
$.0l per share, the Common, Class A Common Stock, par value $.0l per share, Non-
Voting Common, par value $.0l per share, and Class A Non-Voting Common Stock,
par value $.0l per share.
"Investor Stock" will continue to be Investor Stock in the hands of
any holder other than Investor (except for the Company and Bain and except for
transferees in a Public Sale), and except as otherwise provided herein, each
such other holder of Investor Stock will succeed to all
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<PAGE>
rights and obligations attributable to Investor as a holder of Investor Stock
hereunder. Investor Stock will also include shares of the Company's capital
stock issued with respect to Investor Stock by way of a stock split, stock
dividend or other recapitalization.
"Independent Third Party" means any person who, immediately prior to
the contemplated transaction, does not own in excess of 10% of the Company's
equity securities on a fully diluted basis, who is not controlling, controlled
by or under common control with any such 10% owner of the Company's equity
securities and who is not the spouse or descendant (by birth or adoption) of any
such 10% owner of the Company's equity securities.
"Public Sale" means any sale pursuant to a registered public offering
under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated
under the 1933 Act effected through a broker, dealer or market maker.
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the 1933 Act of shares of the Company's Common Stock
having an aggregate value of at least $20 million and the listing of the Common
Stock on the New York Stock Exchange, the American Stock Exchange or the
National Association of Securities Dealers, Inc. Automated Quotation System.
"Sale of the Company" means the sale of the Company to an Independent
Third Party or affiliated group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Company's board of directors (whether by
merger, consolidation or sale or transfer of the Company's capital stock) or
(ii) all or substantially all of the Company's assets determined on a
consolidated basis.
"Subsidiary" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
4. Sale of the Company.
(a) If the Company's Board of Directors and the holders of a majority
of the shares of Common Stock then outstanding approve a Sale of the Company
(collectively an "Approved Sale"), each holder of Investor Stock will consent to
and raise no objections against such Approved Sale. If the Approved Sale is
structured as (i) a merger or consolidation, each holder of Investor Stock will
waive any dissenters, rights, appraisal rights or similar rights in connection
with such merger or consolidation or (ii) sale of stock, each holder of Investor
Stock will agree to sell all of his Investor Stock and rights to acquire
Investor Stock on the terms and conditions approved by the Board of Directors
and the holders of a majority of the Common Stock then outstanding. Each holder
of Investor Stock will take all necessary or reasonably desirable actions in
connection with the consummation of the Approved Sale as requested by the
Company.
-4-
<PAGE>
(b) The obligations of the holders of Investor Stock with respect to
an Approved Sale are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Approved Sale, each holder of Common Stock will
receive the same form of consideration and the same portion of the aggregate
consideration that such holder of Common Stock would have received if such
aggregate consideration had been distributed by the Company in complete
liquidation pursuant to the rights and preferences set forth in the Company's
Certificate of Incorporation as in effect immediately prior to such Approved
Sale; (ii) if any holder of a class of Common Stock are given an option as to
the form and amount of consideration to be received, each holder of such class
of Common Stock will be given the same option; and (iii) each holder of then
currently exercisable rights to acquire shares of a class of Common Stock will
be given an opportunity to exercise such rights prior to the consummation of the
Approved Sale and participate in such sale as the holders of such class of
Common Stock.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Investor Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501 of the 1933 Act) reasonably acceptable to the Company. If
any holder of Investor Stock appoints a purchaser representative designated by
the Company, the Company will pay the fees of such purchaser representative, but
if any holder of Investor Stock declines to appoint the purchaser representative
designated by the Company, such holder will appoint another purchaser
representative, and such holder will be responsible for the fees of the
purchaser representative so appointed.
(d) The holders of Investor Stock will bear their pro-rata share
(based upon the number of shares sold) of the costs of any sale of Investor
Stock pursuant to an Approved Sale to the extent such costs are incurred for the
benefit of all holders of Common Stock and are not otherwise paid by the Company
or the acquiring party. Costs incurred by the holders of Investor Stock on
their own behalf will not be considered costs of the transaction hereunder.
(e) The provisions of this paragraph 4 will terminate upon completion
of a Public Offering.
5. Public Offering. In the event that the Company's Board of
Directors and the holders of a majority of the shares of Common Stock then
outstanding approve an initial public offering and sale of Common Stock (a
"Public Offering") pursuant to an effective registration statement under the
1933 Act, the holders of Investor Stock, in their capacity as shareholders of
the Company, will take all necessary or reasonably desirable actions in
connection with the consummation of the Public Offering. In the event that such
Public Offering is an underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the Common Stock structure will
adversely affect the marketability of the offering, each holder of Investor
Stock will consent to and vote for a recapitalization, reorganization and/or
exchange of the
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<PAGE>
Common Stock into securities that the managing underwriters, the Board of
Directors of the Company and the holders of a majority of the shares of Common
Stock then outstanding find acceptable and, in their capacity as shareholders of
the Company, will take all necessary or reasonably desirable actions in
connection with the consummation of the recapitalization, reorganization and/or
exchange; provided that the resulting securities reflect and are consistent with
the rights and preferences set forth in the Company's Certificate of
Incorporation as in effect immediately prior to such Public Offering.
Notwithstanding the foregoing, nothing in this paragraph 5 shall require the
holders of Investor Stock (i) to incur out-of-pocket expenses (other than
registration expenses not paid by the Company, in which case each holder of
securities included in the registration will pay those registration expenses
allocable to the registration of such holder's securities so included, and any
registration expenses not so allocable will be borne by all sellers of
securities included in such registration in proportion to the aggregate selling
price of the securities to be so registered), (ii) to devote more than a nominal
amount of their personal time to such Public Offering, or (iii) except in their
capacity as selling stockholders, to assume any liability or responsibility for
the content of offering documents or the manner in which the offering is
conducted.
6. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the Company, Bain and the holder of
Investor Stock at the address below indicated:
To the Company:
Nutraceutical International Corporation
c/o Clarte Capital
185 S. State St., Suite 930
Salt Lake City, Utah 84111
with copies to:
Kirkland & Ellis
200 E. Randolph Dr.
Suite 5600
Chicago, Illinois 60601
Attention: James L. Learner
To Bain:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Robert Gay
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<PAGE>
To the holder of Investor Stock:
Makers of KAL, Inc., a California corporation
6415 De Soto Avenue
Woodland Hills, California 91367
Attention: Stephen Weldon
William Logan
With copies to:
Kindel & Anderson
555 South Flower Street
Los Angeles, California 90071
Attention: William Yerkes
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
7. General Provisions.
(a) Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Investor Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Investor Stock as the owner of such stock
for any purpose.
(b) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
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<PAGE>
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Investor, the Company, Bain and their respective successors and assigns
(including subsequent holders of Investor Stock); provided, that the rights and
obligations of Investor under this Agreement shall not be assignable except in
connection with a permitted transfer of Investor Stock hereunder.
(f) Choice of Law. The corporate law of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed by the
internal law, and not the law of conflicts, of the State of Utah.
(g) Remedies. Each of the parties to this Agreement will be entitled
to enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company, the
Investor and Bain.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
NUTRACEUTICAL INTERNATIONAL CORPORATION
By: /s/ Frank W. Gay II
----------------------------------
Its: Chairman
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<PAGE>
MAKERS OF KAL, INC.,
a California corporation
By: /s/ Stephen Weldon
---------------------------------------
Its: President
BAIN CAPITAL FUND IV, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
---------------------------------------
Its:
BAIN CAPITAL FUND IV-B, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
---------------------------------------
Its:
BCIP ASSOCIATES
By: /s/ Robert C. Gay
---------------------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ Robert C. Gay
---------------------------------------
A General Partner
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<PAGE>
Exhibit 10.6
CONSULTANT STOCK AGREEMENT
--------------------------
THIS AGREEMENT is made as of October 28, 1993, between Nutraceutical
Corporation, a Delaware corporation (the "Company"), and Bruce R. Hough
("Consultant").
The Company and Consultant desire to enter into an agreement pursuant
to which Consultant will purchase, and the Company will sell, Class P Common
Stock, par value $.01 per share (the "Class P Common"), and shares of the
Company's Common Stock, par value $.01 per share (the "Common"). All of such
shares of Class P Common and Common and all shares of Class P Common and Common
hereafter acquired by Consultant are referred to herein as "Consultant Stock."
Certain definitions are set forth in paragraph 4 of this Agreement.
The parties hereto agree as follows:
1. Purchase and Sale of Consultant Stock.
(a) Upon execution of this Agreement, Consultant will purchase, and
the Company will sell 2,500 shares of Class P Common at a price per share of
$20.25 and 5,625 shares of Common at a price of $0.25 per share. The Company
will deliver to Consultant a copy of, and a receipt for, the certificate
representing such Class P Common and Common, and Consultant will deliver to the
Company a check or wire transfer of funds in the amount of $250.00 and a
promissory note in the form attached hereto in an aggregate principal amount of
$56,000 (the "Consultant Note"). Consultant's obligations under the Consultant
Note will be secured by a pledge of all of the shares of Consultant Stock to the
Company and in connection therewith Consultant shall enter into a pledge
agreement in the form of Exhibit B attached hereto.
(b) Within 30 days after Consultant purchases any Consultant Stock
from the Company, Consultant will make an effective election with the Internal
Revenue Service under Section 83(b) of the Internal Revenue Code and the
regulations promulgated thereunder in the form of Exhibit A attached hereto.
(c) In connection with the purchase and sale of the Consultant Stock
hereunder, Consultant represents and warrants to the Company that:
<PAGE>
(i) The Consultant Stock to be acquired by Consultant pursuant to this
Agreement will be acquired for Consultant's own account and not with a view
to, or intention of, distribution thereof in violation of the 1933 Act, or
any applicable state securities laws, and the Consultant Stock will not be
disposed of in contravention of the 1933 Act or any applicable state
securities laws.
(ii) Consultant is sophisticated in financial matters and is able to
evaluate the risks and benefits of the investment in the Consultant Stock.
(iii) Consultant is able to bear the economic risk of his investment
in the Consultant Stock for an indefinite period of time because the
Consultant Stock has not been registered under the 1933 Act and, therefore,
cannot be sold unless subsequently registered under the 1933 Act or an
exemption from such registration is available.
(iv) Consultant has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Consultant
Stock and has had full access to such other information concerning the
Company as he has requested. Consultant has reviewed, or has had an
opportunity to review, a copy of the Stock Purchase Agreement, dated
October 12, 1993, between the Company, Solaray, Inc., a Utah corporation
("Solaray") and James L. Beck ("Seller") pursuant to which the Company
acquired all of the stock of Solaray and Consultant is familiar with the
transactions contemplated thereby. Consultant has also reviewed, or has had
an opportunity to review, the following documents: (A) the Company's
Certificate of Incorporation and Bylaws; (B) the loan agreements, notes and
related documents with the Company's lenders; and (C) the Company's pro
forma balance sheet dated as of the date hereof.
(v) This Agreement constitutes the legal, valid and binding obligation
of Consultant, enforceable in accordance with its terms, and the execution,
delivery and performance of this Agreement by Consultant does not and will
not conflict with, violate or cause a breach of any agreement, contract or
instrument to which Consultant is a party or any judgment, order or decree
to which Consultant is subject.
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<PAGE>
(d) As an inducement to the Company to issue the Consultant Stock to
Consultant, as a condition thereto, Consultant acknowledges and agrees that:
(i) neither the issuance of the Consultant Stock to Consultant nor any
provision contained herein shall entitle Consultant to remain in the
employment of the Company and its Subsidiaries or affect the right of the
Company to terminate Consultant's employment at any time for any reason;
and
(ii) the Company shall have no duty or obligation to disclose to
Consultant, and Consultant shall have no right to be advised of, any
material information regarding the Company and its Subsidiaries at any time
prior to, upon or in connection with the repurchase of Consultant Stock
upon the termination of Consultant's employment with the Company and its
Subsidiaries or as otherwise provided hereunder.
2. Repurchase Option.
(a) In the event the Consultant's consulting arrangement with the
Company and its Subsidiaries is terminated for any reason (the "Termination"),
the Consultant Stock (whether held by Consultant or one or more of Consultant's
transferees) will be subject to repurchase by the Company and the Investors
pursuant to the terms and conditions set forth in this paragraph 3 (the
"Repurchase Option").
(b) If Consultant's consulting arrangement with the Company is
terminated (i) prior to the second anniversary of the date hereof and (ii) by
the Company for Cause or as a result of Consultant's voluntary termination of
such arrangement, the purchase price for each share of Consultant Stock will be
Consultant's Original Cost for such share (with shares having the lowest cost
subject to repurchase prior to shares with a higher cost), otherwise, the
purchase price for each share of Consultant Stock will be the Fair Market Value
for such share.
(c) The Board may elect to purchase all or any portion of the shares
of Consultant Stock by delivering written notice (the "Repurchase Notice") to
the holder or holders of the Consultant Stock within 90 days after the
Termination. The Repurchase Notice
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<PAGE>
will set forth the number of shares of Consultant Stock to be acquired from each
holder, the aggregate consideration to be paid for such shares and the time and
place for the closing of the transaction. The number of shares to be
repurchased by the Company shall first be satisfied to the extent possible from
the shares of Consultant Stock held by Consultant at the time of delivery of the
Repurchase Notice. If the number of shares of Consultant Stock then held by
Consultant is less than the total number of shares of Consultant Stock the
Company has elected to purchase, the Company shall purchase the remaining shares
elected to be purchased from the other holder(s) of Consultant Stock under this
Agreement, pro rata according to the number of shares of Consultant Stock held
by such other holder(s) at the time of delivery of such Repurchase Notice
(determined as nearly as practicable to the nearest share). The number of shares
of Consultant Stock to be repurchased hereunder will be allocated among
Consultant and the other holders of Consultant Stock (if any) pro rata according
to the number of shares of Consultant Stock to be purchased from such persons.
(d) If for any reason the Company does not elect to purchase all of
the Consultant Stock pursuant to the Repurchase Option, the Investors shall be
entitled to exercise the Repurchase Option for the shares of Consultant Stock
the Company has not elected to purchase (the "Available Shares"). As soon as
practicable after the Company has determined that there will be Available
Shares, but in any event within 45 days after the Termination, the Company shall
give written notice (the "Option Notice") to the Investors setting forth the
number of Available Shares and the purchase price for the Available Shares. The
Investors may elect to purchase any or all of the Available Shares by giving
written notice to the Company within 30 days after the Option Notice has been
given by the Company. If the Investors elect to purchase an aggregate number of
shares greater than the number of Available Shares, the Available Shares shall
be allocated among the Investors based upon the number of shares of Common Stock
owned by each Investor on a fully diluted basis. As soon as practicable, and in
any event within ten days after the expiration of the 30-day period set forth
above, the Company shall notify each holder of Consultant Stock as to the number
of shares being purchased from such holder by the Investors (the "Supplemental
Repurchase Notice"). At the time the Company delivers the Supplemental
Repurchase Notice to the holder(s) of Consultant Stock, the Company shall also
deliver written notice to each
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<PAGE>
Investor setting forth the number of shares such Investor is entitled to
purchase, the aggregate purchase price and the time and place of the closing of
the transaction. The number of shares of Consultant Stock to be repurchased
hereunder shall be allocated among the Company and the Investors pro rata
according to the number of shares of Consultant Stock to be purchased by each of
them.
(e) The closing of the purchase of the Consultant Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 60 days nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or the Investors will pay
for the Consultant Stock to be purchased pursuant to the Repurchase Option by
delivery of, in the case of each Investor, a check or wire transfer of funds
and, in the case of the Company, (i) a check or wire transfer of funds, (ii) a
subordinate note or notes payable in up to, three equal annual installments
beginning on the first anniversary of the closing of such purchase and bearing
interest (payable quarterly) at a rate per annum equal to the Base Rate (as
defined in the Company's credit agreement) or (iii) both (i) and (ii), in the
aggregate amount of the purchase price for such shares; provided that the
Company shall use reasonable efforts to make all such repurchases with a check
or wire transfer of funds. Any notes issued by the Company pursuant to this
paragraph 2(e) shall be subject to any restrictive covenants to which the
Company is subject at the time of such purchase. In addition, the Company may
pay the purchase price for such shares by offsetting amounts outstanding under
the Consultant Note issued to the Company hereunder and any other bona fide
debts owed by Consultant to the Company. The purchasers of Consultant Stock
hereunder will be entitled to receive customary representations and warranties
from the sellers regarding such sale and to require all sellers' signatures be
guaranteed.
(f) The right of the Company and the Investors to repurchase Vested
Shares pursuant to this paragraph 2 shall terminate upon the first to occur of
the Sale of the Company or a Public Offering.
(g) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Consultant Stock by the
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<PAGE>
Company shall be subject to applicable restrictions contained in the Delaware
General Corporation Law and in the Company's and its Subsidiaries debt and
equity financing agreements. If any such restrictions prohibit the repurchase of
Consultant Stock hereunder which the Company is otherwise entitled or required
to make, the Company may make such repurchases as soon as it is permitted to do
so under such restrictions.
3. Restrictions on Transfer of Stockholder Shares.
(a) Retention of Consultant Stock. Consultant shall not sell,
transfer, assign, pledge or otherwise dispose of (a "Transfer") any interest in
any Consultant Stock, except Transfers pursuant to paragraph 2, this paragraph
3, an Approval Sale or a Public Sale.
(b) Participation Rights. At least 30 days prior to any Transfer of
any class of Common Stock by the Investors (other than a Transfer among members
of the Investors or their Affiliates or to an employee of the Company or its
Subsidiaries), the Investors will deliver a written notice (the "Sale Notice")
to Consultant, specifying in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the Transfer. The Consultant may
elect to participate in the contemplated Transfer by the Investors by delivering
written notice to the Investors within 30 days after delivery of the Sale
Notice. If Consultant has elected to participate in such Transfer, the Investors
and Consultant will be entitled to sell in the contemplated Transfer, at the
same price and on the same terms, a number of shares of the same class of Common
Stock proposed to be sold by the Investors equal to the product (i) the quotient
determined by dividing the percentage of Consultant Stock owned by Investors by
the aggregate percentage of Common Stock owned by the Investors, the Consultant
and any other stockholders of the Company participating in such sale and (ii)
the number of shares of Common Stock to be sold in the contemplated Transfer.
For example, if the Sale Notice contemplated a sale of 100 Stockholder
Shares by the Investors, and if the Investors at such time owns 30% of all
Common Stock and if Consultant elects to participate and owns 20% of all
Common Stock, the Investors would be entitled to sell 60
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<PAGE>
shares (30% / 50% x 100 shares) and the Consultant would be entitled to
sell 40 shares (20% / 50% x 100 shares).
The Investors shall use best efforts to obtain the agreement of the prospective
transferee(s) to the participation of the Consultant in any contemplated
Transfer, and will not transfer any of its Common Stock to the prospective
transferee(s) if the prospective transferee(s) declines to allow the
participation of the Common Stock.
(c) Permitted Transfers. The restrictions contained in this Section 3
shall not apply to (i) a Transfer of Consultant Stock pursuant to the laws of
descent and (ii) distribution or among such Consultant's Family Group, provided
that the restrictions contained in this Agreement will continue to be applicable
to the Consultant Stock after any Transfer and the transferees of such
Consultant Stock shall agree in writing to be bound by the provisions of this
Agreement. Upon the Transfer of Consultant Stock pursuant to this paragraph
3(c), the transferees will deliver a written notice to the Company, which notice
will disclose in reasonable detail the identity of such transferee. Consultant's
"Family Group" means Consultant's spouse and descendants (whether natural or
adopted) and any trust solely for the benefit of Consultant and/or Consultant's
spouse and/or descendants.
(d) Termination of Restrictions. The restrictions set forth in this
paragraph 3 shall continue with respect to each share of Consultant Stock until
the earlier of (i) the date on which such share of Consultant Stock has been
transferred in a Public Sale, (ii) the consummation of an Approved Sale or (iii)
the consummation of a Public Offering.
4. Additional Restrictions on Transfer.
(a) The certificates representing the Consultant Stock will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS
OF OCTOBER 28, 1993 HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE
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<PAGE>
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS SET FORTH IN AN CONSULTANT STOCK AGREEMENT BETWEEN THE COMPANY
AND BRUCE R. HOUGH DATED AS OF OCTOBER 28, 1993. A COPY OF SUCH AGREEMENT
MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE."
(b) No holder of Consultant Stock may sell, transfer or dispose of
any Consultant Stock (except pursuant to an effective registration statement
under the 1933 Act) without first delivering to the Company an opinion of
counsel (reasonably acceptable in form and substance to the Company) that
neither registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
(c) Definitions.
"Cause" shall mean (i) the conviction of a felony or the commission of
any other act involving willful malfeasance in connection with Consultant's
consulting arrangement with the Company having an adverse effect on the Company
or any of its Subsidiaries, (ii) substantial refusal by Consultant to perform
the duties requested by the Company's Board of Directors, or (iii) gross
negligence or willful misconduct by Consultant with respect to the Company or
any of its Subsidiaries having the effect of materially injuring the reputation
of the Company or any of its Subsidiaries or materially injuring any customer,
supplier, employee or other business relationships of the Company or any of its
Subsidiaries.
"Common Stock" means the Class P Common, Common, Class A Common Stock,
par value $.01 per share, Non-Voting Common, par value $.01 per share, and Class
A Non-Voting Common Stock, par value $.01 per share, of the Company.
"Consultant Stock" will continue to be Consultant Stock in the hands
of any holder other than Consultant (except for the Company and the Investors
and except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Consultant Stock will succeed to all rights
and obliga tions attributable to Consultant as a holder of Consultant Stock
hereunder. Consultant Stock will also include shares of the
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<PAGE>
Company's capital stock issued with respect to Consultant Stock by way of a
stock split, stock dividend or other recapitalization.
"Fair Market Value" of each share of Consultant Stock means the
average of the closing prices of the sales of the Company's Common Stock on all
securities exchanges on which the Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, if on any day the Common Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive business days prior to
such day. If at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the Fair
Market Value will be the fair value of the Common Stock determined in good faith
by the Board of Directors of the Company.
"Independent Third Party" means any person who, immedi ately prior to
the contemplated transaction, does not own in excess of 5% of the Company's
equity securities on a fully diluted basis, who is not controlling, controlled
by or under common control with any such 5% owner of the Company's equity
securities and who is not the spouse or descendent (by birth or adoption) of any
such 5% owner of the Company's equity securities.
"Investors" means Bain Capital Fund IV, L.P., Bain Capital Fund IV-B,
L.P., BCIP Associates and BCIP Trust Associates, L.P.
"1933 Act" means the Securities Act of 1933, as amended from time to
time.
"Original Cost" of each share of Class P Common purchase hereunder
will be equal to $20.25 and Common purchased hereunder will be equal to $0.25
(as proportionately adjusted for all subsequent stock splits, stock dividends
and other recapitalizations).
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<PAGE>
"Public Sale" means any sale pursuant to a registered public offering
under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated
under the 1933 Act effected through a broker, dealer or market maker.
"Sale of the Company" means the sale of the Company to an Independent
Third Party or affiliated group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Company's board of directors (whether by
merger, consolidation or sale or transfer of the Company's capital stock) or
(ii) all or substantially all of the Company's assets determined on a
consolidated basis.
"Subsidiary" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
5. Sale of the Company.
(a) If the Company's Board of Directors and the holders of a majority
of the shares of Common Stock then outstanding approve a Sale of the Company
(collectively an "Approved Sale"), each holder of Consultant Stock will consent
to and raise no objections against such Approved Sale. If the Approved Sale is
structured as (i) a merger or consolidation, each holder of Consultant Stock
will waive any dissenters rights, appraisal rights or similar rights in
connection with such merger or consolidation or (ii) sale of stock, each holder
of Consultant Stock will agree to sell all of his Consultant Stock and rights to
acquire Consultant Stock on the terms and conditions approved by the Board of
Directors and the holders of a majority of the Common Stock then outstanding.
Each holder of Consultant Stock will take all necessary or desirable actions in
connection with the consummation of the Approved Sale as requested by the
Company.
(b) The obligations of the holders of Consultant Stock with respect
to an Approved Sale are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Approved Sale, each holder of Common Stock will
receive the same form of consideration and the same portion of the aggregate
consideration that such holders of Common Stock would have received if such
aggregate consideration had been distributed by the Company in
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<PAGE>
complete liquidation pursuant to the rights and preferences set forth in the
Company's Certificate of Incorporation as in effect immediately prior to such
Approved Sale; (ii) if any holders of a class of Common Stock are given an
option as to the form and amount of consideration to be received, each holder of
such class of Common Stock will be given the same option; and (iii) each holder
of then currently exercisable rights to acquire shares of a class of Common
Stock will be given an opportunity to exercise such rights prior to the
consummation of the Approved Sale and participate in such sale as holders of
such class of Common Stock.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Consultant Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501 of the Securities Act) reasonably acceptable to the Company.
If any holder of Consultant Stock appoints a purchaser representative designated
by the Company, the Company will pay the fees of such purchaser representative,
but if any holder of Consultant Stock declines to appoint the purchaser
representative designated by the Company, such holder will appoint another
purchaser representative, and such holder will be responsible for the fees of
the purchaser representative so appointed.
(d) Holders of Consultant Stock will bear their pro-rata share (based
upon the number of shares sold) of the costs of any sale of Consultant Stock
pursuant to an Approved Sale to the extent such costs are incurred for the
benefit of all holders of Common Stock and are not otherwise paid by the Company
or the acquiring party. Costs incurred by holders of Consultant Stock on their
own behalf will not be considered costs of the transaction hereunder.
(e) The provisions of this paragraph 6 will terminate upon completion
of a Public Offering.
6. Public Offering. In the event that the Company's Board of
Directors and the holders of a majority of the shares of Common Stock then
outstanding approve an initial public offering and sale of Common Stock (a
"Public Offering") pursuant to an effective registration statement under the
Securities Act, as
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<PAGE>
amended, the holders of Consultant Stock will take all necessary or desirable
actions in connection with the consummation of the Public Offering. In the
event that such Public Offering is an underwritten offering and the managing
underwriters advise the Company in writing that in their opinion the Common
Stock structure will adversely affect the marketability of the offering, each
holder of Consultant Stock will consent to and vote for a recapitalization,
reorganization and/or exchange of the Common Stock into securities that the
managing underwriters, the Board and holders of a majority of the shares of
Common Stock then outstanding find acceptable and will take all necessary or
desirable actions in connection with the consummation of the recapitalization,
reorganization and/or exchange; provided that the resulting securities reflect
and are consistent with the rights and preferences set forth in the Company's
Certificate of Incorporation as in effect immediately prior to such Public
Offering.
7. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company:
Nutraceutical Corporation
c/o Clarte Capital
185 S. State St., Suite 930
Salt Lake City, Utah 84111
With copies to:
Kirkland & Ellis
200 E. Randolph Dr.
Suite 5600
Chicago, IL 60601
Attention: James L. Learner
To Consultant:
Bruce R. Hough
c/o Clarte Capital
185 S. State, Suite 930
Salt Lake City, Utah 84111
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<PAGE>
To the Investors:
Bain Capital
Two Copley Place
Boston, MA 02116
Attention: Robert Gay
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
8. General Provisions.
(a) Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Consultant Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Consultant Stock as the owner of such
stock for any purpose.
(b) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original
-13-
<PAGE>
and all of which taken together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by
Consultant, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Consultant Stock); provided that the
rights and obligations of Consultant under this Agreement shall not be
assignable except in connection with a permitted transfer of Consultant Stock
hereunder.
(f) Choice of Law. The corporate law of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions con cerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed by the
internal law, and not the law of conflicts, of the State of Illinois.
(g) Remedies. Each of the parties to this Agreement (including the
Investors) will be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company,
Consultant the Investors owning a majority of the Company's equity securities on
a fully diluted basis held by all Investors.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
NUTRACEUTICAL CORPORATION
By /s/ Robert C. Gay
----------------------------
Its President
---------------------------
/s/ Bruce R. Hough
-------------------------------
Bruce R. Hough
Agreed and Accepted:
BAIN CAPITAL FUND IV, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: (signature illegible)
------------------------------
Its: Managing Director
-----------------------------
BAIN CAPITAL FUND IV-B, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: (signature illegible)
------------------------------
Its: Managing Director
-----------------------------
BCIP ASSOCIATES
<PAGE>
By: (signature illegible)
--------------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: (signature illegible)
--------------------------------
A General Partner
-16-
<PAGE>
Exhibit A
---------
October 28, 1993
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased shares of Common Stock, par value $.01 per
share (the "Shares"), of Nutraceutical Corporation (the "Company") on October
28, 1993. Under certain circumstances, the Company has the right to repurchase
the Shares at cost from the undersigned (or from the holder of the Shares, if
different from the undersigned) should the undersigned cease to be a consultant
to the Company and its subsidiaries. Hence, the Shares are subject to a
substantial risk of forfeiture and are non-transferable. The undersigned desires
to make an election to have the Shares taxed under the provision of Code
(S)83(b) at the time he purchased the Shares.
Therefore, pursuant to Code (S)83(b) and Treasury Regulation (S)1.83-
2 promulgated thereunder, the undersigned hereby makes an election, with respect
to the Shares (described below), to report as taxable income for calendar year
1993 the excess (if any) of the Shares' fair market value on October 28, 1993
over purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation (S)1.83-2(e):
1. The name, address and social security number of the undersigned:
Bruce R. Hough
c/o Clarte Capital
185 S. State, Suite 930
Salt Lake City, Utah 84111
Social Security Number: ____________
2. A description of the property with respect to which the election is
being made: 2,500 shares of Class P Common Stock, par value $.01 per share, and
2,500 shares of Common Stock, par value $.01 per share.
<PAGE>
3. The date on which the property was transferred: October 28, 1993.
The taxable year for which such election is made: calendar 1993.
4. The restrictions to which the property is subject: If during the
first 2 years after the purchase of the Shares the undersigned ceases to be a
consultant to the Company or any of its subsidiaries, the Shares will be subject
to repurchase by the Company at cost.
5. The fair market value on October 28, 1993 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $20.25 per share of Class P Common Stock and $0.25 per share
of Common Stock.
6. The amount paid for such property: $20.25 per share of Class P
Common Stock and $0.25 per share of Common Stock.
A copy of this election has been furnished to the Secretary of the
Company pursuant to Treasury Regulations (S)1.83-2(e)(7).
Dated: __________________ ________________________________________
BRUCE R. HOUGH
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<PAGE>
PROMISSORY NOTE
---------------
$56,000.00 October 28, 1993
For value received, Bruce R. Hough ("Consultant") promises to pay to
the order of Nutraceutical Corporation, a Delaware corporation (the "Company"),
at such place as designated in writing by the holder hereof, the aggregate
principal sum of $56,000. This Note was issued pursuant to and is subject to
the terms of the Consultant's Stock Agreement, dated as of October 28, 1993,
between the Company and Consultant.
Interest will accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) 6% per annum or (ii) the highest rate
permitted by applicable law, and shall be payable at such time as the principal
of this Note becomes due and payable.
The principal amount of this Note shall be payable in four annual
installments of $11,200 on October 28, 1994, $11,200 on October 28, 1995 and
$16,800 on October 28, 1996, with the entire unpaid principal amount together
with all accrued and unpaid interest being due and payable on October 28, 1997.
The amounts due under this Note are secured by a pledge of 2,500
shares of the Company's Class P Common Stock and 22,500 shares of the Company's
Common Stock. The payment of the principal amount of this Note is subject to
certain offset rights under the Consultant Stock Agreement.
In the event Consultant fails to pay any amounts due hereunder when
due, Consultant shall pay to the holder hereof, in addition to such amounts due,
all costs of collection, including reasonable attorneys fees.
Consultant, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of Consultant hereunder.
<PAGE>
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
-----------------------------------------
BRUCE R. HOUGH
-2-
<PAGE>
Exhibit B
---------
CONSULTANT STOCK PLEDGE AGREEMENT
---------------------------------
THIS PLEDGE AGREEMENT is made as of October 28, 1993 between Bruce R.
Hough ("Pledgor"), and Nutraceutical Corporation, a Delaware corporation (the
"Company").
The Consultant has purchased 2,500 shares of Class P Common Stock of
the Company's par value $.01 per share, and 22,500 shares of the Company's
Common Stock, $.01 par value (collectively, the "Pledged Shares"), with funds
received pursuant to a promissory note (the "Note") in the aggregate principal
amount of $56,000. This Pledge Agreement provides the terms and conditions upon
which the Note is secured by a pledge to the Company of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
partial payment for the Pledged Shares, Pledgor and the Company hereby agree as
follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on the
Note or any other default under the Note, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, the Company shall
retain all such cash dividends payable on the Pledged Shares as additional
security hereunder.
<PAGE>
4. Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
interest under the Note as it becomes due (whether upon demand, acceleration or
otherwise) or any other event of default under the Note occurs (including the
bankruptcy or insolvency of Pledgor), the Company may exercise any and all the
rights, powers and remedies of any owner of the Pledged Shares (including the
right to vote the shares and receive dividends and distributions with respect to
such shares) and shall have and may exercise without demand any and all the
rights and remedies granted to a secured party upon default under the Uniform
Commercial Code of Illinois or otherwise available to the Company under
applicable law. Without limiting the foregoing, the Company is authorized to
sell, assign and deliver at its discretion, from time to time, all or any part
of the Pledged Shares at any private sale or public auction, on not less than
ten days written notice to Pledgor, at such price or prices and upon such terms
as the Company may deem advisable. Pledgor shall have no right to redeem the
Pledged Shares after any such sale or assignment. At any such sale or auction,
the Company may bid for, and become the purchaser of, the whole or any part of
the Pledged Shares offered for sale. In case of any such sale, after deducting
the costs, attorneys' fees and other expenses of sale and delivery, the
remaining proceeds of such sale shall be applied to the principal of and accrued
interest on the Note; provided, however, that after payment in full of the
indebtedness evidenced by the Note, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Shares remaining in the hands of the Company. Pledgor
shall be liable for any deficiency if the remaining proceeds are insufficient to
pay the indebtedness under the Note in full, including the fees of any attorneys
employed by the Company to collect such deficiency.
-2-
<PAGE>
6. Costs and Attorneys' Fees. All costs and expenses, including
reasonable attorneys' fees, incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of the Company, Pledgor will execute and
deliver such further documents and do such further acts and things as the
Company may reasonably request in order to effect the purposes of this Pledge
Agreement.
9. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10. No Waiver; Cumulative Remedies. The Company shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
11. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing,
-3-
<PAGE>
duly executed by the parties hereto. This Agreement and all obligations of the
Pledgor hereunder shall together with the rights and remedies of the Company
hereunder, inure to the benefit of the Company and its successors and assigns.
This Pledge Agreement shall be governed by, and be construed and interpreted in
accordance with, the laws of the State of Illinois.
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
date first above written.
-----------------------------------------
Bruce R. Hough
NUTRACEUTICAL CORPORATION
By
--------------------------------------
Its
-------------------------------------
-4-
<PAGE>
Exhibit 10-7
------------
EXECUTIVE STOCK AGREEMENT
-------------------------
THIS AGREEMENT is made as of October 28, 1993, between Nutraceutical
Corporation, a Delaware corporation (the "Company"), and Jeffrey A. Hinrichs
("Executive").
The Company and Executive desire to enter into an agreement pursuant
to which Executive will purchase, and the Company will sell, Class P Common
Stock, par value $.01 per share (the "Class P Common"), and shares of the
Company's Common Stock, par value $.01 per share (the "Common"). All of such
shares of Class P Common and Common and all shares of Class P Common and Common
hereafter acquired by Executive are referred to herein as "Executive Stock."
Certain definitions are set forth in paragraph 5 of this Agreement.
The parties hereto agree as follows:
1. Purchase and Sale of Executive Stock.
(a) Upon execution of this Agreement, Executive will purchase, and the
Company will sell 2,500 shares of Class P Common at a price per share of $20.25
and 22,500 shares of Common at a price of $0.25 per share. The Company will
deliver to Executive a copy of, and a receipt for, the certificate representing
such Class P Common and Common, and Executive will deliver to the Company a
check or wire transfer of funds in the amount of $250.00 and a promissory note
in the form of attached hereto in an aggregate principal amount of $56,000 (the
"Executive Note"). Executive's obligations under the Executive Note will be
secured by a pledge of all of the shares of Executive Stock to the Company and
in connection therewith Executive shall enter into a pledge agreement in the
form of Exhibit B attached hereto.
(b) Within 30 days after Executive purchases any Executive Stock from
the Company, Executive will make an effective election with the Internal Revenue
Service under Section 83(b) of the Internal Revenue Code and the regulations
promulgated there under in the form of Exhibit A attached hereto.
(c) In connection with the purchase and sale of the Executive Stock
hereunder, Executive represents and warrants to the Company that:
<PAGE>
(i) The Executive Stock to be acquired by Executive pursuant to this
Agreement will be acquired for Executive's own account and not with a view
to, or intention of, distribution thereof in violation of the 1933 Act, or
any applicable state securities laws, and the Executive Stock will not be
disposed of in contravention of the 1933 Act or any applicable state
securities laws.
(ii) Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock.
(iii) Executive is able to bear the economic risk of his investment in
the Executive Stock for an indefinite period of time because the Executive
Stock has not been registered under the 1933 Act and, therefore, cannot be
sold unless subsequently registered under the 1933 Act or an exemption from
such registration is available.
(iv) Executive has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Executive
Stock and has had full access to such other information concerning the
Company as he has requested. Executive has reviewed, or has had an
opportunity to review, a copy of the Stock Purchase Agreement, dated
October 12, 1993, between the Company, Solaray, Inc., a Utah corporation
("Solaray") and James L. Beck ("Seller") pursuant to which the Company
acquired all of the stock of Solaray and Executive is familiar with the
transactions contemplated thereby. Executive has also reviewed, or has had
an opportunity to review, the following documents: (A) the Company's
Certificate of Incorporation and Bylaws; (B) the loan agreements, notes and
related documents with the Company's lenders; and (C) the Company's pro
forma balance sheet dated as of the date hereof.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by Executive does not
and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Executive is a party or any judgment, order
or decree to which Executive is subject.
-2-
<PAGE>
(d) As an inducement to the Company to issue the Executive Stock to
Executive, as a condition thereto, Executive acknowledges and agrees that:
(i) neither the issuance of the Executive Stock to Executive nor any
provision contained herein shall entitle Executive to remain in the
employment of the Company and its Subsidiaries or affect the right of the
Company to terminate Executive's employment at any time for any reason; and
(ii) the Company shall have no duty or obligation to disclose to
Executive, and Executive shall have no right to be advised of, any material
information regarding the Company and its Subsidiaries at any time prior
to, upon or in connection with the repurchase of Executive Stock upon the
termination of Executive's employment with the Company and its Subsidiaries
or as otherwise provided hereunder.
2. Vesting of Executive Stock.
(a) Except as otherwise provided in paragraph 2(b) below, ten percent
(10%) of the Executive Stock will vest upon the date hereof and the remaining
Executive Stock will become vested in accordance with the following schedule, if
as of each such date Executive is still employed by the Company or any of its
Subsidiaries:
Cumulative
Percentage of Executive
Date Stock Vested
---------- -----------------------
October 28, 1994 30%
October 28, 1995 50%
October 28, 1996 80%
October 28, 1997 100%
(b) Upon the occurrence of a Sale of the Company or a Public
Offering, all shares of Executive Stock which have not yet become vested shall
become vested at the time of such event. Shares of Executive Stock which have
become vested are referred to herein as "Vested Shares," and all other shares of
Executive Stock are referred to herein as "Unvested Shares."
-3-
<PAGE>
3. Repurchase Option.
(a) In the event Executive ceases to be employed by the Company and
its Subsidiaries for any reason (the "Termination"), the Executive Stock
(whether held by Executive or one or more of Executive's transferees) will be
subject to repurchase by the Company and the Investors pursuant to the terms and
conditions set forth in this paragraph 3 (the "Repurchase Option").
(b) If Executive's employment is terminated by the Company other than
for Cause or if Executive's employment is terminated by the Executive for any
reason, the purchase price for each Unvested Share will be Executive's Original
Cost for such share (with shares having the lowest cost subject to repurchase
prior to shares with a higher cost), and the purchase price for each Vested
Share will be the Fair Market Value for such share. If Executive's employment
is terminated by the Company for Cause, the purchase price for each share of
Executive Stock, whether Vested or Unvested, will be Executive's Original Cost
for such share.
(c) The Board may elect to purchase all or any portion of the
Unvested Shares and the Vested Shares by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Executive Stock within 90
days after the Termination. The Repurchase Notice will set forth the number of
Unvested Shares and Vested Shares to be acquired from each holder, the aggregate
consideration to be paid for such shares and the time and place for the closing
of the transaction. The number of shares to be repur chased by the Company shall
first be satisfied to the extent possible from the shares of Executive Stock
held by Executive at the time of delivery of the Repurchase Notice. If the
number of shares of Executive Stock then held by Executive is less than the
total number of shares of Executive Stock the Company has elected to purchase,
the Company shall purchase the remaining shares elected to be purchased from the
other holder(s) of Executive Stock under this Agreement, pro rata according to
the number of shares of Executive Stock held by such other holder(s) at the time
of delivery of such Repurchase Notice (determined as nearly as practicable to
the nearest share). The number of Unvested Shares and Vested Shares to be
repurchased hereunder will be allocated among Executive and the other holders of
Executive Stock (if any) pro rata according to the number of shares of Executive
Stock to be purchased from such persons.
- 4 -
<PAGE>
(d) If for any reason the Company does not elect to purchase all of
the Executive Stock pursuant to the Repurchase Option, the Investors shall be
entitled to exercise the Repurchase Option for the shares of Executive Stock the
Company has not elected to purchase (the "Available Shares"). As soon as
practicable after the Company has determined that there will be Available
Shares, but in any event within 45 days after the Termination, the Company shall
give written notice (the "Option Notice") to the Investors setting forth the
number of Available Shares and the purchase price for the Available Shares. The
Investors may elect to purchase any or all of the Available Shares by giving
written notice to the Company within 30 days after the Option Notice has been
given by the Company. If the Investors elect to purchase an aggregate number of
shares greater than the number of Available Shares, the Available Shares shall
be allocated among the Investors based upon the number of shares of Common Stock
owned by each Investor on a fully diluted basis. As soon as practicable, and in
any event within ten days after the expiration of the 30-day period set forth
above, the Company shall notify each holder of Executive Stock as to the number
of shares being purchased from such holder by the Investors (the "Supplemental
Repurchase Notice"). At the time the Company delivers the Supplemental
Repurchase Notice to the holder(s) of Executive Stock, the Company shall also
deliver written notice to each Investor setting forth the number of shares such
Investor is entitled to purchase, the aggregate purchase price and the time and
place of the closing of the transaction. The number of Unvested Shares and
Vested Shares to be repurchased hereunder shall be allocated among the Company
and the Investors pro rata according to the number of shares of Executive Stock
to be purchased by each of them.
(e) The closing of the purchase of the Executive Stock pursuant to
the Repurchase Option shall take place on the date designated by the Company in
the Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 60 days nor less than five days after the delivery of the later of
either such notice to be delivered. The Company and/or the Investors will pay
for the Executive Stock to be purchased pursuant to the Repurchase Option by
delivery of, in the case of each Investor, a check or wire transfer of funds
and, in the case of the Company, (i) a check or wire transfer of funds, (ii) a
subordinate note or notes payable in up to, three equal annual installments
beginning on the first anniversary of the closing of such purchase and bearing
interest
-5-
<PAGE>
(payable quarterly) at a rate per annum equal to the Base Rate (as defined in
the Company's credit agreement) or (iii) both (i) and (ii), in the aggregate
amount of the purchase price for such shares; provided that the Company shall
use reasonable efforts to make all such repurchases with a check or wire
transfer of funds. Any notes issued by the Company pursuant to this paragraph
3(e) shall be subject to any restrictive covenants to which the Company is
subject at the time of such purchase. In addition, the Company may pay the
purchase price for such shares by offsetting amounts outstanding under the
Executive Note issued to the Company hereunder and any other bona fide debts
owed by Executive to the Company. The purchasers of Executive Stock hereunder
will be entitled to receive customary representations and warranties from the
sellers regarding such sale and to require all sellers' signatures be
guaranteed.
(f) The right of the Company and the Investors to repurchase Vested
Shares pursuant to this paragraph 3 shall terminate upon the first to occur of
the Sale of the Company or a Public Offering.
(g) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive Stock by the Company shall be subject to
applicable restrictions contained in the Delaware General Corporation Law and in
the Company's and its Subsidiaries debt and equity financing agreements. If any
such restrictions prohibit the repurchase of Executive Stock hereunder which the
Company is otherwise entitled or required to make, the Company may make such
repurchases as soon as it is permitted to do so under such restrictions.
4. Restrictions on Transfer of Stockholder Shares.
(a) Retention of Executive Stock. Executive shall not sell, transfer,
assign, pledge or otherwise dispose of (a "Transfer") any interest in any
Executive Stock, except Transfers pursuant to paragraph 3, this paragraph 4, an
Approval Sale or a Public Sale.
(b) Participation Rights. At least 30 days prior to any Transfer of
any class of Common Stock by the Investors (other than a Transfer among members
of the Investors or their Affiliates or to an employee of the Company or its
Subsidiaries), the
-6-
<PAGE>
Investors will deliver a written notice (the "Sale Notice") to Executive,
specifying in reasonable detail the identity of the prospective transferee(s)
and the terms and conditions of the Transfer. The Executive may elect to
participate in the contemplated Transfer by the Investors by delivering written
notice to the Investors within 30 days after delivery of the Sale Notice. If
Executive has elected to participate in such Transfer, the Investors and
Executive will be entitled to sell in the contemplated Transfer, at the same
price and on the same terms, a number of shares of the same class of Common
Stock proposed to be sold by the Investors equal to the product (i) the quotient
determined by dividing the percentage of Executive Stock owned by Investors by
the aggregate percentage of Common Stock owned by the Investors, the Executive
and any other stockholders of the Company participating in such sale and (ii)
the number of shares of Common Stock to be sold in the contemplated Transfer.
For example, if the Sale Notice contemplated a sale of 100 Stockholder
Shares by the Investors, and if the Investors at such time owns 30% of all
Common Stock and if Executive elects to participate and owns 20% of all
Common Stock, the Investors would be entitled to sell 60 shares (30% / 50%
x 100 shares) and the Executive would be entitled to sell 40 shares (20% /
50% x 100 shares).
The Investors shall use best efforts to obtain the agreement of the prospective
transferee(s) to the participation of the Executive in any contemplated
Transfer, and will not transfer any of its Common Stock to the prospective
transferee(s) if the prospective transferee(s) declines to allow the
participation of the Common Stock.
(c) Permitted Transfers. The restrictions contained in this Section 4
shall not apply to (i) a Transfer of Executive Stock pursuant to the laws of
descent and (ii) distribution or among such Executive's Family Group, provided
that the restrictions contained in this Agreement will continue to be applicable
to the Executive Stock after any Transfer and the transferees of such Executive
Stock shall agree in writing to be bound by the provisions of this Agreement.
Upon the Transfer of Executive Stock pursuant to this paragraph 4(c), the
transferees will deliver a written notice to the Company, which notice will
disclose in reasonable detail the identity of such transferee. Executive's
"Family Group" means
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<PAGE>
Executive's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of Executive and/or Executive's spouse and/or
descendants.
(d) Termination of Restrictions. The restrictions set forth in this
paragraph 4 shall continue with respect to each share of Executive Stock until
the earlier of (i) the date on which such share of Executive Stock has been
transferred in a Public Sale, (ii) the consummation of an Approved Sale or (iii)
the consummation of a Public Offering.
5. Additional Restrictions on Transfer.
(a) The certificates representing the Executive Stock will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS
OF OCTOBER 28, 1993 HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN
EXECUTIVE STOCK AGREEMENT BETWEEN THE COMPANY AND JEFFREY A. HINRICHS DATED
AS OF OCTOBER 28, 1993. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of any
Executive Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the 1933 Act and applicable state
securities laws is required in connection with such transfer.
(c) Definitions.
"Cause" shall mean (i) the conviction of a felony or the commission of
any other act involving willful malfeasance in connection with Executive's
employment having an adverse effect on
-8-
<PAGE>
the Company or any of its Subsidiaries, (ii) substantial refusal by Executive to
perform the duties required by the Company's Board of Directors, or (iii) gross
negligence or willful misconduct by Executive with respect to the Company or any
of its Subsidiaries having the effect of materially injuring the reputation of
the Company or any of its Subsidiaries or materially injuring any customer,
supplier, employee or other business relationships of the Company or any of its
Subsidiaries.
"Common Stock" means the Class P Common, Common, Class A Common Stock,
par value $.01 per share, Non-Voting Common, par value $.01 per share, and Class
A Non-Voting Common Stock, par value $.01 per share, of the Company.
"Executive Stock" will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company and the Investors and
except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Executive Stock will succeed to all rights and
obliga tions attributable to Executive as a holder of Executive Stock
hereunder. Executive Stock will also include shares of the Company's capital
stock issued with respect to Executive Stock by way of a stock split, stock
dividend or other recapitalization.
"Fair Market Value" of each share of Executive Stock means the average
of the closing prices of the sales of the Company's Common Stock on all
securities exchanges on which the Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, if on any day the Common Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive business days prior to
such day. If at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the Fair
Market Value will be the fair value of the Common Stock determined in good faith
by the Board.
-9-
<PAGE>
"Independent Third Party" means any person who, immedi ately prior to
the contemplated transaction, does not own in excess of 5% of the Company's
equity securities on a fully diluted basis, who is not controlling, controlled
by or under common control with any such 5% owner of the Company's equity
securities and who is not the spouse or descendent (by birth or adoption) of any
such 5% owner of the Company's equity securities.
"Investors" means Bain Capital Fund IV, L.P., Bain Capital Fund IV-B,
L.P., BCIP Associates and BCIP Trust Associates, L.P.
"1933 Act" means the Securities Act of 1933, as amended from time to
time.
"Original Cost" of each share of Class P Common purchase hereunder
will be equal to $20.25 and Common purchased hereunder will be equal to $0.25
(as proportionately adjusted for all subsequent stock splits, stock dividends
and other recapitalizations).
"Public Sale" means any sale pursuant to a registered public offering
under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated
under the 1933 Act effected through a broker, dealer or market maker.
"Sale of the Company" means the sale of the Company to an Independent
Third Party or affiliated group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Company's board of directors (whether by
merger, consolidation or sale or transfer of the Company's capital stock) or
(ii) all or substantially all of the Company's assets determined on a
consolidated basis.
"Subsidiary" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
6. Sale of the Company.
(a) If the Company's Board of Directors and the holders of a majority
of the shares of Common Stock then outstanding
-10-
<PAGE>
approve a Sale of the Company (collectively an "Approved Sale"), each holder of
Executive Stock will consent to and raise no objections against such Approved
Sale. If the Approved Sale is structured as (i) a merger or consolidation, each
holder of Executive Stock will waive any dissenters rights, appraisal rights or
similar rights in connection with such merger or consolidation or (ii) sale of
stock, each holder of Executive Stock will agree to sell all of his Executive
Stock and rights to acquire Executive Stock on the terms and conditions approved
by the Board of Directors and the holders of a majority of the Common Stock then
outstanding. Each holder of Executive Stock will take all necessary or
desirable actions in connection with the consummation of the Approved Sale as
requested by the Company.
(b) The obligations of the holders of Executive Stock with respect to
an Approved Sale are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Approved Sale, each holder of Common Stock will
receive the same form of consideration and the same portion of the aggregate
consideration that such holders of Common Stock would have received if such
aggregate consideration had been distributed by the Company in complete
liquidation pursuant to the rights and preferences set forth in the Company's
Certificate of Incorporation as in effect immediately prior to such Approved
Sale; (ii) if any holders of a class of Common Stock are given an option as to
the form and amount of consideration to be received, each holder of such class
of Common Stock will be given the same option; and (iii) each holder of then
currently exercisable rights to acquire shares of a class of Common Stock will
be given an opportunity to exercise such rights prior to the consummation of the
Approved Sale and participate in such sale as holders of such class of Common
Stock.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities and Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501 of the Securities Act) reasonably acceptable to the Company.
If any holder of Executive Stock appoints a purchaser representative designated
by the Company, the Company will pay the fees of such purchaser representative,
but if any holder of Executive Stock declines to appoint the purchaser
-11-
<PAGE>
representative designated by the Company, such holder will appoint another
purchaser representative, and such holder will be responsible for the fees of
the purchaser representative so appointed.
(d) Holders of Executive Stock will bear their pro-rata share (based
upon the number of shares sold) of the costs of any sale of Executive Stock
pursuant to an Approved Sale to the extent such costs are incurred for the
benefit of all holders of Common Stock and are not otherwise paid by the Company
or the acquiring party. Costs incurred by holders of Executive Stock on their
own behalf will not be considered costs of the transaction hereunder.
(e) The provisions of this paragraph 6 will terminate upon completion
of a Public Offering.
7. Public Offering. In the event that the Company's Board of
Directors and the holders of a majority of the shares of Common Stock then
outstanding approve an initial public offering and sale of Common Stock (a
"Public Offering") pursuant to an effective registration statement under the
Securities Act, as amended, the holders of Executive Stock will take all
necessary or desirable actions in connection with the consummation of the Public
Offering. In the event that such Public Offering is an underwritten offering
and the managing underwriters advise the Company in writing that in their
opinion the Common Stock structure will adversely affect the marketability of
the offering, each holder of Executive Stock will consent to and vote for a
recapitalization, reorganization and/or exchange of the Common Stock into
securities that the managing underwriters, the Board and holders of a majority
of the shares of Common Stock then outstanding find acceptable and will take all
necessary or desirable actions in connection with the consummation of the
recapitalization, reorganization and/or exchange; provided that the resulting
securities reflect and are consistent with the rights and preferences set forth
in the Company's Certificate of Incorporation as in effect immediately prior to
such Public Offering.
8. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
-12-
<PAGE>
To the Company:
Nutraceutical Corporation
c/o Clarte Capital
185 S. State St., Suite 930
Salt Lake City, Utah 84111
With copies to:
Kirkland & Ellis
200 E. Randolph Dr.
Suite 5600
Chicago, IL 60601
Attention: James L. Learner
To Executive:
Jeff Hinrichs
2668 E. 3750 N.
Layton, Utah 84040
To the Investors:
Bain Capital
Two Copley Place
Boston, MA 02116
Attention: Robert Gay
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
9. General Provisions.
(a) Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
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<PAGE>
(b) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(f) Choice of Law. The corporate law of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions con cerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed by the
internal law, and not the law of conflicts, of the State of Illinois.
(g) Remedies. Each of the parties to this Agreement (including the
Investors) will be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any
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<PAGE>
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company, Executive
the Investors owning a majority of the Company's equity securities on a fully
diluted basis held by all Investors.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
NUTRACEUTICAL CORPORATION
By /s/ Robert C. Gay
----------------------------
Its /s/ President
----------------------------
/s/ Jeffrey A. Hinrichs
--------------------------------
Jeffrey A. Hinrichs
Agreed and Accepted:
BAIN CAPITAL FUND IV, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: (Signature illegible)
------------------------------
Its: Managing Director
------------------------------
BAIN CAPITAL FUND IV-B, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: (Signature illegible)
------------------------------
Its: Managing Director
------------------------------
BCIP ASSOCIATES
<PAGE>
By: (Signature illegible)
------------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: (Signature illegible)
------------------------------
A General Partner
<PAGE>
Exhibit A
---------
October 28, 1993
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased shares of Common Stock, par value $.01 per
share (the "Shares"), of Nutraceutical Corporation (the "Company") on October
28, 1993. Under certain circumstances, the Company has the right to repurchase
the Shares at cost from the undersigned (or from the holder of the Shares, if
different from the undersigned) should the undersigned cease to be employed by
the Company and its subsidiaries. Hence, the Shares are subject to a
substantial risk of forfeiture and are non-transferable. The undersigned
desires to make an election to have the Shares taxed under the provision of Code
(S)83(b) at the time he purchased the Shares.
Therefore, pursuant to Code (S)83(b) and Treasury Regulation (S)1.83-2
promulgated thereunder, the undersigned hereby makes an election, with respect
to the Shares (described below), to report as taxable income for calendar year
1993 the excess (if any) of the Shares' fair market value on October 28, 1993
over purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation (S)1.83-2(e):
1. The name, address and social security number of the undersigned:
Jeffrey A. Hinrichs
2668 E. 3750 N.
Layton, Utah 84040
Social Security Number: ###-##-####
2. A description of the property with respect to which the election
is being made: 2,500 shares of Class P Common Stock, par value $.01 per share,
and 2,500 shares of Common Stock, par value $.01 per share.
3. The date on which the property was transferred: October 28, 1993.
The taxable year for which such election is made: calendar 1993.
<PAGE>
4. The restrictions to which the property is subject: If during the
first four years after the purchase of the Shares the undersigned ceases to be
employed by the Company or any of its subsidiaries, the unvested portion of the
Shares will be subject to repurchase by the Company at cost, and at any time
prior to a public offering by the Company or a sale of the Company the
undersigned ceases to be employed by the Company or any of its subsidiaries, the
vested portion of the Shares will be subject to repurchase by the Company at
book value. Ten percent, twenty percent, thirty percent and forty percent of
the Shares will become vested shares on each of the first, second, third and
fourth anniversary dates, respectively, of the purchase of the Shares.
5. The fair market value on October 28, 1993 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $20.25 per share of Class P Common Stock and $0.25 per
share of Common Stock.
6. The amount paid for such property: $20.25 per share of Class P
Common Stock and $0.25 per share of Common Stock.
A copy of this election has been furnished to the Secretary of the
Company pursuant to Treasury Regulations (S)1.83-2(e)(7).
Dated:
------------------------ ----------------------------------------
JEFFREY A. HINRICHS
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<PAGE>
PROMISSORY NOTE
---------------
$56,000.00 October 28, 1993
For value received, Jeffrey A. Hinrichs ("Executive") promises to pay
to the order of Nutraceutical Corporation, a Delaware corporation (the
"Company"), at such place as designated in writing by the holder hereof, the
aggregate principal sum of $56,000. The Note was issued pursuant to and is
subject to the terms of the Executive's Stock Agreement, dated as of October 28,
1993, between the Company and Executive.
Interest will accrue on the outstanding principal amount of this Note
at a rate equal to the lesser of (i) 6% per annum or (ii) the highest rate
permitted by applicable law, and shall be payable at such time as the principal
of this Note becomes due and payable.
The principal amount of this Note shall be payable in four annual
installments of $11,200 on October 28, 1994, $11,200 on October 28, 1995 and
$16,800 on Ocober 28, 1996, with the entire unpaid principal amount together
with all accrued and unpaid interest being due and payable on October 28, 1997.
The amounts due under this Note are secured by a pledge of 2,500
shares of the Company's Class P Common Stock and 22,500 shares of the Company's
Common Stock. The payment of the principal amounts of this Note is subject to
certain offset rights under the Executive Stock Agreement.
In the event Executive fails to pay any amounts due hereunder when
due, Executive shall pay to the holder hereof, in addition to such amounts due,
all costs of collection, including reasonable attorneys fees.
Executive, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note, all without in
any way affecting the liability of Executive hereunder.
<PAGE>
This Note shall be governed by the internal laws, not the laws of
conflicts, of the State of Illinois.
---------------------------------------
JEFFREY A. HINRICHS
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<PAGE>
Exhibit B
---------
EXECUTIVE STOCK PLEDGE AGREEMENT
--------------------------------
THIS PLEDGE AGREEMENT is made as of October 28, 1993 between Jeffrey
A. Hinrichs ("Pledgor"), and Nutraceutical Corporation, a Delaware corporation
(the "Company").
The Executive has purchased 2,500 shares of Class P Common Stock of
the Company's par value $.01 per share, and 22,500 shares of the Company's
Common Stock, $.01 par value (collectively, the "Pledged Shares"), with funds
received pursuant to a promissory note (the "Note") in the aggregate principal
amount of $56,000. This Pledge Agreement provides the terms and conditions upon
which the Note is secured by a pledge to the Company of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
partial payment for the Pledged Shares, Pledgor and the Company hereby agree as
follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on the
Note or any other default under the Note, Pledgor shall be entitled to all
voting rights with respect to the Pledged Shares and shall be entitled to
receive all cash dividends paid in respect of the Pledged Shares. Upon the
occurrence of and during the continuance of any such default, the Company shall
retain all such cash dividends payable on the Pledged Shares as additional
security hereunder.
<PAGE>
4. Stock Dividends; Distributions, etc. If, while this Pledge
Agreement is in effect, Pledgor becomes entitled to receive or receives any
securities or other property in addition to, in substitution of, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
5. Default. If Pledgor defaults in the payment of the principal or
interest under the Note as it becomes due (whether upon demand, acceleration or
otherwise) or any other event of default under the Note occurs (including the
bankruptcy or insolvency of Pledgor), the Company may exercise any and all the
rights, powers and remedies of any owner of the Pledged Shares (including the
right to vote the shares and receive dividends and distributions with respect to
such shares) and shall have and may exercise without demand any and all the
rights and remedies granted to a secured party upon default under the Uniform
Commercial Code of Illinois or otherwise available to the Company under
applicable law. Without limiting the foregoing, the Company is authorized to
sell, assign and deliver at its discretion, from time to time, all or any part
of the Pledged Shares at any private sale or public auction, on not less than
ten days written notice to Pledgor, at such price or prices and upon such terms
as the Company may deem advisable. Pledgor shall have no right to redeem the
Pledged Shares after any such sale or assignment. At any such sale or auction,
the Company may bid for, and become the purchaser of, the whole or any part of
the Pledged Shares offered for sale. In case of any such sale, after deducting
the costs, attorneys' fees and other expenses of sale and delivery, the
remaining proceeds of such sale shall be applied to the principal of and accrued
interest on the Note; provided, however, that after payment in full of the
indebtedness evidenced by the Note, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Shares remaining in the hands of the Company. Pledgor
shall be liable for any deficiency if the remaining proceeds are insufficient to
pay the indebtedness under the Note in full, including the fees of any attorneys
employed by the Company to collect such deficiency.
-2-
<PAGE>
6. Costs and Attorneys' Fees. All costs and expenses, including
reasonable attorneys' fees, incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon
payment in full of the indebtedness evidenced by the Note, the Company shall
surrender the Pledged Shares to Pledgor together with all forms of assignment.
8. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of the Company, Pledgor will execute and
deliver such further documents and do such further acts and things as the
Company may reasonably request in order to effect the purposes of this Pledge
Agreement.
9. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10. No Waiver; Cumulative Remedies. The Company shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
11. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing,
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<PAGE>
duly executed by the parties hereto. This Agreement and all obligations of the
Pledgor hereunder shall together with the rights and remedies of the Company
hereunder, inure to the benefit of the Company and its successors and assigns.
This Pledge Agreement shall be governed by, and be construed and interpreted in
accordance with, the laws of the State of Illinois.
* * *
-4-
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
date first above written.
-----------------------------------
Jeffrey A. Hinrichs
NUTRACEUTICAL CORPORATION
By
--------------------------------
Its
-------------------------------
<PAGE>
Exhibit 10-8
------------
THIS WARRANT AND ANY SHARES OF NON-VOTING COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT.
THIS WARRANT IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS PURSUANT TO A
STOCKHOLDERS AGREEMENT DATED AS OF OCTOBER 28, 1993, AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF
SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST.
WARRANTS
To Purchase Non-Voting Common Stock of
NUTRACEUTICAL CORPORATION
THIS IS TO CERTIFY that Heller Financial, Inc., a Delaware corporation having
its principal place of business at 500 West Monroe Street, Chicago, Illinois
60661, or its registered assigns, is entitled upon the due exercise hereof at
any time during the Exercise Period (as hereinafter defined) to purchase
116,949.15 shares (subject to adjustment as provided herein) of Non-voting
Common Stock, $.01 par value, of Nutraceutical Corporation, a Delaware
corporation, at an Exercise Price of $.01 per share (such Exercise Price and the
number of shares of Non-Voting Common Stock purchasable hereunder being subject
to adjustment as provided herein), and to exercise the other rights, powers and
privileges hereinafter provided, all on the terms and subject to the conditions
hereinafter set forth.
<PAGE>
ARTICLE I
DEFINITIONS
The terms defined in this ARTICLE I, whenever used in this Warrant, shall have
the respective meanings hereinafter specified.
"Affiliate" of any entity means a Person which directly or directly through one
or more intermediaries controls, or is controlled by, or is under common control
with, such entity. The term "control," as used with respect to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Assignment" means the form of Assignment appearing at the end of this Warrant.
"Bain Capital Investors" means Bain Capital Fund IV, L.P., a Delaware limited
partnership, Bain Capital Fund IV-B, L.P., a Delaware limited partnership, BCIP
Associates, a Delaware partnership, and BCIP Trust Associates, L.P., a Delaware
limited partnership.
"Bain Investors" means the Bain Capital Investors, F. W. Gay & Sons, a Texas
general partnership, Bruce Hough and James L. Learner.
"Chicago Time" shall mean, with respect to any determination of the time for
performance hereunder, the time of day determined by the local time in Chicago,
Illinois.
"Class A Stock" means shares of the Company's Class A Common Stock, $.01 par
value, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock.
"Class A Non-Voting Stock" means shares of the Company's Class A Non-voting
Common Stock, $.01 par value, convertible into Class A Stock on a share-for-
share basis, any stock into which such stock shall have been changed or any
stock resulting from any reclassification of such stock.
"Class P Stock" means shares of the Company's Class P Common Stock, $.01 par
value, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock.
"Closing Date" means October 28, 1993.
"Commission" means the Securities and Exchange Commission or an other Federal
agency from time to time administering the Securities Act.
"Common Shares" means Class A Stock, Class A Non-Voting Stock, Class P Stock,
Common Stock, Non-Voting Common Stock and any class of capital stock of the
Company now or hereafter
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authorized having the right to share in distributions either of earnings or
assets of the Company without limit as to amount or percentage.
"Common Stock" means shares of the Company's Common Stock, $.01 par value, any
stock into which such stock shall have been changed or any stock resulting from
any reclassification of such stock.
"Company" means Nutraceutical Corporation, a Delaware corporation, and any
successor corporation.
"Convertible Securities" means evidences of indebtedness, shares of stock (other
than Class A Non-Voting Stock and Non-Voting Common Stock) or other securities
which are convertible into or exchangeable for, with or without payment of
additional consideration, additional shares of Common Shares, either immediately
or upon the arrival of a specified date or the happening of a specified event.
"Credit Agreement" means the Credit Agreement dated as of even date herewith,
between the Initial Holder, as agent and lender, and Solaray, as the same may be
amended from time to time together with all of the other "Loan Documents" (as
defined in the Credit Agreement), each as the same may be amended from time to
time.
"Current Market Price" as to any security on any date specified herein means the
average of the daily closing prices for the thirty (30) consecutive trading days
before such date excluding any trades which are not bona fide arm's length
transactions. The closing price for each day shall be (i) the mean between the
closing high bid and low asked quotations of any such security in the over-the-
counter market as shown by the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, as reported by
any member firm of the New York Stock Exchange selected by the Company, or (ii)
if not quoted as described in clause (i), the mean between the high bid and low
asked quotations for any such security as reported by the National Quotation
Bureau Incorporated or any similar successor organization, as reported by any
member firm of the New York Stock Exchange selected by the Company, or (iii) if
any such security is listed or admitted for trading on any national securities
exchange, the last sale price of any such security, regular way, or the mean of
the closing bid and asked prices thereof if no such sale occurred, in each case
as officially reported on the principal securities exchange on which any such
security is listed. If any such security is quoted on a national securities or
central market system in lieu of a market or quotation system described above,
the closing price shall be determined in the manner set forth in clause (i) of
the preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (iii) of the
preceding sentence if actual transactions are reported.
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"Default Rate" means the interest rate applicable to "Base Rate Loans" (as
defined in the Credit Agreement) after an "Event of Default" (as defined in the
Credit Agreement) as set forth in Section 2.2 of the Credit Agreement.
"Distribution" has the meaning set forth in Section 5.1.
"Event of Default" means (a) the breach of any warranty, or the inaccuracy of
any representation, made by the Company herein or (b) the failure by the Company
to comply with any covenant contained herein.
"Exercise Period" means (subject to the provisions of Section 9.12 and 9.13
below) the period commencing on the Closing Date and terminating on the tenth
anniversary of the Closing Date.
"Exercise Price" means the price per share of Non-Voting Common Stock set forth
in the preamble to this Warrant, as such price may be adjusted pursuant to
ARTICLE IV.
"Fair Value" means the fair market value of the Warrant Shares which are being
repurchased (assuming full exercise of the Warrant) based upon the market value
of the Company determined on a going concern basis as between a willing buyer
and a willing seller and taking into account all relevant factors determinative
of value including, without limitation, the rights and preferences of the
Warrant Shares set forth in the Company's Certificate of Incorporation. Unless
otherwise agreed by the Company and holder, Market Value of the Warrant Shares
shall be determined by an investment banking firm reasonably acceptable to the
Company and holder, which firm shall submit to the Company and holder a written
report setting forth such determination. If the parties are unable to agree on
an investment banking firm within 15 days after delivery of a request by any
party for a determination of Market Value, a firm shall be selected by lot from
the top-tier New York based investment banking firms, after the Company and
holder have each eliminated one such firm. The expenses of such firm will be
borne by the Company, and the determination of such firm will be final and
binding upon all parties. In determining Fair Value of the Warrant Shares, no
discount shall be imposed by reason of any stock interest being valued
constituting a minority ownership interest, non-voting restrictions or the
illiquidity of the stock interest being valued. Notwithstanding the foregoing,
if the Company shall have effected a public offering of its Warrant Shares, and
any of the Warrant Shares are actively traded on a public market, Fair Value
means, with reference to the Warrant Shares, the current Market Price of such
shares as of any date of determination.
"Fully Diluted Outstanding Shares" shall mean, at any time, the sum of (i) the
number of outstanding shares of Common Shares plus (ii) the number of Issuable
Warrant shares, plus (iii) the number of shares of Common Shares issuable upon
the exercise of outstanding options.
"Initial Holder" means Heller Financial, Inc., a Delaware corporation.
"Issuable Warrant Shares" means the number of shares of Non-Voting Common Stock
issuable from time to time upon exercise of this Warrant.
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"Issued Common Warrant Shares" means (a) any shares of Common Stock issued upon
conversion of Issued Non-Voting Warrant Shares plus (b) any shares of Common
Stock issued as a stock dividend with respect to any shares of the type
described in (a) or as part of a stock split affecting such shares.
"Issued Non-Voting Warrant Shares" means (a) the cumulative total of the shares
of Non-Voting Common Stock issued from time to time upon exercise of the
Warrants, plus (b) any shares of Non-Voting Common Stock issued as a stock
dividend with respect to such shares or as part of a stock split affecting such
shares, less (c) any shares described in (a) or (b) that were subsequently
converted into shares of Common Stock.
"Issued Warrant Shares" means the Issued Common Warrant Shares plus the Issued
Non-Voting Warrant Shares.
"Liabilities" means Solaray's "Obligations" as defined in the Credit Agreement.
"Non-Voting Common Stock" means shares of the Company's Non-Voting Common Stock,
$.01 par value, convertible into Common Stock on a share-for-share basis, any
stock into which such stock shall have been changed or any stock resulting from
any reclassification of such stock.
"Notice of Exercise" means the form of Notice of Exercise appearing as Exhibit
2.2 hereof.
"Opinion of Counsel" means an opinion of counsel experienced in Securities Act
or bank regulatory matters, as the case may be, chosen by the holder of this
Warrant or the holder of Issued Warrant Shares, which counsel may be counsel to
such holder.
"Other Securities" means any stock and other securities of the Company (other
than Common Shares, Convertible Securities or Stock Purchase Rights) or any
other Person which shall become subject to issue or sale upon the conversion or
exchange of any stock or other securities of the Company.
"Other Warrant" means that certain Warrant to Purchase Class A NonVoting Common
Stock of even date herewith, as hereafter amended, in favor of Initial Holder.
"Person" means any unincorporated organization, association, corporation,
individual, sole proprietorship, partnership, joint venture, trust institution,
entity, party or government (including any instrumentality, division, agency,
body or department thereof).
"Securities Act" means the Securities Act of 1933, as amended, or any successor
Federal statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect from time to time.
"Solaray" means Solaray, Inc., a Utah corporation, and a wholly-owned Subsidiary
of the Company.
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"Stock Purchase Rights" means any warrants, options or other rights to subscribe
for, purchase or otherwise acquire any shares of Common Shares or any
Convertible Securities.
"Stockholders Agreement" means that certain Stockholders Agreement dated as of
the Closing Date among the Company, Initial Holder and the Bain Capital
Investors, as amended.
"Subsidiary" means any corporation or association (a) more than 50% (by number
of votes) of the Voting Stock of which is at the time owned by the Company or by
one or more Subsidiaries or by the Company and one or more Subsidiaries, or any
other business entity in which the Company or one or more Subsidiaries or the
Company and one or more Subsidiaries owns more than a 50% interest either in the
profits or capital of such business entity or (b) whose net earnings, or
portions thereof, are consolidated with the net earnings of the Company and are
recorded on the books of the Company for financial reporting purposes in
accordance with generally accepted accounting principles.
"Voting Stock" means securities of any class or series of a corporation or
association the holders of which are ordinarily, in the absence of
contingencies, entitled to participate in the election of a majority of the
directors or persons performing similar functions of such corporation or
association.
"Warrant" means the warrant dated as of Closing Date issued to the Initial
Holder and all warrants issued upon the partial exercise, transfer or division
of or in substitution for any Warrant and all warrants delivered pursuant to the
last paragraph of Section 2.2.
"Warrant Shares" means the Issuable Warrant Shares plus the Issued Warrant
Shares.
Whenever used in this Warrant, any noun or pronoun shall be deemed to include
both the singular and plural and to cover all genders, and the words "herein,"
"hereof," and "hereunder" and words of similar import shall refer to this
instrument as a whole, including any amendments hereto.
ARTICLE II
EXERCISE OF WARRANT
2.1 Right to Exercise. On the terms and subject to the conditions of
this ARTICLE II, the holder hereof shall have the right, at its option, to
exercise this Warrant in whole or in part at any time during the Exercise
Period.
2.2 Manner of Exercise; Issuance of Non-Voting Common Stock. To
exercise this Warrant, the holder hereof shall deliver to the Company (a) a
Notice of Exercise in substantially the form of Exhibit 2.2 hereto duly executed
by the holder hereof specifying the number of shares of Non-Voting Common Stock
to be purchased, (b) an amount equal to the aggregate Exercise Price for all
shares of Non-Voting Common Stock as to which this Warrant is then being
exercised and (c) this Warrant. At the option of the holder hereof, payment of
the Exercise Price shall be made by (i) wire transfer of funds to an account in
a bank located in the United States designated by the
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Company for such purpose, (ii) certified or official bank check payable to the
order of the Company and drawn on a member of the Chicago Clearing House, (iii)
by application of the Liabilities to the payment of the Exercise Price in such
order as the Initial Holder may determine, (iv) deducting from the number of
shares delivered upon exercise of the Warrant a number of shares which has an
aggregate Current Market Price (or, in the event that the Current Market Price
per share is not determinable, an aggregate Fair Value) on the date of exercise
equal to the aggregate Exercise Price for all shares as to which the Warrant is
then being exercised or (v) by any combination of such methods.
Upon receipt of the required deliveries, the Company shall, as
promptly as practicable, and in any event within five (5) days thereafter, cause
to be issued and delivered to the holder hereof (or its nominee) or the
transferee designated in the Notice of Exercise, a certificate or certificates
representing shares of Non-Voting Common Stock equal in the aggregate to the
number of shares of Non-Voting Common Stock specified in the Notice of Exercise
(but not exceeding the maximum number of shares issuable upon exercise of this
Warrant). Such certificate or certificates shall be registered in the name of
the holder hereof (or its nominee) or in the name of such transferee, as the
case may be.
If this Warrant is exercised in part, the Company shall, at the time
of delivery of such certificate or certificates, unless the Exercise Period has
expired, issue and deliver to the holder hereof or the transferee so designated
in the Notice of Exercise, a new Warrant evidencing the right of the holder
hereof or such transferee to purchase the aggregate number of shares of Non-
Voting Common Stock for which this Warrant shall not have been exercised, and
this Warrant shall be canceled.
2.3 Effectiveness of Exercise. Unless otherwise requested by the
holder hereof, this Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the holder
or transferee so designated in the Notice of Exercise shall be deemed to have
become the holder of record of such shares for all purposes, as of the close of
business on the date the Notice of Exercise, together with payment of the
Exercise Price and this Warrant, is received by the Company.
2.4 Fractional Shares. The Company shall not issue fractional shares
of Non-Voting Common Stock or scrip representing fractional shares of Non-Voting
Common Stock upon any exercise of this Warrant. As to any fractional share of
Non-Voting Common Stock which the holder hereof would otherwise be entitled to
purchase from the Company upon such exercise, the Company shall purchase from
the holder such fractional share at a price equal to an amount calculated by
multiplying such fractional share (calculated to the nearest .001 of a share) by
the Fair Value (determined without regard to whether this Warrant or any Warrant
Shares are then subject to repurchase hereunder) calculated as of the date of
the Notice of Exercise. Payment of such amount shall be made at the time of
delivery of any certificate or certificates deliverable upon such exercise in
cash or by check payable to the order of the holder hereof or the transferee
designated in the Notice of Exercise, as the case may be.
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2.5 Continued Validity. A holder of shares of Non-Voting Common
Stock issued upon the exercise of this Warrant, in whole or in part, shall
continue to be entitled to all rights to which a holder of this Warrant is
entitled pursuant to the provisions of this Warrant except such rights as by
their terms apply solely to the holder of a Warrant. The Company will, at the
time of any exercise of this Warrant, upon the request of the holder of the
shares of Non-Voting Common Stock issued upon the exercise hereof, acknowledge
in writing, in form reasonably satisfactory to such holder, its continuing
obligation to afford to such holder all rights to which such holder shall
continue to be entitled after such exercise in accordance with the provisions of
this Warrant; provided, however, that if such holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder all such rights.
ARTICLE III
REGISTRATION, TRANSFER AND EXCHANGE
3.1 Maintenance of Registration Books. The Company shall keep at its
principal office a register in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration, transfer and
exchange of this Warrant. The Company shall not at any time, except upon the
dissolution, liquidation or winding up of the Company, close such register so as
to result in preventing or delaying the exercise or transfer of this Warrant.
3.2 Transfer and Exchange. Upon surrender for registration of
transfer of this Warrant at such office, the Company shall execute and deliver
in the name of the designated transferee or transferees, one or more new
Warrants representing the right to purchase a like aggregate number of shares of
Non-Voting Common Stock. At the option of the holder hereof, this Warrant may
be exchanged for other Warrants representing the right to purchase a like
aggregate number of shares of Non-Voting Common Stock upon surrender of this
Warrant at such office. Whenever this Warrant is so surrendered for exchange,
the Company shall execute and deliver the Warrants which the holder making the
exchange is entitled to receive.
Every Warrant presented or surrendered for registration of transfer or
exchange shall be accompanied by an Assignment duly executed by the holder
thereof or its attorney duly authorized in writing in substantially the form of
Exhibit 3.2 attached hereto.
All Warrants issued upon any registration of transfer or exchange of
Warrants shall be the valid obligations of the Company, evidencing the same
rights, and entitled to the same benefits, as the Warrants surrendered upon such
registration of transfer or exchange.
3.3 Replacement. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and
(a) in the case of any such loss, theft or destruction upon delivery of
indemnity reasonably satisfactory to the Company in form and amount or (b) in
the case of any such mutilation, upon surrender of such Warrant for cancellation
at the principal office of the Company, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant.
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3.4 Ownership. The Company and any agent of the Company may treat
the Person in whose name this Warrant is registered on the register kept at the
principal office of the Company as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, except that, if and when
this Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of this Warrant for all
purposes, notwithstanding any notice to the contrary. This warrant, if properly
assigned, may be exercised by a new holder without first having a new Warrant
issued.
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustment of Exercise Price. Upon any adjustment of the number
of shares of Non-Voting Common Stock issuable upon exercise of this Warrant as
provided in Section 4.2, the Exercise Price in effect immediately prior to such
adjustment shall be adjusted by multiplying such Exercise Price by a fraction,
the numerator of which shall be the number of shares of Non-Voting Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
the denominator of which shall be the number of shares of Non-Voting Common
Stock issuable upon exercise of this Warrant immediately after giving effect to
such adjustment.
4.2 Adjustment of Number of Shares Purchasable. The number of shares
of Non-Voting Common Stock shall be subject to adjustment from time to time as
hereinafter set forth.
(a) Stock Dividends, Subdivisions and Combinations. In the event
that the Company subsequent to the Closing Date shall:
(i) declare a dividend upon, or make any distribution in
respect of, any of its stock, payable in Common Shares, Convertible Securities
or Stock Purchase Rights, or
(ii) subdivide its outstanding shares of Common Shares into
a larger number of shares of Common Shares, or
(iii) combine its outstanding shares of Common Shares into
a smaller number of shares of Common Shares,
then the number of shares of Non-Voting Common Stock issuable upon exercise of
this Warrant shall be adjusted to that number determined by dividing the number
of shares of Non-Voting Common Stock issuable upon exercise of this Warrant
immediately prior to such event by a fraction (A) the numerator of which shall
be the total number of outstanding shares of Common Shares of the Company
immediately prior to such event, and (B) the denominator of which shall be the
total number of outstanding shares of Common Shares of the Company immediately
after such event, treating as outstanding all shares of Common Shares issuable
upon conversions or exchanges of such Convertible Securities and exercises of
such Stock Purchase Rights.
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(b) Issuance of Additional Shares of Common Shares. In case the
Company shall issue or sell any shares of Common Shares after the Closing Date
for a consideration less than the then Fair Value per share, then, the number of
shares of Non-Voting Common Stock issuable upon exercise of this Warrant shall
be increased as determined by the following formula, solving for the appropriate
unknown variable thereunder:
AWS x (TV + AC + EX) = WS x (TV + EX)
--------------- -------
(AWS + SO + AS) SO + WS
For purposes of the formula set forth above, the variables set forth therein
shall have the following meanings:
AWS = The number of shares of Non-Voting Common Stock issuable
upon exercise of this Warrant, after giving effect to the
adjustment
FVS = The then Fair Value per share (without giving effect to any
dilution attributable to the Issuable Warrant Shares)
SO = The number of shares of Common Shares outstanding prior to
the issuance of the additional shares
TV = FVS x SO
AC = The aggregate consideration received for the sale or of the
additional shares of Common Shares issuance
AS = The number of additional shares of Common Shares to be sold
or issued
EX = The Exercise Price per share (prior to adjustment) times
the number of shares of Non-Voting Common Stock issuable
upon exercise of this Warrant (prior to the adjustment)
WS = The number of shares of Non-Voting Common Stock issuable
upon exercise of this Warrant (prior to adjustment)
For purposes of this Subsection (b), the date as of which the Fair
Value per share of Common Shares shall be computed shall be the last day of the
most recently completed fiscal period of the Company for which financial
statements have been delivered pursuant to ARTICLE VI prior to which the Company
shall first (i) enter into a firm contract for the issuance of such shares or
(ii) issue such shares.
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The provisions of this Subsection (b) shall not apply to any
additional shares of Common Shares which are distributed to holders of Common
Shares pursuant to a stock dividend or subdivision for which an adjustment is
provided for under Subsection (a) of this Section 4.2. No adjustment of the
number of shares of NonVoting Common Stock issuable under this Warrant shall be
made under this subsection upon the issuance of any additional shares of Common
Shares which are issued pursuant to the exercise of any Stock Purchase Rights or
pursuant to the conversion or exchange of any Convertible Securities to the
extent that such adjustment shall previously have been made upon the issuance of
such Stock Purchase Rights or Convertible Securities pursuant to Subsection (a),
(c), (d), (e) or (f) of this Section 4.2.
(c) Issuance of Stock Purchase Rights. In case the Company shall
issue or sell any Stock Purchase Rights and the consideration per share for
which additional shares of Common Shares may at any time thereafter be issuable
upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for
the purchase of Convertible Securities, upon the subsequent conversion or
exchange of such Convertible Securities) shall be less than the then Fair Value
per share, then the Number of shares of Non-Voting Common Stock issuable under
this Warrant shall be adjusted as provided in Subsection (b) of this Section 4.2
on the basis that (i) the maximum number of additional shares of Common Shares
issuable upon exercise of such Stock Purchase Rights (or upon conversion or
exchange of such Convertible Securities following such exercise) shall be deemed
to have been issued as of the date of the determination of such adjustment, Fair
Value, as hereinafter provided, and (ii) the aggregate consideration received
for such additional shares of Common Shares shall be deemed to be the minimum
consideration received and receivable by the Company in connection with the
issuance and exercise of such Stock Purchase Rights (or upon conversion or
exchange of such Convertible Securities). For the purposes of this Subsection
(c), (i) the date as of which the adjustment of the Number of shares of Non-
Voting Common Stock issuable under this Warrant shall be computed shall be the
earlier of (A) the date on which the Company shall enter into a firm contract
for the issuance of such Stock Purchase Rights, or (B) the date of actual
issuance of such Stock Purchase Rights, and (ii) the date as of which the Fair
Value per share of Common Shares shall be computed shall be the last day of the
most recently completed fiscal period of the Company for which financial
statements have been delivered pursuant to ARTICLE VI prior to the earlier of
the dates determined pursuant to clauses (A) and (B) above.
(d) Issuance of Convertible Securities. In case the Company shall
issue or sell any Convertible Securities and the consideration per share for
which additional shares of Common Shares may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the Fair
Value per share, then the Number of shares of Non-Voting Common Stock issuable
under this Warrant shall be adjusted as provided in Subsection (b) of this
Section 4.2 on the basis that (i) the maximum number of additional shares of
Common Shares necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued as of the date for
the determination of such adjustment, Fair Value, as hereinafter provided, and
(ii) the aggregate consideration received for such additional shares of Common
Shares shall be deemed to be equal to the minimum consideration received and
receivable by the company in connection with the issuance and conversion of
exercise of such Convertible Securities. For the purposes of this
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Subsection (d), (i) the date as of which the adjustment of the Number of shares
of Non-Voting Common Stock issuable under this Warrant per share shall be
computed shall be the earlier of (A) the date on which the Company shall enter
into a firm contract for the issuance of such Convertible Securities, or (B) the
date of actual issuance of such Convertible Securities, and (ii) the date as of
which the Fair Value per share of Common Shares shall be computed shall be the
last day of the most recently completed fiscal period of the Company for which
financial statements have been delivered pursuant to ARTICLE VI prior to the
earlier of the dates determined pursuant to clauses (A) and (B) above. No
adjustment of the Number of shares of Non-Voting Common Stock issuable under
this Warrant shall be made under this Subsection (d) upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any Stock
Purchase Rights, if an adjustment shall previously have been made upon the
issuance of such Stock Purchase Rights pursuant to Subsection (c) of this
Section 4.2.
(e) Minimum Adjustment. In the event any adjustment of the Number of
shares of Non-Voting Common Stock issuable under this Warrant pursuant to this
Section 4.2 shall result in an adjustment of less than one share of Non-Voting
Common Stock, no such adjustment shall be made, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so carried
forward, shall amount to one more share of Non-Voting Common Stock; provided,
however, that upon any adjustment of the Number of shares of Non-Voting Common
Stock issuable under this Warrant resulting from (i) the declaration of a
dividend upon, or the making of any distribution in respect of, any stock of the
Company payable in Common Shares or Convertible Securities or (ii) the
reclassification by subdivision, combination or otherwise, of the Common Shares
into a greater or smaller number of shares, the foregoing figure of one share
(or such figure as last adjusted) shall be proportionately adjusted, and
provided, further, upon the exercise of this Warrant, the Company shall make all
necessary adjustments (to the nearest 1/100th of a share) not theretofore made
to the Number of shares of Non-Voting common Stock issuable under this Warrant
up to and including the date upon which this Warrant is exercised.
(f) Readjustment. In the event (i) the purchase price payable f or
any Stock Purchase Rights or Convertible Securities referred to in Subsection
(c) or (d) above, (ii) the additional consideration, if any, payable upon
exercise of such Stock Purchase Rights or upon the conversion or exchange of
such Convertible Securities or (iii) the rate at which any Convertible
Securities above are convertible into or exchangeable for additional shares of
Common Shares shall change, the number of shares of Non-Voting Common Stock
issuable under this Warrant at the time of such event shall forthwith be
readjusted to that number of Shares which would have been issuable at such time
had such Stock Purchase Rights or Convertible Securities provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold. On the expiration of any
such Stock Purchase Rights not exercised or of any such right to convert or
exchange under any such Convertible Securities not exercised, the number of
shares of Non-Voting Common Stock issuable under this Warrant shall forthwith be
reduced to that number of shares which would have been issuable at the time of
such expiration or termination had such Stock Purchase Rights or Convertible
Securities never been issued. No readjustment of
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the number of shares of Non-Voting Common Stock issuable under this Warrant
pursuant to this Subsection (f) shall have the effect of reducing the number of
shares of Non-Voting Common Stock issuable under this Warrant by a number in
excess of the adjustments made to the number of shares of Non-Voting Common
Stock issuable under this Warrant in respect of the issue, sale or grant of the
applicable Stock Purchase Rights or Convertible Securities.
(g) Reorganization, Reclassification or Recapitalization of Company.
In case of any capital reorganization or reclassification or recapitalization of
the capital stock of the Company (other than in the cases referred to in
Subsection (a) of this Section 4.2), or in case of the consolidation or merger
of the Company with or into another corporation, or in case of the sale or
transfer of the property of the Company as an entirety or substantially as an
entirety, there shall thereafter be deliverable upon the exercise of this
Warrant or any portion thereof (in lieu of or in addition to the number of
shares of Non-Voting common Stock theretofore deliverable, as appropriate) the
number of shares of stock or other securities or property to which the holder of
the number of shares of Non-Voting Common Stock which would otherwise have been
deliverable upon the exercise of this Warrant or any portion thereof at the time
would have been entitled upon such capital reorganization or reclassification of
capital stock, consolidation, merger or sale, and at the same aggregate Exercise
Price.
Prior to and as a condition of the consummation of any transaction
described in the preceding sentence, the Company shall make equitable, written
adjustments in the application of the provisions herein set forth satisfactory
to the holders of Warrants entitled to purchase not less than 66 2/3% of the
Issuable Warrant Shares at such time with respect to the rights and interests of
holders of Warrants so that the provisions set forth herein shall thereafter be
applicable, as nearly as possible, in relation to any shares of stock or other
securities or other property thereafter deliverable upon exercise of this
Warrant. Any such adjustment shall be made by and set forth in a supplemental
agreement between the Company and/or the successor entity, as applicable, which
agreement shall bind each such entity, shall be accompanied by an opinion of
counsel as to the enforceability of such agreement and shall be approved by the
holders of Warrants entitled to purchase not less than 66 2/3% of the shares of
Non-Voting Common Stock issuable upon the exercise thereof.
(h) Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issuance or sale
upon the conversion or exchange of any stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other Person referred to in
Subsection (g)) or become subject to subscription, purchase or other acquisition
pursuant to any options or rights issued or granted by the Company (or by any
such other issuer or Person) for a consideration such as to dilute, within the
standards established in the other provisions of this ARTICLE IV, the purchase
rights granted by this Warrant, then, and in each such case, the computations,
adjustments and readjustments provided for in this ARTICLE IV with respect to
the Number of shares of Non-Voting Common Stock issuable under this Warrant
shall be made as nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from
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time to time receivable upon the exercise of this Warrant, so as to protect the
holders of the Warrant against the effect of such dilution.
(i) Other Dilutive Events. In case any event shall occur as to which
the other provisions of this ARTICLE IV are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof, then, in each such case, the Company shall appoint a firm of
independent public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this ARTICLE IV, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein.
(j) Determination of Consideration. For purposes of this ARTICLE IV,
the consideration received or receivable by the Company for the issuance, sale,
grant or assumption of additional shares of Common Shares, Stock Purchase Rights
or Convertible Securities, irrespective of the accounting treatment of such
consideration, shall be valued as follows:
(1) Cash Payment. In the case of cash, the net amount received by the
Company after deduction of any accrued interest, dividends or any expenses paid
or incurred or any underwriting commissions or concessions paid or allowed by
the Company.
(2) Securities or Other Property. In the case of securities or other
property, at the lesser of the Current Market Price of such consideration if
determinable, and otherwise at the Fair Value of such consideration (in both
cases as of the date immediately preceding the issuance, sale or grant in
question).
(3) Allocation Related to Common Shares. In the event additional
shares of Common Shares are issued or sold together with other securities or
other assets of the Company for a consideration which covers both, the
consideration received (computed as provided in clauses (1) and (2) above) shall
be allocable to such additional shares of Common Shares as determined in good
faith by the Board of Directors of the Company.
(4) Allocation Related to Stock Purchase Rights and Convertible
Securities. In case any Stock Purchase Rights or Convertible Securities shall
be issued or sold together with other securities or other assets of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to the Stock Purchase Rights or Convertible Securities, such Stock
Purchase Rights or Convertible Securities shall be deemed to have been issued
without consideration.
(5) Dividends in Securities. In case the Company shall declare a
dividend or make any other distribution upon any stock of the Company (other
than Common Shares) payable
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in either case in Common Shares, Convertible Securities or Stock Purchase
Rights, such Common Shares, Convertible Securities or Stock Purchase Rights, as
the case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(6) Stock Purchase Rights and Convertible Securities. The
consideration for which shares of Common Shares shall be deemed to be issued
upon the issuance of any Stock Purchase Rights or Convertible Securities shall
be determined by dividing (i) the total consideration, if any, received or
receivable by the Company as consideration for the granting of such Stock
Purchase Rights or the issuance of such Convertible Securities, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such Stock Purchase Rights, or, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the conversion or exchange thereof, in each case after deducting
any accrued interest, dividends, or any expenses paid or incurred or any
underwriting commissions or concessions paid or allowed by the Company, by (ii)
the maximum number of shares of Common Shares issuable upon the exercise of such
Stock Purchase Rights or upon the conversion or exchange of all such Convertible
Securities.
(7) Merger, Consolidation or Sale of Assets. In case any shares of
Common Shares or Convertible Securities or any Stock Purchase Rights shall be
issued in connection with any merger or consolidation in which the Company is
the surviving corporation, the amount of consideration therefor shall be deemed
to be the Fair Value of such portion of the assets and business of the non-
surviving corporation as shall be attributable to such Common Shares,
Convertible Securities or Stock Purchase Rights, as the case may be. In the
event of any merger or consolidation of the Company in which the Company is not
the surviving corporation or in the event of any sale of all or substantially
all of the assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a number of shares of
its Common Shares for stock or securities of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated
and for a consideration equal to the Fair Value on the date of such transaction
of such stock or securities of the other corporation, and if any such
calculation results in adjustment of the number of shares of Non-voting Common
Stock issuable upon exercise of this Warrant, the determination of the Exercise
Price immediately prior to such merger, consolidation or sale, for the purposes
of Subsection (g) above, shall be made after giving effect to such adjustment of
the Number of shares of Non-Voting Common Stock issuable under this Warrant.
(k) Record Date. In case the Company shall take a record of the
holders of the Common Shares for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Shares or in Convertible
Securities or (ii) to subscribe for or purchase Common Shares or Convertible
Securities, then all references in this ARTICLE IV to the date of the issue or
sale of the shares of Common Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be, shall be deemed to be references to such record date.
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(l) Shares Outstanding. The number of shares of Common Shares deemed
to be outstanding at any given time shall not include shares of Common Shares in
the treasury of the Company or held by any Subsidiary.
(m) Maximum Exercise Price. At no time shall the Exercise Price per
share of Non-Voting Common Stock exceed the amount set forth in the Preamble of
this Warrant except as provided in Subsection (a) or (g) of this Section 4.2.
(n) Application. Except as otherwise provided herein, all Subsections
of this Section 4.2 are intended to operate independently of one another. If an
event occurs that requires the application of more than one Subsection, all
applicable Subsections shall be given independent effect.
(o) No Adjustments under Certain Circumstances. Anything herein to
the contrary notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price in the case of:
(i) the issuance of shares of Non-Voting Common Stock or Class A Non-
Voting Stock upon the exercise in whole or part of this Warrant or the Other
Warrant, respectively;
(ii) the issuance of shares of Common Shares pursuant to a rights
offering in which the holder hereof elects to participate under the provisions
of Section 4.3;
(iii) the issuance of Common Stock or Class A Stock upon the
conversion of the Non-Voting Common Stock to Common Stock or the conversion of
Class A Non-Voting Stock to Class A Stock, respectively; or
(iv) the issuance of shares of Common Stock ("Management Stock") to
any executives or management of the Company or its Subsidiaries other than to
Affiliates of the Bain Investors.
4.3 Rights Offering. In the event the Company shall effect an offering of
Common Shares pro rata among its stockholders, the holder hereof shall be
entitled, at its option, to elect to participate in each and every such offering
as if this Warrant had been exercised and such holder were, at the time of any
such rights offering, then a holder of that number of shares of Non-Voting
Common Stock to which such holder is then entitled on the exercise hereof.
4.4 Certificates and Notices.
(a) Adjustments to Exercise Price. Upon any adjustment under this
ARTICLE IV of the number of shares of Non-Voting Common Stock purchasable upon
exercise of this Warrant or of the Exercise Price, a certificate, signed (i) by
the President or a Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Company, or
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(ii) by any independent firm of certified public accountants of recognized
national standing selected by, and at the expense of, the Company, setting forth
in reasonable detail the events requiring the adjustment and the method by which
such adjustment was calculated, shall be mailed to the holder of this Warrant
specifying the adjusted Exercise Price and the number of shares of Non-voting
Common Stock purchasable upon exercise of such holder's Warrant after giving
effect to such adjustment.
The certificate of any independent firm of certified public
accountants of recognized national standing selected by the Board of Directors
of the Company shall be conclusive evidence of the correctness of any
computation made under ARTICLE IV.
(b) Extraordinary Corporate Events. In case the Company after the
date hereof shall propose to (i) pay any dividend payable in stock to the
holders of shares of Common Shares or to make any other Distribution to the
holders of shares of Common Shares, (ii) offer to the holders of shares of
Common Shares rights to subscribe for or purchase any additional shares of any
class of stock or any other rights or options or (iii) effect any
reclassification of the Common Shares (other than a reclassification involving
merely the subdivision or combination of outstanding shares of Common Shares),
or any capital reorganization or any consolidation or merger (other than a
merger in which no distribution of securities or other property is to be made to
holders of shares of Common Shares), or any sale, transfer or other disposition
of its property, assets and business as an entirety or substantially as an
entirety, or the liquidation, dissolution or winding up of the Company, then, in
each such case, the Company shall mail to the holder of this Warrant notice of
such proposed action, which shall specify the date on which the stock transfer
books of the Company shall close, or a record shall be taken, for determining
the holders of Common Shares entitled to receive such stock dividends or other
Distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution or winding up shall take place or
commence, as the case may be, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to receive securities or
other property deliverable upon such action, if any such date is to be fixed.
Such notice shall be mailed in the case of any action covered by clause (i) or
(ii) above at least fifteen (15) days prior to the record date for determining
holders of Common Shares for purposes of receiving such payment or offer, or in
the case of any action covered by clause (iii) above at least thirty (30) days
prior to the date upon which such action takes place and twenty (20) days prior
to any record date to determine holders of Common Shares entitled to receive
such securities or other property.
(c) Effect of Failure. Failure to file any certificate or notice or
to mail any notice, or any defect in any certificate or notice pursuant to this
Section 4.4 shall not affect the legality or validity of the adjustment of the
Exercise Price or the number of shares purchasable upon exercise of this
warrant, or any transaction giving rise thereto.
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ARTICLE V
PARTICIPATION IN CORPORATE DISTRIBUTIONS
5.1 Company's Obligation to Make Payments.
Other than distributions on the Class P Stock or Class A Stock in
accordance with the Company's articles or certificate of incorporation, the
Company shall not declare, make or pay any dividend or other distribution,
whether in cash or other property, with respect to its Common Shares (a
"Distribution") (other than Common Shares of the Company as to which the
antidilution provisions of ARTICLE IV shall apply) , unless it concurrently
makes a cash payment to the holder of this Warrant equal to the amount to which
such holder would otherwise be entitled if such holder then had exercised the
Warrant in full and held Issued Warrant Shares.
ARTICLE VI
FINANCIAL AND BUSINESS INFORMATION
6.1 Information. The Company shall deliver to the holder hereof:
(a) as soon as practicable after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Company, and in any event
within forty-five (45) days thereafter, two copies of:
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter; and
(ii) consolidated statements of income, retained earnings and
cash flow of the Company and its Subsidiaries for such quarter and (in the case
of the second and third quarters) for the portion of the fiscal year ending with
such quarter;
setting forth in each case in comparative form the figures for the corresponding
dates and periods in the previous fiscal year. Such statements shall be (1)
prepared in accordance with generally accepted accounting principles
consistently applied, (2) in reasonable detail and (3) certified as complete and
correct by the chief financial or accounting officer of the Company;
(b) as soon as practicable after the end of each fiscal year of the
Company (commencing with the end of the 1993 fiscal year) and in any event
within ninety (90) days thereafter, two copies of:
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year;
(ii) consolidated statements of income, retained earnings and
cash flow of the Company and its Subsidiaries for such year;
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setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and accompanied by a report thereon by a
firm of independent certified public accountants of recognized national standing
selected by the Company, which report shall state that (1) such financial
statements fairly present the financial position of the entities being reported
upon at the end of such year and the results of their operations and changes in
accounting principles consistently applied (except for changes in accounting
principles with which such accountants concur), and (2) its examination of such
financial statements has been made in accordance with generally accepted
auditing standards and included such tests of the accounting records and other
auditing procedures as they considered necessary in the circumstances;
(c) promptly upon their becoming available, one copy of each report,
notice or proxy statement sent by the Company to its stockholders generally and
of each regular or periodic report or registration statement, prospectus or
written communication (other than transmittal letters) filed by the Company with
the Commission or any securities exchange on which shares of Common Shares are
listed;
(d) promptly upon the Company's obtaining knowledge thereof, notice of
the existence of an Event of Default, describing such Event of Default in
reasonable detail; and
(e) prior to the time that Company shall have completed a "Qualified
Public Offering" (as defined in the Stockholders Agreement), with reasonable
promptness, such other financial information as from time to time may be
reasonably requested by the holder hereof.
So long as the Company delivers to the holders of Warrant Shares copies of all
monthly and annual financial statements and reports of or relating to the
Company, Solaray and their Subsidiaries required to be delivered pursuant to the
Credit Agreement, clauses (a) and (b) above shall be suspended.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the Initial Holder and
each subsequent holder of this Warrant that as of the Closing Date:
7.1 Organization and Capitalization of the Company. The company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and the authorized capital of the Company consists of
2,000,000 shares of Common Stock, 120,000 shares of Non-Voting Common Stock,
200,000 shares of Class P Common Stock, 13,000 shares of Class A Stock and
13,000 shares of Class A Non-Voting Stock. As of the date hereof there are
100,000 shares of Class P Stock and 900,000 shares of the Common Stock issued
and outstanding and there are no Shares of NonVoting Common Stock, no shares of
Class A Stock and no shares of Class A Non-Voting Stock issued and outstanding,
and no shares of the Company's capital stock are held in
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its treasury. The Company has not issued or agreed to issue any Stock Purchase
Rights or Convertible Securities, and there are no preemptive rights in effect
with respect to the issuance of any shares of Common Shares. All the
outstanding shares of the Company's capital stock have been validly issued
without violation of any preemptive or similar rights and are fully paid and
nonassessable.
7.2 Authority. The Company has full corporate power and authority to
execute and deliver this Warrant and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof have been duly
authorized by all necessary corporate action on its part. This Warrant has been
duly executed on behalf of the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
7.3 No Legal Bar. Neither the execution, delivery or performance of
this Warrant, the Stockholders Agreement or that certain Registration Agreement
among the Company, the Initial Holder and the Bain Investors will (a) conflict
with or result in a violation of the articles or certificate of incorporation or
ByLaws of the Company, (b) conflict with or result in a violation of any law,
statute: regulation, order or decree applicable to the Company or any Affiliate
(except that the Company's ability to honor its obligations with respect to the
"Put" (as defined in the Stockholders Agreement) is subject to the availability
of sufficient earned and/or capital surplus), (c) require any consent or
authorization or filing with, or other act by or in respect of, any governmental
authority, or (d) result in a breach of, constitute a default under or
constitute an event creating rights of acceleration, termination or cancellation
under any mortgage, lease, contract, franchise, instrument or other agreement to
which the Company is a party or by which it is bound.
7.4 Validity of Shares. When issued upon the exercise of this
Warrant as contemplated herein, shares of Common Shares issued pursuant hereto
will have been validly issued and will be fully paid and nonassessable.
ARTICLE VIII
VARIOUS COVENANTS OF THE COMPANY
8.1 No Impairment or Amendment. The Company shall not by any action
including, without limitation, amending its articles or certificate of
incorporation, any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate to
protect the rights of the holder hereof against impairment. Without limiting
the generality of the foregoing, after the Closing Date the Company will (a) not
increase the par value of any shares of Common Shares issuable upon the exercise
of this Warrant above the amount payable therefor upon such exercise, (b) take
all such action as may be necessary or appropriate in order that the Company may
validly issue fully paid and nonassessable shares of Common Shares upon the
exercise of this Warrant, (c) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
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necessary to enable the Company to perform its obligations under this Warrant,
(d) not issue any capital stock of any class which is preferred as to dividends
or as to the distribution of assets upon the voluntary or involuntary
dissolution, liquidation or winding up of the Company, and (e) not undertake any
reverse stock split, combination, reorganization or other reclassification of
its capital stock which would have the effect of making this Warrant exercisable
for less than that percentage of the outstanding shares of Common Shares to
which it related immediately prior to such corporate action.
Upon the request of the holder hereof the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to such holder, the continued validity of this Warrant and the
Company's obligations hereunder.
8.2 Reservation of Common Stock. The Company will at all times
reserve and keep available, solely for issuance, sale and delivery upon the
exercise of this Warrant or the conversion of Non-Voting Common Stock, a number
of shares of Non-voting Common Stock equal to the number of shares of Non-Voting
Common Stock issuable upon the exercise of this Warrant and a number of shares
of Common Stock equal to the number of shares of Common Stock issuable upon
conversions of such Non-Voting Common Stock. All such shares of Non-Voting
Common Stock shall be duly authorized and, when issued upon exercise of this
Warrant, shall be validly issued and fully paid and non-assessable with no
liability on the part of the holders thereof. All such shares of Common Stock
shall be duly authorized and, when issued upon conversions of such NonVoting
Common Stock, shall be validly issued and fully paid and non-assessable with no
liability on the part of the holders thereof. The company shall not at any time
while this Warrant remains outstanding allow the par value of its Common Shares
to exceed the then effective Exercise Price.
8.3 Listing on Securities Exchange. If the Company shall list any
shares of Common Shares on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of, all Issued
Warrant Shares and, to the extent permissible under the applicable securities
exchange rules, all Issuable Warrant Shares, so long as any shares of Common
Shares shall be so listed. The Company will also so list on each securities
exchange, and will maintain such listing of, any other securities which the
holder of this Warrant shall be entitled to receive upon the exercise thereof if
at the time any securities of the same class shall be listed on such securities
exchange by the Company.
8.4 Availability of Information. The Company will cooperate with the
holder hereof and of Issued Warrant Shares in supplying such information as may
be necessary for such holder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of this
Warrant or such Issued Warrant Shares.
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8.5 Interested Transactions.
Without the prior written consent of the Initial Holder, the Company
will not and will not permit any of its subsidiaries directly or indirectly to:
(a) enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of Company or with any director, officer or employee
of Company or any of its subsidiaries, except (i) as set forth on Schedule 7.9
to the Credit Agreement as in effect on the date hereof, (ii) as permitted by
paragraph (b) below, or (iii) transactions in the ordinary course of and
pursuant to the reasonable requirements of the business of Company or any of its
Subsidiaries and upon fair and reasonable terms which are fully disclosed to
holders and are no less favorable to Company or such Subsidiary than would be
obtained in a comparable arm's length transaction with a Person that is not an
Affiliate of Company; or
(b) pay any management, consulting or similar fees to any Affiliate of
Company or any of its Subsidiaries or to any director, officer or employee of
Company or any of its subsidiaries except as set forth on Schedule 7.9 to the
Credit Agreement as in effect on the date hereof.
8.6 Indemnification. If the Company fails to make when due any
payments provided for in this Warrant, the Company shall pay to the holder
hereof (a) interest at the Default Rate on any amounts due and owing to such
holder and (b) such further amounts as shall be sufficient to cover any costs
and expenses including, but not limited to, reasonable attorneys' fees and
expenses incurred by such holder in collecting any amounts due hereunder.
The Company shall indemnify, save and hold harmless the holder hereof
from and against any and all liability, loss, cost, damage, reasonable
attorneys' and accountants' fees and expenses, court costs and all other out-of-
pocket expenses incurred in connection with or arising from an Event of Default.
8.7 Certain Expenses. The Company shall pay all expenses in
connection with, and all taxes (other than stock transfer taxes) and other
governmental charges that may be imposed in respect of, the issue, sale and
delivery of (a) the Warrant, (b) the Issuable Warrant Shares, or (c) the Issued
Warrant Shares.
8.8 Regulatory Compliance Cooperation. Notwithstanding any other
provision of this Warrant, the Company will not, without the written consent of
each holder hereof and the holders of shares of Common Shares issuable
hereunder, redeem, purchase or otherwise acquire, directly or indirectly, or
convert or take any action with respect to the voting rights of, any shares of
any class of its capital stock or any securities convertible into or
exchangeable for any shares of any class of its capital stock, so as to
increase the proportion of the Company's Voting Stock which this Warrant
entitles the holder to purchase or which the holder of shares of Common Shares
issuable hereunder
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then owns. A holder may withhold such consent if, in its opinion, after giving
effect to such action, the holder would have a "Regulatory Problem" (as defined
below). In addition, the Company will not be a party to any merger,
consolidation, recapitalization or other transaction pursuant to which the
holder hereof or a holder of shares of Common Shares issuable hereunder would be
required to take any voting securities, or any securities convertible into
voting securities, which might reasonably be expected to cause such holder to
have a Regulatory Problem. For purposes of this paragraph, a Person will be
deemed to have a "Regulatory Problem" when such Person or such Person's
affiliates would own, control or have power, directly or indirectly, over a
greater quantity of securities of any kind issued by the Company than is
permitted under any requirement of any governmental authority binding on such
Person.
8.9 Conduct of Business. From and after the Closing Date, the
Company will not and will not permit any of its Subsidiaries to engage in any
business other than businesses of the type described on Schedule 4.1(D) of the
Credit Agreement (as in effect on the date hereof) or other businesses in the
same industry as such businesses disclosed on such Schedule 4.1(D) (as in effect
on the date hereof). From and after the Closing Date, the Company shall not
engage in any type of business activity other than ownership of the capital
stock of Solaray and the performance of its obligations under the "Loan
Documents" (as defined in the Credit Agreement) to which it is a party.
8.10 No Additional Class P Common or Class A Common. The Company
agrees that it shall not issue any additional shares of Class P Stock, Class A
Stock or Class A Non-Voting Stock after the Closing Date except as expressly
required by or provided for in the Other Warrant.
ARTICLE IX
MISCELLANEOUS
9.1 Nonwaiver. No course of dealing or any delay or failure to
exercise any right, power or remedy hereunder on the part of the holder hereof
shall operate as a waiver of or otherwise prejudice such holder's rights, powers
or remedies.
9.2 Holder Not a Stockholder. Prior to the exercise of this Warrant
as hereinbefore provided, the holder hereof shall not be entitled to any of the
rights of a stockholder of the Company including, without limitation, the right
as a stockholder to (a) vote on or consent to any proposed action of the Company
or (b) receive (i) dividends or any other distributions made to stockholders
(except as provided in ARTICLE V hereof), (ii) notice of or attend any meetings
of stockholders of the Company (except as provided in ARTICLE IV) or (iii)
notice of any other proceedings of the Company (except as provided in ARTICLE
IV).
9.3 Notices. Any notice, demand or delivery to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if sent by
first class mail, postage prepaid and return receipt requested, addressed to (a)
the holder of this Warrant or Issued Warrant Shares at its last known address
appearing on the books of the Company maintained for such purpose or (b) the
Company at c/o Clarte Capital, 185 S. State, Suite 930, Salt Lake City, Utah
84111, Attention:
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President. The holder of this Warrant and the Company may each designate a
different address by notice to the other pursuant to this Section 9.3.
9.4 Like Tenor. All Warrants shall at all
times be identical, except as to the Preamble.
9.5 Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
9.6 Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Company, the holder hereof and (to the extent provided herein)
the holders of Issued Warrant Shares, and shall be enforceable by any such
holder.
9.7 Modification and Severability. If, in any action before any
court or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Agreement, but this Agreement shall be construed as if such
unenforceable provision had never been contained herein.
9.8 Integration. This Warrant and the other warrant replaces all
prior agreements, supersedes all prior negotiations and constitutes the entire
agreement of the parties with respect to the transactions contemplated herein.
Reference to the Credit Agreement herein shall, to the extent that the Loans and
other obligations thereunder have been repaid and such Credit Agreement
terminated, mean the Credit Agreement as in effect immediately prior to its
termination.
9.9 Amendment. This Warrant may not be modified or amended except by
written agreement of the Company and the holder(s) hereof.
9.10 Headings. The headings of the Articles and Sections of this
Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.
9.11 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE INTERNAL
LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS.
9.12 Notice of Expiration. The company will give the holder of this
Warrant no less than six (6) months nor more than nine (9) months notice of the
expiration of the right to exercise this
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<PAGE>
Warrant. The right to exercise this Warrant shall expire at the termination of
the Exercise Period, unless the Company shall fail to give such notice as
aforesaid, in which event the right to exercise this Warrant shall not expire
until 5:00 p.m. (Chicago Time), on a date six (6) months after the date on which
the Company shall give the holder hereof notice of the expiration of the right
to exercise this Warrant.
9.13 Tolling of Warrant Expiration. If the holder of this Warrant
has attempted to exercise its "Put" (as defined in the Stockholders Agreement)
pursuant to the Stockholders Agreement, and the Company for any reason fails to
repurchase such Warrant and/or the Warrant Shares, then the date for the
expiration of the right to exercise this Warrant shall be extended until a date
three (3) months after Company notifies the holder in writing that it will
satisfy any Put requested by the holder, unless the Company shall again fail to
satisfy any requested Put, in which case the extension referenced above shall
continue in accordance with the terms and conditions specified above.
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<PAGE>
Witness the due execution hereof of this 28th day of October 1993, by the
undersigned duly authorized officers of the Company.
NUTRACEUTICAL CORPORATION
By: /s/ Robert C. Gay
----------------------
Title: President
--------------------
Attest:
/s/ Matthew Levin
- -----------------
Secretary
-26-
<PAGE>
EXHIBIT 2.2
-----------
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered holder of the within Warrant irrevocably exercises
the within Warrant for and purchases _________ shares of Non-Voting Common Stock
of Nutraceutical Corporation, a Delaware corporation (the "Company") and
herewith makes payment therefor in the amount of $______, all at the price and
on the terms and conditions specified in the within Warrant, and requests that a
certificate (or _______ certificates in denominations of ____ shares) for the
shares of Non-Voting Common Stock of the Company hereby purchased be issued in
the name of and delivered to (choose one) (a) the undersigned or (b) _________
whose address is ________ and, if such shares of Non-Voting Common Stock shall
not include all the shares of NonVoting Common Stock issuable as provided in the
within Warrant, that a new Warrant of like tenor for the number of shares of
NonVoting Common Stock of the Company not being purchased hereunder be issued in
the name of and delivered to (choose one) (a) the undersigned or (b) _________,
whose address is _______________.
Dated: ________, _______.
By: _______________________________________
(Signature of Registered Holder)
NOTICE: The signature to this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
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<PAGE>
EXHIBIT 3.2
-----------
ASSIGNMENT FORM
---------------
(To be executed only upon the assignment
of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ________, whose address is ______, all
of the rights of the undersigned under the within Warrant, with respect to
shares of Non-Voting Common Stock of Nutraceutical Corporation, a Delaware
corporation (the "Company") and, if such shares of Non-Voting Common Stock shall
not include all the shares of Non-Voting Common Stock issuable as provided in
the within Warrant, that a new Warrant of like tenor for the number of shares of
Non-Voting Common Stock of the Company not being transferred hereunder be issued
in the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ________ Attorney to register such transfer on the books
of the Company maintained for the purpose, with full power of substitution in
the premises.
Dated: ________,____.
By:________________________________
(Signature of Registered Holder)
NOTICE: The signature to this Assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
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<PAGE>
Exhibit 10-8
------------
THIS WARRANT AND ANY SHARES OF CLASS A NON-VOTING COMMON STOCK ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT.
THIS WARRANT IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS PURSUANT TO A
STOCKHOLDERS AGREEMENT DATED AS OF OCTOBER 28, 1993, AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF
SUCH STOCKHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST.
WARRANTS
To Purchase Class A Non-Voting Common Stock of
NUTRACEUTICAL CORPORATION
THIS IS TO CERTIFY that Heller Financial, Inc., a Delaware corporation having
its principal place of business at 500 West Monroe Street, Chicago, Illinois
60661, or its registered assigns, is entitled upon the due exercise hereof at
any time during the Exercise Period (as hereinafter defined) to purchase
12,994.35 shares (subject to adjustment as provided herein) of Class A Non-
voting Common Stock, $.0l par value, of Nutraceutical Corporation, a Delaware
corporation, at an Exercise Price of $.0l per share (such Exercise Price and the
number of shares of Class A Non-Voting Common Stock purchasable hereunder being
subject to adjustment as provided herein), and to exercise the other rights,
powers and privileges hereinafter provided, all on the terms and subject to the
conditions hereinafter set forth.
ARTICLE I
DEFINITIONS
The terms defined in this ARTICLE I, whenever used in this Warrant, shall have
the respective meanings hereinafter specified.
"Affiliate" of any entity means a Person which directly or directly through one
or more intermediaries controls, or is controlled by, or is under common control
with, such entity. The term
<PAGE>
"control," as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
"Assignment" means the form of Assignment appearing at the end of this Warrant.
"Bain Capital Investors" means Bain Capital Fund IV, L.P., a Delaware limited
partnership, Bain Capital Fund IV-B, L.P., a Delaware limited partnership, BCIP
Associates, a Delaware partnership, and BCIP Trust Associates, L.P., a Delaware
limited partnership.
"Bain Investors" means the Bain Capital Investors, F. W. Gay & Sons, a Texas
general partnership, Bruce Hough and James L. Learner.
"Chicago Time" shall mean, with respect to any determination of the time for
performance hereunder, the time of day determined by the local time in Chicago,
Illinois.
"Class A Stock" means shares of the Company's Class A Common Stock, $.0l par
value, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock.
"Class A Non-Voting Stock" means shares of the Company's Class A Non-voting
Common Stock, $.0l par value, convertible into Class A Stock on a share-for-
share basis, any stock into which such stock shall have been changed or any
stock resulting from any reclassification of such stock.
"Class P Stock" means shares of the Company's Class P Common Stock, $.0l par
value, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock.
"Closing Date" means October 28, 1993.
"Commission" means the Securities and Exchange Commission or an other Federal
agency from time to time administering the Securities Act.
"Common Stock" means Class A Stock, Class A Non-Voting Stock, Class P Stock,
Other Common Stock, Other Non-Voting Common Stock and any class of capital stock
of the Company now or hereafter authorized having the right to share in
distributions either of earnings or assets of the Company without limit as to
amount or percentage.
"Company" means Nutraceutical Corporation, a Delaware corporation, and any
successor corporation.
"Convertible Securities" means evidences of indebtedness, shares of stock (other
than Class A Non-Voting Stock and Other Non-Voting Common Stock) or other
securities which are convertible into or exchangeable for, with or without
payment of additional consideration, additional shares of
-2-
<PAGE>
Common Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event.
"Credit Agreement" means the Credit Agreement dated as of even date herewith,
between the Initial Holder, as agent and lender, and Solaray, as the same may be
amended from time to time together with all of the other "Loan Documents" (as
defined in the Credit Agreement), each as the same may be amended from time to
time.
"Current Market Price" as to any security on any date specified herein means the
average of the daily closing prices for the thirty (30) consecutive trading days
before such date excluding any trades which are not bona fide arm's length
transactions. The closing price for each day shall be (i) the mean between the
closing high bid and low asked quotations of any such security in the over-the
counter market as shown by the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, as reported by
any member firm of the New York Stock Exchange selected by the Company, or (ii)
if not quoted as described in clause (i), the mean between the high bid and low
asked quotations for any such security as reported by the National Quotation
Bureau Incorporated or any similar successor organization, as reported by any
member firm of the New York Stock Exchange selected by the Company, or (iii) if
any such security is listed or admitted for trading on any national securities
exchange, the last sale price of any such security, regular way, or the mean of
the closing bid and asked prices thereof if no such sale occurred, in each case
as officially reported on the principal securities exchange on which any such
security is listed. If any such security is quoted on a national securities or
central market system in lieu of a market or quotation system described above,
the closing price shall be determined in the manner set forth in clause (i) of
the preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (iii) of the
preceding sentence if actual transactions are reported.
"Default Rate" means the interest rate applicable to "Base Rate Loans" (as
defined in the Credit Agreement) after an "Event of Default" (as defined in the
Credit Agreement) as set forth in Section 2.2 of the Credit Agreement.
"Distribution" has the meaning set forth in Section 5.1.
"Event of Default" means (a) the breach of any warranty, or the inaccuracy of
any representation, made by the Company herein or (b) the failure by the Company
to comply with any covenant contained herein.
"Exercise Period" means (subject to the provisions of Section 9.12 and 9.13
below) the period commencing on the Closing Date and terminating on the tenth
anniversary of the Closing Date.
"Exercise Price" means the price per share of Class A Non-Voting Stock set forth
in the preamble to this Warrant, as such price may be adjusted pursuant to
ARTICLE IV.
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<PAGE>
"Fair Value" means the fair market value of the Warrant Shares which are being
repurchased (assuming full exercise of the Warrant) based upon the market value
of the Company determined on a going concern basis as between a willing buyer
and a willing seller and taking into account all relevant factors determinative
of value including, without limitation, the rights and preferences of the
Warrant Shares set forth in the Company's Certificate of Incorporation. Unless
otherwise agreed by the Company and holder, Market Value of the Warrant Shares
shall be determined by an investment banking firm reasonably acceptable to the
Company and holder, which firm shall submit to the Company and holder a written
report setting forth such determination. If the parties are unable to agree on
an investment banking firm within 15 days after delivery of a request by any
party for a determination of Market Value, a firm shall be selected by lot from
the top-tier New York based investment banking firms, after the Company and
holder have each eliminated one such firm. The expenses of such firm will be
borne by the Company, and the determination of such firm will be final and
binding upon all parties. In determining Fair Value of the Warrant Shares, no
discount shall be imposed by reason of any stock interest being valued
constituting a minority ownership interest, non-voting restrictions or the
illiquidity of the stock interest being valued. Notwithstanding the foregoing,
if the Company shall have effected a public offering of its Warrant Shares, and
any of the Warrant Shares are actively traded on a public market, Fair Value
means, with reference to the Warrant Shares, the Current Market Price of such
shares as of any date of determination.
"Fully Diluted Outstanding Shares" shall mean, at any time, the sum of (i) the
number of outstanding shares of Common Stock plus (ii) the number of Issuable
Warrant shares, plus (iii) the number of shares of Common Stock issuable upon
the exercise of outstanding options.
"Initial Holder" means Heller Financial, Inc., a Delaware corporation.
"Issuable Warrant Shares" means the number of shares of Class A Non-Voting Stock
issuable from time to time upon exercise of this Warrant.
"Issued Class A Warrant Shares" means (a) any shares of Class A Stock issued
upon conversion of Issued Class A Non-Voting Warrant Shares plus (b) any shares
of Class A Stock issued as a stock dividend with respect to any shares of the
type described in (a) or as part of a stock split affecting such shares.
"Issued Class A Non-Voting Warrant Shares" means (a) the cumulative total of the
shares of Class A Non-Voting Stock issued from time to time upon exercise of the
Warrants, plus (b) any shares of' Class A Non-Voting Stock issued as a stock
dividend with respect to such shares or as part of a stock split affecting such
shares, less (c) any shares described in (a) or (b) that were subsequently
converted into shares of Class A Stock.
"Issued Warrant Shares" means the Issued Class A Warrant Shares plus the Issued
Class A Non-Voting Warrant Shares.
"Liabilities" means Solaray's "Obligations" as defined in the Credit Agreement.
-4-
<PAGE>
"Notice of Exercise" means the form of Notice of Exercise appearing as Exhibit
2.2 hereof.
"Opinion of Counsel means an opinion of counsel experienced in Securities Act or
bank regulatory matters, as the case may be, chosen by the holder of this
Warrant or the holder of Issued Warrant Shares, which counsel may be counsel to
such holder.
"Other Common Stock" means shares of the Company's Common Stock, $.0l par value,
any stock into which such stock shall have been changed or any stock resulting
from any reclassification of such stock.
"Other Non-Voting Common Stock" means shares of the Company's Non-Voting Common
Stock, $.0l par value, convertible into Other Common Stock on a share-for-share
basis, any stock into which such stock shall have been changed or any stock
resulting from any reclassification of such stock.
"Other Securities" means any stock and other securities of the Company (other
than Common Stock, Convertible Securities or Stock Purchase Rights) or any other
Person which shall become subject to issue or sale upon the conversion or
exchange of any stock or other securities of the Company.
"Other Warrant" means that certain Warrant to Purchase Non-Voting Common Stock
of even date herewith, as hereafter amended, in favor of Initial Holder.
"Person" means any unincorporated organization, association, corporation,
individual, sole proprietorship, partnership, joint venture, trust institution,
entity, party or government (including any instrumentality, division, agency,
body or department thereof).
"Securities Act" means the Securities Act of 1933, as amended, or any successor
Federal statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect from time to time.
"Solaray" means Solaray, Inc., a Utah corporation, and a wholly-owned Subsidiary
of the Company.
"Stock Purchase Rights" means any warrants, options or other rights to subscribe
for, purchase or otherwise acquire any shares of Common Stock or any Convertible
Securities.
"Stockholders Agreement" means that certain Stockholders Agreement dated as of
the Closing Date among the Company, Initial Holder and the Bain Capital
Investors, as amended.
"Subsidiary" means any corporation or association (a) more than 50% (by number
of votes) of the Voting Stock of which is at the time owned by the Company or by
one or more Subsidiaries or by the Company and one or more Subsidiaries, or any
other business entity in which the Company or one or more Subsidiaries or the
Company and one or more subsidiaries owns more than a 50% interest either in the
profits or capital of such business entity or (b) whose net earnings, or
portions thereof, are consolidated with the net earnings of the Company and are
recorded on the books of the
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<PAGE>
Company for financial reporting purposes in accordance with generally accepted
accounting principles.
"Voting Stock" means securities of any class or series of a corporation or
association the holders of which are ordinarily, in the absence of
contingencies, entitled to participate in the election of a majority of the
directors or persons performing similar functions of such corporation or
association.
"Warrant" means the warrant dated as of Closing Date issued to the Initial
Holder and all warrants issued upon the partial exercise, transfer or division
of or in substitution for any Warrant and all warrants delivered pursuant to the
last paragraph of Section 2.2.
"Warrant Shares" means the Issuable Warrant Shares plus the Issued Warrant
Shares.
Whenever used in this Warrant, any noun or pronoun shall be deemed to include
both the singular and plural and to cover all genders, and the words "herein,"
"hereof," and "hereunder" and words of similar import shall refer to this
instrument as a whole, including any amendments hereto.
ARTICLE II
EXERCISE OF WARRANT
2.1 Right to Exercise. On the terms and subject to the conditions of this
ARTICLE II, the holder hereof shall have the right, at its option, to exercise
this Warrant in whole or in part at any time during the Exercise Period.
2.2 Manner of Exercise; Issuance of Class A Non-Voting Stock. To exercise
this Warrant, the holder hereof shall deliver to the Company (a) a Notice of
Exercise in substantially the form of Exhibit 2.2 hereto duly executed by the
holder hereof specifying the number of shares of Class A Non-Voting Stock to be
purchased, (b) an amount equal to the aggregate Exercise Price for all shares of
Class A Non-Voting Stock as to which this Warrant is then being exercised and
(c) this Warrant. At the option of the holder hereof, payment of the Exercise
Price shall be made by (i) wire transfer of funds to an account in a bank
located in the United States designated by the Company for such purpose, (ii)
certified or official bank check payable to the order of the Company and drawn
on a member of the Chicago Clearing House, (iii) by application of the
Liabilities to the payment of the Exercise Price in such order as the Initial
Holder may determine, (iv) deducting from the number of shares delivered upon
exercise of the Warrant a number of shares which has an aggregate Current Market
Price (or, in the event that the Current Market Price per share is not
determinable, an aggregate Fair Value) on the date of exercise equal to the
aggregate Exercise Price for all shares as to which the Warrant is then being
exercised or (v) by any combination of such methods.
Upon receipt of the required deliveries, the Company shall, as promptly as
practicable, and in any event within five (5) days thereafter, cause to be
issued and delivered to the holder hereof (or its nominee) or the transferee
designated in the Notice of Exercise, a certificate or certificates representing
shares of Class A Non-Voting Stock equal in the aggregate to the number of
shares of
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<PAGE>
Class A Non-Voting Stock specified in the Notice of Exercise (but not exceeding
the maximum number of shares issuable upon exercise of this Warrant). Such
certificate or certificates shall be registered in the name of the holder hereof
(or its nominee) or in the name of such transferee, as the case may be.
If this Warrant is exercised in part, the Company shall, at the time of
delivery of such certificate or certificates, unless the Exercise Period has
expired, issue and deliver to the holder hereof or the transferee so designated
in the Notice of Exercise, a new Warrant evidencing the right of the holder
hereof or such transferee to purchase the aggregate number of shares of Class A
Non-Voting Stock for which this Warrant shall not have been exercised, and this
Warrant shall be canceled.
2.3 Effectiveness of Exercise. Unless otherwise requested by the holder
hereof, this Warrant shall be deemed to have been exercised and such certificate
or certificates shall be deemed to have been issued, and the holder or
transferee so designated in the Notice of Exercise shall be deemed to have
become the holder of record of such shares for all purposes, as of the close of
business on the date the Notice of Exercise, together with payment of the
Exercise Price and this Warrant, is received by the Company.
2.4 Fractional Shares. The Company shall not issue fractional shares of
Class A Non-Voting Stock or scrip representing fractional shares of Class A Non-
Voting Stock upon any exercise of this Warrant. As to any fractional share of
Class A Non-Voting Stock which the holder hereof would otherwise be entitled to
purchase from the Company upon such exercise, the Company shall purchase from
the holder such fractional share at a price equal to an amount calculated by
multiplying such fractional share (calculated to the nearest .001 of a share) by
the Fair Value (determined without regard to whether this Warrant or any Warrant
Shares are then subject to repurchase hereunder) calculated as of the date of
the Notice of Exercise. Payment of such amount shall be made at the time of
delivery of any certificate or certificates deliverable upon such exercise in
cash or by check payable to the order of the holder hereof or the transferee
designated in the Notice of Exercise, as the case may be.
2.5 Continued Validity. A holder of shares of Class A Non-Voting Stock
issued upon the exercise of this Warrant, in whole or in part, shall continue to
be entitled to all rights to which a holder of this Warrant is entitled pursuant
to the provisions of this Warrant except such rights as by their terms apply
solely to the holder of a Warrant. The Company will, at the time of any
exercise of this Warrant, upon the request of the holder of the shares of Class
A Non-Voting Stock issued upon the exercise hereof, acknowledge in writing, in
form reasonably satisfactory to such holder, its continuing obligation to afford
to such holder all rights to which such holder shall continue to be entitled
after such exercise in accordance with the provisions of this Warrant; provided,
however, that if such holder shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
holder all such rights.
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<PAGE>
ARTICLE III
REGISTRATION, TRANSFER AND EXCHANGE
3.1 Maintenance of Registration Books. The Company shall keep at its
principal office a register in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration, transfer and
exchange of this Warrant. The Company shall not at any time, except upon the
dissolution, liquidation or winding up of the Company, close such register so as
to result in preventing or delaying the exercise or transfer of this Warrant.
3.2 Transfer and Exchange. Upon surrender for registration of transfer of
this Warrant at such office, the Company shall execute and deliver in the name
of the designated transferee or transferees, one or more new Warrants
representing the right to purchase a like aggregate number of shares of Class A
Non-Voting Stock. At the option of the holder hereof, this Warrant may be
exchanged for other Warrants representing the right to purchase a like aggregate
number of shares of Class A Non-Voting Stock upon surrender of this Warrant at
such office. Whenever this Warrant is so surrendered for exchange, the Company
shall execute and deliver the Warrants which the holder making the exchange is
entitled to receive.
Every Warrant presented or surrendered for registration of transfer or
exchange shall be accompanied by an Assignment duly executed by the holder
thereof or its attorney duly authorized in writing in substantially the form of
Exhibit 3.2 attached hereto.
All Warrants issued upon any registration of transfer or exchange of
Warrants shall be the valid obligations of the Company, evidencing the same
rights, and entitled to the same benefits, as the Warrants surrendered upon such
registration of transfer or exchange.
3.3 Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (a) in
the case of any such loss, theft or destruction upon delivery of indemnity
reasonably satisfactory to the Company in form and amount or (b) in the case of
any such mutilation, upon surrender of such Warrant for cancellation at the
principal office of the Company, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant.
3.4 Ownership. The Company and any agent of the Company may treat the
Person in whose name this Warrant is registered on the register kept at the
principal office of the Company as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, except that, if and when
this Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of this Warrant for all
purposes, notwithstanding any notice to the contrary. This Warrant, if properly
assigned, may be exercised by a new holder without first having a new Warrant
issued.
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<PAGE>
ARTICLE IV
ANTIDILUTION PROVISIONS
4.1 Adjustment of Exercise Price. Upon any adjustment of the number of
shares of Class A Non-Voting Stock issuable upon exercise of this Warrant as
provided in Section 4.2, the Exercise Price in effect immediately prior to such
adjustment shall be adjusted by multiplying such Exercise Price by a fraction,
the numerator of which shall be the number of shares of Class A Non-Voting Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
the denominator of which shall be the number of shares of Class A Non-Voting
Stock issuable upon exercise of this Warrant immediately after giving effect to
such adjustment.
4.2 Adjustment of Number of Shares Purchasable. The number of shares of
Class A Non-Voting Stock shall be subject to adjustment from time to time as
hereinafter set forth.
(a) Stock Dividends, Subdivisions and Combinations. In the event that
the Company subsequent to the Closing Date shall:
(i) declare a dividend upon, or make any distribution in respect
of, any of its stock, payable in Common Stock, Convertible Securities or Stock
Purchase Rights, or
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then the number of shares of Class A
Non-Voting Stock issuable upon exercise of this Warrant shall be adjusted to
that number determined by dividing the number of shares of Class A Non-Voting
Stock issuable upon exercise of this Warrant immediately prior to such event by
a fraction (A) the numerator of which shall be the total number of outstanding
shares of Common Stock of the Company immediately prior to such event, and (B)
the denominator of which shall be the total number of outstanding shares of
Common Stock of the Company immediately after such event, treating as
outstanding all shares of Common Stock issuable upon conversions or exchanges of
such Convertible Securities and exercises of such Stock Purchase Rights.
(b) Issuance of Additional Shares of Common Stock. In case the
Company shall issue or sell any shares of Common Stock after the Closing Date
for a consideration less than the then Fair Value per share, then, the number of
shares of Class A Non-Voting Stock issuable upon exercise of this Warrant shall
be increased as determined by the following formula, solving for the appropriate
unknown variable thereunder:
AWS x (TV + AC + EX) = WS x (TV + EX)
--------------- -------
(AWS + SO + AS) SO + WS
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<PAGE>
For purposes of the formula set forth above, the variables set forth therein
shall have the following meanings:
AWS = The number of shares of Class A Non-Voting Stock issuable upon
exercise of this Warrant, after giving effect to the adjustment
FVS = The then Fair Value per share (without giving effect to any
dilution attributable to the Issuable Warrant Shares)
SO = The number of shares of Common Stock outstanding prior to the
issuance of the additional shares
TV = FVS x SO
AC = The aggregate consideration received for the sale or issuance
of the additional shares of Common Stock
AS = The number of additional shares of Common Stock to be sold or
issued
EX = The Exercise Price per share (prior to adjustment) times the
number of shares of Class A Non-Voting Stock issuable upon
exercise of this Warrant (prior to the adjustment)
WS = The number of shares of Class A Non-Voting Stock issuable upon
exercise of this Warrant (prior to adjustment)
For purposes of this Subsection (b), the date as of which the Fair
Value per share of Common Stock shall be computed shall be the last day of the
most recently completed fiscal period of the Company for which financial
statements have been delivered pursuant to ARTICLE VI prior to which the Company
shall first (i) enter into a firm contract for the issuance of such shares or
(ii) issue such shares.
The provisions of this Subsection (b) shall not apply to any
additional shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock dividend or subdivision for which an adjustment is
provided for under Subsection (a) of this Section 4.2. No adjustment of the
number of shares of Class A Non-Voting Stock issuable under this Warrant shall
be made under this subsection upon the issuance of any additional shares of
Common Stock which are issued pursuant to the exercise of any Stock Purchase
Rights or pursuant to the conversion or exchange of any Convertible Securities
to the extent that such adjustment shall previously have been made upon the
issuance of such Stock Purchase Rights or Convertible Securities pursuant to
Subsection (a), (c), (d), (e) or (f) of this Section 4.2.
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<PAGE>
(c) Issuance of Stock Purchase Rights. In case the Company shall
issue or sell any Stock Purchase Rights and the consideration per share for
which additional shares of Common Stock may at any time thereafter be issuable
upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for
the Purchase of Convertible Securities, upon the subsequent conversion or
exchange of such Convertible Securities) shall be less than the then Fair Value
per share, then the Number of shares of Class A Non-Voting Stock issuable under
this Warrant shall be adjusted as provided in Subsection (b) of this Section 4.2
on the basis that (i) the maximum number of additional shares of Common Stock
issuable upon exercise of such Stock Purchase Rights (or upon conversion or
exchange of such Convertible Securities following such exercise) shall be deemed
to have been issued as of the date of the determination of such adjustment, Fair
Value, as hereinafter provided, and (ii) the aggregate consideration received
for such additional shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Company in connection with the
issuance and exercise of such Stock Purchase Rights (or upon conversion or
exchange of such Convertible Securities). For the purposes of this Subsection
(c), (i) the date as of which the adjustment of the Number of shares of Class A
Non-Voting Stock issuable under this Warrant shall be computed shall be the
earlier of (A) the date on which the Company shall enter into a firm contract
for the issuance of such Stock Purchase Rights, or (B) the date of actual
issuance of such Stock Purchase Rights, and (ii) the date as of which the Fair
Value per share of Common Stock shall be computed shall be the last day of the
most recently completed fiscal period of the Company for which financial
statements have been delivered pursuant to ARTICLE VI prior to the earlier of
the dates determined pursuant to clauses (A) and (B) above.
(d) Issuance of Convertible Securities. In case the Company shall
issue or sell any Convertible Securities and the consideration per share for
which additional shares of Common Stock may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the Fair
Value per share, then the Number of shares of Class A Non-Voting Stock issuable
under this Warrant shall be adjusted as provided in Subsection (b) of this
Section 4.2 on the basis that (i) the maximum number of additional shares of
Common Stock necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued as of the date for
the determination of such adjustment, Fair Value, as hereinafter provided, and
(ii) the aggregate consideration received for such additional shares of Common
Stock shall be deemed to be equal to the minimum consideration received and
receivable by the Company in connection with the issuance and conversion of
exercise of such Convertible Securities. For the purposes of this Subsection
(d), (i) the date as of which the adjustment of the Number of shares of Class A
Non-Voting Stock issuable under this Warrant per share shall be computed shall
be the earlier of (A) the date on which the Company shall enter into a firm
contract for the issuance of such Convertible Securities, or (B) the date of
actual issuance of such Convertible Securities, and (ii) the date as of which
the Fair Value per share of Common Stock shall be computed shall be the last day
of the most recently completed fiscal period of the Company for which financial
statements have been delivered pursuant to ARTICLE VI prior to the earlier of
the dates determined pursuant to clauses (A) and (B) above. No adjustment of the
Number of shares of Class A Non-Voting Stock issuable under this Warrant shall
be made under this Subsection (d) upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any Stock Purchase
Rights, if an adjustment shall
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previously have been made upon the issuance of such Stock Purchase Rights
pursuant to Subsection (c) of this Section 4.2.
(e) Minimum Adjustment. In the event any adjustment of the Number of
shares of Class A Non-Voting Stock issuable under this Warrant pursuant to this
Section 4.2 shall result in an adjustment of less than one share of Class A Non-
Voting Stock, no such adjustment shall be made, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so carried
forward, shall amount to one more share of Class A Non-Voting Stock; provide,
however, that upon any adjustment of the Number of shares of Class A Non-Voting
Stock issuable under this Warrant resulting from (i) the declaration of a
dividend upon, or the making of any distribution in respect of, any stock of the
Company payable in Common Stock or Convertible Securities or (ii) the
reclassification by subdivision, combination or otherwise, of the Common Stock
into a greater or smaller number of shares, the foregoing figure of one share
(or such figure as last adjusted) shall be proportionately adjusted, and
provided, further, upon the exercise of this Warrant, the Company shall make all
necessary adjustments (to the nearest 1/100th of a share) not theretofore made
to the Number of shares of Class A Non-Voting Stock issuable under this Warrant
up to and including the date upon which this Warrant is exercised.
(f) Readjustment. In the event (i) the purchase price payable for any
Stock Purchase Rights or Convertible Securities referred to in Subsection (c) or
(d) above, (ii) the additional consideration, if any, payable upon exercise of
such Stock Purchase Rights or upon the conversion or exchange of such
Convertible Securities or (iii) the rate at which any Convertible Securities
above are convertible into or exchangeable for additional shares of Common Stock
shall change, the number of shares of Class A Non-Voting Stock issuable under
this Warrant at the time of such event shall forthwith be readjusted to that
number of Shares which would have been issuable at such time had such Stock
Purchase Rights or Convertible Securities provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. On the expiration of any such Stock
Purchase Rights not exercised or of any such right to convert or exchange under
any such Convertible Securities not exercised, the number of shares of Class A
Non-Voting Stock issuable under this Warrant shall forthwith be reduced to that
number of shares which would have been issuable at the time of such expiration
or termination had such Stock Purchase Rights or Convertible Securities never
been issued. No readjustment of the number of shares of Class A Non-Voting Stock
issuable under this Warrant pursuant to this Subsection (f) shall have the
effect of reducing the number of shares of Class A Non-Voting Stock issuable
under this Warrant by a number in excess of the adjustments made to the number
of shares of Class A Non-Voting Stock issuable under this Warrant in respect of
the issue, sale or grant of the applicable Stock Purchase Rights or Convertible
Securities.
(g) Reorganization, Reclassification or Recapitalization of Company.
In case of any capital reorganization or reclassification or recapitalization of
the capital stock of the Company (other than in the cases referred to in
Subsection (a) of this Section 4.2) , or in case of the consolidation or merger
of the Company with or into another corporation, or in case of the sale or
transfer of the property of the Company as an entirety or substantially as an
entirety, there shall
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thereafter be deliverable upon the exercise of this Warrant or any portion
thereof (in lieu of or in addition to the number of shares of Class A Non-Voting
Stock theretofore deliverable, as appropriate) the number of shares of stock or
other securities or property to which the holder of the number of shares of
Class A Non-Voting Stock which would otherwise have been deliverable upon the
exercise of this Warrant or any portion thereof at the time would have been
entitled upon such capital reorganization or reclassification of capital stock,
consolidation, merger or sale, and at the same aggregate Exercise Price.
Prior to and as a condition of the consummation of any transaction
described in the preceding sentence, the Company shall make equitable, written
adjustments in the application of the provisions herein set forth satisfactory
to the holders of Warrants entitled to purchase not less than 66 2/3% of the
Issuable Warrant Shares at such time with respect to the rights and interests of
holders of Warrants so that the provisions set forth herein shall thereafter be
applicable, as nearly as possible, in relation to any shares of stock or other
securities or other property thereafter deliverable upon exercise of this
Warrant. Any such adjustment shall be made by and set forth in a supplemental
agreement between the Company and/or the successor entity, as applicable, which
agreement shall bind each such entity, shall be accompanied by an opinion of
counsel as to the enforceability of such agreement and shall be approved by the
holders of Warrants entitled to purchase not less than 66 2/3% of the shares of
Class A Non-Voting Stock issuable upon the exercise thereof.
(h) Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issuance or sale
upon the conversion or exchange of any stock (or Other Securities) of the
Company (or any issuer of Other Securities or any other Person referred to in
Subsection (g) or become subject to subscription, purchase or other acquisition
pursuant to any options or rights issued or granted by the Company (or by any
such other issuer or Person) for a consideration such as to dilute, within the
standards established in the other provisions of this ARTICLE IV, the purchase
rights granted by this Warrant, then, and in each such case, the computations,
adjustments and readjustments provided for in this ARTICLE IV with respect to
the Number of shares of Class A Non-Voting Stock issuable under this Warrant
shall be made as nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time receivable upon the
exercise of this Warrant, so as to protect the holders of the Warrant against
the effect of such dilution.
(i) Other Dilutive Events. In case any event shall occur as to which
the other provisions of this ARTICLE IV are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof, then, in each such case, the Company shall appoint a firm of
independent public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this ARTICLE IV, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein.
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(j) Determination of Consideration. For purposes of this ARTICLE IV,
the consideration received or receivable by the Company for the issuance, sale,
grant or assumption of additional shares of Common Stock, Stock Purchase Rights
or Convertible Securities, irrespective of the accounting treatment of such
consideration, shall be valued as follows:
(1) Cash Payment. In the case of cash, the net amount received by the
Company after deduction of any accrued interest, dividends or any expenses paid
or incurred or any underwriting commissions or concessions paid or allowed by
the Company.
(2) Securities or Other Property. In the case of securities or other
property, at the lesser of the Current Market Price of such consideration if
determinable, and otherwise at the Fair Value of such consideration (in both
cases as of the date immediately preceding the issuance, sale or grant in
question).
(3) Allocation Related to Common Stock. In the event additional shares of
Common Stock are issued or sold together with other securities or other assets
of the Company for a consideration which covers both, the consideration received
(computed as provided in clauses (l) and (2) above) shall be allocable to such
additional shares of Common Stock as determined in good faith by the Board of
Directors of the Company.
(4) Allocation Related to Stock Purchase Rights and Convertible
Securities. In case any Stock Purchase Rights or Convertible Securities shall be
issued or sold together with other securities or other assets of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to the Stock Purchase Rights or Convertible Securities, such Stock
Purchase Rights or Convertible Securities shall be deemed to have been issued
without consideration.
(5) Dividends in Securities. In case the Company shall declare a dividend
or make any other distribution upon any stock of the Company (other than Common
Stock) payable in either case in Common Stock, Convertible Securities or Stock
Purchase Rights, such Common Stock, Convertible Securities or Stock Purchase
Rights, as the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(6) Stock Purchase Rights and Convertible Securities. The consideration
for which shares of Common Stock shall be deemed to be issued upon the issuance
of any Stock Purchase Rights or Convertible Securities shall be determined by
dividing (i) the total consideration, if any, received or receivable by the
Company as consideration for the granting of such Stock Purchase Rights or the
issuance of such Convertible Securities, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of such Stock
Purchase Rights, or, in the case of such Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
conversion or exchange thereof, in each case after deducting any accrued
interest, dividends, or any expenses paid or incurred or any underwriting
commissions or concessions paid or allowed by the Company, by (ii) the maximum
number of shares of Common
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Stock issuable upon the exercise of such Stock Purchase Rights or upon the
conversion or exchange of all such Convertible Securities.
(7) Merger, Consolidation or Sale of Assets. In case any shares of Common
Stock or Convertible Securities or any Stock Purchase Rights shall be issued in
connection with any merger or consolidation in which the Company is the
surviving corporation the amount of consideration therefor shall be deemed to be
the Fair Value of such portion of the assets and business of the non surviving
corporation as shall be attributable to such Common Stock, Convertible
Securities or Stock Purchase Rights, as the case may be. In the event of any
merger or consolidation of the Company in which the Company is not the surviving
corporation or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its Common Stock
for stock or securities of the other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated and for a
consideration equal to the Fair Value on the date of such transaction of such
stock or securities of the other corporation, and if any such calculation
results in adjustment of the number of shares of Class A Non-Voting Stock
issuable upon exercise of this Warrant, the determination of the Exercise Price
immediately prior to such merger, consolidation or sale, for the purposes of
Subsection (g) above, shall be made after giving effect to such adjustment of
the Number of shares of Class A Non-Voting Stock issuable under this Warrant.
(k) Record Date. In case the Company shall take a record of the
holders of the Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities or (ii) to subscribe for or purchase Common Stock or Convertible
Securities, then all references in this ARTICLE IV to the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be, shall be deemed to be references to such record date.
(l) Shares Outstanding. The number of shares of Common Stock deemed
to be outstanding at any given time shall not include Shares of Common Stock in
the treasury of the Company or held by any Subsidiary.
(m) Maximum Exercise Price. At no time shall the Exercise Price per
share of Class A Non-Voting Stock exceed the amount set forth in the Preamble of
this Warrant except as provided in Subsection (a) or (g) of this Section 4.2.
(n) Application. Except as otherwise provided herein, all Subsections
of this Section 4.2 are intended to operate independently of one another. If an
event occurs that requires the application of more than one Subsection, all
applicable Subsections shall be given independent effect.
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(o) No Adjustments under Certain Circumstances. Anything herein to
the contrary notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price in the case of:
(i) the issuance of shares of Class A Non-Voting Stock or
other Non-Voting Common Stock upon the exercise in whole or part of this Warrant
or the Other Warrant, respectively;
(ii) the issuance of shares of Common Stock pursuant to a
rights offering in which the holder hereof elects to participate under the
provisions of Section 4.3;
(iii) the issuance of Class A Stock or Other Common Stock upon
the conversion of the Class A Non-Voting Stock to Class A Stock or the
conversion of Other Non-Voting Common Stock to Other Common Stock, respectively;
or
(iv) the issuance of shares of Other Common Stock ("Management
Stock") to any executives or management of the Company or its Subsidiaries other
than to Affiliates of the Bain Investors.
4.3 Rights Offering. In the event the Company shall effect an offering of
Common Stock pro rata among its stockholders, the holder hereof shall be
entitled, at its option, to elect to participate in each and every such offering
as if this Warrant had been exercised and such holder were, at the time of any
such rights offering, then a holder of that number of shares of Class A Non
Voting Stock to which such holder is then entitled on the exercise hereof.
4.4 Certificates and Notices.
(a) Adjustments to Exercise Price. Upon any adjustment under this
ARTICLE IV of the number of shares of Class A Non-Voting Stock purchasable upon
exercise of this Warrant or of the Exercise Price, a certificate, signed (i) by
the President or a Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Company, or (ii) by any
independent firm of certified public accountants of recognized national standing
selected by, and at the expense of, the Company, setting forth in reasonable
detail the events requiring the adjustment and the method by which such
adjustment was calculated, shall be mailed to the holder of this Warrant
specifying the adjusted Exercise Price and the number of shares of Class A Non-
Voting Stock purchasable upon exercise of such holder's Warrant after giving
effect to such adjustment.
The certificate of any independent firm of certified public
accountants of recognized national standing selected by the Board of Directors
of the Company shall be conclusive evidence of the correctness of any
computation made under ARTICLE IV.
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(b) Extraordinary Corporate Events. In case the Company after the
date hereof shall propose to (i) pay any dividend payable in stock to the
holders of shares of Common Stock or to make any other Distribution to the
holders of shares of Common Stock, (ii) offer to the holders of shares of Common
Stock rights to subscribe for or purchase any additional shares of any class of
stock or any other rights or options or (iii) effect any reclassification of the
Common Stock (other than a reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock), or any capital
reorganization or any consolidation or merger (other than a merger in which no
distribution of securities or other property is to be made to holders of shares
of Common Stock), or any sale, transfer or other disposition of its property,
assets and business as an entirety or substantially as an entirety, or the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall mail to the holder of this Warrant notice of such proposed
action, which shall specify the date on which the stock transfer books of the
Company shall close, or a record shall be taken, for determining the holders of
Common Stock entitled to receive such stock dividends or other Distribution or
such rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution or winding up shall take place or commence, as the case
may be, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to receive securities or other property deliverable
upon such action, if any such date is to be fixed. Such notice shall be mailed
in the case of any action covered by clause (i) or (ii) above at least fifteen
(15) days prior to the record date for determining holders of Common Stock for
purposes of receiving such payment or offer, or in the case of any action
covered by clause (iii) above at least thirty (30) days prior to the date upon
which such action takes place and twenty (20) days prior to any record date to
determine holders of Common Stock entitled to receive such securities or other
property.
(c) Effect of Failure. Failure to file any certificate or notice or
to mail any notice, or any defect in any certificate or notice pursuant to this
Section 4.4 shall not affect the legality or validity of the adjustment of the
Exercise Price or the number of shares purchasable upon exercise of this
Warrant, or any transaction giving rise thereto.
ARTICLE V
PARTICIPATION IN CORPORATE DISTRIBUTIONS
5.1 Company's Obligation to Make Payments.
Other than distributions on the Class P Stock or Class A Stock in
accordance with the Company's articles or certificate of incorporation, the
Company shall not declare, make or pay any dividend or other distribution,
whether in cash or other property, with respect to its Common Stock (a
"Distribution") (other than Common Stock of the Company as to which the
antidilution provisions of ARTICLE IV shall apply), unless it concurrently makes
a cash payment to the holder of this Warrant equal to the amount to which such
holder would otherwise be entitled if such holder then had exercised the Warrant
in full and held Issued Warrant Shares.
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ARTICLE VI
FINANCIAL AND BUSINESS INFORMATION
6.1 Information. The Company shall deliver to the holder hereof:
(a) as soon as practicable after the end of each of the first three
quarterly fiscal periods in each fiscal year of the Company, and in any event
within forty-five (45) days thereafter, two copies of:
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter; and
(ii) consolidated statements of income, retained earnings and
cash flow of the Company and its Subsidiaries for such quarter and (in the case
of the second and third quarters) for the portion of the fiscal year ending with
such quarter; setting forth in each case in comparative form the figures for the
corresponding dates and periods in the previous fiscal year. Such statements
shall be (1) prepared in accordance with generally accepted accounting
principles consistently applied, (2) in reasonable detail and (3) certified as
complete and correct by the chief financial or accounting officer of the
Company;
(b) as soon as practicable after the end of each fiscal year of the
Company (commencing with the end of the 1993 fiscal year) and in any event
within ninety (90) days thereafter, two copies of:
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year; and
(ii) consolidated statements of income, retained earnings and
cash flow of the Company and its Subsidiaries for such year;
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and accompanied by a report thereon by a
firm of independent certified public accountants of recognized national standing
selected by the Company, which report shall state that (1) such financial
statements fairly present the financial position of the entities being reported
upon at the end of such year and the results of their operations and changes in
accounting principles consistently applied (except for changes in accounting
principles with which such accountants concur), and (2) its examination of such
financial statements has been made in accordance with generally accepted
auditing standards and included such tests of the accounting records and other
auditing procedures as they considered necessary in the circumstances;
(c) promptly upon their becoming available, one copy of each report,
notice or proxy statement sent by the Company to its stockholders generally and
of each regular or periodic report or registration statement, prospectus or
written communication (other than transmittal letters)
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filed by the Company with the Commission or any securities exchange on which
shares of Common Stock are listed;
(d) promptly upon the Company's obtaining knowledge thereof, notice
of the existence of an Event of Default, describing such Event of Default in
reasonable detail; and
(e) prior to the time that Company shall have completed a "Qualified
Public Offering" (as defined in the Stockholders Agreement), with reasonable
promptness, such other financial information as from time to time may be
reasonably requested by the holder hereof.
So long as the Company delivers to the holders of Warrant Shares copies of all
monthly and annual financial statements and reports of or relating to the
Company, Solaray and their Subsidiaries required to be delivered pursuant to the
Credit Agreement, clauses (a) and (b) above shall be suspended.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the Initial Holder and
each subsequent holder of this Warrant that as of the Closing Date:
7.1 Organization and Capitalization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and the authorized capital of the Company consists of
2,000,000 shares of Other Common Stock, 120,000 shares of Other Non-Voting
Common Stock, 200,000 shares of Class P Common Stock, 13,000 shares of Class A
Stock and 13,000 shares of Class A Non-Voting Stock. As of the date hereof there
are 100,000 shares of Class P Stock and 900,000 shares of the Other Common Stock
issued and outstanding and there are no Shares of Other Non-Voting Common Stock,
no shares of Class A Stock and no shares of Class A Non-Voting Stock issued and
outstanding, and no shares of the Company's capital stock are held in its
treasury. No unissued shares of Class A Stock or Class A Non-Voting Stock are
reserved for any purpose other than for issuance upon the exercise of this
Warrant. The Company has not issued or agreed to issue any Stock Purchase Rights
or Convertible Securities, and there are no preemptive rights in effect with
respect to the issuance of any shares of Common Stock. All the outstanding
shares of the Company's capital stock have been validly issued without violation
of any preemptive or similar rights and are fully paid and nonassessable.
7.2 Authority. The Company has full corporate power and authority to
execute and deliver this Warrant and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof have been duly
authorized by all necessary corporate action on its part. This Warrant has been
duly executed on behalf of the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
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7.3 No Legal Bar. Neither the execution, delivery or performance of this
Warrant, the Stockholders Agreement or that certain Registration Agreement among
the Company, the Initial Holder and the Bain Investors will (a) conflict with or
result in a violation of the articles or certificate of incorporation or By-Laws
of the Company, (b) conflict with or result in a violation of any law, statute,
regulation, order or decree applicable to the Company or any Affiliate (except
that the Company's ability to honor its obligations with respect to the "Put"
(as defined in the Stockholders Agreement) is subject to the availability of
sufficient earned and/or capital surplus), (c) require any consent or
authorization or filing with, or other act by or in respect of, any governmental
authority, or (d) result in a breach of, constitute a default under or
constitute an event creating rights of acceleration, termination or cancellation
under any mortgage, lease, contract, franchise, instrument or other agreement to
which the Company is a party or by which it is bound.
7.4 Validity of Shares. When issued upon the exercise of this Warrant as
contemplated herein, shares of Common Stock issued pursuant hereto will have
been validly issued and will be fully paid and nonassessable.
ARTICLE VIII
VARIOUS COVENANTS OF THE COMPANY
8.1 No Impairment or Amendment. The Company shall not by any action
including, without limitation, amending its articles or certificate of
incorporation, any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate to
protect the rights of the holder hereof against impairment. Without limiting the
generality of the foregoing, after the Closing Date the Company will (a) not
increase the par value of any shares of Common Stock issuable upon the exercise
of this Warrant above the amount payable therefor upon such exercise, (b) take
all such action as may be necessary or appropriate in order that the Company may
validly issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, (c) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant,
(d) not issue any capital stock of any class which is preferred (or pari passu
to the Class A Stock) as to dividends or as to the distribution of assets upon
the voluntary or involuntary dissolution, liquidation or winding up of the
Company, and (e) not undertake any reverse stock split, combination,
reorganization or other reclassification of its capital stock which would have
the effect of making this Warrant exercisable for less than that percentage of
the outstanding shares of Common Stock to which it related immediately prior to
such corporate action.
Upon the request of the holder hereof the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to such holder, the continued validity of this Warrant and the
Company's obligations hereunder.
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8.2 Reservation of Common Stock. The Company will at all times reserve and
keep available, solely for issuance, sale and delivery upon the exercise of this
Warrant or the conversion of Class A Non-Voting Stock, a number of shares of
Class A Non-Voting Stock equal to the number of shares of Class A Non-Voting
Stock issuable upon the exercise of this Warrant and a number of shares of Class
A Stock equal to the number of shares of Class A Stock issuable upon conversions
of such Class A Non-Voting Stock. All such shares of Class A Non-Voting Stock
shall be duly authorized and, when issued upon exercise of this Warrant, shall
be validly issued and fully paid and non-assessable with no liability on the
part of the holders thereof. All such shares of Class A Stock shall be duly
authorized and, when issued upon conversions of such Class A Non-Voting Stock,
shall be validly issued and fully paid and non-assessable with no liability on
the part of the holders thereof. The Company shall not at any time while this
Warrant remains outstanding allow the par value of its Common Stock to exceed
the then effective Exercise Price.
8.3 Listing on Securities Exchange. If the Company shall list any shares
of Common Stock on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of, all Issued
Warrant Shares and, to the extent permissible under the applicable securities
exchange rules, all Issuable Warrant Shares, so long as any shares of Common
Stock shall be so listed. The Company will also so list on each securities
exchange, and will maintain such listing of, any other securities which the
holder of this Warrant shall be entitled to receive upon the exercise thereof if
at the time any securities of the same class shall be listed on such securities
exchange by the Company.
8.4 Availability of Information. The Company will cooperate with the
holder hereof and of Issued Warrant Shares in supplying such information as may
be necessary for such holder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of this
Warrant or such Issued Warrant Shares.
8.5 Interested Transactions.
Without the prior written consent of the Initial Holder, the Company
will not and will not permit any of its Subsidiaries directly or indirectly to:
(a) enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of Company or with any director, officer or employee
of Company or any of its Subsidiaries, except (i) as set forth on Schedule 7.9
to the Credit Agreement as in effect on the date hereof, (ii) as permitted by
paragraph (b) below, or (iii) transactions in the ordinary course of and
pursuant to the reasonable requirements of the business of Company or any of its
Subsidiaries and upon fair and reasonable terms which are fully disclosed to
holders and are no less favorable to Company or such Subsidiary than would be
obtained in a comparable arm's length transaction with a Person that is not an
Affiliate of Company; or
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<PAGE>
(b) pay any management, consulting or similar fees to any Affiliate
of Company or any of its Subsidiaries or to any director, officer or employee of
Company or any of its Subsidiaries except as set forth on Schedule 7.9 to the
Credit Agreement as in effect on the date hereof.
8.6 Indemnification. If the Company fails to make when due any payments
provided for in this Warrant, the Company shall pay to the holder hereof (a)
interest at the Default Rate on any amounts due and owing to such holder and (b)
such further amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys' fees and expenses incurred
by such holder in collecting any amounts due hereunder.
The Company shall indemnify, save and hold harmless the holder hereof
from and against any and all liability, loss, cost, damage, reasonable
attorneys' and accountants' fees and expenses, court costs and all other out-of-
pocket expenses incurred in connection with or arising from an Event of Default.
8.7 Certain Expenses. The Company shall pay all expenses in connection
with, and all taxes (other than stock transfer taxes) and other governmental
charges that may be imposed in respect of, the issue, sale and delivery of (a)
the Warrant, (b) the Issuable Warrant Shares, or (c) the Issued Warrant Shares.
8.8 Regulatory Compliance Cooperation. Notwithstanding any other provision
of this Warrant, the Company will not, without the written consent of each
holder hereof and the holders of shares of Common Stock issuable hereunder,
redeem, purchase or otherwise acquire, directly or indirectly, or convert or
take any action with respect to the voting rights of, any shares of any class of
its capital stock or any securities convertible into or exchangeable for any
shares of any class of its capital stock, so as to increase the proportion of
the Company's Voting Stock which this Warrant entitles the holder to purchase or
which the holder of shares of Common Stock issuable hereunder then owns. A
holder may withhold such consent if, in its opinion, after giving effect to such
action, the holder would have a "Regulatory Problem" (as defined below). In
addition, the Company will not be a party to any merger, consolidation,
recapitalization or other transaction pursuant to which the holder hereof or a
holder of shares of Common Stock issuable hereunder would be required to take
any voting securities, or any securities convertible into voting securities,
which might reasonably be expected to cause such holder to have a Regulatory
Problem. For purposes of this paragraph, a Person will be deemed to have a
"Regulatory Problem" when such Person or such Person's affiliates would own,
control or have power, directly or indirectly, over a greater quantity of
securities of any kind issued by the Company than is permitted under any
requirement of any governmental authority binding on such Person.
8.9 Conduct of Business. From and after the Closing Date, the Company will
not and will not permit any of its Subsidiaries to engage in any business other
than businesses of the type described on Schedule 4.1(D) of the Credit Agreement
(as in effect on the date hereof) or other businesses in the same industry as
such businesses disclosed on such Schedule 4.1(D) (as in effect on the date
hereof). From and after the Closing Date, the Company shall not engage in any
type of
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<PAGE>
business activity other than ownership of the capital stock of Solaray and the
performance of its obligations under the "Loan Documents" (as defined in the
Credit Agreement) to which it is a party.
8.10 No Additional Class P Common or Class A Common. The Company agrees
that it shall not issue any additional shares of Class P Stock, Class A Stock or
Class A Non-Voting Stock after the Closing Date except as expressly required by
or provided for in this Warrant.
ARTICLE IX
MISCELLANEOUS
9.1 Nonwaiver. No course of dealing or any delay or failure to exercise
any right, power or remedy hereunder on the part of the holder hereof shall
operate as a waiver of or otherwise prejudice such holder's rights, powers or
remedies.
9.2 Holder Not a Stockholder. Prior to the exercise of this Warrant as
hereinbefore provided, the holder hereof shall not be entitled to any of the
rights of a stockholder of the Company including, without limitation, the right
as a stockholder to (a) vote on or consent to any proposed action of the Company
or (b) receive (i) dividends or any other distributions made to stockholders
(except as provided in ARTICLE V hereof), (ii) notice of or attend any meetings
of stockholders of the Company (except as provided in ARTICLE IV) or (iii)
notice of any other proceedings of the Company (except as provided in ARTICLE
IV).
9.3 Notices. Any notice, demand or delivery to be made pursuant to the
provisions of this Warrant shall be sufficiently given or made if sent by first
class mail, postage prepaid and return receipt requested, addressed to (a) the
holder of this Warrant or Issued Warrant Shares at its last known address
appearing on the books of the Company maintained for such purpose or (b) the
Company at c/o Clarte Capital, 185 S. State, Suite 930, Salt Lake City, Utah
84111, Attention: President. The holder of this Warrant and the Company may each
designate a different address by notice to the other pursuant to this Section
9.3.
9.4 Like Tenor. All Warrants shall at all times be identical, except as
to the Preamble.
9.5 Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
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<PAGE>
9.6 Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the holder hereof and (to the extent provided herein) the holders
of Issued Warrant Shares, and shall be enforceable by any such holder.
9.7 Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Agreement, but this Agreement shall be construed as if such
unenforceable provision had never been contained herein.
9.8 Integration. This Warrant replaces all prior agreements, supersedes
all prior negotiations and constitutes the entire agreement of the parties with
respect to the transactions contemplated herein. Reference to the Credit
Agreement herein shall, to the extent that the Loans and other obligations
thereunder have been repaid and such Credit Agreement terminated, mean the
Credit Agreement as in effect immediately prior to its termination.
9.9 Amendment. This Warrant may not be modified or amended except by
written agreement of the Company and the holder(s) hereof.
9.10 Headings. The headings of the Articles and Sections of this Warrant
are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
9.11 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE INTERNAL LAWS
(AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS.
9.12 Notice of Expiration. The Company will give the holder of this
Warrant no less than six (6) months nor more than nine (9) months notice of the
expiration of the right to exercise this Warrant. The right to exercise this
Warrant shall expire at the termination of the Exercise Period, unless the
Company shall fail to give such notice as aforesaid, in which event the right to
exercise this Warrant shall not expire until 5:00 p.m. (Chicago Time), on a date
six (6) months after the date on which the Company shall give the holder hereof
notice of the expiration of the right to exercise this Warrant.
9.13 Tolling of Warrant Expiration. If the holder of this Warrant has
attempted to exercise its "Put" (as defined in the Stockholders Agreement)
pursuant to the Stockholders Agreement, and the Company for any reason fails to
repurchase such Warrant and/or the Warrant Shares, then the date for the
expiration of the right to exercise this Warrant shall be extended until a date
three (3) months after Company notifies the holder in writing that it will
satisfy any Put requested by the holder, unless the Company shall again fail to
satisfy any requested Put, in which case the
-24-
<PAGE>
extension referenced above shall continue in accordance with the terms and
conditions specified above.
-25-
<PAGE>
Witness the due execution hereof of this 28TH day of October 1993, by
the undersigned duly authorized officers of the Company.
NUTRACEUTICAL CORPORATION
By: /s/ Robert C. Gay
-----------------------------------
Title: President
-------------------------------
Attest:
/s/ Matthew Levin
- ---------------------------
secretary
-26-
<PAGE>
EXHIBIT 2.2
-----------
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered holder of the within Warrant irrevocably exercises
the within Warrant for and purchases ______shares of Class A Non-Voting Stock of
Nutraceutical Corporation, a Delaware corporation (the "Company") and herewith
makes payment therefor in the amount of $_________, all at the price and on the
terms and conditions specified in the within Warrant, and requests that a
certificate (or ___________ certificates in denominations of _______ shares) for
the shares of Class A Non-Voting Stock of the Company hereby purchased be issued
in the name of and delivered to (choose one) (a) the undersigned or
(b)_____________ ___________________, whose address is
________________________________ and, if such shares of Class A Non-Voting Stock
shall not include all the shares of Class A Non-Voting Stock issuable as
provided in the within Warrant, that a new Warrant of like tenor for the number
of shares of Class A Non-Voting Stock of the Company not being purchased
hereunder be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) ____________________ __________________________, whose
address is___________________________.
Dated: _________________, _____.
By:_________________________________
(Signature of Registered Holder)
NOTICE: The signature to this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
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<PAGE>
EXHIBIT 3.2
-----------
ASSIGNMENT FORM
---------------
(To be executed only upon the assignment
of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto
__________________________________________, whose address is
______________________, all of the rights of the undersigned under the within
Warrant, with respect to _____ shares of Class A Non-Voting Stock of
Nutraceutical Corporation, a Delaware corporation (the "Company") and, if such
shares of Class A Non-Voting Stock shall not include all the shares of Class A
Non-Voting Stock issuable as provided in the within Warrant, that a new Warrant
of like tenor for the number of shares of Class A Non-Voting Stock of the
Company not being transferred hereunder be issued in the name of and delivered
to the undersigned, and does hereby irrevocably constitute and appoint Attorney
to register such transfer on the books of the Company maintained for the
purpose, with full power of substitution in the premises.
Dated: _________________, _____.
By:_________________________________
(Signature of Registered Holder)
NOTICE: The signature to this Assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
-28-
<PAGE>
Exhibit 10.9
------------
FIRST AMENDMENT TO WARRANTS
This First Amendment to Warrants (this "Amendment") is made as of the
31st day of October, 1994 between Nutraceutical Corporation, a Delaware
corporation (the "Company"), and Heller Financial, Inc., a Delaware corporation
("Heller").
W I T N E S S E T H:
WHEREAS, the Company has previously issued to Heller that certain
Warrant To Purchase Non-Voting Common Stock of the Company dated as of October
28, 1993 (the "Common Stock Warrant") and that certain Warrant To Purchase Class
A Non-Voting Common Stock of the Company dated as of October 28, 1993 (the
"Class A Warrant") (collectively, the Common Stock Warrant and the Class A
Warrant are referred to as the "Warrants"); and
WHEREAS, the Company and Heller desire to amend the warrants in
certain respects, as set forth more fully herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Terms capitalized herein and not otherwise defined
herein are used with the meanings ascribed to such terms in the Class A Warrant.
2. Class A Warrant Amended. The Class A Warrant is hereby amended as
follows:
(a) The following additional definition is hereby added to Article I:
"Excluded Management Shares" means, collectively, shares of Class P
Stock and shares of Other Common Stock issued to members of management
of the Company or any Subsidiary of the Company, other than Affiliates
and/or employees of Bain Investors, at any time on or after October
28, 1993 up to and not exceeding (a) an aggregate of 2,000 shares of
Class P Stock and (b) 33,000 shares of Other Common Stock.
(b) Section 4.2 is hereby amended by the addition to the initial
sentence thereof at the end thereof (preceding subsection (a) thereof) of
the following clause:
", except with respect to the issuance of Excluded Management
Shares."
(c) Subsection 4.2 (o) (iv) is hereby amended and restated in its
entirety as follows:
"(iv) the issuance of Excluded Management Shares."
(d) Section 8.9 is hereby amended and restated in its entirety as
follows:
<PAGE>
"8.9 Conduct of Business. From and after the Closing Date, the
Company will not and will not permit any of its Subsidiaries to engage
in any business other than businesses of the type described on
Schedule 4.1(D) of the Credit Agreement (as in effect on the Closing
Date) or other businesses in the same industry as such businesses
disclosed on such Schedule 4.1(D) (as in effect on the Closing Date)."
3. Common Stock Warrant Amended. Warrant is hereby amended as
follows:
(a) The following additional definition is hereby added to Article I:
"Excluded Management Shares" means, collectively, shares of Class P
Stock and shares of Common Stock issued to members of management of
the Company or any Subsidiary of the Company, other than Affiliates
and/or employees of Bain Investors, at any time on or after October
28, 1993 up to and not exceeding (a) an aggregate of 2,000 shares of
Class P Stock and (b) 33,000 shares of Common Stock.
(b) Section 4.2 is hereby amended by the addition to the initial
sentence thereof at the end thereof (preceding subsection (a) thereof) of
the following clause:
"except with respect to the issuance of Excluded Management Shares."
(c) Subsection 4.2 (o) (iv) is hereby amended and restated in its
entirety as follows:
(d) Section 8.9 is hereby amended and restated in its entirety as
follows:
"8.9 Conduct of Business. From and after the Closing Date, the
Company will not and will not permit any of its Subsidiaries to engage
in any business other than businesses of the type described on
Schedule 4.1(D) of the Credit Agreement (as in effect on the Closing
Date) or other businesses in the same industry as such businesses
disclosed on such Schedule 4.1(D) (as in effect on the Closing Date)."
4. Consent and Waiver. Heller hereby consents to, and waives any
"Event of Default" (as defined in each of the Warrants) under the Warrants
arising by reason of, the issuance by the Company on July 8, 1994 to certain
management employees of Solaray of (a) 2,000 shares of Holdings Class P Stock
for a purchase price of $20.25 per share, and (b) 15,000 shares of Other Common
Stock for a purchase price of $0.25 per share. Heller and the Company hereby
agree that such issuances were, for purposes of the Warrants, issuances of
Excluded Management Shares and no adjustments shall be made under Article IV of
either of the Warrants with respect thereto.
-2-
<PAGE>
5. Miscellaneous.
(a) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
(b) 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 hereof shall by held to be prohibited by or invalid or
unenforceable in whole or in part under applicable law in any jurisdiction, then
such provision shall be ineffective only to the extent of such prohibition,
invalidity or unenforceability, without invalidating the remaining provisions of
this Amendment.
(c) This Amendment shall be governed by, and construed under and
enforced in accordance with, the internal laws (as opposed to the conflicts of
law provisions) and decisions of the State of Illinois.
(d) This Amendment, taken with the other Loan Documents, constitutes
the entire agreement between the parties with respect to the subject matter
hereof, and supersedes all prior negotiations, warranties, commitments, offers,
letters of interest or intent, proposal letters, contracts, writings or other
agreements and understandings with respect thereto.
(e) No waiver, and no modification or amendment of any provision of
this Amendment shall in any event be effective unless specifically made in
writing and duly signed by the party to be bound thereby. Any such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
(f) This Amendment may be executed in one or more counterparts, and
any party to this Amendment may executed and deliver this Amendment by executing
and delivering any of such counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same Amendment.
(g) No failure or delay on the part of any party hereto to exercise
any right, power or privilege hereunder or under any instrument executed
pursuant hereto shall operate as a waiver not shall any single or partial
exercise of any right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
(h) Section, subsection and paragraph titles, captions and headings
herein are inserted only as a matter of convenience and for reference, shall not
be deemed to constitute a part hereof, and in no way define, limit, extend or
describe the scope of this Amendment or the intent of any provisions hereof.
(i) Any reference to either of the Warrants contained in any notice,
request, certificate or other document shall, after the execution and delivery
of this Amendment, be deemed to include this Amendment unless the context shall
otherwise specify.
-3-
<PAGE>
(j) The parties agree and acknowledge that nothing contained in this
Amendment in any manner or respect limits or terminates any of the provisions of
the Warrants other than as expressly set forth herein and further agree and
acknowledge that the Warrants, as amended hereby, remain and continue in full
force and effect.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
officers, have executed this Amendment as of the date first above written.
-4-
<PAGE>
NUTRACEUTICAL CORPORATION
By: /s/ Bruce R. Hough
-----------------------------
Title: Vice President
--------------------------
HELLER FINANCIAL, INC.
By: (signature illegible)
-----------------------------
Title: Vice President
--------------------------
-5-
<PAGE>
Exhibit 10-10
SECOND AMENDMENT TO WARRANTS
----------------------------
This Second Amendment to Warrants (this "Amendment") is made as of the 31st
day of January, 1995, between Nutraceutical International Corporation (f/k/a
Nutraceutical Corporation), a Delaware corporation (the "Company"), and Heller
Financial, Inc., a Delaware corporation ("Heller").
W I T N E S S E T H :
WHEREAS, the Company has previously issued to Heller that certain Warrant
To Purchase Non-Voting Common Stock of the Company dated as of October 28, 1993,
as amended by First Amendment thereto dated October 31, 1994 (the "Common Stock
Warrant") and that certain Warrant To Purchase Class A Non-Voting Common Stock
of the Company dated as of October 28, 1993, as amended by First Amendment
thereto dated October 31, 1994 (the "Class A Warrant") (collectively, the Common
Stock Warrant and the Class A Warrant are referred to as the "Warrants"); and
WHEREAS, the Company and Heller desire to amend the Warrants in certain
respects, as set forth more fully herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Terms capitalized herein and not otherwise defined herein
are used with the meanings ascribed to such terms in the Class A Warrant.
2. Class A Warrant Amended. The Class A Warrant is hereby amended as
follows:
(a) The second paragraph of the legend is amended and restated in its
entirety as follows:
THIS WARRANT IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS PURSUANT TO AN
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF JANUARY 31, 1995,
AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE
COMPANY'S STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS
<PAGE>
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON WRITTEN REQUEST.
(b) The definition of "Excluded Management Shares" included in Article
I is hereby amended and restated in its entirety as follows:
"Excluded Management Shares" means, collectively, (i) shares of Class P
Stock and shares of Other Common Stock purchased by, or (ii) shares of
Class P Stock and shares of Other Common Stock issued or issuable upon
exercise or conversion of any Stock Purchase Rights or Convertible
Securities issued to, officers, employees, directors or consultants of the
Company or any Subsidiary of the Company, other than Affiliates and/or
employees of the Bain Investors (except for Frank W. Gay II or Bruce R.
Hough), at any time on or after October 28, 1993, (x) up to and not
exceeding (A) an aggregate of 2,000 shares of Class P Stock and (B) 33,900
shares of Other Common Stock, in the case of such shares issued or issuable
for a consideration less than the Fair Value per share at the time of
issuance or grant, and (y) an unlimited number of shares of Other Common
Stock, in the case of such shares purchased, issued or issuable for a
consideration greater than or equal to the Fair Value per share at the time
of purchase, issuance or grant (including, without limitation, 40,000
shares of Other Common Stock issuable upon exercise of the Stock Purchase
Rights granted to certain officers and directors of the Company as of
November 15, 1994 (including Frank W. Gay II and Bruce R. Hough) and 21,779
shares of Other Common Stock issuable upon exercise of the Stock Purchase
Rights granted to W.E. Myers & Company and/or its Affiliates on January 31,
1995).
(c) The following additional definition is hereby added to Article I:
"Excluded Investor Shares" means, collectively, (i) shares of Other Common
Stock or Other Non-Voting Common Stock purchased, or (ii) shares of Other
Common Stock or Other Non-Voting Common Stock issued or issuable upon
exercise or conversion of any Stock Purchase Rights or Convertible
Securities issued to Jackson National Life Insurance Company, a Michigan
insurance corporation, at
<PAGE>
any time on or after October 28, 1993, up to and not exceeding an aggregate
of 84,309 shares of Other Non-Voting Common Stock or Other Common Stock.
(d) The defined term "Stockholders Agreement" included in Article I is
hereby amended and restated in its entirety:
"Stockholders Agreement" means that certain Amended and Restated
Stockholders Agreement dated as of January 31, 1995 among the Company,
Initial Holder, the Bain Capital Investors and certain of the Company's
other stockholders, as amended.
(e) Section 4.2 is hereby amended by amending and restating the
initial sentence thereof (preceding subsection (a) thereof) as follows:
"The number of shares of Class A Non-Voting Stock shall be subject to
adjustment from time to time as hereinafter set forth, except with respect
to the issuance of Excluded Management Shares and Excluded Investor
Shares."
(f) Subsection 4.2(o)(iv) is hereby amended and restated in its
entirety as follows:
"(iv) the issuance of Excluded Management Shares or Excluded Investor
Shares."
(g) Sections 4.2(b), (c) and (d) are each hereby amended by deleting
each reference to "ARTICLE VI" therein and replacing each such reference
with "the Stockholders Agreement".
(h) Section 4.2 is amended by adding Section 4.2(p) thereto:
"(p) No Adjustments to Original Cost. Anything herein to the contrary
notwithstanding, neither an adjustment in the Exercise Price nor an
adjustment in the number of shares of Class A Non-Voting Stock issuable
upon the exercise of this Warrant shall entitle the holder of any Warrant
Share to any increase in the aggregate amount of the Original Cost (as such
term is defined in the Company's certificate of incorporation as in effect
on
<PAGE>
January 31, 1995) as in effect prior to any such adjustment."
(i) Sections 4.3, 8.3, 8.5, 8.9 and 9.13, as well as ARTICLE VI, are
hereby deleted in their entirety.
3. Common Stock Warrant Amended. The Common Stock Warrant is hereby
amended as follows:
(a) The second paragraph of the legend is amended and restated in its
entirety as follows:
THIS WARRANT IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS PURSUANT TO AN
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF JANUARY 31, 1995,
AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE
COMPANY'S STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST.
(b) The definition of "Excluded Management Shares" included in Article
I is hereby amended and restated in its entirety as follows:
"Excluded Management Shares" means, collectively, (i) shares of Class P
Stock and shares of Other Common Stock purchased by, or (ii) shares of
Class P Stock and shares of Other Common Stock issued or issuable upon
exercise or conversion of any Stock Purchase Rights or Convertible
Securities issued to, officers, employees, directors or consultants of the
Company or any Subsidiary of the Company, other than Affiliates and/or
employees of the Bain Investors (except for Frank W. Gay II or Bruce R.
Hough), at any time on or after October 28, 1993, (x) up to and not
exceeding (A) an aggregate of 2,000 shares of Class P Stock and (B) 33,900
shares of Other Common Stock, in the case of such shares issued or issuable
for a consideration less than the Fair Value per share at the time of
issuance or grant, and (y) an unlimited number of shares of Other Common
Stock, in the case of such shares purchased, issued or issuable for a
consideration greater than or equal to the Fair Value per share at the time
of purchase, issuance or grant (including, without limitation, 40,000
shares of Other Common Stock issuable upon exercise of the Stock Purchase
Rights granted to
<PAGE>
certain officers and directors of the Company as of November 15, 1994
(including Frank W. Gay II and Bruce R. Hough) and 21,779 shares of Other
Common Stock issuable upon exercise of the Stock Purchase Rights granted to
W.E. Myers & Company and/or its Affiliates on January 31, 1995).
(c) The following additional definition is hereby added to Article I:
"Excluded Investor Shares" means, collectively, (i) shares of Other Common
Stock or Other Non-Voting Common Stock purchased, or (ii) shares of Other
Common Stock or Other Non-Voting Common Stock issued or issuable upon
exercise or conversion of any Stock Purchase Rights or Convertible
Securities issued to Jackson National Life Insurance Company, a Michigan
insurance corporation, at any time on or after October 28, 1993, up to and
not exceeding an aggregate of 84,309 shares of Other Non-Voting Common
Stock or Other Common Stock.
(d) The defined term "Stockholders Agreement" included in Article I is
hereby amended and restated in its entirety:
"Stockholders Agreement" means that certain Amended and Restated
Stockholders Agreement dated as of January 31, 1995 among the Company,
Initial Holder, the Bain Capital Investors and certain of the Company's
other stockholders, as amended.
(e) Section 4.2 is hereby amended by amending and restating the
initial sentence thereof (preceding subsection (a) thereof) as follows:
"The number of shares of Class A Non-Voting Stock shall be subject to
adjustment from time to time as hereinafter set forth, except with respect
to the issuance of Excluded Management Shares and Excluded Investor
Shares."
(f) Subsection 4.2(o)(iv) is hereby amended and restated in its
entirety as follows:
"(iv) the issuance of Excluded Management Shares or Excluded Investor
Shares."
<PAGE>
(g) Sections 4.2(b), (c) and (d) are each hereby amended by deleting
each reference to "ARTICLE VI" therein and replacing each such reference
with "the Stockholders Agreement".
(h) Sections 4.3, 8.3, 8.5, 8.9 and 9.13, as well as ARTICLE VI, are
hereby deleted in their entirety.
4. Consent and Waiver. Heller hereby consents to, and waives any
"Event of Default" (as defined in each of the Warrants) under the Warrants
arising by reason of, the issuance by the Company as of October 31, 1994 and
November 15, 1994, respectively, to certain management employees (including
Frank W. Gay II and Bruce R. Hough) of the Company and its Subsidiaries, of (a)
options to purchase 900 shares of the Company's Other Common Stock for a
purchase price of $9.00 per share (which options were issued in connection with
the Premier One Products, Inc. acquisition), and (b) options to purchase 40,000
shares of the Company's Other Common Stock for a purchase price of $26.00 per
share. Heller and the Company hereby agree that such issuances were, for
purposes of the Warrants, issuances of Excluded Management Shares and no
adjustments shall be made under Article IV of either of the Warrants with
respect thereto.
5. Miscellaneous.
(a) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
(b) 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 hereof shall be held to be prohibited by or invalid or
unenforceable in whole or in part under applicable law in any jurisdiction, then
such provision shall be ineffective only to the extent of such prohibition,
invalidity or unenforceability, without invalidating the remaining provisions of
this Amendment.
(c) This Amendment shall be governed by, and construed under and
enforced in accordance with, the internal laws (as opposed to the conflicts of
law provisions) and decisions of the State of Illinois.
<PAGE>
(d) This Amendment, taken with the other Loan Documents, constitutes
the entire agreement between the parties with respect to the subject matter
hereof, and supersedes all prior negotiations, warranties, commitments, offers,
letters of interest or intent, proposal letters, contracts, writings or other
agreements and understandings with respect thereto.
(e) No waiver, and no modification or amendment of any provision of
this Amendment shall in any event be effective unless specifically made in
writing and duly signed by the party to be bound thereby. Any such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
(f) This Amendment may be executed in one or more counterparts, and
any party to this Amendment may execute and deliver this Amendment by executing
and delivering any of such counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same Amendment.
(g) No failure or delay on the part of any party hereto to exercise
any right, power or privilege hereunder or under any instrument executed
pursuant hereto shall operate as a waiver nor shall any single or partial
exercise of any right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
(h) Section, subsection and paragraph titles, captions and headings
herein are inserted only as a matter of convenience and for reference, shall not
be deemed to constitute a part hereof, and in no way define, limit, extend or
describe the scope of this Amendment or the intent of any provisions hereof.
(i) Any reference to either of the Warrants contained in any notice,
request, certificate or other document shall, after the execution and delivery
of this Amendment, be deemed to include this Amendment unless the context shall
otherwise specify.
(j) The parties agree and acknowledge that nothing contained in this
Amendment in any manner or respect limits or terminates any of the provisions of
the Warrants other than as expressly set forth herein and further agree and
acknowledge that the Warrants, as amended hereby, remain and continue in full
force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
officers, have executed this Amendment as of the date first above written.
NUTRACEUTICAL INTERNATIONAL
CORPORATION
By: /s/ Frank W. Gay II
------------------------------
Title: Chairman
----------------------------
HELLER FINANCIAL, INC.
By: (signature illegible)
------------------------------
Title: Vice President
----------------------------
<PAGE>
EXHIBIT 10-11
-------------
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT dated as of November 15, 1994 between
Nutraceutical International Corporation, a Delaware corporation (the "Company"),
and Jeffrey A. Hinrichs ("Executive").
The Company and Executive desire to enter into an agreement pursuant
to which the Company will grant Executive options to acquire 6,000 shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), which
options will be subject to time vesting (the "Option").
The parties hereto agree as follows:
OPTION PROVISIONS
1. Stock Options.
(a) Option Grant. The Company hereby grants to Executive the Option
to purchase 6,000 shares of Common Stock ("Option Shares"), at a price per share
of $26.00 (the "Option Price"). The Option Price and the number of Option
Shares will be equitably adjusted for any stock split, stock dividend or
reclassification or recapitalization of the Common Stock which occurs subsequent
to the date of this Agreement. The Option will expire (the "Expiration Date")
on the earlier of tenth anniversary of the date of this Agreement or the date of
the termination of Executive's employment with the Company or a subsidiary for
any reason other than death or Disability (the "Termination Date"), provided
that Executive will have until the tenth anniversary of the date of this
Agreement to exercise the option with respect to Option Shares as to which the
option has vested pursuant to paragraph 1(b), The Option is not intended to be
an "incentive stock option" within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) Exercisability. On each date set forth below the Option will have
vested and become exercisable with respect to the percentage of Option Shares
set forth opposite such date if Executive is employed by the Company or a
Subsidiary on such date:
<TABLE>
<CAPTION> % of Option
Date Shares Vested to Date
---- ---------------------
<S> <C>
November 15, 1995 25%
November 15, 1996 50%
November 15, 1997 75%
November 15, 1998 100%
</TABLE>
<PAGE>
; provided that upon the occurrence of the Acceleration Event (as defined
below), all of the option Shares will vest and become exercisable. For this
purpose, the "Acceleration Event" will be the first to occur of (i) a merger,
consolidation or reorganization of the Company or a sale of the Company's stock,
if after giving effect to such merger, consolidation, reorganization or stock
sale, the holders of the Company's voting securities (on a fully-diluted basis)
immediately prior to the merger, consolidation, reorganization or sale, own less
than a majority of the ordinary voting power (on a fully-diluted basis) to elect
the board of directors of the surviving corporation, or (ii) a sale of all or
substantially all of the Company's assets to another person or entity or a
complete liquidation of the Company.
(c) Procedure for Exercise. At any time after the Option has become
exercisable with respect to any Option Shares and prior to the Expiration Date
(except as provided for in paragraph l(a) above), Executive may exercise all or
a portion of the Option with respect to Option Shares vested pursuant to
paragraph l(b) above by delivering written notice of exercise to the Company,
together with (i) a written acknowledgment that Executive has read and has been
afforded an opportunity to ask questions of management of the Company regarding
all financial and other information provided to Executive regarding the Company
and (ii) payment in full by delivery of a cashier's, personal or certified check
or wire transfer of immediately available funds in the amount of the Option
Price. Within 60 days after exercise, Executive will pay to the Company the
amount of any additional federal and state income taxes required to be withheld
by reason of the exercise of the Option, As a condition to any exercise of the
Option, Executive will permit the Company to deliver to him all financial and
other information regarding the Company and its Subsidiaries which it believes
necessary to enable Executive to make an informed investment decision.
(d) Securities Laws Restrictions. Executive represents that when
Executive exercises the Option he will be purchasing Option Shares for
Executive's own account and not on behalf of others, Executive understands and
acknowledges that federal and state securities laws govern and restrict
Executive's right to offer, sell or otherwise dispose of any Option Shares
unless Executive's offer, sale or other disposition thereof is registered under
the Securities Act of 1933, as amended (the "1933 Act") and state securities
laws or, in the opinion of the Company's counsel, such offer, sale or other
disposition is exempt from registration thereunder, Executive agrees that he
will not offer, sell or otherwise dispose of any Option Shares in any manner
which would: (i) require the Company to file any registration statement (or
similar filing under state law) with the Securities and Exchange Commission or
to amend or supplement any such filing or (ii) violate or cause the Company to
violate the 1933 Act, the rules and regulations promulgated thereunder or any
other state or federal law. Executive further understands that the certificates
for any Option Shares Executive purchases will bear the legend set forth in
paragraph 4 hereof or such other legends as the Company deems necessary or
desirable in connection with the 1933 Act or other rules, regulations or laws.
-2-
<PAGE>
(e) Non-Transferability of Option. The option is personal to
Executive and is not transferable by Executive except to a Permitted Transferee
(as defined in paragraph 3 below). Only Executive or a Permitted Transferee is
entitled to exercise the Option, except pursuant to paragraphs 2 and 3 below.
(f) Effect of Transfers in Violation of Agreement. The Company will
not be required (i) to transfer on its books any Option Shares which have been
sold or transferred in violation of any of the provisions set forth in this
Agreement, or (ii) to treat as owner of such shares, to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares have
been transferred in violation of this Agreement.
(g) Section 83(b) Election. Within 30 days after an Executive has
exercised an Option, Executive will make an effective election with the Internal
Revenue Service under Section 83(b) of the Code relative to the Common Stock
received by Executive pursuant to the exercise of said option.
2. Repurchase Option.
(a) Definitions. The following terms are defined as follows:
"Cause" means (i) the willful failure by Executive to perform duties
reasonably requested or reasonably prescribed by the Board of Directors of the
Company (the "Board"), (ii) the engaging by Executive in conduct which is
materially injurious to the Company or any of its Subsidiaries, (iii) gross
negligence or willful misconduct by Executive in the performance of his duties
which results in, or causes, harm to the Company or any of its Subsidiaries,
(iv) any breach by Executive of any covenant contained in this Agreement, (v)
Executive's conviction of a crime involving fraud or misrepresentation or a
felony.
"Disability" means the inability (as determined by the Board in its
sole discretion) of such Executive, as a result of incapacity due to physical or
mental illness, to perform his duties with the Company for more than six months
in aggregate during any twelve-month period.
"Executive Stock" for purposes hereof, means the Option Shares
exercisable pursuant to the option and any shares of Common Stock issued
pursuant thereto.
"Fair Market Value" of each share of Executive Stock means the market
value agreed upon by Executive and the Board; provided that the Fair Market
Value of Option Shares which have not been exercised will be reduced by the
exercise price of such options, If Executive and the Board are unable to agree
upon the market value, then the Executive and the Company will share the cost,
on an equal basis, of a mutually acceptable business appraiser whose
determination will be binding.
"Investors" means the persons listed on Schedule A hereto.
-3-
<PAGE>
"Original Value" of each share of Executive Stock will be equal to
$26.00 for each share of Common Stock (as proportionally adjusted for all stock
splits, stock dividends and other recapitalizations affecting the Common Stock,
subsequent to the date hereof); provided that the Original Value of option
shares which have not been exercised will be equal to zero.
"Subsidiary" means any corporation of which shares of stock having a
majority of the general voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through its Subsidiaries.
(b) Repurchase Option. In the event that Executive is no longer
employed by the Company or any of its Subsidiaries for any reason (the date of
such termination being referred to herein as the "Termination Date"), the
Executive Stock, whether held by Executive or one or more Permitted Transferees
(as defined in paragraph 3 below), will be subject to repurchase by the Company
and the Investors pursuant to the terms and conditions set forth in this
paragraph 2 (the "Repurchase Option").
(c) Termination Other than for Cause or Voluntary Termination. If
Executive is no longer employed by the Company or any of its Subsidiaries as a
result of Executive's voluntary termination, Executive's termination without
Cause, or Executive's death or Disability, then on or after the Termination
Date, the Company may elect to purchase all or any portion of the Executive
Stock at a price per share equal to the Fair Market Value thereof (i) as
determined on the Termination Date, if the Repurchase Notice (as defined in
subparagraph (e) below) has been delivered within three months of the
Termination Date, or (ii) as determined on a date determined by the Board within
30 days prior to the delivery of the Repurchase Notice, if the Repurchase Notice
is delivered after the third month following the Termination Date.
(d) Termination for Cause. If Executive is no longer employed by the
Company or any of its Subsidiaries as a result of Executive's termination for
any reason other than as set forth in (c) above, then on or after the
Termination Date, the Company may elect to purchase all or any portion of the
Executive Stock at a price per share equal to the lower of its original Value or
the Fair Market Value thereof.
(e) Repurchase Procedures. The Company may elect to exercise the
right to purchase all or any portion of the shares of Executive Stock pursuant
to the Repurchase Option by delivering written notice (the "Repurchase Notice")
to the holder or holders of the Executive Stock. The Repurchase Notice will set
forth the number of shares of Executive Stock to be acquired from such
holder(s), the aggregate consideration to be paid for such shares and the time
and place for the closing of the transaction. If any Executive Stock is held by
Permitted Transferees of Executive, the Company shall purchase the shares
elected to be purchased from such holder(s) of Executive Stock, pro rata
according to the number of shares of Executive Stock held by such holder(s) at
the time of delivery of such Repurchase Notice (determined as nearly as
practicable to the nearest share).
(f) Investor Rights.
-4-
<PAGE>
(i) If for any reason the Company does not elect to purchase all
of the Executive Stock pursuant to the Repurchase Option prior to the 180th
day following the Termination Date, the Investors will be entitled to
exercise the Repurchase Option, in the manner set forth in this paragraph
2. for the Executive Stock the Company has not elected to purchase (the
"Available Shares"). As soon as practicable, but in any event within
thirty (30) days after the Company determines that there will be any
Available Shares, the Company will deliver written notice (the "Option
Notice") to the Investors setting forth the number of Available Shares and
the price for each Available Share.
(ii) Each of the Investors will initially be permitted to
purchase its pro rata share (based upon the number of shares of Common
Stock then held by such Investors) of the Available Shares, Each Investor
may elect to purchase any number of the Available Shares (subject to the
preceding sentences) by delivering written notice to the Company within 30
days after receipt of the Option Notice from the Company (such 30-day
period being referred to herein as the "Investor Election Period").
(iii) As soon as practicable but in any event within five (5)
days after the expiration of the Investor Election Period, the Company
will, if necessary, notify the Investors electing to purchase Available
Shares of any Available Shares which Investors have elected not to purchase
and each of the electing Investors will be entitled to purchase the
remaining Available Shares on the same terms as described above (the
"Second Option Notice"); provided that if in the aggregate such Investors
elect to purchase more than the remaining Available Shares, such remaining
Available Shares purchased by each such Investor will be reduced on a pro
rata basis based upon the number of shares of Common Stock then held by
such Investors, Each Investor may elect to purchase any of the remaining
Available Shares available to such Investor by delivering written notice to
the Company within 10 days after the delivery of the Second Option Notice
(with such 10-day period referred to herein as the "Second Investor
Election Period").
(iv) As soon as practicable but in any event within five (5)
business days after the expiration of the Investor Election Period or the
Second Investor Election Period (if any) the Company will, if necessary,
notify the holder(s) of Executive Stock as to the number of shares of
Executive Stock being purchased from the holder(s) by the Investors (the
"Supplemental Repurchase Notice"). At the time the Company delivers a
Supplemental Repurchase Notice to the holder(s) of Executive Stock, the
Company will also deliver to each electing Investor written notice setting
forth the number of shares of Executive Stock the Company and each Investor
will acquire, the aggregate purchase price to be paid and the time and
place of the closing of the transaction.
(g) Closing. The closing of the transactions contemplated by this
paragraph 2 will take place on the date designated by the Company in the
Repurchase Notice or the Supplemental Repurchase Notice, as the case may be,
which date will not be more than 90 days after the delivery of such notice. The
Company and/or the Investors will pay for the Executive Stock to be purchased
-5-
<PAGE>
pursuant to the Repurchase Option by delivery of, in the case of each Investor,
a check or wire transfer of funds and, in the case of the Company, (i) a check
or wire transfer of funds, (ii) a subordinate note or notes payable in up to,
three equal annual installments beginning on the first anniversary of the
closing of such purchase and bearing interest (payable quarterly) at a rate per
annum equal to the Base Rate (as defined in the Company's credit agreement) or
(iii) both(i) and (ii), in the aggregate amount of the purchase price for such
shares; provided that the Company shall use reasonable efforts to make all such
repurchases with a check or wire transfer of funds. Any notes issued by the
Company pursuant this paragraph 2 (g) shall be subject to any restrictive
covenants to which the Company is subject at the time of such purchase. The
Company and/or the Investors, as the case may be, will receive customary
representations and warranties from each seller regarding the sale of the
Executive Stock, including but not limited to the representation that such
seller has good and marketable title to the Executive Stock to be transferred
free and clear of all liens, claims and other encumbrances.
3. Restrictions on Transfer.
(a) Transfer of Executive Stock. Executive will not sell, pledge or
otherwise transfer any interest in any shares of Executive Stock, except
pursuant to (i) the provisions of paragraphs 1. 21 6 and 7 hereof, (ii) the
provisions of paragraph 3(b) below, or (iii) pursuant to the Amended and
Restated Registration Agreement, dated as of January 31, 1995, among the Company
and its stockholders.
(b) Certain Permitted Transfers. The restrictions contained in this
paragraph 3 will not apply with respect to transfers of Executive Stock (i)
pursuant to applicable laws of descent and distribution or (ii) among
Executive's Family Group (as defined below), provided that the restrictions
contained in this paragraph 3 will continue to be applicable to the Executive
Stock after any such transfer and the transferees of such Executive Stock shall
agree in writing to be bound by the provisions of this Agreement, "Family Group"
means Executive's spouse and descendants (whether natural or adopted) and any
trust solely for the benefit of Executive and/or Executive's spouse and/or
descendants. Any transferee of Executive Stock pursuant to a transfer in
accordance with the provisions of this subparagraph 3(b) is herein referred to
as a "Permitted Transferee." Upon the transfer of Executive Stock pursuant to
this paragraph 3(b), the transferor will deliver a written notice (the "Transfer
Notice") to the Company, The Transfer Notice will disclose in reasonable detail
the identity of the Permitted Transferee(s).
4. Additional Restrictions on Transfer.
(a) The certificates representing the Executive Stock and Option
Shares will bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE
-6-
<PAGE>
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER,
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN
THE ISSUER (THE "COMPANY") AND A CERTAIN EMPLOYEE OF THE COMPANY DATED
AS OF NOVEMBER 15, 1994, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of any
Executive Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
reasonably acceptable in form and substance to the Company (which counsel shall
be reasonably acceptable to the Company) that registration under the 1933 Act is
not required in connection with such transfer.
5. Definition of Executive Stock. For all purposes of this
Agreement, Executive Stock will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company, the Investors and
purchasers pursuant to an offering registered under the 1933 Act or purchasers
pursuant to a Rule 144 transaction), and each such other holder of Executive
Stock will succeed to all rights and obligations attributable to Executive as a
holder of Executive Stock hereunder, Executive Stock will also include shares of
the Company's capital stock issued with respect to shares of Executive Stock by
way of a stock split, stock dividend or other recapitalization.
6. Sale of the Company.
(a) If the Company's board of directors (the "Board") and the holders
of a majority of the shares of Common Stock then outstanding approve a sale of
all or substantially all of the Company's assets determined on a consolidated
basis or a sale of all or substantially all of the Company's outstanding capital
stock (whether by merger, recapitalization, consolidation, reorganization,
combination or otherwise; collectively an "Approved Sale"), each holder of
Executive Stock will vote for, consent to and raise no objections against such
Approved Sale. If the Approved Sale is structured as (i) a merger or
consolidation, each holder of Executive Stock will waive any dissenters rights,
appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Executive Stock will agree
to sell all of his shares of Executive Stock and rights to acquire shares of
Executive Stock on the terms and conditions approved by the Board and the
holders of a majority of the Executive Stock then outstanding, Each holder of
Executive Stock will take all necessary or desirable actions in connection with
the consummation of the Approved Sale as requested by the Company.
-7-
<PAGE>
(b) The obligations of the holders of Common Stock with respect to the
Approved Sale of the Company are subject to the satisfaction of the following
conditions: (i) upon the consummation of the Approved Sale, each holder of
Common Stock will receive the same form of consideration and the same portion of
the aggregate consideration that such holders of Common Stock would have
received if such aggregate consideration had been distributed by the Company in
complete liquidation pursuant to the rights and preferences set forth in the
Company's Certificate of Incorporation as in effect immediately prior to such
Approved Sale; (ii) if any holders of a class of Common Stock are given an
option as to the form and amount of consideration to be received, each holder of
such class of Common Stock will be given the same option; and (iii) each holder
of then currently exercisable rights to acquire shares of a class of Common
Stock will be given an opportunity to exercise such rights prior to the
consummation of the Approved Sale and participate in such sale as holders of
such class of Common Stock.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501) reasonably acceptable to the Company, If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company will pay the fees of such purchaser representative, but if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company such holder will appoint another purchaser
representative, and such holder will be responsible for the fees of the
purchaser representative so appointed.
(d) Executive and the other holders of Executive Stock (if any) will
bear their pro-rata share (based upon the number of Shares sold) of the costs of
any sale of Executive Stock pursuant to an Approved Sale to the extent such
costs are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by
Executive and the other holders of Executive Stock on their own behalf will not
be considered costs of the transaction hereunder.
(e) The provisions of this paragraph 6 will terminate upon completion
of the initial public offering of the Common Stock.
7. Public Offering. In the event that the Board and the holders of a
majority of the shares of Common Stock then outstanding approve an initial
public offering and sale of Common Stock (a "Public Offering") pursuant to an
effective registration statement under the 1933 Act, the holders of Executive
Stock will take all necessary or desirable actions in connection with the
consummation of the Public Offering. In the event that such Public Offering is
an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the Common Stock structure will adversely affect
the marketability of the offering, each holder of Executive Stock will consent
to and vote for a recapitalization, reorganization and/or exchange of the Common
Stock into securities that the managing underwriters, the Board and holders of a
-8-
<PAGE>
majority of the shares of Common Stock then outstanding find acceptable and will
take all necessary or desirable actions in connection with the consummation of
the recapitalization, reorganization and/or exchange; provided that the
resulting securities reflect and are consistent with the rights and preferences
set forth in the Company's Certificate of Incorporation as in effect immediately
prior to such Public Offering.
8. Termination of Provisions Relating to Executive Stock. The
provisions of paragraphs 2 and 3 will terminate upon the first to occur of (i)
an Approved Sale, or (ii) a Public Offering.
MISCELLANEOUS PROVISIONS
9. Notices. Any notice provided for in this Agreement must be in
writing and must be personally delivered, received by certified mail, return
receipt requested, or sent by guaranteed overnight delivery service, to the
Investors at the addresses indicated in the Company's records and to the other
recipients at the address indicated below:
To the Company:
Nutraceutical International Corporation
Suite 300, Aerospace Center
1104 Country Hills Drive
Ogden, Utah 84403
Attention: CEO
With a copy to:
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attn: Robert C. Gay
Geoffrey Rehnert
To Executive:
Jeffrey A. Hinrichs
2668 E. 3750 N.
Layton, Utah 84040
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party, Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
-9-
<PAGE>
10. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
11. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
12. Counterparts. This Agreement may be executed in separate
counterparts, each of which will be deemed to be an original and all of which
taken together will constitute one and the same agreement.
13. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company, the
Investors and their respective successors and assigns, provided that Executive
may not assign any of his rights or obligations, except as expressly provided by
the terms of this Agreement.
14. Governing Law. The corporate law of the State of Delaware will
govern issues concerning the relative rights of the Company and its
stockholders, All other issues concerning this Agreement shall be governed by
and construed in accordance with the laws of the State of Utah, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Utah or any other jurisdiction) that would cause the application of the
law of any jurisdiction other than the State of Utah.
15. Remedies. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto will have the right to injunctive relief, in
addition to all of its other rights and remedies at law or in equity, to enforce
the provisions of this Agreement.
16. Effect of Transfers in Violation of Agreement. The Company will
not be required (a) to transfer on its books any shares of Executive Stock which
have been sold or transferred in violation of any of the provisions set forth in
this Agreement or (b) to treat as owner of such shares, to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
have been transferred in violation of this Agreement.
17. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company, the
Investors who hold 70% of the Common Stock held by the Investors and Executive;
provided, however, that in the event that such
-10-
<PAGE>
amendment or waiver would adversely affect an Investor or group of Investors in
a manner different than any other Investors, then such amendment or waiver will
require the consent of such Investor or a majority of the Common Shares held by
such group of Investors adversely affected.
18. Third Party Beneficiaries. The parties hereto acknowledge and
agree that the Investors are third party beneficiaries of this Agreement. This
Agreement will inure to the benefit of and be enforceable by the Investors and
their respective successors and assigns.
* * * * *
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on
January 31, 1995.
NUTRACEUTICAL INTERNATIONAL
CORPORATION
By: /s/ Frank W. Gay II
-------------------------------
Title:
/s/ Jeffrey A. Hinrichs
-------------------------------
Jeffrey A. Hinrichs
Agreed and Accepted by:
BAIN CAPITAL FUND IV, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
--------------------------------
Its: Managing Director
--------------------------------
BAIN CAPITAL FUND IV-B, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
--------------------------------
Its: Managing Director
--------------------------------
-12-
<PAGE>
BCIP ASSOCIATES
By: /s/ Robert C. Gay
--------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ Robert C. Gay
--------------------------
A General Partner
-13-
<PAGE>
Schedule A
----------
Investors
---------
Bain Capital Fund IV, L.P.
Bain Capital Fund IV-B, L.P.
BCIP Associates
BCIP Trust Associates, L.P.
-14-
<PAGE>
EXHIBIT 10-12
-------------
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT dated as of November 15, 1994 between
Nutraceutical International Corporation, a Delaware corporation (the "Company"),
and Bruce R. Hough ("Executive").
The Company and Executive desire to enter into an agreement pursuant
to which the Company will grant Executive options to acquire 9,000 shares of the
Company's Common Stock, par value $.0l per share (the "Common Stock"), which
options will be subject to time vesting (the "Option").
The parties hereto agree as follows:
OPTION PROVISIONS
1. Stock Options.
(a) Option Grant. The Company hereby grants to Executive the Option to
purchase 9,000 shares of Common Stock ("Option Shares"), at a price per share
of $26.00 (the "Option Price"). The Option Price and the number of Option Shares
will be equitably adjusted for any stock split, stock dividend or
reclassification or recapitalization of the Common Stock which occurs subsequent
to the date of this Agreement. The Option will expire (the "Expiration Date") on
the earlier of tenth anniversary of the date of this Agreement or the date of
the termination of Executive's employment with the Company or a subsidiary for
any reason other than death or Disability (the "Termination Date"), provided
that Executive will have until the tenth anniversary of the date of this
Agreement to exercise the Option with respect to Option Shares as to which the
option has vested pursuant to paragraph l(b), The Option is not intended to be
an "incentive stock option" within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) Exercisability. On each date set forth below the Option will have
vested and become exercisable with respect to the percentage of Option Shares
set forth opposite such date if Executive is employed by the Company or a
Subsidiary on such date:
<TABLE>
<CAPTION>
% of Option
Date Shares Vested to Date
---- ---------------------
<S> <C>
November 15, 1994 20%
November 15, 1995 40%
November 15, 1996 60%
November 15, 1997 80%
</TABLE>
<PAGE>
<TABLE>
<S> <C>
November 15, 1998 100%
</TABLE>
; provided that upon the occurrence of the Acceleration Event (as defined
below), all of the option Shares will vest and become exercisable. For this
purpose, the "Acceleration Event" will be the first to occur of (i) a merger,
consolidation or reorganization of the Company or a sale of the Company's stock,
if after giving effect to such merger, consolidation, reorganization or stock
sale, the holders of the Company's voting securities (on a fully-diluted basis)
immediately prior to the merger, consolidation, reorganization or sale, own less
than a majority of the ordinary voting power (on a fully-diluted basis) to elect
the board of directors of the surviving corporation, or (ii) a sale of all or
substantially all of the Company's assets to another person or entity or a
complete liquidation of the Company.
(c) Procedure for Exercise. At any time after the Option has become
exercisable with respect to any Option Shares and prior to the Expiration Date
(except as provided for in paragraph l(a) above), Executive may exercise all or
a portion of the Option with respect to Option Shares vested pursuant to
paragraph l(b) above by delivering written notice of exercise to the Company,
together with (i) a written acknowledgment that Executive has read and has been
afforded an opportunity to ask questions of management of the Company regarding
all financial and other information provided to Executive regarding the Company
and (ii) payment in full by delivery of a cashier's, personal or certified check
or wire transfer of immediately available funds in the amount of the Option
Price. Within 60 days after exercise, Executive will pay to the Company the
amount of any additional federal and state income taxes required to be withheld
by reason of the exercise of the Option, As a condition to any exercise of the
Option, Executive will permit the Company to deliver to him all financial and
other information regarding the Company and its Subsidiaries which it believes
necessary to enable Executive to make an informed investment decision.
(d) Securities Laws Restrictions. Executive represents that when
Executive exercises the option he will be purchasing Option Shares for
Executive's own account and not on behalf of others, Executive understands and
acknowledges that federal and state securities laws govern and restrict
Executive's right to offer, sell or otherwise dispose of any Option Shares
unless Executive's offer, sale or other disposition thereof is registered under
the Securities Act of 1933, as amended (the "1933 Act") and state securities
laws or, in the opinion of the Company's counsel, such offer, sale or other
disposition, is exempt from registration thereunder, Executive agrees that he
will not offer, sell or otherwise dispose of any Option Shares in any manner
which would: (i) require the Company to file any registration statement (or
similar filing under state law) with the Securities and Exchange Commission or
to amend or supplement any such filing or (ii) violate or cause the Company to
violate the 1933 Act, the rules and regulations promulgated thereunder or any
other state or federal law. Executive further understands that the certificates
for any Option Shares Executive purchases will bear the legend set forth in
paragraph 4 hereof or such other legends as the Company deems necessary or
desirable in connection with the 1933 Act or other rules, regulations or laws.
-2-
<PAGE>
(e) Non-Transferability of Option. The option is personal to
Executive and is not transferable by Executive except to a Permitted Transferee
(as defined in paragraph 3 below). Only Executive or a Permitted Transferee is
entitled to exercise the Option, except pursuant to paragraphs 2 and 3 below.
(f) Effect of Transfers in Violation of Agreement. The Company will
not be required (i) to transfer on its books any Option Shares which have been
sold or transferred in violation of any of the provisions set forth in this
Agreement, or (ii) to treat as owner of such shares, to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares have
been transferred in violation of this Agreement.
(g) Section 83(b) Election. Within 30 days after an Executive has
exercised an Option, Executive will make an effective election with the Internal
Revenue Service under Section 83(b) of the Code relative to the Common Stock
received by Executive pursuant to the exercise of said option.
2. Repurchase Option.
(a) Definitions. The following terms are defined as follows:
"Cause" means (i) the willful failure by Executive to perform duties
reasonably requested or reasonably prescribed by the Board of Directors of the
Company (the "Board"), (ii) the engaging by Executive in conduct which is
materially injurious to the Company or any of its Subsidiaries, (iii) gross
negligence or willful misconduct by Executive in the performance of his duties
which results in, or causes, harm to the Company or any of its Subsidiaries,
(iv) any breach by Executive of any covenant contained in this Agreement, (v)
Executive's conviction of a crime involving fraud or misrepresentation or a
felony.
"Disability" means the inability (as determined by the Board in its
sole discretion) of such Executive, as a result of incapacity due to physical or
mental illness, to perform his duties with the Company for more than six months
in aggregate during any twelve-month period.
"Executive Stock" for purposes hereof, means the Option Shares
exercisable pursuant to the option and any shares of Common Stock issued
pursuant thereto.
"Fair Market Value" of each share of Executive Stock means the market
value agreed upon by Executive and the Board; provided that the Fair Market
Value of Option Shares which have not been exercised will be reduced by the
exercise price of such options, If Executive and the Board are unable to agree
upon the market value, then the Executive and the Company will share the cost,
on an equal basis, of a mutually acceptable business appraiser whose
determination will be binding.
"Investors" means the persons listed on Schedule A hereto.
-3-
<PAGE>
"Original Value" of each share of Executive Stock will be equal to
$26.00 for each share of Common Stock (as proportionally adjusted for all stock
splits, stock dividends and other recapitalizations affecting the Common Stock,
subsequent to the date hereof); provided that the Original Value of option
shares which have not been exercised will be equal to zero.
"Subsidiary" means any corporation of which shares of stock having a
majority of the general voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through its Subsidiaries.
(b) Repurchase Option. In the event that Executive is no longer
employed by the Company or any of its Subsidiaries for any reason (the date of
such termination being referred to herein as the "Termination Date"), the
Executive Stock, whether held by Executive or one or more Permitted Transferees
(as defined in paragraph 3 below), will be subject to repurchase by the Company
and the Investors pursuant to the terms and conditions set forth in this
paragraph 2 (the "Repurchase Option").
(c) Termination Other than for Cause or Voluntary Termination. If
Executive is no longer employed by the Company or any of its Subsidiaries as a
result of Executive's voluntary termination, Executive's termination without
Cause, or Executive's death or Disability, then on or after the Termination
Date, the Company may elect to purchase all or any portion of the Executive
Stock at a price per share equal to the Fair Market Value thereof (i) as
determined on the Termination Date, if the Repurchase Notice (as defined in
subparagraph (e) below) has been delivered within three months of the
Termination Date, or (ii) as determined on a date determined by the Board within
30 days prior to the delivery of the Repurchase Notice, if the Repurchase Notice
is delivered after the third month following the Termination Date.
(d) Termination for Cause. If Executive is no longer employed by the
Company or any of its Subsidiaries as a result of Executive's termination for
any reason other than as set forth in (c) above, then on or after the
Termination Date, the Company may elect to purchase all or any portion of the
Executive Stock at a price per share equal to the lower of its original Value or
the Fair Market Value thereof.
(e) Repurchase Procedures. The Company may elect to exercise the
right to purchase all or any portion of the shares of Executive Stock pursuant
to the Repurchase option by delivering written notice (the "Repurchase Notice")
to the holder or holders of the Executive Stock. The Repurchase Notice will set
forth the number of shares of Executive Stock to be acquired from such
holder(s), the aggregate consideration to be paid for such shares and the time
and place for the closing of the transaction. If any Executive Stock is held by
Permitted Transferees of Executive, the Company shall purchase the shares
elected to be purchased from such holder(s) of Executive Stock, pro rata
according to the number of shares of Executive Stock held by such holder(s) at
the time of delivery of such Repurchase Notice (determined as nearly as
practicable to the nearest share).
-4-
<PAGE>
(f) Investor Rights.
(i) If for any reason the Company does not elect to purchase
all of the Executive Stock pursuant to the Repurchase Option prior to the
180th day following the Termination Date, the Investors will be entitled to
exercise the Repurchase Option, in the manner set forth in this paragraph 2
for the Executive Stock the Company has not elected to purchase (the
"Available Shares"). As soon as practicable, but in any event within thirty
(30) days after the Company determines that there will be any Available
Shares, the Company will deliver written notice (the "Option Notice") to
the Investors setting forth the number of Available Shares and the price
for each Available Share.
(ii) Each of the Investors will initially be permitted to
purchase its pro rata share (based upon the number of shares of Common
Stock then held by such Investors) of the Available Shares, Each Investor
may elect to purchase any number of the Available Shares (subject to the
preceding sentences) by delivering written notice to the Company within 30
days after receipt of the Option Notice from the Company (such 30-day
period being referred to herein as the "Investor Election Period").
(iii) As soon as practicable but in any event within five (5)
days after the expiration of the Investor Election Period, the Company
will, if necessary, notify the Investors electing to purchase Available
Shares of any Available Shares which Investors have elected not to purchase
and each of the electing Investors will be entitled to purchase the
remaining Available Shares on the same terms as described above (the
"Second Option Notice"); provided that if in the aggregate such Investors
elect to purchase more than the remaining Available Shares, such remaining
Available Shares purchased by each such Investor will be reduced on a pro
rata basis based upon the number of shares of Common Stock then held by
such Investors, Each Investor may elect to purchase any of the remaining
Available Shares available to such Investor by delivering written notice to
the Company within 10 days after the delivery of the Second Option Notice
(with such 10-day period referred to herein as the "Second Investor
Election Period").
(iv) As soon as practicable but in any event within five (5)
business days after the expiration of the Investor Election Period or the
Second Investor Election Period (if any) the Company will, if necessary,
notify the holder(s) of Executive Stock as to the number of shares of
Executive Stock being purchased from the holder(s) by the Investors (the
"Supplemental Repurchase Notice"). At the time the Company delivers a
Supplemental Repurchase Notice to the holder(s) of Executive Stock, the
Company will also deliver to each electing Investor written notice setting
forth the number of shares of Executive Stock the Company and each Investor
will acquire, the aggregate purchase price to be paid and the time and
place of the closing of the transaction.
(g) Closing. The closing of the transactions contemplated by this
paragraph 2 will take place on the date designated by the Company in the
Repurchase Notice or the Supplemental
-5-
<PAGE>
Repurchase Notice, as the case may be, which date will not be more than 90 days
after the delivery of such notice. The Company and/or the Investors will pay for
the Executive Stock to be purchased pursuant to the Repurchase Option by
delivery of, in the case of each Investor, a check or wire transfer of funds
and, in the case of the Company, (i) a check or wire transfer of funds, (ii) a
subordinate note or notes payable in up to, three equal annual installments
beginning on the first anniversary of the closing of such purchase and bearing
interest (payable quarterly) at a rate per annum equal to the Base Rate (as
defined in the Company's credit agreement) or (iii) both (i) and (ii), in the
aggregate amount of the purchase price for such shares; provided that the
Company shall use reasonable efforts to make all such repurchases with a check
or wire transfer of funds. Any notes issued by the Company pursuant this
paragraph 2(g) shall be subject to any restrictive covenants to which the
Company is subject at the time of such purchase. The Company and/or the
Investors, as the case may be, will receive customary representations and
warranties from each seller regarding the sale of the Executive Stock, including
but not limited to the representation that such seller has good and marketable
title to the Executive Stock to be transferred free and clear of all liens,
claims and other encumbrances.
3. Restrictions on Transfer.
(a) Transfer of Executive Stock. Executive will not sell, pledge or
otherwise transfer any interest in any shares of Executive Stock, except
pursuant to (i) the provisions of para graphs 1. 21 6 and 7 hereof, (ii) the
provisions of paragraph 3(b) below, or (iii) pursuant to the Amended and
Restated Registration Agreement, dated as of January 31, 1995, among the Company
and its stockholders.
(b) Certain Permitted Transfers. The restrictions contained in this
paragraph 3 will not apply with respect to transfers of Executive Stock (i)
pursuant to applicable laws of descent and distribution or (ii) among
Executive's Family Group (as defined below), provided that the restrictions
contained in this paragraph 3 will continue to be applicable to the Executive
Stock after any such transfer and the transferees of such Executive Stock shall
agree in writing to be bound by the provisions of this Agreement, "Family Group"
means Executive's spouse and descendants (whether natural or adopted) and any
trust solely for the benefit of Executive and/or Executive's spouse and/or
descendants. Any transferee of Executive Stock pursuant to a transfer in
accordance with the provisions of this subparagraph 3(b) is herein referred to
as a "Permitted Transferee." Upon the transfer of Executive Stock pursuant to
this paragraph 3(b), the transferor will deliver a written notice (the "Transfer
Notice") to the Company, The Transfer Notice will disclose in reasonable detail
the identity of the Permitted Transferee(s).
4. Additional Restrictions on Transfer.
(a) The certificates representing the Executive Stock and Option
Shares will bear the following legend:
-6-
<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE
OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCK OPTION
AGREEMENT BETWEEN THE ISSUER (THE "COMPANY") AND A CERTAIN EMPLOYEE OF
THE COMPANY DATED AS OF NOVEMBER 15, 1994, A COPY OF WHICH MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of any
Executive Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
reasonably acceptable in form and substance to the Company (which counsel shall
be reasonably acceptable to the Company) that registration under the 1933 Act is
not required in connection with such transfer.
5. Definition of Executive Stock. For all purposes of this
Agreement, Executive Stock will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company, the Investors and
purchasers pursuant to an offering registered under the 1933 Act or purchasers
pursuant to a Rule 144 transaction), and each such other holder of Executive
Stock will succeed to all rights and obligations attributable to Executive as a
holder of Executive Stock hereunder, Executive Stock will also include shares of
the Company's capital stock issued with respect to shares of Executive Stock by
way of a stock split, stock dividend or other recapitalization.
6. Sale of the Company.
(a) If the Company's board of directors (the "Board") and the holders
of a majority of the shares of Common Stock then outstanding approve a sale of
all or substantially all of the Company's assets determined on a consolidated
basis or a sale of all or substantially all of the Company's outstanding capital
stock (whether by merger, recapitalization, consolidation, reorganization,
combination or otherwise; collectively an "Approved Sale"), each holder of
Executive Stock will vote for, consent to and raise no objections against such
Approved Sale. If the Approved Sale is structured as (i) a merger or
consolidation, each holder of Executive Stock will waive any dissenters rights,
appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Executive Stock will agree
to sell all of his shares of Executive Stock and rights to acquire shares of
Executive Stock on the terms and conditions
-7-
<PAGE>
approved by the Board and the holders of a majority of the Executive Stock then
outstanding, Each holder of Executive Stock will take all necessary or desirable
actions in connection with the consummation of the Approved Sale as requested by
the Company.
(b) The obligations of the holders of Common Stock with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, each
holder of Common Stock will receive the same form of consideration and the same
portion of the aggregate consideration that such holders of Common Stock would
have received if such aggregate consideration had been distributed by the
Company in complete liquidation pursuant to the rights and preferences set forth
in the Company's Certificate of Incorporation as in effect immediately prior to
such Approved Sale; (ii) if any holders of a class of Common Stock are given an
option as to the form and amount of consideration to be received, each holder of
such class of Common Stock will be given the same option; and (iii) each holder
of then currently exercisable rights to acquire shares of a class of Common
Stock will be given an opportunity to exercise such rights prior to the
consummation of the Approved Sale and participate in such sale as holders of
such class of Common Stock.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501) reasonably acceptable to the Company, If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company will pay the fees of such purchaser representative, but if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company such holder will appoint another purchaser
representative, and such holder will be responsible for the fees of the
purchaser representative so appointed.
(d) Executive and the other holders of Executive Stock (if any) will
bear their pro-rata share (based upon the number of shares sold) of the costs of
any sale of Executive Stock pursuant to an Approved Sale to the extent such
costs are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by
Executive and the other holders of Executive Stock on their own behalf will not
be considered costs of the transaction hereunder.
(e) The provisions of this paragraph 6 will terminate upon completion
of the initial public offering of the Common Stock.
7. Public Offering. In the event that the Board and the holders of
a majority of the shares of Common Stock then outstanding approve an initial
public offering and sale of Common Stock (a "Public Offering") pursuant to an
effective registration statement under the 1933 Act, the holders of Executive
Stock will take all necessary or desirable actions in connection with the
consummation of the Public Offering. In the event that such Public Offering
is an underwritten
-8-
<PAGE>
offering and the managing underwriters advise the Company in writing that in
their opinion the Common Stock structure will adversely affect the marketability
of the offering, each holder of Executive Stock will consent to and vote for a
recapitalization, reorganization and/or exchange of the Common Stock into
securities that the managing underwriters, the Board and holders of a majority
of the shares of Common Stock then outstanding find acceptable and will take all
necessary or desirable actions in connection with the consummation of the
recapitalization, reorganization and/or exchange; provided that the resulting
securities reflect and are consistent with the rights and preferences set forth
in the Company's Certificate of Incorporation as in effect immediately prior to
such Public Offering.
8. Termination of Provisions Relating to Executive Stock. The
provisions of paragraphs 2 and 3 will terminate upon the first to occur of (i)
an Approved Sale, or (ii) a Public Offering.
MISCELLANEOUS PROVISIONS
9. Notices. Any notice provided for in this Agreement must be in
writing and must be personally delivered, received by certified mail, return
receipt requested, or sent by guaranteed overnight delivery service, to the
Investors at the addresses indicated in the Company's records and to the other
recipients at the address indicated below:
To the Company:
Nutraceutical International Corporation
Suite 300, Aerospace Center
1104 Country Hills Drive
Ogden, Utah 84403
Attention: CEO
With a copy to:
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attn: Robert C. Gay
Geoffrey Rehnert
To Executive:
Bruce R. Hough
2392 West Canterwood Drive
South Jordan, Utah 84095
801-254-9340
-9-
<PAGE>
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party, Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
10. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
11. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
12. Counterparts. This Agreement may be executed in separate
counterparts, each of which will be deemed to be an original and all of which
taken together will constitute one and the same agreement.
13. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company, the
Investors and their respective successors and assigns, provided that Executive
may not assign any of his rights or obligations, except as expressly provided by
the terms of this Agreement.
14. Governing Law. The corporate law of the State of Delaware will
govern issues concerning the relative rights of the Company and its
stockholders, All other issues concerning this Agreement shall be governed by
and construed in accordance with the laws of the State of Utah, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Utah or any other jurisdiction) that would cause the application of the
law of any jurisdiction other than the State of Utah.
15. Remedies. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto will have the right to injunctive relief, in
addition to all of its other rights and remedies at law or in equity, to enforce
the provisions of this Agreement.
16. Effect of Transfers in Violation of Agreement. The Company will
not be required (a) to transfer on its books any shares of Executive Stock which
have been sold or transferred in violation of any of the provisions set forth in
this Agreement or (b) to treat as owner of such shares, to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
have been transferred in violation of this Agreement.
-10-
<PAGE>
17. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company, the
Investors who hold 70% of the Common Stock held by the Investors and Executive;
provided, however, that in the event that such amendment or waiver would
adversely affect an Investor or group of Investors in a manner different than
any other Investors, then such amendment or waiver will require the consent of
such Investor or a majority of the Common Shares held by such group of Investors
adversely affected.
18. Third Party Beneficiaries. The parties hereto acknowledge and
agree that the Investors are third party beneficiaries of this Agreement. This
Agreement will inure to the benefit of and be enforceable by the Investors and
their respective successors and assigns.
* * * * *
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
NUTRACEUTICAL INTERNATIONAL CORPORATION
By: /s/ Frank W. Gay II
---------------------------------
Its: Chairman
/s/ Bruce R. Hough
---------------------------------
Bruce R. Hough
Agreed and Accepted by:
BAIN CAPITAL FUND IV, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
---------------------------------
Its: Managing Director
---------------------------------
BAIN CAPITAL FUND IV-B, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
---------------------------------
Its: Managing Director
---------------------------------
-12-
<PAGE>
BCIP ASSOCIATES
By: /s/ Robert C. Gay
----------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ Robert C. Gay
----------------------
A General Partner
-13-
<PAGE>
Schedule A
----------
Investors
---------
Bain Capital Fund IV, L.P.
Bain Capital Fund IV-B, L.P.
BCIP Associates
BCIP Trust Associates, L.P.
-14-
<PAGE>
Exhibit 10-13
--------------
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT dated as of November 15, 1994 between
Nutraceutical International Corporation, a Delaware corporation (the "Company"),
and Frank W. Gay II ("Executive").
The Company and Executive desire to enter into an agreement pursuant
to which the Company will grant Executive options to acquire 25,000 shares of
the Company's Common Stock, par value $.01 per share (the "Common Stock"), which
options will be subject to time vesting (the "Option").
The parties hereto agree as follows:
OPTION PROVISIONS
1. Stock Options.
(a) Option Grant. The Company hereby grants to Executive the Option
to purchase 25,000 shares of Common Stock ("Option Shares"), at a price per
share of $26.00 (the "Option Price"). The Option Price and the number of Option
Shares will be equitably adjusted for any stock split, stock dividend or
reclassification or recapitalization of the Common Stock which occurs subsequent
to the date of this Agreement. The Option will expire (the "Expiration Date") on
the earlier of tenth anniversary of the date of this Agreement or the date of
the termination of Executive's employment with the Company or a subsidiary for
any reason other than death or Disability (the "Termination Date"), provided
that Executive will have until the tenth anniversary of the date of this
Agreement to exercise the Option with respect to Option Shares as to which the
option has vested pursuant to paragraph l(b). The Option is not intended to be
an "incentive stock option" within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) Exercisability. On each date set forth below the Option will have
vested and become exercisable with respect to the percentage of Option Shares
set forth opposite such date if Executive is employed by the Company or a
Subsidiary on such date:
<TABLE>
<CAPTION>
% of Option
Date Shares Vested to Date
---- ----------------------
<S> <C>
November 15, 1994 40%
November 15, 1995 60%
November 15, 1996 80%
November 15, 1997 90%
</TABLE>
<PAGE>
November 15, 1998 100%
; provided that upon the occurrence of the Acceleration Event (as defined
below), all of the option Shares will vest and become exercisable. For this
purpose, the "Acceleration Event" will be the first to occur of (i) a merger,
consolidation or reorganization of the Company or a sale of the Company's stock,
if after giving effect to such merger, consolidation, reorganization or stock
sale, the holders of the Company's voting securities (on a fully-diluted basis)
immediately prior to the merger, consolidation, reorganization or sale, own less
than a majority of the ordinary voting power (on a fully-diluted basis) to elect
the board of directors of the surviving corporation, or (ii) a sale of all or
substantially all of the Company's assets to another person or entity or a
complete liquidation of the Company.
(c) Procedure for Exercise. At any time after the Option has become
exercisable with respect to any Option Shares and prior to the Expiration Date
(except as provided for in paragraph l(a) above), Executive may exercise all or
a portion of the Option with respect to Option Shares vested pursuant to
paragraph l(b) above by delivering written notice of exercise to the Company,
together with (i) a written acknowledgment that Executive has read and has been
afforded an opportunity to ask questions of management of the Company regarding
all financial and other information provided to Executive regarding the Company
and (ii) payment in full by delivery of a cashier's, personal or certified check
or wire transfer of immediately available funds in the amount of the Option
Price, Within 60 days after exercise, Executive will pay to the Company the
amount of any additional federal and state income taxes required to be withheld
by reason of the exercise of the Option, As a condition to any exercise of the
Option, Executive will permit the Company to deliver to him all financial and
other information regarding the Company and its Subsidiaries which it believes
necessary to enable Executive to make an informed investment decision.
(d) Securities Laws Restrictions. Executive represents that when
Executive exercises the Option he will be purchasing Option Shares for
Executive's own account and not on behalf of others, Executive understands and
acknowledges that federal and state securities laws govern and restrict
Executive's right to offer, sell or otherwise dispose of any Option Shares
unless Executive's offer, sale or other disposition thereof is registered under
the Securities Act of 1933, as amended (the "1933 Act") and state securities
laws or, in the opinion of the Company's counsel, such offer, sale or other
disposition is exempt from registration thereunder, Executive agrees that he
will not offer, sell or otherwise dispose of any Option Shares in any manner
which would: (i) require the Company to file any registration statement (or
similar filing under state law) with the Securities and Exchange Commission or
to amend or supplement any such filing or (ii) violate or cause the Company to
violate the 1933 Act, the rules and regulations promulgated thereunder or any
other state or federal law. Executive further understands that the certificates
for any Option Shares Executive purchases will bear the legend set forth in
paragraph 4 hereof or such other legends as the Company deems necessary or
desirable in connection with the 1933 Act or other rules, regulations or laws.
<PAGE>
(e) Non-Transferability of Option. The option is personal to
Executive and is not transferable by Executive except to a Permitted Transferee
(as defined in paragraph 3 below). Only Executive or a Permitted Transferee is
entitled to exercise the Option, except pursuant to paragraphs 2 and 3 below.
(f) Effect of Transfers in Violation of Agreement. The Company will
not be required (i) to transfer on its books any Option Shares which have been
sold or transferred in violation of any of the provisions set forth in this
Agreement, or (ii) to treat as owner of such shares, to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares have
been transferred in violation of this Agreement.
(g) Section 83(b) Election. Within 30 days after an Executive has
exercised an Option, Executive will make an effective election with the Internal
Revenue Service under Section 83(b) of the Code relative to the Common Stock
received by Executive pursuant to the exercise of said option.
2. Repurchase Option.
(a) Definitions. The following terms are defined as follows:
"Cause" means (i) the willful failure by Executive to perform duties
reasonably requested or reasonably prescribed by the Board of Directors of the
Company (the "Board"), (ii) the engaging by Executive in conduct which is
materially injurious to the Company or any of its Subsidiaries, (iii) gross
negligence or willful misconduct by Executive in the performance of his duties
which results in, or causes, harm to the Company or any of its Subsidiaries,
(iv) any breach by Executive of any covenant contained in this Agreement, (v)
Executive's conviction of a crime involving fraud or misrepresentation or a
felony.
"Disability" means the inability (as determined by the Board in its
sole discretion) of such Executive, as a result of incapacity due to physical or
mental illness, to perform his duties with the Company for more than six months
in aggregate during any twelve-month period.
"Executive Stock" for purposes hereof, means the Option Shares
exercisable pursuant to the option and any shares of Common Stock issued
pursuant thereto.
"Fair Market Value" of each share of Executive Stock means the market
value agreed upon by Executive and the Board; provided that the Fair Market
Value of Option Shares which have not been exercised will be reduced by the
exercise price of such options, If Executive and the Board are unable to agree
upon the market value, then the Executive and the Company will share the cost,
on an equal basis, of a mutually acceptable business appraiser whose
determination will be binding.
"Investors" means the persons listed on Schedule A hereto.
<PAGE>
"Original Value" of each share of Executive Stock will be equal to
$26.00 for each share of Common Stock (as proportionally adjusted for all stock
splits, stock dividends and other recapitalizations affecting the Common Stock,
subsequent to the date hereof); provided that the Original Value of option
shares which have not been exercised will be equal to zero.
"Subsidiary" means any corporation of which shares of stock having a
majority of the general voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through its Subsidiaries.
(b) Repurchase Option. In the event that Executive is no longer
employed by the Company or any of its Subsidiaries for any reason (the date of
such termination being referred to herein as the "Termination Date"), the
Executive Stock, whether held by Executive or one or more Permitted Transferees
(as defined in paragraph 3 below), will be subject to repurchase by the Company
and the Investors pursuant to the terms and conditions set forth in this
paragraph 2 (the "Repurchase Option").
(c) Termination Other than for Cause or Voluntary Termination. If
Executive is no longer employed by the Company or any of its Subsidiaries as a
result of Executive's voluntary termination, Executive's termination without
Cause, or Executive's death or Disability, then on or after the Termination
Date, the Company may elect to purchase all or any portion of the Executive
Stock at a price per share equal to the Fair Market Value thereof (i) as
determined on the Termination Date, if the Repurchase Notice (as defined in
subparagraph (e) below) has been delivered within three months of the
Termination Date, or (ii) as determined on a date determined by the Board within
30 days prior to the delivery of the Repurchase Notice, if the Repurchase Notice
is delivered after the third month following the Termination Date.
(d) Termination for Cause. If Executive is no longer employed by the
Company or any of its Subsidiaries as a result of Executive's termination for
any reason other than as set forth in (c) above, then on or after the
Termination Date, the Company may elect to purchase all or any portion of the
Executive Stock at a price per share equal to the lower of its original Value or
the Fair Market Value thereof.
(e) Repurchase Procedures. The Company may elect to exercise the
right to purchase all or any portion of the shares of Executive Stock pursuant
to the Repurchase Option by delivering written notice (the "Repurchase Notice")
to the holder or holders of the Executive Stock. The Repurchase Notice will set
forth the number of shares of Executive Stock to be acquired from such
holder(s), the aggregate consideration to be paid for such shares and the time
and place for the closing of the transaction. If any Executive Stock is held by
Permitted Transferees of Executive, the Company shall purchase the shares
elected to be purchased from such holder(s) of Executive Stock, pro rata
according to the number of shares of Executive Stock held by such holder(s) at
the time of delivery of such Repurchase Notice (determined as nearly as
practicable to the nearest share).
<PAGE>
(f) Investor Rights.
(i) If for any reason the Company does not elect to purchase all
of the Executive Stock pursuant to the Repurchase Option prior to the 180th
day following the Termination Date, the Investors will be entitled to
exercise the Repurchase Option, in the manner set forth in this paragraph
2, for the Executive Stock the Company has not elected to purchase (the
"Available Shares"). As soon as practicable, but in any event within thirty
(30) days after the Company determines that there will be any Available
Shares, the Company will deliver written notice (the "Option Notice") to
the Investors setting forth the number of Available Shares and the price
for each Available Share.
(ii) Each of the Investors will initially be permitted to
purchase its pro rata share (based upon the number of shares of Common
Stock then held by such Investors) of the Available Shares, Each Investor
may elect to purchase any number of the Available Shares (subject to the
preceding sentences) by delivering written notice to the Company within 30
days after receipt of the option Notice from the Company (such 30-day
period being referred to herein as the "Investor Election Period").
(iii) As soon as practicable but in any event within five (5)
days after the expiration of the Investor Election Period, the Company
will, if necessary, notify the Investors electing to purchase Available
Shares of any Available Shares which Investors have elected not to purchase
and each of the electing Investors will be entitled to purchase the
remaining Available Shares on the same terms as described above (the
"Second Option Notice"); provided that if in the aggregate such Investors
elect to purchase more than the remaining Available Shares, such remaining
Available Shares purchased by each such Investor will be reduced on a pro
rata basis based upon the number of shares of Common Stock then held by
such Investors, Each Investor may elect to purchase any of the remaining
Available Shares available to such Investor by delivering written notice to
the Company within 10 days after the delivery of the Second Option Notice
(with such 10-day period referred to herein as the "Second Investor
Election Period"),
(iv) As soon as practicable but in any event within five (5)
business days after the expiration of the Investor Election Period or the
Second Investor Election Period (if any) the Company will, if necessary,
notify the holder(s) of Executive Stock as to the number of shares of
Executive Stock being purchased from the holder(s) by the Investors (the
"Supplemental Repurchase Notice"). At the time the Company delivers a
Supplemental Repurchase Notice to the holder(s) of Executive Stock, the
Company will also deliver to each electing Investor written notice setting
forth the number of shares of Executive Stock the Company and each Investor
will acquire, the aggregate purchase price to be paid and the time and
place of the closing of the transaction.
(g) Closing. The closing of the transactions contemplated by this
paragraph 2 will take place on the date designated by the Company in the
Repurchase Notice or the Supplemental Repurchase Notice, as the case may be,
which date will not be more than 90 days after the delivery
<PAGE>
of such notice. The Company and/or the Investors will pay for the Executive
Stock to be purchased pursuant to the Repurchase Option by delivery of, in the
case of each Investor, a check or wire transfer of funds and, in the case of the
Company, (i) a check or wire transfer of funds, (ii) a subordinate note or notes
payable in up to, three equal annual installments beginning on the first
anniversary of the closing of such purchase and bearing interest (payable
quarterly) at a rate per annum equal to the Base Rate (as defined in the
Company's credit agreement) or (iii) both (i) and (ii), in the aggregate amount
of the purchase price for such shares; provided that the Company shall use
reasonable efforts to make all such repurchases with a check or wire transfer of
funds. Any notes issued by the Company pursuant this paragraph 2(g) shall be
subject to any restrictive covenants to which the Company is subject at the time
of such purchase. The Company and/or the Investors, as the case may be, will
receive customary representations and warranties from each seller regarding the
sale of the Executive Stock, including but not limited to the representation
that such seller has good and marketable title to the Executive Stock to be
transferred free and clear of all liens, claims and other encumbrances.
3. Restrictions on Transfer.
(a) Transfer of Executive Stock. Executive will not sell, pledge or
otherwise transfer any interest in any shares of Executive Stock, except
pursuant to (i) the provisions of paragraphs 1, 21 6 and 7 hereof, (ii) the
provisions of paragraph 3(b) below, or (iii) pursuant to the Amended and
Restated Registration Agreement, dated as of January 31, 1995, among the Company
and its stockholders.
(b) Certain Permitted Transfers, The restrictions contained in this
paragraph 3 will not apply with respect to transfers of Executive Stock (i)
pursuant to applicable laws of descent and distribution or (ii) among
Executive's Family Group (as defined below), provided that the restrictions
contained in this paragraph 3 will continue to be applicable to the Executive
Stock after any such transfer and the transferees of such Executive Stock shall
agree in writing to be bound by the provisions of this Agreement, "Family Group"
means Executive's spouse and descendants (whether natural or adopted) and any
trust solely for the benefit of Executive and/or Executive's spouse and/or
descendants. Any transferee of Executive Stock pursuant to a transfer in
accordance with the provisions of this subparagraph 3(b) is herein referred to
as a "Permitted Transferee." Upon the transfer of Executive Stock pursuant to
this paragraph 3(b), the transferor will deliver a written notice (the "Transfer
Notice") to the Company, The Transfer Notice will disclose in reasonable detail
the identity of the Permitted Transferee(s).
4. Additional Restrictions on Transfer.
(a) The certificates representing the Executive Stock and Option
Shares will bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE
<PAGE>
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER,
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN
THE ISSUER (THE "COMPANY") AND A CERTAIN EMPLOYEE OF THE COMPANY DATED
AS OF NOVEMBER 15, 1994 A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of any
Executive Stock (except pursuant to an effective registration statement under
the 1933 Act) without first delivering to the Company an opinion of counsel
reasonably acceptable in form and substance to the Company (which counsel shall
be reasonably acceptable to the Company) that registration under the 1933 Act is
not required in connection with such transfer.
5. Definition of Executive Stock. For all purposes of this
Agreement, Executive Stock will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company, the Investors and
purchasers pursuant to an offering registered under the 1933 Act or purchasers
pursuant to a Rule 144 transaction), and each such other holder of Executive
Stock will succeed to all rights and obligations attributable to Executive as a
holder of Executive Stock hereunder, Executive Stock will also include shares of
the Company's capital stock issued with respect to shares of Executive Stock by
way of a stock split, stock dividend or other recapitalization.
6. Sale of the Company.
(a) If the Company's board of directors (the "Board") and the holders
of a majority of the shares of Common Stock then outstanding approve a sale of
all or substantially all of the Company's assets determined on a consolidated
basis or a sale of all or substantially all of the Company's outstanding capital
stock (whether by merger, recapitalization, consolidation, reorganization,
combination or otherwise; collectively an "Approved Sale"), each holder of
Executive Stock will vote for, consent to and raise no objections against such
Approved Sale, If the Approved Sale is structured as (i) a merger or
consolidation, each holder of Executive Stock will waive any dissenters rights,
appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Executive Stock will agree
to sell all of his shares of Executive Stock and rights to acquire shares of
Executive Stock on the terms and conditions approved by the Board and the
holders of a majority of the Executive Stock then outstanding, Each holder of
Executive Stock will take all necessary or desirable actions in connection with
the consummation of the Approved Sale as requested by the Company.
<PAGE>
(b) The obligations of the holders of Common Stock with respect to
the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, each
holder of Common Stock will receive the same form of consideration and the same
portion of the aggregate consideration that such holders of Common Stock would
have received if such aggregate consideration had been distributed by the
Company in complete liquidation pursuant to the rights and preferences set forth
in the Company's Certificate of Incorporation as in effect immediately prior to
such Approved Sale; (ii) if any holders of a class of Common Stock are given an
option as to the form and amount of consideration to be received, each holder of
such class of Common Stock will be given the same option; and (iii) each holder
of then currently exercisable rights to acquire shares of a class of Common
Stock will be given an opportunity to exercise such rights prior to the
consummation of the Approved Sale and participate in such sale as holders of
such class of Common Stock.
(c) If the Company or the holders of the Company's securities enter
into any negotiation or transaction for which Rule 506 (or any similar rule then
in effect) promulgated by the Securities Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock will, at
the request of the Company, appoint a purchaser representative (as such term is
defined in Rule 501) reasonably acceptable to the Company, If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company will pay the fees of such purchaser representative, but if any
holder of Executive Stock declines to appoint the purchaser representative
designated by the Company such holder will appoint another purchaser
representative, and such holder will be responsible for the fees of the
purchaser representative so appointed.
(d) Executive and the other holders of Executive Stock (if any) will
bear their pro-rata share (based upon the number of shares sold) of the costs of
any sale of Executive Stock pursuant to an Approved Sale to the extent such
costs are incurred for the benefit of all holders of Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by
Executive and the other holders of Executive Stock on their own behalf will not
be considered costs of the transaction hereunder.
(e) The provisions of this paragraph 6 will terminate upon completion
of the initial public offering of the Common Stock.
7. Public Offering. In the event that the Board and the holders of a
majority of the shares of Common Stock then outstanding approve an initial
public offering and sale of Common Stock (a "Public Offering") pursuant to an
effective registration statement under the 1933 Act, the holders of Executive
Stock will take all necessary or desirable actions in connection with the
consummation of the Public Offering. In the event that such Public Offering is
an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the Common Stock structure will adversely affect
the marketability of the offering, each holder of Executive Stock will consent
to and vote for a recapitalization, reorganization and/or exchange of the Common
Stock into securities that the managing underwriters, the Board and holders of a
majority of the shares of Common Stock then outstanding find acceptable and will
take all necessary
<PAGE>
or desirable actions in connection with the consummation of the
recapitalization, reorganization and/or exchange; provided that the resulting
securities reflect and are consistent with the rights and preferences set forth
in the Company's Certificate of Incorporation as in effect immediately prior to
such Public Offering.
8. Termination of Provisions Relating to Executive Stock. The
provisions of paragraphs 2 and 3 will terminate upon the first to occur of (i)
an Approved Sale, or (ii) a Public Offering.
MISCELLANEOUS PROVISIONS
9. Notices. Any notice provided for in this Agreement must be in
writing and must be personally delivered, received by certified mail, return
receipt requested, or sent by guaranteed overnight delivery service, to the
Investors at the addresses indicated in the Company's records and to the other
recipients at the address indicated below:
To the Company:
Nutraceutical International Corporation
Suite 300, Aerospace Center
1104 Country Hills Drive
Ogden, Utah 84403
Attention: CEO
With a copy to:
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attn: Robert C. Gay
Geoffrey Rehnert
To Executive:
Frank W. Gay II
1653 Captain Molley Drive, #209
Park City, Utah 84060
801-695-7607
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party, Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
<PAGE>
10. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
11. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
12. Counterparts. This Agreement may be executed in separate
counterparts, each of which will be deemed to be an original and all of which
taken together will constitute one and the same agreement.
13. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company, the
Investors and their respective successors and assigns, provided that Executive
may not assign any of his rights or obligations, except as expressly provided by
the terms of this Agreement.
14. Governing Law. The corporate law of the State of Delaware will
govern issues concerning the relative rights of the Company and its
stockholders, All other issues concerning this Agreement shall be governed by
and construed in accordance with the laws of the State of Utah, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Utah or any other jurisdiction) that would cause the application of the
law of any jurisdiction other than the State of Utah.
15. Remedies. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto will -have the right to injunctive relief,
in addition to all of its other rights and remedies at law or in equity, to
enforce the provisions of this Agreement,
16. Effect of Transfers in Violation of Agreement. The Company will
not be required (a) to transfer on its books any shares of Executive Stock which
have been sold or transferred in violation of any of the provisions set forth in
this Agreement or (b) to treat as owner of such shares, to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
have been transferred in violation of this Agreement.
17. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company, the
Investors who hold 70% of the Common Stock held by the Investors and Executive;
provided, however, that in the event that such amendment or waiver would
adversely affect an Investor or group of Investors in a manner
<PAGE>
different than any other Investors, then such amendment or waiver will require
the consent of such Investor or a majority of the Common Shares held by such
group of Investors adversely affected.
18. Third Party Beneficiaries. The parties hereto acknowledge and
agree that the Investors are third party beneficiaries of this Agreement. This
Agreement will inure to the benefit of and be enforceable by the Investors and
their respective successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
NUTRACEUTICAL INTERNATIONAL CORPORATION
By: /s/ Bruce Hough
----------------------------
Its: Vice President
/s/ Frank W. Gay II
----------------------------
Frank W. Gay II
Agreed and Accepted by:
BAIN CAPITAL FUND IV, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
- ----------------------------
Its: Managing Director
- ----------------------------
<PAGE>
BAIN CAPITAL FUND IV-B, L.P.
By: Bain Capital Partners IV, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Robert C. Gay
- ----------------------------
Its: Managing Director
- ----------------------------
BCIP ASSOCIATES
By: /s/ Robert C. Gay
- ----------------------------
A General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ Robert C. Gay
- ----------------------------
A General Partner
<PAGE>
EXHIBIT 10.14
-------------
INDEPENDENT CONTRACTOR SALES AGREEMENT
--------------------------------------
This Independent Contractor Sales Agreement (the "Agreement") is entered
into as of January 1, 1998, by and between Nutraceutical Corporation, a Delaware
corporation ("Nutraceutical") and Federal_Tax_Name ("Independent Contractor").
Nutraceutical and Independent Contractor are sometimes collectively referred to
herein as the "Parties" and individually as a "Party."
RECITALS
A. Nutraceutical is in the business of manufacturing and marketing quality
natural nutritional supplements under the Solaray, KAL, NaturalMax, Premier One,
Veg Life and Solar Green brand names and such additional brand names as
Nutraceutical may from time to time announce as being part of its "Family of
Brands" (the "Products"). Nutraceutical sells the Products domestically only to
health food stores which meet the then current Nutraceutical Health Food
Retailer Standard, as modified from time to time ("Health Food Stores"). A copy
of the current Health Food Retailer Standard is attached at Exhibit A.
B. Independent Contractor is experienced in the marketing and promotion of
nutritional supplements, and wishes to promote the sale of the Products, and
Nutraceutical wishes to engage Independent Contractor to promote the sale of the
Products, all on the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual covenants and agreements set forth herein,
Nutraceutical and Independent Contractor agree as follows:
1. Engagement. Nutraceutical hereby engages Independent Contractor as an
----------
independent contractor, and not as an employee, and Independent Contractor
hereby accepts the engagement, upon the terms and conditions set forth herein,
to promote the sale of the Products to Health Food Stores. Independent
Contractor is engaged to perform its services solely in the geographical region
(the "Area") and with respect to the accounts to be assigned, from time to time,
by Nutraceutical (the "Assigned Accounts"). Independent Contractor may also
visit Health Food Stores which are not already customers of Nutraceutical and
encourage them to submit appropriate applications to be accepted by
Nutraceutical to carry the Products. Such Health Food Stores, if accepted, will
either become Assigned Accounts or will be assigned to the Nutraceutical
telemarketing department, at the discretion of Nutraceutical. The Assigned
Accounts may be designated by geography, by accounts, by sub-accounts, or by any
combination of the foregoing or other factors designated by Nutraceutical.
Nutraceutical shall endeavor to give Independent Contractor seven (7) days prior
written notice of any change in the Area or the Assigned Accounts, but any such
change shall become effective upon written notice from Nutraceutical.
<PAGE>
2. Capacity and Duties. Independent Contractor shall diligently represent
-------------------
and promote the sale of the Products to Assigned Accounts and to Health Food
Stores within the Area using legal methods for the advertising, marketing and
sale of dietary supplements and other products. Independent Contractor shall be
responsible in all respects for determining the means of accomplishing the
objectives established hereunder, as long as such means are in compliance with
the terms set forth herein. However, Independent Contractor shall, at a minimum
(a) visit and conduct an assessment of every Assigned Account and its
relationship with Nutraceutical and its Products on a monthly basis; (b) ensure
that each Assigned Account is familiar with and aware of all the Products, and
regularly receives information relative to discounts and special promotions; and
(c) monitor inventory, perform in-store demonstrations and assist Assigned
Accounts in arranging shelves and promotional displays, as requested by such
Assigned Accounts. Independent Contractor shall conduct its own business and may
employ sales representatives, agents and employees for purposes of fulfilling
Independent Contractor's duties under this Agreement, as set forth herein.
Independent Contractor is not and shall not be construed as an employee,
distributor, dealer, franchisee or partner of Nutraceutical, and assumes the
entire liability for any loss suffered in connection with its business
operations. Independent Contractor shall be solely responsible for the control,
supervision and direction of its sales representatives, agents and employees,
and for their compensation, expenses and all other associated costs and
liabilities, as well as those of Independent Contractor. Independent Contractor
acknowledges that from time to time Nutraceutical may publish Sales Guidelines
which include information on commissions and other payments available to
Independent Contractor, information on current discount and promotional
programs, recommendations for appropriate sales techniques and forms for
submitting or requesting information. The Sales Guidelines are incorporated
herein by reference, but shall not be construed to provide, and should not be
interpreted as providing, mandatory requirements for the internal operation of
Independent Contractor's business or method of doing business, but shall instead
be construed as providing general guidelines for establishing a productive
working relationship between Independent Contractor, Nutraceutical and Assigned
Accounts. Independent Contractor shall make arrangements to have access to
facsimile equipment over which the Independent Contractor can send and receive
documents at any time.
3. Payment. In consideration of Independent Contractor's services
-------
provided hereunder, as well as in consideration of the covenants set forth
herein, Independent Contractor shall be paid for such services based upon sales
of the Products according to such payment programs as may be established from
time to time by Nutraceutical. Independent Contractor acknowledges and accepts
the fact that the payment program may include a growth-based incentive element,
which would provide Independent Contractor with extra payments based on growth
in sales with respect to the Assigned Accounts and/or Area, and which may also
provide for penalties or reduced payments based on failure to meet minimum
growth levels, which may also constitute default and grounds for termination.
Independent Contractor acknowledges and agrees that (a) the amounts payable to
Independent Contractor are based on a number of factors, including
Nutraceutical's then current commission and discount programs, the date on which
orders are received, whether credits or returns occur, and whether Independent
Contractor complies with all other provisions of this Agreement, and (b)
Nutraceutical shall have the right, in its sole discretion, to exercise judgment
and discretion
2
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in determining what is fair and reasonable in given circumstances with respect
to the proper calculation of what payments are owing to Independent Contractor,
and its determination shall be final. Furthermore, Independent Contractor agrees
that Nutraceutical's commission and payment program shall be treated as
Confidential pursuant to Section 6, and expressly accepts and consents to the
fact that Nutraceutical does not release data relative to its method of
calculating payments due, either to Independent Contractor or any other party.
Independent Contractor agrees that the assignment of the Area and Assigned
Accounts to Independent Contractor, and the modification of this assignment from
time to time, is under Nutraceutical's sole control and may be changed from time
to time. These changes may be based on suggestions or requests from the
Independent Contractor, Assigned Accounts, or other business factors. Because
these changes may occur at times other than the beginning or end of a particular
month, payment for Independent Contractor's services for a month in which a
change occurs shall be based upon the designation of the Assigned Accounts
effective as of the end of such month. Nutraceutical shall endeavor to give
Independent Contractor seven (7) days prior written notice of any changes to its
payment schedule, but any such changes shall be effective upon delivery of such
payment schedule to Independent Contractor with respect to sales which occur
following such date. The payments made by Nutraceutical pursuant to its then
current commission and payment programs shall be Independent Contractor's sole
compensation for the services rendered hereunder, and all costs, expenses and
charges incurred in connection with such services shall be the sole
responsibility of Independent Contractor. Any payments owing Independent
Contractor normally shall be made by wire transfer to the Independent Contractor
at an account designated in writing by Independent Contractor, or by another
method selected by Nutraceutical.
4. Terms and Conditions of Sale. Independent Contractor has no power to
----------------------------
offer to sell the Products or to accept orders on behalf of Nutraceutical, but
may solicit purchase orders from the Assigned Accounts or other Health Food
Stores in the Area (as long as such Health Food Stores are not designated by
Nutraceutical to be assigned to its telephone marketing department or some other
Nutraceutical marketing arm or division). The Products shall be sold and shipped
by Nutraceutical according to such terms and conditions of sale, and such
discount and credit policies, as Nutraceutical shall from time to time publish.
Independent Contractor shall not represent to any party that any other or
additional terms and conditions are available from Nutraceutical and shall not
under any circumstances purport to accept any purchase order or contract on
behalf of Nutraceutical.
5. Compliance with Law; Additional Obligations. Independent Contractor
-------------------------------------------
shall be solely responsible for complying with all laws, regulations and orders
which are in any way applicable to its duties or business. Without limiting the
generality of the foregoing, Independent Contractor shall (a) be solely
responsible for making, executing and filing any and all reports and
applications, and paying all fees and fines, and obtaining all business and
other licenses, as required by applicable law, regulation or public authority
with respect to the services provided hereunder, Independent Contractor's
business, and the advertising, marketing, distribution and sale of the Products
within the Area; (b) abide by applicable federal, state, and local laws, rules,
regulations and orders of every nature in connection with such advertising,
marketing and sale of the Products; (c) declare and pay all local, state and
federal taxes, fees and charges of any kind that may accrue or be owing by
virtue of Independent Contractor's services, the payments received by
Independent
3
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Contractor or the business conducted by Independent Contractor; and (d) provide
all services and perform its duties hereunder in accordance with the highest
standards of the industry. Independent Contractor shall also ensure that its
sales representatives, employees and agents are adequately trained and licensed
to carry out Independent Contractor's responsibilities and duties hereunder, and
comply with all of the foregoing requirements.
6. Product Representations. Independent Contractor acknowledges that the
-----------------------
Products are not intended to, and Independent Contractor agrees not to represent
that the products shall or are intended to, diagnose, mitigate, treat, cure or
prevent any disease, damage or dysfunction. Instead, the Products are intended
solely for food, dietary supplementation, and personal care purposes. Neither
Independent Contractor nor its sales representatives, agents or employees shall
make any claims of any kind with respect to the Products other than those
specifically contained in Nutraceutical's Authorized Literature, as hereinafter
defined. Nutraceutical's Authorized Literature is defined as and limited to
documents which (a) have the name "Nutraceutical" or the name of one of the
Nutraceutical "Family of Brands" clearly placed upon the document; (b) are not
marked "Confidential"; and (c) originate and are available only from
Nutraceutical's principal places of business in Ogden, Utah and Park City, Utah.
Independent Contractor assumes full responsibility for any statement made by
Independent Contractor, its sales representatives, agents or employees which is
not explicitly made in the Authorized Literature. Independent Contractor agrees
that although Nutraceutical may from time to time provide Independent Contractor
copies of publications, articles, books, chapters, or abstracts prepared and
published by third parties (the "Third Party Literature"), Nutraceutical is
doing so only to provide Independent Contractor with convenient access to
general nutritional information. Nutraceutical shall not be deemed to have
reviewed and approved of such Third Party Literature, whether by virtue of
supplying it or referring to it in Authorized Literature.
7. Indemnity.
---------
(a) Independent Contractor shall and hereby does agree to defend, indemnify
and hold harmless Nutraceutical and its affiliates, officers, directors, agents
and employees and their respective successors and assigns from and against all
loss, liability cost, expense and claim, including reasonable attorneys' fees
and court costs, arising out of or relating to (i) any breach by Independent
Contractor or its sales representatives, agents or employees of any of
Independent Contractor's covenants, agreements, representations or warranties
contained in this Agreement; or (ii) any negligent or intentional act or
omission of Independent Contractor or its sales representatives, agents or
employees.
(b) Nutraceutical shall and hereby does agree to defend, indemnify and hold
harmless the Independent Contractor and his/her employees and respective
successors and assigns from and against all loss, liability, cost, expense and
claim, including reasonable attorneys' fees and court costs, arising out of or
relating to (i) any breach by Nutraceutical of any of Nutraceutical's covenants,
agreements, representations or warranties contained in this Agreement; or (ii)
any claim by any third party (other than Independent Contractor or its sales
representatives, agents or employees, or their heirs and successors) that the
Products are unreasonably dangerous or defective.
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8. Confidentiality; Restrictive Covenant
-------------------------------------
(a) As used herein, "Confidential Information" means any information
relating to the past, present or prospective activities of Nutraceutical or its
affiliates which involves or is associated with: (i) the Products, or any
processes or formulas associated with creating the same, or any inventions,
trade secrets, know-how, discoveries, recipes, drawings, designs, research,
patent applications, plans or specifications relating thereto; (ii) business
plans, customers (including customer lists and customer purchasing information),
suppliers, clients, business contacts and contracts, methods of doing business,
business objectives and goals; or (iii) business opportunities, costs and
pricing strategies, marketing techniques and plans, and negotiating strategies
with respect to any business activities. Confidential Information shall not
include any information that is, or without violation of this Agreement by
Independent Contractor becomes, part of the public domain. Confidential
Information also includes any information marked "Confidential" by Nutraceutical
or any of its affiliates or employees. For the purposes of this Section 8,
Independent Contractor shall include Independent Contractor's directors,
officers, partners, sales representatives, employees, or agents, and any or all
of them, to the extent such persons receive Confidential Information.
(b) Independent Contractor agrees that it shall not, during the term of
this Agreement and thereafter, disclose either any Confidential Information or
component thereof or to any person, firm, or corporation, or use any
Confidential Information or Third Party Literature in any way contrary to the
best interests of Nutraceutical. Independent Contractor shall not use and shall
not permit to be used any Confidential Information for any purpose other than as
provided by or contemplated in this Agreement. Independent Contractor shall not
photocopy, transcribe, or otherwise reproduce any of the Confidential
Information, except as may be necessary for its use of the Confidential
Information for the purposes of and as permitted by this Agreement.
(c) Upon termination of this Agreement, or at any other time Nutraceutical
may request, Independent Contractor shall deliver to Nutraceutical all
documents, notes, plans, memoranda, records, notebooks, printouts, software,
computer disks and electronic medium containing either Confidential Information
or Third Party Literature, including all copies thereof, then in its possession
or the possession of any of its sales representatives, agents or employees.
(d) During the term of this Agreement, Independent Contractor shall not,
directly or indirectly, either by itself or through any person, firm or
corporation, represent or offer for sale within the Area any product, product
line or brand competitive with the Products. Competitive products, product lines
and brands shall include, without limitations, all products in the form of two-
piece capsules, tablets, softgel capsules, powders, liquids or granulations of
herbs, vitamins, minerals or other nutritional or dietary supplements (including
sport nutrition products). Independent Contractor shall keep Nutraceutical
informed concerning all products, product lines and brands other than
Nutraceutical's that Independent Contractor represents or offers
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for sale. In particular Independent Contractor shall provide to Nutraceutical a
comprehensive written list of all products, product lines and brands other than
Nutraceutical's that Independent Contractor represents or offers for sale at the
following times: (i) upon the execution of this Agreement (ii) on or before July
15 of each year during the term hereof, within fifteen (15) days of agreeing to
represent any other product, product line or brand, and (iv) at any other time
within fifteen (15) days of Nutraceutical's written request. Failure to comply
with the obligations set forth in this Section 8(d) may constitute grounds for
termination or withholding commissions.
9. Term and Termination.
--------------------
(a) The term of this Agreement shall commence as of January 1, 1998, and
shall automatically expire on December 31, 1998, subject to earlier termination
pursuant to Section 9(b) below. The term of this Agreement may be renewed by
mutual written agreement of the parties for additional periods of twelve (12)
months each.
This Agreement may be terminated by either party at any time effective upon
written notice given to the other party.
(c) Within fifteen (15) days of the expiration or termination of this
Agreement, Independent Contractor shall return to Nutraceutical all Confidential
Information, as well as any saleable product, promotional materials or other
property of Nutraceutical, including any materials bearing any trademark owned
by or licensed to Nutraceutical. Upon any termination or expiration of this
Agreement, Independent Contractor shall immediately cease all use of any
trademark owned by or licensed to Nutraceutical or its affiliates.
(d) Upon expiration or termination of this Agreement, neither party shall
be liable to the other party for, and each party hereby releases the other party
from any liability arising from, any claim relating to or associated with
termination of this Agreement pursuant to its terms, whether arising out of
anticipated business or income, or related to the business or goodwill of the
parties. Notwithstanding the foregoing, termination in accordance with this
Agreement shall be without prejudice to any of the rights or liabilities of
either party accrued at the date of termination.
10. Injunctive Relief. Upon breach or threatened breach by Independent
-----------------
Contractor or any of its sales representatives, agents or employees of any of
the provisions of this Agreement, Nutraceutical shall be entitled to an
injunction restraining Independent Contractor from such breach. Nothing herein
shall be construed as prohibiting Nutraceutical from pursuing any other remedy
available at law or in equity for such breach or threatened breach, including
recovery of damages from Independent Contractor, for purposes of enforcement of
the provisions of this Agreement, at law or in equity. Independent Contractor
hereby submits to the exclusive jurisdiction of the courts of the State of Utah,
both state and federal.
11. Survival of Covenants. The provisions of this Agreement which by
---------------------
their terms should survive to effect the intent of the parties shall survive the
expiration or earlier termination of this Agreement.
12. Assistance. Independent Contractor may employ sales representatives,
----------
agents and
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other employees to assist in the performance of Independent Contractor's duties
hereunder, but shall remain liable in all respects for any breach or loss caused
by any such party. Independent Contractor's sales representatives, agents and
other employees shall agree in writing with Independent Contractor, in form
substantially similar to the Acknowledgment attached as Exhibit B, to be bound
by the provisions of this Agreement, and a copy of such signed Acknowledgment
shall be sent to Nutraceutical within ten (10) days of the employment by
Independent Contractor of such sales representative, agent, or other employee.
However, the only persons who may conduct and satisfy the requirement for a
monthly visit of each Assigned Account are those individuals who have been
approved by Nutraceutical based on a minimum level of education and knowledge
("Approved Agents"). The current list of Approved Agents is set forth below the
signature of Independent Contractor.
13. Assignment. Except as set forth in Section 12 above, neither
----------
Independent Contractor nor any of its sales representatives, agents or employees
shall assign or transfer any rights or delegate any under this Agreement, and
any attempt to do so shall be null and void. Nutraceutical may freely assign
this Agreement and the rights hereunder and any of the provisions hereof to any
affiliate of Nutraceutical, or to the purchaser of all or substantially all of
the assets of Nutraceutical, without the consent of the Independent Contractor.
14. Tax Status and Returns. INDEPENDENT CONTRACTOR ACKNOWLEDGES AND AGREES
----------------------
THAT NEITHER NUTRACEUTICAL NOR ANY OF ITS AFFILIATES SHALL BE REQUIRED, WITH
RESPECT TO INDEPENDENT CONTRACTOR OR ANY OF ITS SALES REPRESENTATIVES, AGENTS OR
EMPLOYEES, AND NUTRACEUTICAL HEREBY SPECIFICALLY DISCLAIMS ANY OBLIGATION TO (a)
PROVIDE WORKERS' COMPENSATION OR UNEMPLOYMENT COVERAGE; (b) WITHHOLD OR REMIT
ANY SOCIAL SECURITY OR WITHHOLDING TAXES, ALL OF WHICH SHALL BE THE
RESPONSIBILITY OF INDEPENDENT CONTRACTOR; OR (c) ALLOW PARTICIPATION IN ANY
DEFINED BENEFITS PLANS, MEDICAL INSURANCE COVERAGE PLANS OR PROGRAMS, OR SIMILAR
BENEFIT PLANS OR PROGRAMS NORMALLY PROVIDED TO EMPLOYEES OF NUTRACEUTICAL OR ITS
AFFILIATES. At all times during the term hereof and thereafter, Independent
Contractor shall file all tax returns and other governmental filings and reports
consistent with its status as an independent contractor, as defined in Treasury
Regulation (S)31.3121 (d) - 1 (c) (2), and Independent Contractor shall
indemnify Nutraceutical for any breach by Independent Contractor of this
covenant, as well as with respect to the amount of any taxes, charges,
assessments, penalties or fines paid by Nutraceutical or its affiliates as the
result of Independent Contractor breaching this covenant, such as by not
remitting employment taxes from the compensation payable under this Agreement.
15. Knowledge of Area and Nutritional Supplement Industry. Independent
-----------------------------------------------------
Contractor hereby represents, warrants and covenants that (i) it is
knowledgeable with respect to the nutritional supplement industry and is
familiar with the Products, and (ii) either Independent Contractor (or its
primary shareholder, officer and director) lives and will live in the Area or
within a reasonable distance therefrom, and is familiar with the Area and with
the Health Food Stores located therein. Independent Contractor further agrees
that any sales representative, agent or employee of
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Independent Contractor who assists in the promotion of the Products shall
likewise be knowledgeable with respect to the nutritional supplement industry,
the Products, and the Area.
16. Disclaimer of Warranties and Limitation on Liability.
----------------------------------------------------
(a) Nutraceutical warrants that the Products, when delivered, will be fit
for human consumption. NUTRACEUTICAL MAKES NO OTHER WARRANTIES, EXPRESS OR
IMPLIED, AND WHETHER OR NOT FOUND IN AUTHORIZED LITERATURE, WITH RESPECT TO THE
PRODUCTS, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED.
(b) THE LIABILITY OF NUTRACEUTICAL ARISING UNDER OR BY REASON OF THIS
AGREEMENT TO INDEPENDENT CONTRACTOR OR ANY OTHER PARTY SHALL IN NO EVENT EXCEED
THE LIQUIDATED SUM OF THIRTY DAYS OF COMMISSIONS AND OTHER PAYMENTS PAID TO
INDEPENDENT CONTRACTOR BY NUTRACEUTICAL, BASED ON THE AVERAGE MONTHLY PAYMENT
EARNED BY INDEPENDENT CONTRACTOR DURING THE MOST RECENT TERM OF THIS AGREEMENT.
IN NO EVENT SHALL NUTRACEUTICAL BE LIABLE FOR LOST PROFITS OR ANY OTHER SPECIAL,
INCIDENTAL, INDIRECT, CONSEQUENTIAL OR EXEMPLARY DAMAGES, HOWEVER CAUSED AND
UNDER ANY THEORY OF LIABILITY, WHETHER CONTRACT, STRICT LIABILITY OR TORT, EVEN
IF NUTRACEUTICAL IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGE AND
NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY REMEDY.
17. Attorneys' Fees. In any action or proceeding brought to enforce or
---------------
interpret this Agreement, the prevailing party shall be entitled to recover all
costs and expenses, including reasonable attorneys' fees and costs, incurred in
connection therewith, whether such costs and expenses are incurred with or
without suit, or before or after judgment.
18. Notices. All notices, approvals, or other communications
-------
(collectively, the "Notices") under this Agreement shall be in writing and sent
by hand-delivery, special courier (for example, Federal Express, UPS or DHL) or
facsimile, addressed as follows:
If to Nutraceutical:
-------------------
Nutraceutical Corporation
P. O. Box 681869
Park City, Utah 84068
Attention: Director of Field Sales and Vice President, Legal Affairs
Facsimile:___________________
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If to Independent Contractor:
----------------------------
FirstName LastName
Address
City, ST Zip
Facsimile:___________________
or to such other address and/or facsimile number as either Party may give notice
to the other in the manner provided in this Section 18.
19. Captions. The captions used in this Agreement are for convenience of
--------
reference only and do not constitute a part of this Agreement and shall be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
20. Severability. Whenever possible, each provision and term of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then such provision or
term shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provision or terms of this Agreement.
21. Modification or Waiver. No amendment, modification or waiver of this
----------------------
Agreement shall be binding or effective for any purpose unless it is made in
writing signed by the party against who enforcement of such amendment,
modification or waiver is sought. No course of dealing between the parties to
this Agreement shall be deemed to affect or to modify, amend or discharge any
provision or term of this Agreement. No delay on the part of Nutraceutical or
Independent Contractor in the exercise of any of their respective rights or
remedies shall operate as a waiver thereof, and no single or partial exercise by
Nutraceutical or Independent Contractor of any such right or remedy shall
preclude other or further exercises thereof. A waiver of right or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy on any other occasion.
22. No Strict Construction. The language used in this Agreement shall be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
23. Governing Law. All issues and questions concerning the construction,
-------------
validity, enforcement and interpretation of this Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Utah, without giving effect to any choice of law or
conflict of law rules, or provisions (whether of the State of Utah or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Utah.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
NUTRACEUTICAL CORPORATION
By:______________________________________
Its: Senior Vice President --
Marketing & Sales
Federal_Tax_Name
By:_____________________________________
Its:________________________
Federal Tax I.D. Number
________________________________________
Approved Agents:
________________________________________
________________________________________
________________________________________
________________________________________
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EXHIBIT A
NUTRACEUTICAL'S "TRUE BLUE" COMMITMENT
Nutraceutical sells its "Nutraceutical Family of Brands" products (the
"Nutraceutical Products") only to retails stores which meet Nutraceutical's
Health Food Retailer Standard.
HEALTH FOOD RETAILER STANDARD
Nutraceutical's customers must meet Nutraceutical's Health Food Retailer
Standard (the "Standard"), which means they agree in writing to:
SELL FROM A RETAIL STORE. A "retail store" is a self-contained or physically
separate business space with a visible sign, regular business hours, its own
staff and a separate register. A "retail store" is not a business which is
operated from within the confines of a residence.
SELL NATURAL PRODUCTS. The retail store must derive at least 75% of its gross
revenues from the sale of natural, nutritional products and related items,
including supplements (such as vitamins, minerals, and herbs), or natural food
products (such as juices, grocery items and produce), and related literature and
consumer products;
OFFER ADEQUATE CUSTOMER SERVICE AND RESOURCES. A retail store may meet this
standard either by retaining qualified employees and clerks, offering access to
herbalists, nutritionists or similar parties, or making adequate literature
available related to the potential benefits of nutritional supplements, whether
through computer databases or books and pamphlets; and
MEET IMAGE AND FACING REQUIREMENTS. Nutraceutical may establish minimum image
and purchase requirements on a case by case basis, which may include a minimum
number of facings of Nutraceutical products, the general cleanliness, image and
appearance of the store, and whether the retail store offers products also
available in mass-market or other channels of distribution, or otherwise is too
closely associated with a separate store or space which does not meet the
Standard.
Nutraceutical does not sell Nutraceutical Products domestically to wholesalers,
distributors, or buying organizations, and endeavors to prevent Nutraceutical
Products from being sold from mass-market retail space, medical or therapeutic
clinics or offices, or gyms. The Nutraceutical Family of Brands currently
includes Solaray, KAL, Premier One, NaturalMax, Veg Life, and Solar Green.
The Standard is intended to offer flexible criteria which can be used to review
individual circumstances on a case by case basis and to balance various
competing requirements. In certain circumstances a particular customer may
exceed certain minimum requirements, but not meet others. Nutraceutical
reserves the right, in its sole discretion, to determine which entities or
parties meet the Standard, to monitor whether a party continues to meet the
Standard and to modify the Standard from time to time. The creation of the
Standard, and its administration and enforcement, shall not be deemed under any
circumstances to create any legal rights in any party other than Nutraceutical,
or be enforceable by any party other than Nutraceutical. Nutraceutical further
reserves the right, in its sole discretion, to sell to any party, to refuse to
sell to any party, or to cease selling to any party regardless of whether such
party meets the Standard.
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EXHIBIT B
INDEPENDENT CONTRACTOR SALES REPRESENTATIVE, AGENT
OR EMPLOYEE ACKNOWLEDGMENT AGREEMENT
The undersigned_________________________________________ ("Agent"), hereby
acknowledges having reviewed and received a copy of the Independent Contractor
Sales Agreement between Federal_Tax_Name (the "Independent Contractor") and
Nutraceutical Corporation. In consideration of servicing the Nutraceutical
account under the direction of Independent Contractor, and for other good and
valuable consideration, Agent agrees to be bound by the terms and conditions of
the Independent Contractor Sales Agreement as if Agent were signing the same as
the Independent Contractor, and Independent Contractor were signing the same as
Nutraceutical, and specifically noting numbered Sections 5, 6, 7, and 8. Agent
also acknowledges that Nutraceutical is relying upon this Acknowledgment to
communicate Confidential Information to Independent Contractor and then to
Agent, and Nutraceutical is an intended to be and will be construed as a third
party beneficiary of this Agreement.
Dated: ____________________________________
AGENT
Signed: ___________________________________
___________________________________________
(print name)
INDEPENDENT CONTRACTOR
Signed:___________________________________
(First Name) (Last Name)
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EXHIBIT 10.15
TRANSACTION SERVICES AGREEMENT
------------------------------
This Transaction Services Agreement (this "Agreement") is made and
entered into as of February __, 1998, by and between Nutraceutical International
Corporation, a Delaware corporation (the "Company"), and Bain Capital, Inc., a
Delaware corporation ("Bain").
WHEREAS, the Company desires to retain Bain and Bain desires to
perform for the Company and its subsidiaries and parent certain services;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Term. This Agreement shall be in effect for an initial term
commencing on the date hereof and ending on the earlier to occur of (a) February
15, 2001 and (b) the first day on which Bain and its affiliates cease to own at
least 5% of the Company's Common Stock (the "Term"). The Term shall be
automatically extended thereafter on a year to year basis unless the Company or
Bain provides written notice of its desire to terminate this Agreement to the
other party 90 days prior to the expiration of the Term or any extension
thereof.
2. Services. Bain shall perform or cause to be performed such services
for the Company and its subsidiaries and parent as directed by the Company,
which may include, without limitation, the following:
(a) identification, support, negotiation and analysis of acquisitions
and dispositions by the Company or its subsidiaries or parent;
(b) support, negotiation and analysis of financing alternatives,
including, without limitation, in connection with acquisitions, capital
expenditures and refinancing of existing indebtedness; and
(c) finance functions, including assistance in the preparation of
financial projections, and monitoring of compliance with financing
agreements.
4. Transaction Fees.
(a) The Company hereby agrees to pay to Bain or its designees on the
closing date of the consummation of the Company's initial public offering
for services rendered in connection therewith and certain other management
services. Such fees shall be payable by wire transfer in an amount equal to
$500,000 to Bain or its designees plus reasonable and documented out-of-
pocket expenses.
<PAGE>
(b) In addition, during the term of this Agreement, the Company shall
pay to Bain or its designees a transaction fee in connection with the
consummation of each acquisition, divestiture or financing (without
duplication) by the Company or its subsidiaries or parent that is generated
by Bain or for which the Company requests Bain to perform services pursuant
hereto, in an amount equal to 1.0% of the aggregate value of such
transaction, plus reasonable and documented out-of-pocket expenses incurred
in connection with performing services for the Company, when and as
incurred.
5. Personnel. Bain shall provide and devote to the performance of this
Agreement such partners, employees and agents of Bain as Bain shall deem
appropriate to the furnishing of the services required.
6. Liability. Neither Bain nor any of its affiliates, partners,
employees or agents shall be liable to the Company or its subsidiaries or
affiliates for any loss, liability, damage or expense arising out of or in
connection with the performance of services contemplated by this Agreement,
unless such loss, liability, damage or expense shall be proven to result
directly from gross negligence, willful misconduct or bad faith on the part of
Bain, its affiliates, partners, employees or agents acting within the scope of
their employment or authority.
7. Indemnity. The Company and its subsidiaries and parent shall
defend, indemnify and hold harmless each of Bain, its affiliates, partners,
employees and agents from and against any and all loss, liability, damage or
expenses arising from any claim by any person with respect to, or in any way
related to, the performance of services contemplated by this Agreement
(including attorneys' fees) (collectively, "Claims") resulting from any act or
omission of Bain, its affiliates, partners, employees or agents, other than for
Claims which shall be proven to be the direct result of gross negligence, bad
faith or willful misconduct by Bain, its affiliates, partners, employees or
agents. The Company and its subsidiaries and parent shall defend at its own cost
and expense any and all suits or actions (just or unjust) which may be brought
against the Company, its subsidiaries and parent and Bain, its officers,
directors, affiliates, partners, employees or agents or in which Bain, its
affiliates, partners, employees or agents may be impleaded with others upon any
Claims, or upon any matter, directly or indirectly, related to or arising out of
this Agreement or the performance hereof by Bain, its affiliates, partners,
employees or agents, except that if such damage shall be proven to be the direct
result of gross negligence, bad faith or willful misconduct by Bain, its
affiliates, partners, employees or agents, then Bain shall reimburse the Company
and its subsidiaries and parent for the costs of defense and other costs
incurred by the Company and its subsidiaries and parent.
8. Notices. All notices hereunder shall be in writing and shall be
delivered personally or mailed by United States mail, postage prepaid, addressed
to the parties as follows:
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To the Company:
Nutraceutical International Corporation
1400 Kearns Boulevard, 2nd Floor
Park City, Utah 84060
Attention: Chief Executive Officer
To Bain:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Robert C. Gay
9. Assignment. Neither party may assign any obligations hereunder to
any other party without the prior written consent of the other party (which
consent shall not be unreasonably withheld); provided that Bain may, without
consent of the Company, assign its rights and obligations under this Agreement
to any of its affiliates (but only if such affiliate is a person or entity
(excluding any Bain portfolio companies) controlled by Bain, or in the case of
an affiliate which is a partnership, Bain is the ultimate general partner of
such partnership). The assignor shall remain liable for the performance of any
assignee.
10. Successors. This Agreement and all the obligations and benefits
hereunder shall inure to the successors and assigns of the parties.
11. Counterparts. This Agreement may be executed and delivered by each
party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
12. Entire Agreement; Modification; Governing Law. The terms and
conditions hereof constitute the entire agreement between the parties hereto
with respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of any
kind whatsoever, except as expressly set forth herein. No modifications of this
Agreement nor waiver of the terms or conditions thereof shall be binding upon
either party unless approved in writing by an authorized representative of such
party. All issues concerning this agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Illinois.
* * * * *
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
NUTRACEUTICAL INTERNATIONAL CORPORATION
By:
-----------------------------------
Its:
----------------------------------
BAIN CAPITAL, INC.
By:
-----------------------------------
Its:
----------------------------------
4
<PAGE>
Exhibit 10.16
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is made and entered into
as of February __, 1998, by and between Nutraceutical International Corporation,
a Delaware corporation (the "Company"), and Bain Capital, Inc., a Delaware
corporation ("Bain"), and terminates that certain Advisory Agreement dated as of
January 31, 1995, by and between the Company and Bain (the "Advisory
Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. Termination. The Company and Bain hereby agree to terminate the
Advisory Agreement and that no further consideration or services are to be
tendered pursuant thereto, other than as set forth herein.
2. Termination Fee. The Company hereby agrees to pay to Bain or its
designees on the date hereof a fee for agreeing to terminate the Advisory
Agreement in consideration of foregone revenues to Bain thereunder. Such fees
shall be payable by wire transfer in an amount equal to $500,000 to Bain or its
designees.
3. Liability. Neither Bain nor any of its affiliates, partners,
employees or agents shall be liable to the Company or its subsidiaries or
affiliates for any loss, liability, damage or expense arising out of or in
connection with the performance of services under the Advisory Agreement, unless
such loss, liability, damage or expense shall be proven to result directly from
gross negligence, willful misconduct or bad faith on the part of Bain, its
affiliates, partners, employees or agents acting within the scope of their
employment or authority.
4. Indemnity. The Company and its subsidiaries and parent shall
defend, indemnify and hold harmless each of Bain, its affiliates, partners,
employees and agents from and against any and all loss, liability, damage or
expenses arising from any claim by any person with respect to, or in any way
related to, the performance of services under the Advisory Agreement (including
attorneys' fees) (collectively, "Claims") resulting from any act or omission of
Bain, its affiliates, partners, employees or agents, other than for Claims which
shall be proven to be the direct result of gross negligence, bad faith or
willful misconduct by Bain, its affiliates, partners, employees or agents. The
Company and its subsidiaries and parent shall defend at its own cost and expense
any and all suits or actions (just or unjust) which may be brought against the
Company, its subsidiaries and parent and Bain, its officers, directors,
affiliates, partners, employees or agents or in which Bain, its affiliates,
partners, employees or agents may be impleaded with others upon any Claims, or
upon any matter, directly or indirectly, related to or arising out of the
Advisory Agreement or the performance thereof by Bain, its affiliates, partners,
employees or agents, except that if such damage shall be proven to be the direct
result of gross negligence, bad faith or willful misconduct by Bain, its
affiliates, partners, employees or agents, then Bain shall reimburse the Company
and its
<PAGE>
subsidiaries and parent for the costs of defense and other costs incurred by the
Company and its subsidiaries and parent.
5. Notices. All notices hereunder shall be in writing and shall be
delivered personally or mailed by United States mail, postage prepaid, addressed
to the parties as follows:
To the Company:
Nutraceutical International Corporation
1400 Kearns Boulevard, 2nd Floor
Park City, Utah 84060
Attention: Chief Executive Officer
To Bain:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Robert C. Gay
6. Assignment. Neither party may assign any obligations hereunder to
any other party without the prior written consent of the other party (which
consent shall not be unreasonably withheld); provided that Bain may, without
consent of the Company, assign its rights and obligations under this Agreement
to any of its affiliates (but only if such affiliate is a person or entity
(excluding any Bain portfolio companies) controlled by Bain, or in the case of
an affiliate which is a partnership, Bain is the ultimate general partner of
such partnership). The assignor shall remain liable for the performance of any
assignee.
7. Successors. This Agreement and all the obligations and benefits
hereunder shall inure to the successors and assigns of the parties.
8. Counterparts. This Agreement may be executed and delivered by
each party hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
9. Entire Agreement; Modification; Governing Law. The terms and
conditions hereof constitute the entire agreement between the parties hereto
with respect to the subject matter of this Agreement and supersede all previous
communications, either oral or written, representations or warranties of any
kind whatsoever, except as expressly set forth herein. No modifications of this
Agreement nor waiver of the terms or conditions thereof shall be binding upon
either party unless approved in writing by an authorized representative of such
party. All issues concerning this agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State
2
<PAGE>
of Illinois or any other jurisdiction) that would cause the application of the
law of any jurisdiction other than the State of Illinois.
* * * * *
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Termination
Agreement as of the date first written above.
NUTRACEUTICAL INTERNATIONAL
CORPORATION
By:__________________________________
Its:__________________________________
BAIN CAPITAL, INC.
By:__________________________________
Its:__________________________________
4
<PAGE>
EXHIBIT 10.17
-------------
FORM OF INDEMNIFICATION AGREEMENT
This Agreement, dated as of February ___, 1998, is made by and between
Nutraceutical International Corporation, a Delaware corporation (the "Company"),
and [_____________] who is currently serving as an officer and/or director of
the Company (the "Indemnitee").
WHEREAS, the Indemnitee is currently serving in the capacity or
capacities described above;
WHEREAS, the Company is currently in the process of making an initial
public offering of its common stock (the "Offering"), the completion of which
will likely increase the risk of litigation and other claims being asserted
against the directors and officers of the Company;
WHEREAS, the Company wishes the Indemnitee to continue to serve in
such capacity or capacities and the Indemnitee is willing, under certain
circumstances, to continue in such capacity or capacities;
WHEREAS, damages sought and sometimes paid in many claims made against
corporate directors and officers and the expenses required to defend such
claims, whether or not the allegations are meritorious, may not bear a
reasonable relationship to the amount of compensation received by and may be
beyond the financial resources of the Indemnitee;
WHEREAS, the Indemnitee is currently entitled to indemnification under
Delaware General Corporation Law and the Certificate of Incorporation of the
Company, which the Indemnitee does not regard to be adequate protection against
the risks associated with his service to or at the request of the Company;
WHEREAS, the Indemnitee and the Company have concluded that the
exposure to risk of personal liability and payment of damages out of the
Indemnitee's personal assets may result in overly conservative direction and
supervision of the Company's affairs, which is detrimental to the best interests
of the Company and its stockholders; and
WHEREAS, the Company has concluded that additional protection is
necessary for its directors and elected officers.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
<PAGE>
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the Company
means any person who is or was a director, officer, employee, agent or fiduciary
of the Company or a subsidiary of the Company, or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise or entity, including service with respect to an employee benefit
plan.
(b) Disinterested Director. For purposes of this Agreement,
"Disinterested Director" of the Company means a director of the Company who is
not and was not a party to the proceeding for which indemnification is being
sought by the claimant.
(c) Expenses. For purposes of this Agreement, "expenses" includes all
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements, other out-of-pocket
costs and reasonable compensation for time spent by the Indemnitee for which he
is not otherwise compensated by the Company or any third party) actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement, Section 145 of the General
Corporation Law of Delaware or otherwise; provided, however, that expenses shall
-------- -------
not include any judgments, fines, excise taxes or penalties under the Employee
Retirement Income Security Act of 1974 ("ERISA"), or amounts paid in settlement
of a proceeding.
(d) Independent Legal Counsel. For purposes of this Agreement,
"Independent Legal Counsel" means a law firm, a member of a law firm, or an
independent practitioner, that is experienced in matters of corporation law and
shall include any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the Company or the Indemnitee in an action to determine the Indemnitee's
rights under this Agreement.
(e) Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
(f) Subsidiary. For purposes of this Agreement, "subsidiary" means
any corporation, partnership, joint venture or other enterprise, a majority of
whose equity interests are owned by the Company, directly or through one or more
other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve as an agent
of the Company, at its will (or under separate agreement, if such agreement
exists), in the capacity Indemnitee currently serves as an agent of the Company,
so long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the By-Laws of the Company or any subsidiary of the
Company or until such time as he tenders his resignation in writing; provided,
--------
-2-
<PAGE>
however, that nothing contained in this Agreement is intended to create any
- -------
right to continued employment of the Indemnitee.
3. Mandatory Indemnification. Subject to the limitations set forth
in Section 7, if the Indemnitee is a person who was or is a party or is
threatened to be made a party to or is involved, including involvement as a
witness, in any proceeding, including any action by or in the right of the
Company, by reason of the fact that he is or was or has agreed to become an
agent, or by reason of any action alleged to have been taken or omitted by him
in any such capacity, the Company shall indemnify the Indemnitee against all
expense, liability and loss (including but not limited to judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement),
actually and reasonably incurred by him in connection with the investigation,
defense, settlement or appeal of such proceeding; provided, however, that except
as provided in Section 7(c) of this Agreement with respect to proceedings
seeking to enforce rights to indemnification, the Company shall indemnify the
Indemnitee in connection with a proceeding (or part thereof) initiated by the
Indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Company.
4. Mandatory Advancement of Expenses. The Company shall advance all
expenses incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of any proceeding referred to in Section 3 to
which the Indemnitee is a party or is threatened to be made a party or with
respect to which the Indemnitee is otherwise involved (including involvement as
a witness) as an agent of the Company. The Indemnitee hereby undertakes to
repay such amounts advanced if, but only if and to the extent that, it shall
ultimately be determined pursuant to the provisions hereof that the Indemnitee
is not entitled to be indemnified by the Company as authorized hereby. The
advances to be made hereunder shall be paid by the Company to the Indemnitee
within twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company; provided, however, that, if and to the extent that
the Delaware General Corporation Law requires, an advancement of expenses
incurred by the Indemnitee in his capacity as a director or officer shall be
made only upon delivery of an undertaking by or on behalf of the Indemnitee to
repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that the
Indemnitee is not entitled to be indemnified for such expenses under this
Agreement or otherwise.
5. Maintenance of D&O Insurance.
(a) So long as the Indemnitee shall continue to serve in any capacity
described in Section 2 and thereafter so long as there is any reasonable
possibility that the Indemnitee shall be subject to any proceeding by reason of
the fact that the indemnitee served in any of such capacities, the Company will
use reasonable efforts to purchase and maintain in effect for the benefit of the
Indemnitee one or more valid, binding and enforceable policies of directors' and
officers' liability insurance ("D&O Insurance") providing, in all respects,
coverage and amounts as reasonably determined by the Board of Directors.
-3-
<PAGE>
(b) Notwithstanding Section 5(a), the Company shall not be required to
maintain D&O Insurance if such is not reasonably available or if, in the
reasonable business judgment of the Board of Directors of the Company as it may
exist from time to time, either (i) the premium cost for such insurance is
substantially disproportionate to the amount of insurance or (ii) the coverage
is so limited by exclusions that there is insufficient benefit provided by such
insurance.
6. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that the indemnification with respect thereto
properly may be sought from the Company under this Agreement, notify the Company
of the commencement or threat of commencement thereof. The failure to notify or
promptly notify the Company shall not relieve the Company from any liability
which it may have to the Indemnitee otherwise than under this Agreement, and
shall relieve the Company from liability hereunder only to the extent the
Company has been prejudiced.
(b) If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 6(a), the Company has D&O Insurance in effect,
the Company shall give prompt notice of the commencement of such proceeding to
the insurers in accordance with the procedures set forth in the D&O Insurance
policy. The Company shall thereafter take all necessary or desirable action to
cause such insurers to pay, to or on behalf of the Indemnitee, all amounts
payable as a result of such proceeding in accordance with the terms of such
policy.
(c) In the event the Company shall be obligated to pay the expenses of
the Indemnitee in connection with any proceeding, the Company shall be entitled
to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel or other expenses subsequently incurred by the Indemnitee with respect
to the same proceeding; provided that (i) the Indemnitee shall have the right to
employ his own counsel in any such proceeding at the Indemnitee's expense and
(ii) if (A) the employment of counsel by the Indemnitee has been previously
authorized by the Company, or (B) the Indemnitee shall have reasonably concluded
that there is a conflict of interest between the Company and the Indemnitee in
the conduct of any such defense, or (C) the Company shall not, in fact, have
employed counsel to assume the defense of such proceeding, the fees and expenses
of the Indemnitee's counsel shall be paid by the Company; and provided further
that the Company shall not be required to pay the expenses of more than one such
separate counsel for persons it is indemnifying in any one proceeding.
7. Determination of Right to Indemnification.
(a) To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 3 or in the
defense of any claim, issue or matter described therein, the Company shall
indemnify the Indemnitee pursuant to Section 3 against
-4-
<PAGE>
expenses actually and reasonably incurred by him in connection with the
investigation, defense, or appeal of such proceeding. If the Indemnitee has not
been successful on the merits or otherwise in any such defense, the Company also
shall indemnify the Indemnitee pursuant to Section 3 unless, and only to the
extent that, the Indemnitee has not met the applicable standard of conduct under
the Company's Certificate of Incorporation required to entitle the Indemnitee to
such indemnification.
(b) Subject to the provisions of Section 8 relating to a Change in
Control (as defined therein), the determination as to whether the Indemnitee is
entitled to indemnification shall be made as follows: (1) if requested by the
Indemnitee, by Independent Legal Counsel selected by the Indemnitee with the
consent of the Company (which consent shall not be unreasonably withheld) or (2)
if no request is made by the Indemnitee for a determination by Independent Legal
Counsel, (i) by a quorum of the Board of Directors consisting of Disinterested
Directors or (ii) if such quorum is not obtainable or, even if obtainable, if a
quorum of Disinterested Directors so directs, by Independent Legal Counsel in a
written opinion. If Independent Legal Counsel shall make such determination,
the Company agrees to pay the reasonable fees of such counsel and to indemnify
such counsel fully against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
counsel's engagement pursuant hereto.
(c) Notwithstanding a determination that the Indemnitee is not
entitled to indemnification with respect to a specific proceeding, the
Indemnitee shall have the right to apply to the court of Chancery of Delaware,
the court in which that proceeding is or was pending or any other court of
competent jurisdiction, for the purpose of enforcing the Indemnitee's right to
indemnification or the advance payment of expenses pursuant to this Agreement.
The burden of proof shall be on the Company in any such suit to demonstrate by
the weight of the evidence that the Indemnitee is not entitled to
indemnification or advance payment of expenses. The Indemnitee's expenses
incurred in successfully establishing his right to indemnification or
advancement of expenses, in whole or in part, in any such action (or settlement
thereof) shall be paid by the Company.
(d) Notwithstanding anything in Sections 3 or 4 to the contrary, the
Company shall not be liable under this Agreement to make any indemnity payment
or advancement of expenses in connection with any proceeding (i) to the extent
that payment is actually made to or on behalf of the Indemnitee under an
insurance policy, except in respect of any amount in excess of the limits of
liability of such policy or any applicable deductible under such policy; (ii) to
the extent that payment has been or will be made to the Indemnitee by the
Company otherwise than pursuant to this Agreement; or (iii) to the extent that
there was a final adjudication by a court of competent jurisdiction that the
Indemnitee has not met the applicable standard of conduct required to entitle
the Indemnitee to indemnification under the Delaware General Corporation Law as
it now exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than said law permitted the Company to provide
prior to such amendment).
8. Change In Control.
-5-
<PAGE>
(a) The Company agrees that if there is a Change in Control, as
defined below, of the Company (other than a Change in Control which has been
approved by a majority of the members of the Board of Directors who were
directors immediately prior to such Change in Control), then with respect to all
matters thereafter arising concerning the rights of the Indemnitee to indemnity
payments and advance payments of expenses under this Agreement the Company shall
seek legal advice only from Independent Legal Counsel selected by the Indemnitee
with the consent of the Company (which shall not be unreasonably withheld).
Such counsel, among other things, shall render a written opinion to the Company
and the Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under this Agreement and applicable law. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel and
to indemnify such counsel fully against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating to
this Agreement or counsel's engagement pursuant hereto.
(b) Alternatively, the Indemnitee may choose to submit all matters
arising concerning his rights to indemnity payments and advance payments of
expenses under this Agreement to a panel of three arbitrators, one of whom is
selected by the Company, another of whom is selected by the Indemnitee and the
third of whom is selected by the first two arbitrators so selected. Any such
submission shall be governed by the Commercial Arbitration Rules of the American
Arbitration Association and shall be deemed to be a submission within the
meaning of the Federal Arbitration Act or any statutory modification or re-
enactments thereof. Arbitration proceedings shall take place in Chicago,
Illinois, unless otherwise agreed to by the parties.
(c) "Change in Control" for purposes of this Agreement shall be deemed
to have occurred if (a) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 20% or more of the total
voting power represented by the Company's then outstanding voting securities,
except that a person who as of the date of this Agreement owns 20% or more of
the total voting power represented by the Company's outstanding voting
securities shall not be deemed to have caused a Change in Control, or (b) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors and any new director whose election by
the Board of Directors or nomination for election by the Company's stockholders
was approved by a vote of at least two-third (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (c) the stockholders of the Company
approve a merger, plan of complete liquidation of the Company, an agreement for
the sale or disposition by the Company of all or any substantial part of the
Company's assets, or other business combination of the Company with any other
corporation, other than a business combination which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the total voting power
-6-
<PAGE>
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such business combination.
9. Limitation of Actions and Release of Claims. No proceeding shall
be brought and no cause of action shall be asserted by the Company or any
subsidiary or by any stockholder on behalf of the Company or any subsidiary
against the Indemnitee, his spouse, heirs, estate, executors or administrators
after the expiration of one year from the act or omission of the Indemnitee upon
which such proceeding is based; provided, however, that in the event that the
-------- -------
Indemnitee has fraudulently concealed the facts underlying such cause of action,
no proceeding shall be brought and no cause of action shall be asserted after
the expiration of one year from the earlier of (i) the date the Company or any
subsidiary of the Company discovers such facts or (ii) the date the Company or
any subsidiary of the Company could have discovered such facts by the exercise
of reasonable diligence. Any claim or cause of action of the Company or any
subsidiary of the Company, including claims predicated upon the negligent act or
omission of the Indemnitee, shall be extinguished and deemed released unless
asserted by filing of a legal action within such period. This Section 9 shall
not apply to any cause of action which has accrued on the date hereof and of
which the Indemnitee is aware on the date hereof but as to which the Company has
no actual knowledge apart from the Indemnitee's knowledge.
10. Non-exclusivity. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or By-Laws, the vote of the
Company's stockholders or Disinterested Directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
11. Settlement. The Company shall not be liable to indemnify the
Indemnitee under this Agreement for any amounts paid in settlement of any
proceeding without its written consent, which consent shall not be unreasonably
withheld. The Company shall not settle any proceeding which would impose any
penalty or limitation on the Indemnitee without the Indemnitee's written
consent, which consent shall not be unreasonably withheld. In the event that
consent is not given and the parties hereto are unable to agree on a proposed
settlement, Independent Legal Counsel shall be retained by the Company, at its
expense, with the consent of the Indemnitee, which consent shall not be
unreasonably withheld, for the purpose of determining whether or not the
proposed settlement is reasonable under all the circumstances; and if
Independent Legal Counsel determines the proposed settlement is reasonable under
all the circumstances, the settlement may be consummated without the consent of
the other party.
12. Subrogation Rights. In the event of any payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee against any person or organization
and the Indemnitee shall execute all papers required and shall do everything
that may be reasonably necessary to secure such rights.
-7-
<PAGE>
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the full extent now or hereafter not
prohibited by law. Indemnitee's rights hereunder shall apply to claims made
against Indemnitee arising out of acts or omissions which occurred prior to the
date hereof as well as those which occur after the date hereof.
14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any paragraph of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or unenforceable
and to give effect to Section 13.
15. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Successors and Assigns. The terms of this Agreement shall bind,
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
17. Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) on
the date of delivery if delivered by hand or (ii) on the second business day
after being deposited in the U.S. mail (registered or express), postage prepaid.
Addresses for notice to either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice. Each party agrees to
receipt for any notice received promptly upon request.
18. Governing Law. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
19. Consent to Jurisdiction. The Company and the Indemnitee each
hereby irrevocably consents to the jurisdiction of the courts of the State of
Delaware and the Company irrevocably consents to the jurisdiction of any court
in which an Indemnitee brings action pursuant to Section 7(c), for all purposes
in connection with any proceeding which arises out of or relates to this
Agreement. The Company agrees not to initiate any such action or proceeding in
any state other than Delaware.
* * * * *
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnification
Agreement effective as of the date first above written.
Nutraceutical International Corporation
1400 Kearns Boulevard, 2nd Floor
Park City, Utah 84060
By: _____________________________________
Name: _____________________________________
Its: _____________________________________
INDEMNITEE:
____________________________________________
Name:_____________________________________
Title:_____________________________________
Address: _____________________________________
____________________________________________
-9-
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EXHIBIT 10.18
NUTRACEUTICAL INTERNATIONAL CORPORATION
1998 STOCK INCENTIVE PLAN
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ARTICLE 1
Identification of the Plan
1.1 Title. The plan described herein shall be known as the 1998
Stock Incentive Plan (the "Plan").
1.2 Purpose. The purpose of this Plan is (i) to compensate certain
officers and employees of Nutraceutical International Corporation (the
"Company") and its Subsidiaries for services rendered by such persons after the
date of adoption of this Plan to the Company or any Subsidiary; (ii) to provide
certain officers and employees of the Company and its Subsidiaries with
significant additional incentive to promote the financial success of the
Company; and (iii) to provide an incentive which may be used to induce able
persons to enter into or remain in the employment of the Company or any
Subsidiary.
1.3 Effective Date. The Plan shall become effective upon its approval
by the Board of Directors and the stockholders of the Company (the "Effective
Date").
1.4 Defined Terms. Certain capitalized terms used herein have the
meanings as set forth in Section 10.1 of the Plan.
ARTICLE 2
Administration of the Plan
2.1 Initial Administration. This Plan shall initially be
administered by the Board of Directors. The Board of Directors shall delegate
the administration of the Plan to a Compensation Committee (the "Committee") in
the event that such a committee is established by the Board of Directors and is
comprised of persons appointed by the Board of Directors of the Company in
accordance with the provisions of Section 2.3. The Board shall exercise full
power and authority regarding the administration of the Plan until such
administration is delegated to the Committee. Unless the context otherwise
requires, references herein to the Committee shall be deemed to refer to the
Board of Directors until the administration of the Plan has been delegated to
the Committee.
2.2 Committee's Powers. The Committee shall have full power and
authority to prescribe, amend and rescind rules and procedures governing
administration of this Plan. The Committee shall have full power and authority
(i) to interpret the terms of this Plan, the terms of the Awards and the rules
and procedures established by the Committee and (ii) to determine the meaning of
or requirements imposed by or rights of any person under this Plan, any Award or
any rule or
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procedure established by the Committee. Each action of the Committee which is
within the scope of the authority delegated to the Committee by this Plan or by
the Board shall be binding on all persons.
2.3 Committee Membership. The Committee shall be composed of two or
more members of the Board, each of whom is an "outside director" as defined in
Section 162(m) of the Code and a "Non-Employee Director," as defined in
Securities and Exchange Commission Rule 16b-3, as amended ("Rule 16b-3"), or any
successor rules or government pronouncements. The Board shall have the power to
determine the number of members which the Committee shall have and to change the
number of membership positions on the Committee from time to time. The Board
shall appoint all members of the Committee. The Board may from time to time
appoint members to the Committee in substitution for, or in addition to, members
previously appointed and may fill vacancies, however caused, on the Committee.
Any member of the Committee may be removed from the Committee by the Board at
any time with or without cause.
2.4 Committee Procedures. The Committee shall hold its meetings at
such times and places as it may determine. The Committee may make such rules and
regulations for the conduct of its business as it shall deem advisable. Unless
the Board or the Committee expressly decides to the contrary, a majority of the
members of the Committee shall constitute a quorum and any action taken by a
majority of the Committee members in attendance at a meeting at which a quorum
of Committee members are present shall be deemed an act of the Committee.
2.5 Indemnification. No member of the Committee shall be liable, in
the absence of bad faith, for any act or omission with respect to his or her
service on the Committee under this Plan. Service on the Committee shall
constitute service as a director of the Company so that the members of the
Committee shall be entitled to indemnification and reimbursement as directors of
the Company for any action or any failure to act in connection with service on
the Committee to the full extent provided for at any time in the Company's
Certificate of Incorporation and By-Laws, or in any insurance policy or other
agreement intended for the benefit of the Company's directors.
ARTICLE 3
Persons Eligible to Receive Awards
A person shall be eligible to be granted an Award only if on the
proposed Granting Date for such Award such person is an employee of the Company
or any Subsidiary, excluding non-management directors of the Company, or has
rendered or is expected to render advisory or consulting services to the Company
or any Subsidiary within a twelve-month period of the Granting Date. A person
eligible to be granted an Award is herein called a "Grantee."
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ARTICLE 4
Grant of Awards
4.1 Power to Grant Awards.
(a) The Committee is authorized under the Plan to enter into any type
of arrangement with any Grantee that is consistent with the provisions of the
Plan and that by its terms involves the issuance or potential issuance of (i)
shares of Common Stock, par value $.01 per share, of the Company ("Common
Stock") or (ii) a Derivative Security (as such term is defined in Rule 16a-1
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as such Rule may be amended from time to time) with an exercise or
conversion right at a price related to Common Stock or with a value derived from
the value of the shares of Common Stock. The entering into of any such
arrangement is referred to herein as the grant of an "Award."
(b) Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
restricted stock unit, stock options, reload stock options, stock purchase
warrants, other rights to acquire stock, securities convertible into or
redeemable for stock, stock appreciation rights, limited stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares, and an Award may consist of one or more such security or benefit.
4.2 Granting Date. An Award shall be deemed to have been granted
under this Plan on the date (the "Granting Date") which the Committee designates
as the Granting Date at the time it approves such Award, provided that the
Committee may not designate a Granting Date with respect to any Award which is
earlier than the date on which the granting of such Award is approved by the
Committee.
4.3 Award Terms Which The Committee May Determine. The Committee
shall have the power to determine the Grantee to whom Awards are granted, the
number of Shares subject to each Award, the number of Awards granted to each
Grantee and the time at which each Award is granted. Except as otherwise
expressly provided in this Plan, the Committee shall also have the power to
determine, at the time of the grant of each Award, all terms and conditions
governing the rights and obligations of the holder with respect to such Award.
With respect to any Award granted under this Plan that is an option to purchase
Common Stock of the Company (an "Option"), the Committee shall have the power to
determine: (a) the purchase price per Share or the method by which the purchase
price per Share will be determined; (b) the length of the period during which
the Option may be exercised and any limitations on the number of Shares
purchasable with the Option at any given time during such period; (c) the times
at which the Option may be exercised; (d) any conditions precedent to be
satisfied before the Option may be exercised, such as vesting period; (e) any
restrictions on resale of any Shares purchased upon exercise of the Option; (f)
the extent to which the Option may be transferable; and (g) whether the Option
will constitute an Incentive Stock Option.
4.4 Award Agreement. No person shall have any rights under any Award
unless and until the Company and the person to whom such Award is granted have
executed and delivered
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an agreement expressly granting the Award to such person and containing
provisions setting forth the terms of the Award (an "Award Agreement").
4.5 Limitation on Shares Issuable to any Grantee. The aggregate
number of Shares that may relate to Awards granted to a Grantee during any
calendar year (including those already exercised by the Grantee) shall not
exceed 100,000 shares, as adjusted pursuant to Article 8 of this Plan.
ARTICLE 5
Award Terms
5.1 Plan Provisions Control Terms. The terms of this Plan shall
govern all Awards. In the event any provision of any Award Agreement conflicts
with any term in this Plan as constituted on the Granting Date of such Award,
the term in this Plan as constituted on the Granting Date of the Award shall
control. Except as provided in Article 8, the terms of any Award may not be
changed after the Granting Date of such Award without the express approval of
the Company and the Award Holder.
5.2 Term Limitation. No Incentive Stock Option may be granted under
this Plan which is exercisable more than ten years after its Granting Date. This
Section 5.2 shall not be deemed to limit the term which the Committee may
specify for any Awards (including Options) granted under the Plan which are not
intended to be Incentive Stock Options.
5.3 Transfer of Awards. An Award granted pursuant to this Plan may be
transferable as provided in the Award Agreement. It shall be a condition
precedent to any transfer of any Award that the transferee executes and delivers
an agreement acknowledging such Award has been acquired for investment and not
for distribution and is and shall remain subject to this Plan and the Award
Agreement. The "Holder" of any Award shall mean (i) the initial grantee of such
Award or (ii) any permitted transferee.
5.4 $100,000 Per Year Limit on Incentive Stock Options. No Grantee
may be granted Incentive Stock Options if the value of the Shares subject to
those options which first become exercisable in any given calendar year (and the
value of the Shares subject to any other Incentive Stock Options issued to the
Grantee under the Plan or any other plan of the Company or its Subsidiaries
which first become exercisable in such year) exceeds $100,000. For this purpose,
the value of Shares shall be determined on the Granting Date. Any Incentive
Stock Options issued in excess of the $100,000 limit shall be treated as Options
that are not Incentive Stock Options. Incentive Stock Options shall be taken
into account in the order in which they were granted.
5.5 No Right to Employment Conferred. Nothing in this Plan or (in the
absence of an express provision to the contrary) in any Award Agreement (i)
confers any right or obligation on any person to continue in the employ of the
Company or any Subsidiary or (ii) affects or shall affect in any way any
person's right or the right of the Company or any Subsidiary to terminate such
person's employment with the Company or any Subsidiary at any time, for any
reason, with or without cause.
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ARTICLE 6
Regulatory Compliance
6.1 Taxes. The Company or any Subsidiary shall be entitled, if the
Committee deems it necessary or desirable, to withhold from an Award Holder's
salary or other compensation (or to secure payment from the Award Holder in lieu
of withholding) all or any portion of any withholding or other tax due from the
Company or any Subsidiary with respect to any Shares deliverable under such
Holder's Award or the Committee may (but need not) permit payment of such
withholding by the Company's retention of Shares which would otherwise be
transferred to the Award Holder upon exercise of the Option. In the event any
Common Stock is retained by the Company to satisfy all or any part of the
withholding, the part of the withholding deemed to have been satisfied by such
Common Stock shall be equal to the product derived by multiplying the Per Share
Market Value as of the date of exercise by the number of Shares retained by the
Company. The number of Shares retained by the Company in satisfaction of
withholding shall not be a number which when multiplied by the Per Share Market
Value as of the date of exercise would result in a product greater than the
withholding amount. No fractional Shares shall be retained by the Company in
satisfaction of withholding. Notwithstanding Article 7, unless the Board shall
otherwise determine, for each Share retained by the Company in satisfaction of
all or any part of the withholding amount, the aggregate number of Shares
subject to this Plan shall be increased by one Share. The Company may defer
delivery under a Holder's Award until indemnified to its satisfaction with
respect to such withholding or other taxes.
6.2 Securities Law Compliance. Each Award shall be subject to the
condition that such Award may not be exercised if and to the extent the
Committee determines that the sale of securities upon exercise of the Award may
violate the Securities Act or any other law or requirement of any governmental
authority. The Company shall not be deemed by any reason of the granting of any
Award to have any obligation to register the Shares subject to such Option under
the Securities Act or to maintain in effect any registration of such Shares
which may be made at any time under the Securities Act. An Award shall not be
exercisable if the Committee or the Board determines there is non-public
information material to the decision of the Holder to exercise such Award which
the Company cannot for any reason communicate to such Holder.
ARTICLE 7
Shares Subject to the Plan
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Except as provided in Section 6.1 and Article 8, an aggregate of
1,050,000 Shares of Common Stock shall be subject to this Plan. Except as
provided in Section 6.1 and Article 8, the Awards shall be limited so that the
sum of the following shall not as of any given time exceed 1,050,000 Shares: (i)
all Shares subject to Awards outstanding under this Plan at the given time and
(ii) all Shares which shall have been issued by the Company by reason of the
exercise at or prior to the given time of any of the Options. The Common Stock
issued under the Plan may be either authorized and unissued shares, shares
reacquired and held in the treasury of the Company, or both, all as from time to
time determined by the Board. In the event any Award shall expire or be
terminated before it is fully exercised, then all Shares formerly subject to
such Award as to which such Award was not exercised shall be available for any
Award subsequently granted in accordance with the provisions of this Plan. No
fractional Shares will be eligible to be issued under the Plan.
In the event of a change in the Shares as presently constituted, which
is limited to a change of all of its authorized shares with par value into the
same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be the Shares within
the meaning of the Plan.
ARTICLE 8
Adjustments to Reflect Organic Changes
The Board shall appropriately and proportionately adjust the number
and kind of Shares subject to outstanding Awards, the price for which Shares may
be purchased upon the exercise of outstanding Awards, and the number and kind of
Shares available for Awards subsequently granted under this Plan to reflect any
stock dividend, stock split, combination or exchange of shares, merger,
consolidation or other change in the capitalization of the Company which the
Board determines to be similar, in its substantive effect upon this Plan or the
Awards, to any of the changes expressly indicated in this sentence. The Board
may (but shall not be required to) make any appropriate adjustment to the number
and kind of Shares subject to outstanding Awards, the price for which Shares may
be purchased upon the exercise of outstanding Awards, and the number and kind of
Shares available for Awards subsequently granted under this Plan to reflect any
spin-off, spin-out or other distribution of assets to stockholders or any
acquisition of the Company's stock or assets or other change which the Board
determines to be similar, in its substantive effect upon this Plan or the
Awards, to any of the changes expressly indicated in this sentence. The
Committee shall have the power to determine the amount of the adjustment to be
made in each case described in the preceding two sentences, but no adjustment
approved by the Committee shall be effective until and unless it is approved by
the Board. In the event of any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the Company's assets which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock, the Board may (but shall not be
required to) substitute the per share amount of such stock, securities or assets
for Shares upon any subsequent exercise of any Award.
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ARTICLE 9
Amendment and Termination of the Plan
9.1 Amendment. Except as provided in the following two sentences, the
Board shall have complete power and authority to amend this Plan at any time and
no approval by the Company's stockholders or by any other person, committee or
other entity of any kind shall be required to make any amendment approved by the
Board effective. So long as the Common Stock is eligible for trading on the
Nasdaq National Market, the Board shall obtain stockholder approval for those
amendments of the Plan required to be so approved pursuant to the By-laws of the
National Association of Securities Dealers. The Board shall not, without the
affirmative approval of the Company's stockholders, amend the Plan in any manner
which would cause any outstanding Incentive Stock Options to no longer qualify
as Incentive Stock Options. No termination or amendment of this Plan may,
without the consent of the Holder of any Award prior to termination or the
adoption of such amendment, materially and adversely affect the rights of such
Holder under such Award.
9.2 Termination. The Board shall have the right and the power to
terminate this Plan at any time, provided that no Incentive Stock Options may be
granted after the tenth anniversary of the adoption of this Plan. No Award shall
be granted under this Plan after the termination of this Plan, but the
termination of this Plan shall not have any other effect. Any Award outstanding
at the time of the termination of this Plan may be exercised after termination
of this Plan at any time prior to the Expiration Date of such Award to the same
extent such Award would have been exercisable had this Plan not terminated.
ARTICLE 10
Definitions and Other Provisions of the Plan
10.1 Definitions. Each term defined in this Section 10.1 has the
meaning indicated in this Section 10.1 whenever such term is used in this Plan:
"Award" has the meaning such term is given in Section 4.1 of this
Plan.
"Award Agreement" has the meaning such term is given in Section 4.4 of
this Plan.
"Board of Directors" and "Board" both mean the Board of Directors of
the Company as constituted at the time the term is applied.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" has the meaning such term is given in Section 2.1 of this
Plan.
"Common Stock" means the issued or issuable Common Stock, par value
$.01 per share, of the Company.
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"Company" as applied as of any given time shall mean Nutraceutical
International Corporation, a Delaware corporation, except that if prior to the
given time any corporation or other entity has acquired all or a substantial
part of the assets of the Company (as herein defined) and has agreed to assume
the obligations of the Company under this Plan, or is the survivor in a merger
or consolidation to which the Company was a party, such corporation or other
entity shall be deemed to be the Company at the given time.
"Expiration Date" as applied to any Award means the date specified in
the Award Agreement between the Company and the Holder as the expiration date of
such Award. If no expiration date is specified in the Award Agreement relating
to any Award, then the Expiration Date of such Award shall be the day prior to
the tenth anniversary of the Granting Date of such Award. Notwithstanding the
preceding sentences, if the person to whom any Incentive Stock Option is granted
owns, on the Granting Date of such Option, stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company (or of any parent or Subsidiary of the Company in existence on the
Granting Date of such Option), and if no expiration date is specified in the
Award Agreement relating to such Option, then the Expiration Date of such Option
shall be the day prior to the fifth anniversary of the Granting Date of such
Option.
"Grantee" has the meaning such term is given in Article 3 of this
Plan.
"Granting Date" has the meaning such term is given in Section 4.2 of
this Plan.
"Holder" has the meaning such term is given in Section 5.3 of this
Plan.
"Incentive Stock Option" means an incentive stock option, as defined
in Code Section 422, which is granted pursuant to this Plan.
"Option" has the meaning such term is given in Section 4.3 of this
Plan.
"Plan" has the meaning such term is given in Section 1.1 of this Plan.
"Securities Act" at any given time shall consist of: (i) the
Securities Act of 1933 as constituted at the given time; (ii) any other law or
laws promulgated prior to the given time by the United States Government which
are in effect at the given time and which regulate or govern any matters at any
time regulated or governed by the Securities Act of 1933; (iii) all regulations,
rules, registration forms and other governmental pronouncements issued under the
laws specified in clauses (i) and (ii) of this sentence which are in effect at
the given time; and (iv) all interpretations by any governmental agency or
authority of the things specified in clause (i), (ii) or (iii) of this sentence
which are in effect at the given time. Whenever any provision of this Plan
requires that any action be taken in compliance with any provision of the
Securities Act, such provision shall be deemed to require compliance with the
Securities Act as constituted at the time such action takes place.
"Share" means a share of Common Stock.
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"Subsidiary" means any corporation in which the Company owns, directly
or indirectly, 50% or more of the total combined voting power of all classes of
securities of such corporation.
10.2 Headings. Section headings used in this Plan are for convenience
only, do not constitute a part of this Plan and shall not be deemed to limit,
characterize or affect in any way any provisions of this Plan. All provisions in
this Plan shall be construed as if no headings had been used in this Plan.
10.3 Severability.
(a) General. Whenever possible, each provision in this Plan and in
every Award at any time granted under this Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Plan or any Award at any time granted under this Plan is held to be
prohibited by or invalid under applicable law, then (i) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (ii) all other provisions of
this Plan and every Award at any time granted under this Plan shall remain in
full force and effect.
(b) Incentive Stock Options. Whenever possible, each provision in
this Plan and in every Award at any time granted under this Plan which is
evidenced by an Award Agreement which expressly states such Option is intended
to constitute an Incentive Stock Option under Code Section 422 (an "intended
ISO") shall be interpreted in such manner as to entitle such intended ISO to the
tax treatment afforded by the Code to Options which do constitute Incentive
Stock Options under Code Section 422, but if any provision of this Plan or any
intended ISO at any time granted under this Plan is held to be contrary to the
requirements necessary to entitle such intended ISO to the tax treatment
afforded by the Code to Options which do constitute Incentive Stock Options
under Code Section 422, then (i) such provision shall be deemed to have
contained from the outset such language as shall be necessary to entitle such
intended ISO to the tax treatment afforded by the Code to Options which do
constitute Incentive Stock Options under Code Section 422, and (ii) all other
provisions of this Plan and such intended ISO shall remain in full force and
effect. If any Award Agreement covering an intended ISO granted under this Plan
does not explicitly include any terms required to entitle such intended ISO to
the tax treatment afforded by the Code to Options which do constitute Incentive
Stock Options under Code Section 422, then all such terms shall be deemed
implicit in the intention to afford such treatment to such Option and such
Option shall be deemed to have been granted subject to all such terms.
10.4 No Strict Construction. No rule of strict construction shall be
applied against the Company, the Committee or any other person in the
interpretation of any of the terms of this Plan, any Award or any rule or
procedure established by the Committee.
10.5 Choice of Law. This Plan and all documents contemplated hereby,
and all remedies in connection therewith and all questions or transactions
relating thereto, shall be construed in accordance with and governed by the
internal laws of the State of Delaware.
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10.6 Tax Consequences. Tax consequences from the purchase and sale of
Shares may differ among grantees under the Plan. Each grantee of an Award should
discuss specific tax questions regarding participation in the Plan with his or
her own tax advisor.
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EXHIBIT 10.19
NUTRACEUTICAL INTERNATIONAL CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
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1. Name and Purpose. This plan shall be called the Nutraceutical
International Corporation Non-Employee Director Stock Option Plan (the "Plan").
The Plan is intended to encourage stock ownership by Non-Employee Directors (as
defined below) of Nutraceutical International Corporation, a Delaware
corporation (the "Company"), to provide such directors with an additional
incentive to manage the Company effectively and to contribute to its success,
and to provide a form of compensation which will attract and retain highly
qualified individuals as members of the Board of Directors of the Company.
2. Effective Date and Term of the Plan. The Plan shall become effective
on the date of the consummation of the initial public offering of the Company's
Common Stock, par value $.01 per share (the "Effective Date"). Options may not
be granted under the Plan after the tenth (10th) anniversary of the Effective
Date (the "Term"); provided, however, that all options outstanding as of that
date shall remain or become exercisable pursuant to their terms and the terms of
the Plan.
3. Administration. The Plan shall initially be administered by the Board
of Directors of the Company (the "Board"). The Board shall delegate the
administration of the Plan to a committee of the Board (the "Committee") in the
event such a committee is established by the Board for such purpose and that
committee is composed solely of two or more "Non-Employee Directors" (as such
term is defined under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")). Each member of the Committee shall be eligible
to participate in the Plan; however, grants made to a member of the Committee
must be approved by the full Board with such member abstaining. References
herein to the Committee shall be deemed to refer to the Board in the event that
the administration of the Plan has not been delegated to the Committee.
The Committee may, from time to time, establish such regulations,
provisions and procedures, within the terms of the Plan, as in the opinion of
its members may be advisable in the administration of the Plan. A majority of
the Committee shall constitute a quorum, and the acts of a majority of a quorum
at any meeting, or acts reduced to or approved in writing by a majority of the
members of the Committee, shall be the valid acts of the Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted pursuant to the Plan shall be final and
binding upon the Company and any optionee. No member of the Board of Directors
of the Company or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted pursuant
thereto.
4. Stock Available for Options. Subject to the adjustments as provided in
Subsection 7(f), the aggregate number of shares of Common Stock, par value $.01
per share, of the Company (the "Common Stock") reserved for purposes of the Plan
shall be 150,000 shares of authorized and unissued shares or issued shares
reacquired by the Company (the "Shares").
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Determinations as to the number of Shares that remain available for issuance
under the Plan shall be made in accordance with such rules and procedures as the
Committee shall determine from time to time. If any outstanding option under
the Plan expires or is terminated for any reason before the end of the Term of
the Plan, the shares allocable to the unexercised portion of such option shall
become available for the grant of other options under the Plan. No shares
delivered to the Company in full or partial payment upon exercise of an option
pursuant to Subsection 7(c) or in full or partial payment of any withholding tax
liability permitted under Section 10 shall become available for the grant of
other options under the Plan.
5. Participation. Subject to the limitations contained in this Section 5,
any director of the Company who is not a contractual nor common law employee of
the Company or any of its subsidiaries (a "Non-Employee Director") will be
eligible to be granted options to purchase shares of the issued or issuable
Common Stock in accordance and consistent with the terms and conditions of the
Plan. An optionee may hold more than one option, but only on the terms and
subject to the restrictions hereafter set forth. Except as provided herein,
terms and conditions of options granted to a director at any given time need not
be the same for any other grant of options.
6. Option Grants.
(a) Discretionary Grants. The Committee shall be authorized to
determine from time to time the directors (among the Non-Employee
Directors) to be granted options, the number of shares of Common Stock
subject to such options, and the terms and conditions of the options to be
granted. All options granted under this Subsection (a) must be approved by
either the Board or the Committee prior to such grant.
(b) Non-Statutory Stock Options. All options granted under the Plan
shall be non-statutory options not intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). Each option
granted under the Plan shall provide that such option will not be treated
as an "incentive stock option," as that term is defined in Section 422(b)
of the Code.
7. Terms and Conditions of Options of the Plan. Options granted under
this Plan shall be evidenced by agreements in such form as the Committee shall
from time to time approve, which agreements shall comply with and be subject to
the following conditions:
(a) Term of Options. The term of each option shall be for a period of
not greater than ten (10) years from the date of grant of the option.
(b) Option Price. The exercise price of each option shall be equal to
one hundred percent (100%) of the Fair Market Value of the shares of Common
Stock on the date of the grant of the option. If the shares are traded in
the over-the-counter market, the Fair Market Value per share shall be the
closing price on the national market list as quoted in the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") on
the day the option is granted or if no sale of shares is reflected in
Nasdaq on that day, on the next
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preceding day on which there was a sale of shares reflected in Nasdaq. If
the shares are not traded in the over-the-counter market but are listed
upon an established stock exchange or exchanges, such Fair Market Value
shall be deemed to be the closing price of the shares on such stock
exchange or exchanges on the day the option is granted or if no sale of the
shares shall have been made on any stock exchange on that day, on the next
preceding day on which there was a sale of the shares.
(c) Medium of Payment. The option price shall be payable to the
Company either (i) in United States dollars in cash or by check, bank
draft, or money order payable to the order of the Company or (ii) if
permitted by the Board, through the delivery of shares of the Common Stock
with a Fair Market Value on the date of the exercise equal to the option
price, provided such shares are utilized as payment to acquire at least 100
shares of Common Stock, or (iii) by a combination of (i) and (ii) above.
Fair Market Value will be determined in the manner specified in Subsection
7(b) except as to the date of determination.
(d) Exercise of Options. Except as provided herein, the Committee
shall have the authority to determine, at the time of grant of each option
pursuant to Subsection 6(a), the times at which an option may be exercised
and any conditions precedent to the exercise of an option. An option shall
be exercisable upon written notice to the Chief Financial Officer of the
Company, as to any or all shares covered by the option, until its
termination or expiration in accordance with its terms or the provisions of
the Plan. Notwithstanding the foregoing, an option shall not at any time
be exercisable with respect to less than 100 shares unless the remaining
shares covered by an option are less than 100 shares. The purchase price
of the shares purchased pursuant to an option shall be paid in full upon
delivery to the optionee of certificates for such shares. Exercise by an
optionee's heir, personal representative or permitted transferee shall be
accompanied by evidence of his or her authority to act, in a form
reasonably satisfactory to the Company.
(e) Termination of Service as Director.
(i) Termination of Service for any Reason Other than Death or
Permanent Disability. In the event an optionee shall cease to serve
the Company as a director for any reason other than such optionee's
death or Permanent Disability, each option held by such optionee
shall, to the extent rights to purchase shares under the option have
become vested at the time such optionee ceases to serve as a director,
remain exercisable, in whole or in part, by the optionee, subject to
prior expiration according to its terms and other limitations imposed
by the Plan, for a period of one (1) year following the optionee's
cessation of service as a director of the Company. If the optionee
dies after such cessation of service, the optionee's options shall be
exercisable in accordance with Subsection 7(e)(ii) hereof.
(ii) Termination of Service for Death or Permanent Disability.
If an optionee ceases to be a director by reason of death or Permanent
Disability, each option held by such optionee shall immediately become
exercisable and shall remain
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exercisable, in whole or in part, by (in the case of Permanent
Disability) the optionee or the optionee's guardian or attorney-in-
fact or (in the case of death) the personal representative of the
optionee's estate or by any person or persons who have acquired the
option directly from the optionee during the shorter of the following
periods: (i) the term of the option, or (ii) a period of two (2) years
from the death or Permanent Disability of such optionee. If an
optionee dies or a Permanent Disability occurs during the extended
exercise period following cessation of service specified in Subsection
7(e)(i) above, such option may be exercised any time within the longer
of such extended period or one (1) year after death or Permanent
Disability, subject to the prior expiration of the term of the option.
For purposes of this Subsection 7(e)(ii), "Permanent Disability" shall
mean a determination by the Social Security Administration or any
similar successor agency that an optionee is "permanently disabled,"
and the date on which a Permanent Disability is deemed to have
occurred shall be the date on which such determination by such agency
shall have been made.
(f) Adjustment in Shares Covered by Option. The number of shares
covered by each outstanding option, and the purchase price per share
thereof, shall be proportionately adjusted for any increase or decrease in
the number of issued and outstanding shares resulting from a split in or
combination of shares or the payment of a stock dividend on the shares or
any other increase or decrease in the number of such shares effected
without receipt of consideration by the Company.
If the Company shall be the surviving corporation in any merger or
consolidation or if the Company is merged into a wholly-owned subsidiary
solely for purposes of changing the Company's state of incorporation, each
outstanding option shall pertain to and apply to the securities to which a
holder of the number of shares subject to the option would have been
entitled to receive in such transaction.
In the event of a Change in Control, only if provided in the option
agreement, any option awarded under this Plan to the extent not previously
exercisable shall immediately become fully exercisable. The Committee in
its sole discretion may direct the Company to cash out all outstanding
options on the basis of the Change in Control Price as of the date a Change
in Control occurs or such other date as the Committee may determine prior
to the Change in Control. For purposes of this Plan, a "Change in Control"
means the occurrence of any of the following: (i) when any "person" as
defined in Section 3(a)(9) of the Exchange Act and as used in Sections
13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of
the Exchange Act but excluding the Company and any subsidiary, any of the
Company's existing stockholders prior to the Effective Date and any
employee benefit plan sponsored or maintained by the Company or any
subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act, as amended from time to time), after
the Effective Date, of securities of the Company representing 20 percent or
more of the combined voting power of the Company's then outstanding
securities; (ii) when, during any period of 24 consecutive months during
the existence of the Plan, the individuals who, at the beginning
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of such period, constitute the Board of Directors of the Company (the
"Incumbent Directors") cease for any reason other than death to constitute
at least a majority thereof; provided, however, that a director who was not
a director at the beginning of such 24-month period shall be deemed to have
satisfied such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the approval
of, at least two-thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at the beginning of
such 24 month period) or by prior operation of this provision; or (iii) the
approval by the stockholders of the Company of a transaction involving the
acquisition of the Company by an entity other than the Company or a
subsidiary through purchase of assets, by merger, or otherwise. For
purposes of this Plan, "Change in Control Price" means the highest price
per share of Common Stock paid in any transaction reported on the Nasdaq
National Market or paid or offered in any bona fide transaction related to
a Change in Control at any time during the 60-day period immediately
preceding the occurrence of the Change in Control, in each case as
determined by the Committee.
In the event of a change in the shares as presently constituted, which
is limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to be the shares
within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Any such adjustment may provide for the elimination of any fractional share
which might otherwise become subject to an option.
Except as expressly provided in this Subsection 7(f), the optionee
shall have no rights by reason of any split or combination of shares of
stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or consolidation or
spinoff of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
stock subject to the option.
The grant of an option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
(g) Rights of a Stockholder. An optionee shall have no rights as a
stockholder with respect to any shares covered by his or her option until
the date on which the optionee becomes the holder of record of such shares.
No adjustment shall be made for dividends, distributions, or other rights
for which the record date is prior to the date on which he or she shall
have become the holder of record thereof, except as provided in Subsection
7(f).
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(h) Postponement of Delivery of Shares and Representations. The
Company, in its discretion, may postpone the issuance and/or delivery of
shares upon any exercise of an option until completion of the registration
or other qualification of such shares under any state and/or federal law,
rule or regulation as the Company may consider appropriate, and may require
any person exercising an option to make such representations, including a
representation that it is the optionee's intention to acquire shares for
investment and not with a view to distribution thereof, and furnish such
information as it may consider appropriate in connection with the issuance
or delivery of the shares in compliance with applicable laws, rules, and
regulations. In such event no shares shall be issued to such holder unless
and until the Company is satisfied with the accuracy of any such
representations.
(i) Transferability. If provided in the option agreement, the options
granted pursuant to the Plan may be transferable by a Non-Employee
Director. The Committee shall have the sole discretion to determine to
what extent, if any, the options granted pursuant to the Plan are
transferable by a Non-Employee Director.
(j) Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions, including, without limitation,
restrictions upon the exercise of the option, as the Committee shall deem
advisable.
8. Adjustments in Shares Available for Options. The adjustments in
number and kind of shares and the substitution of shares, affecting outstanding
options in accordance with Subsection 7(f) hereof, shall also apply to the
number and kind of shares issuable upon the exercise of options to be granted
pursuant to Section 6 and the number and kind of shares reserved for issuance
pursuant to the Plan, but not yet covered by options.
9. Amendment of the Plan. The Board, insofar as permitted by law, shall
have the right from time to time, with respect to any shares at the time not
subject to options, to suspend or discontinue the Plan or revise or amend it in
any respect whatsoever. So long as the Common Stock is eligible for trading on
the Nasdaq National Market, the Board shall obtain stockholder approval for
those revisions or amendments of the Plan required to be so approved pursuant to
the By-laws of the National Association of Securities Dealers. If the Plan is
amended so that the exemption provided by Rule 16b-3 as a result of the Plan
being approved by the stockholders of the Company is no longer available for
options granted under Subsections 6(b) or 6(c) hereof, all options subsequently
granted thereunder must be approved by either the Board or the Committee prior
to such grant.
10. Withholding of Taxes. The Company shall have the right to deduct from
any payment to be made pursuant to this Plan, or to otherwise require, prior to
the issuance or delivery of any shares of Common Stock, payment by the optionee
of any federal, state, or local taxes required by law to be withheld. Unless
otherwise prohibited by the Committee, an optionee may satisfy any such
withholding tax obligation by any of the following means or by a combination of
such means:
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(a) tendering a cash payment;
(b) authorizing the Company to withhold from the shares otherwise
issuable to the optionee a number of shares having a Fair Market Value as
of the "Tax Date," less than or equal to the amount of withholding tax
obligation; or
(c) delivering to the Company unencumbered shares owned by the
optionee having a Fair Market Value, as of the Tax Date, less than or equal
to the amount of the withholding tax obligation.
The "Tax Date" shall be the date that the amount of tax to be withheld is
determined. Fair Market Value shall be determined in the manner specified in
Subsection 7(b), except as to the date of determination. An optionee's election
to pay the withholding tax obligation by either of (b) or (c) above shall be
irrevocable, may be disapproved by the Committee, and must be made either six
(6) months prior to the Tax Date or during the period beginning on the third
business day following the date of release of the Company's quarterly or annual
summary statement of sales and earnings and ending on the twelfth business day
following such date.
11. Right of Board of Directors or Stockholders to Terminate Director's
Service. Nothing in this Plan or in the grant of any option hereunder shall in
any way limit or affect the right of the Board of Directors or the stockholders
of the Company to remove any director or otherwise terminate his or her service
as a director, pursuant to the law, the Restated Certificate of Incorporation,
or Amended and Restated By-laws of the Company.
12. Application of Funds. The proceeds received by the Company from the
sale of stock pursuant to options will be used for general corporate purposes.
13. No Obligation to Exercise Option. The granting of an option shall
impose no obligation on the optionee to exercise such option.
14. Construction. This Plan shall be construed under the laws of the
State of Delaware.
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EXHIBIT 10.20
NUTRACEUTICAL INTERNATIONAL CORPORATION
EMPLOYEE STOCK DISCOUNT PURCHASE PLAN
-------------------------------------
1. Title. The plan described herein shall be known as the Nutraceutical
International Corporation Employee Stock Discount Purchase Plan (the "Plan").
The Plan will be maintained by the Nutraceutical International Corporation (the
"Company") and any of its subsidiaries that may adopt the Plan from time to time
in accordance with the procedures set forth in Section 23 hereof (each such
adopting subsidiary referred to herein as a "Covered Entity") with the Company's
consent.
2. Purpose. The purpose of the Plan is to give employees wishing to do so a
convenient means of purchasing at a discount shares of the Company's Common
Stock, par value $.01 per share (the "Shares"), through payroll deductions. The
Company believes that ownership of Shares by employees will foster greater
employee interest in the Company's growth and development. The Plan is intended
to qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code").
3. Shares Reserved for the Plan. There shall be reserved for issuance and
purchase by employees of the Company under this Plan an aggregate of 750,000
Shares, subject to adjustment as provided in Section 17 hereof. Shares subject
to the Plan may be shares now or hereafter authorized and unissued or shares
already authorized, issued and owned by the Company. The right to purchase
shares pursuant to the Plan shall be made available by a series of quarterly
offerings to employees eligible to participate in the Plan pursuant to Section 8
hereof. If and to the extent that any right to purchase reserved Shares shall
not be exercised by any employee for any reason or if such right to purchase
shall terminate as provided herein, Shares that have not been so purchased under
the Plan shall again become available for the purposes of the Plan during the
remaining term of the Plan.
4. Effective Date. The Plan shall become effective on the date of the
consummation of the initial public offering of the Company's Common Stock (the
"Effective Date").
5. The Plan Year. The Plan shall operate on a fiscal year beginning on the
first day of October in each year and ending on the 30th day of September. This
fiscal year is referred to herein as the "Plan year." The initial Plan year
shall begin on the Effective Date.
6. Plan Quarters. The Plan year shall be divided into four Plan quarters
ending December 31, March 31, June 30 and September 30. Each such quarter is
referred to herein as a "Plan quarter."
7. Plan Administration. The Plan shall initially be administered by the
Board of Directors. The Board of Directors shall delegate the administration of
the Plan to a Compensation Committee (the "Committee") in the event that such a
committee is established by the Board of Directors. As Plan administrator, the
Committee shall have complete control of the administration of the Plan, which
includes the determination of employees, eligibility for participation in
accordance
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with the standards set forth in Section 8 hereof, the interpretation of
provisions of the Plan, the adoption of any rules or regulations which may be
necessary, advisable or desirable in the operation of the Plan including rules
governing the participation of officers and directors in the Plan in order to
exempt transactions under the Plan in accordance with Rule 16b of the Securities
and Exchange Commission, and the delegation of certain of the duties of the
Committee to an agent to facilitate the purchase and transfer of Shares and to
otherwise assist in the administration of the Plan. The Committee shall control
the general administration of the Plan with all powers necessary to enable it to
carry out its duties in that respect, except that, if for any reason a Committee
shall not have been appointed, all authority and duties of the Committee under
this Plan shall be vested in and exercised by the Board of Directors of the
Company.
8. Eligibility. Any employee of the Company who is a United States resident
or who is a United States citizen temporarily on location at a facility outside
of the United States and any Covered Entity (as defined in Section 23 hereof)
shall be eligible to participate in the Plan on the day next following the
twelve-month anniversary of such employee's employment provided such employee
would not own, immediately after the exercise of any right granted hereunder,
stock possessing five percent (5%) or more of the combined voting power or value
of all classes of capital stock of the Company. The Committee shall determine
which employees are eligible to participate in the Plan in accordance with the
standards set forth in this Section.
9. Election to Participate; Payroll Deductions and Lump Sum Contributions.
An eligible employee may elect to participate in the Plan on any day within the
Plan quarter in which such employee becomes eligible to participate, and
thereafter as of the first day of any Plan quarter, by correctly completing and
returning to the Company an enrollment form authorizing a specified payroll
deduction to be made from each subsequent paycheck for the purchase of Shares
under this Plan (the "payroll deduction"). The minimum allowable payroll
deduction is $25.00 per payroll period. All payroll deductions shall be made
regularly and in equal amounts and shall be credited on the records of the
Company in the name of the eligible employee. Such credit shall constitute only
a bookkeeping entry by the Company and no interest will be paid or due on any
money paid into this Plan or credited to such eligible employee. Employees who
elect to participate in the Plan are referred to herein as "participating
employees."
A participating employee will be deemed to have authorized the same payroll
deduction for each subsequent payroll period provided that he or she is eligible
to participate during each subsequent payroll period. A participating employee
may increase or decrease his or her payroll deduction as of the first day of the
first full payroll period of any Plan quarter by filing the required form, in
the time and manner prescribed by the Committee.
Upon the request of any participating employee, the Company shall suspend
making any payroll deduction with respect to such employee as soon as
practicable after the employee notifies the Company of such request. In such
event, the earliest date upon which payroll deductions may be resumed with
respect to such employee shall be the first day of the Plan quarter occurring
immediately after the first full Plan quarter that follows the suspension of the
employee's payroll deductions.
A participating employee may elect to make a lump sum contribution to the
Plan, not more than once per plan quarter. Such election must be made no later
than the 10th business day preceding the end of such plan quarter and payment
must be made no later than 5 business days thereafter.
In the event that an employee ceases to be a participating employee, or if
for any reason the Company does not invest the aggregate amount of payroll
deductions or contributions of a participating
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employee, the amount of payroll deductions not theretofore invested shall be
returned to such employee.
10. Limitation of Number of Shares That an Employee May Purchase. A
participant shall be allocated the number of Shares which may be purchased with
such participant's contributions; provided, that in any Plan quarter a
participant may only contribute an amount less than or equal to 15% of such
participant's gross pay from the Company (including salary and bonus) for the
immediately prior Plan quarter, which amount may be paid through payroll
deduction pursuant to Section 9 or by one or more lump sum contributions.
Notwithstanding the foregoing, no right to purchase Shares under this Plan shall
permit an employee to purchase stock under all employee stock purchase plans (as
defined in Section 423 of the Code) of the Company at a rate which in aggregate
exceeds $25,000 of fair market value of such stock (determined at the time the
right is granted) for each calendar year in which the right is outstanding at
any time. In addition, the total number of Shares purchased under the Plan shall
not exceed 750,000 and if, for any purchase date, the number of Shares to be
purchased with participants' cash account balances, when aggregated with all
prior purchases under the Plan, would exceed 750,000 Shares, allocations to
participants for such purchase date shall be reduced pro rata in accordance with
their respective cash account balances, so that the total allocations shall not
cause the total Shares purchased under the Plan to exceed 750,000 Shares.
11. Accounting for Participant Contributions. The Committee will cause to
be established a "cash account" and a "Share account" for each participant under
the Plan for bookkeeping purposes. As soon as practicable on or after the last
day of each Plan quarter, but in no case later than the fifteenth day of the
month immediately following the end of the Plan quarter, the Committee will
credit each participant's cash account with such participant's payroll
deductions during the Plan quarter ("credited payroll deductions"). The date of
crediting of such credited payroll deductions is referred to herein as the
"deduction crediting date." The Company shall not be required to pay or accrue
interest on the cash balances in participants' cash accounts or on the value of
participants' Share accounts.
12. Share Purchases. The Committee will use the entire balance of funds in
participants' cash accounts to purchase Shares to be allocated to participants'
Share accounts within the first 15 working days following each deduction
crediting date. The cost per Share to participants will be 90% of the lower of
the closing price for the Shares on the Nasdaq National Market ("Nasdaq") on the
first or the last day of the Plan quarter with respect to which such purchase
relates; provided that if the first or last day of the Plan quarter is a day on
which Nasdaq is closed, the price for such day shall be determined as of the
last preceding day on which Nasdaq is open.
13. Allocation of Shares. As soon as practicable after all necessary Shares
have been purchased by the Committee (or its agent) for the benefit of
participants, the Committee will allocate such Shares to participants' Share
accounts (the date of such allocation to be referred to as the "Share allocation
date") in the following manner:
(a) The Committee will allocate full Shares and fractional Shares to the
Share accounts of the individual participants to the extent of the balances in
their respective cash accounts, subject to the limitations set forth in Section
10. The cash accounts will be charged with the cost
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to participants of all Shares so allocated. No cash balances will remain in the
participants' cash accounts immediately after each Share allocation date;
(b) Until certificates are issued, no person shall have any right to sell,
assign, mortgage, pledge, hypothecate or otherwise encumber any of the Shares
allocated to a participant's Share account.
14. Issuance of Share Certificates. Share certificates for the number of
whole Shares in each participant's Share account may be issued to participants
only upon the receipt by the Committee (or its agent) of a participant's written
request indicating the number of Shares (to a maximum of the number of full
Shares in the participant's Share account) for which the participant wishes to
receive certificates. Such request shall be made on a form at the time
prescribed by the Committee and filed with the Committee (or its agent). Share
certificates shall be issued to the participant as soon as practicable after the
end of a Plan quarter.
15. Restrictions on Transfer. Unless the Shares purchased hereunder are
covered by an effective registration statement under the Securities Act of 1933,
as amended (the "Securities Act").
(a) Restrictive Legend. The certificates representing the Shares shall bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER."
(b) Opinion of Counsel. The participant may not sell, transfer or
dispose of any Shares (except pursuant to an effective registration statement
under the Securities Act) without first delivering to the Company an opinion of
counsel reasonably acceptable in form and substance to the Company that
registration under the Securities Act or any applicable state securities law is
not required in connection with such transfer.
16. Expenses. The Company or the Covered Entity will bear the costs
associated with administering the Plan and purchasing Shares. No expenses
attributable to a participant's sale of Shares, however, will be borne by the
Company or the Covered Entity.
17. Cash Dividends, Share Splits and Distributions.
(a) Cash Dividends. Cash dividends attributable to Shares allocated
to participants' Share accounts as of the record date for which such cash
dividends are declared will be credited to participants' cash accounts as of the
dividend payment date and applied to Share
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purchases and allocations on the next Share allocation date in accordance with
the methods set forth in Sections 12 and 13 hereof.
(b) Share Distributions and Share Splits. Share distributions and Share
splits attributable to Shares allocated to participants' Share accounts as of
the Share distribution record date or the Share split effective date will be
credited directly to participants' Share accounts as of the record date and the
effective date, respectively, of such Share distributions and such Share splits.
(c) Share Rights and Warrants. The Company may, from time to time, in the
exercise of its sole discretion, declare Share rights or warrants with respect
to Shares. Following and as of the record date for determining those
shareholders of record entitled to receive Share rights or warrants with respect
to their Shares, the Company shall issue, and the Committee shall allocate, such
Share rights and/or warrants directly to the appropriate participants as though
the Shares allocated to the account of each such participant were held of record
by such participant. Certificates representing such Share rights or warrants, if
any such certificates have been authorized by the Board of Directors of the
Company, may be issued to participants pursuant to the procedures set forth in
Section 14 of this Plan.
(d) Change in Common Stock. In the event of a reorganization,
recapitalization, stock split, merger, consolidation or other increase or change
in the common stock of the Company, the Committee may make appropriate changes
in the number and type of Shares that at the time of such event remain available
for purchase under this Plan.
18. Voting Rights. Holders of Shares have the right to vote on matters
affecting the Company. If one of these matters is submitted to the shareholders
for a vote, then following the record date for any shareholder meeting at which
such vote is to occur, the Committee shall advise the Company of the number of
participants for whom Shares are held in Share accounts on such record date, and
the Company shall furnish the Committee (or its agent) with sufficient sets of
its proxy soliciting materials to deliver one set to each such participant. The
Committee shall thereupon forward one set to each participant for whom allocated
Shares are being held and request voting instructions. Upon receipt of voting
instructions, the Committee shall vote the Shares (including any fractional
Shares) as instructed. The Committee shall not vote any Share allocated to a
participant's Share account unless voting instructions have been received from
the participant.
19. Records and Reports to Participants. The Committee shall cause to be
maintained true and accurate books of account, and a record of all transactions
under the Plan, and such accounts, books and records relating thereto shall be
open to inspection and audit by such person or persons designated by the
Company. At least annually, but in all cases on or before March 31 of each year,
the Committee shall file with the Chief Financial Officer of the Company a
written report setting forth all receipts and disbursements and other
transactions effected on behalf of the Plan during the last preceding Plan year,
including a description of all Shares purchased together with the cost of all
such Shares. Such report shall also disclose any liabilities of the Plan and
shall show, as of the close of the Plan year, the value of each active cash
account and Share account of each participant together with the record of Share
certificates delivered to each of the participants during such Plan year. The
Committee shall have the right to maintain one or more bank
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accounts for funds contributed to the Plan, and to make deposits in and
withdrawals therefrom in connection with its administration of the Plan.
An annual report shall be rendered to each participant in the Plan annually
within 90 days after the close of the Plan year, showing for the Plan year just
ended:
(a) the amounts of employee payroll deductions made for each participant;
(b) the amounts of cash dividends credited to such participant's cash
account;
(c) the number of Shares acquired for such participant's Share account
(including the amounts of Share distributions or Share splits so allocated or
credited);
(d) the cost to the participant per Share of Shares purchased for such
participant;
(e) the number of Shares, if any, for which certificates were delivered to
such participant; and
(f) the beginning and ending balances in the participant's Share and cash
accounts.
20. Termination of Employment. Settlement of the accounts of participants
whose employment has terminated shall be made as of the beginning of the Plan
quarter following the Plan quarter in which termination of employment occurred.
As promptly as practicable after the close of the Plan quarter in which
termination of employment occurred, the Committee will deliver to such former
participant a certificate for the number of full Shares allocated to such
participant's account and not previously distributed, together with a check for
(i) any remaining cash balance and (ii) the value of any fractional Shares
allocated to such participant's account.
In the event of a participant's death, settlement will be made to the
participant's duly appointed legal representative after the satisfaction of any
applicable legal requirements.
21. Amendment and Termination of the Plan. Subject to the provisions of
Section 423 of the Code and Rule 16b-3 under the Securities Exchange Act of
1934, as amended ("Exchange Act"), the Board of Directors may amend this Plan in
any respect; provided, that no amendment may affect any participant's right to
the benefit of contributions made by such participant prior to the date of the
amendment.
The Board of Directors reserves the right to terminate or temporarily
suspend this Plan at the end of any Plan quarter. In the event of termination or
suspension of the Plan, the Committee will make an allocation of Shares to the
Share accounts of the participants in the usual manner. As soon as practicable,
the Committee will distribute to or on behalf of each participant all of the
Shares held in such participant's Share account plus an amount of cash equal to
the balance in such participant's cash account.
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22. Limitation on Sale of Shares. No Shares will be sold under the Plan to
any employee residing or employed in any jurisdiction where the sale of such
Shares is not permitted under the applicable laws.
23. Adopting Subsidiaries. Any subsidiary of the Company may adopt the Plan
on behalf of its employees either unilaterally or by collective bargaining by
filing with the Company a certified copy of a resolution of the Board of
Directors (or other appropriate authorization satisfactory to the Secretary of
the Company) of the subsidiary providing for such subsidiary's adoption of the
Plan and a certified copy of a resolution of the Board of Directors of the
Company consenting to such adoption. Each such adopting subsidiary is referred
to herein as a "Covered Entity."
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EXHIBIT 11.1
NUTRACEUTICAL INTERNATIONAL CORPORATION
COMPUATION FOR PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED
SEPTEMBER 30,
1997
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PRO FORMA COMPUTATION OF PRIMARY EARNINGS
PER SHARE:
Net income..................................................... $ 4,248
============
Weighted average number of common stock and common stock
equivalents outstanding....................................... 9,337,875
Net additional shares issuable in connection with stock options
and warrants pursuant to the treasury stock method............ 1,447,458
------------
Weighted average number of common stock and common
stock equivalents............................................. 10,758,333
============
Pro forma net income per share................................. 0.39
============
SUPPLEMENTAL PRO FORMA COMPUTATION OF
PRIMARY EARNINGS PER SHARE:
Weighted average number of common stock and common
stock equivalents............................................. 10,785,333
Shares to be issued............................................ 2,000,000
------------
12,785,333
============
Net income:
As reported................................................... $ 4,248
Add: interest paid............................................ 2,360
Less: tax effect.............................................. (932)
------------
As adjusted................................................... $ 5,676
============
Supplemental pro forma net income per share.................... $ 0.44
PRO FORMA COMPUTATION OF FULLY DILUTED
EARNINGS PER SHARE:
Net income..................................................... $ 4,248
============
Weighted average number of common stock and common
stock equivalents outstanding................................. 9,337,875
Net additional shares issuable in connection with stock options
and warrants on a fully diluted basis pursuant to the
treasury stock method......................................... 1,447,458
------------
10,785,333
============
Pro forma fully diluted net income per share................... $ 0.39
============
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Exhibit 21.1
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List of Subsidiaries of Nutraceutical International Corporation
The following is a list of the corporations that will be subsidiaries of
Nutraceutical International Corporation (the "Company") upon completion of the
initial public offering as contemplated hereby. The common stock of all the
corporations listed below will be wholly owned, directly or indirectly, by the
corporation. If indented, the corporation is a wholly-owned subsidiary of the
corporation under which it is listed unless otherwise noted.
<TABLE>
<CAPTION>
Name of Corporation Jurisdiction of Incorporation
- ------------------- -----------------------------
<S> <C>
Nutraceutical International Corporation Delaware
Nutraceutical Corporation Delaware
(f/k/a Nutraceutical Newco, Inc.)
Au Naturel, Inc. Delaware
Makers of KAL, Inc. Delaware
Monarch Nutritional Laboratories, Delaware
Inc.
Natural Max, Inc. Delaware
Premier One Products, Inc. Delaware
Shaperite Concepts, Inc. Delaware
Solaray, Inc. Utah
Veglife, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement (Amendment No. 1) on Form S-1 (No. 333-41909) of our
report dated October 21, 1997 relating to the financial statements of
Nutraceutical International Corporation, which appears in such Prospectus. We
also consent to the application of such report to the Financial Statement
Schedule for the three years ended September 30, 1997 listed under Item 16(b)
of this Registration Statement when such schedule is read in conjunction with
the financial statements referred to in our report. The audits referred to in
such report also included this schedule. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Salt Lake City, Utah
January 27, 1998
