<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission file number 333-52534
GLOBAL HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3267801
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification Number)
987 N. Enterprise Street
Orange, California 92867
(Address and zip code of principal executive offices)
(714) 765-8330
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /x/ No / /
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date:
As of August 11, 1998, 495,148 Shares of Global Health Sciences, Inc. Common
Stock, par value $0.01 per share, were outstanding.
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<PAGE>
ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING
PRIMARY COMMISSION FILE ZIP CODE AND
EXACT NAME OF STATE OR OTHER STANDARD NO./ TELEPHONE NUMBER
REGISTRANT AS JURISDICTION OF NO. OF INDUSTRIAL IRS EMPLOYER AREA CODE OF
SPECIFIED IN ITS INCORPORATION SHARES CLASSIFICATION IDENTIFICATION REGISTRANT'S PRINCIPAL
CHARTER OR ORGANIZATION OUTSTANDING CODE NUMBER NO. EXECUTIVE OFFICER
- ------------------------ ----------------- ------------- --------------- ------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
Global Health Sub., Inc. California 100 2833 33-0801650 987 N. Enterprise St.
Orange, California 92867
(714) 765-8330
Raven Industries Inc. California 100 2833 33-0042849 987 N. Enterprise St.
Orange, California 92867
(714) 765-8330
West Coast Sales Inc. California 100 2833 33-0554820 987 N. Enterprise St.
Orange, California 92867
(714) 765-8330
Dynamic Products California 100 2833 33-023847 987 N. Enterprise Street
Orange, California 92867
(714) 765-8330
D&F Industries, Inc. California 100 2833 33-0801652 987 N. Enterprise Street
Orange, California 92867
(714) 765-8330
</TABLE>
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<PAGE>
GLOBAL HEALTH SCIENCES, INC.
INDEX
PAGE REFERENCE
COVER PAGE.....................................................................1
ADDITIONAL REGISTRANTS.........................................................2
INDEX..........................................................................3
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited) .............
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 ............................................... 4
Condensed Consolidated Statements of Operations For The
Three and The Nine months Ended September 30, 1999 and 1998 ......... 5
Condensed Consolidated Statements of Cash Flows For The
Nine months Ended September 30, 1999 and 1998 ....................... 6
Notes to Condensed Consolidated Financial Statements ................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..........15
PART II--OTHER INFORMATION
Item 1. Legal Proceedings ...................................................15
Item 2. Amendment to Credit Agreement .......................................15
Item 6. Exhibits and Reports on Form 8-K ....................................15
Signatures ...................................................................16
Exhibit 1 - Financial Data Schedule ..........................................17
Exhibit 2 - Amendment to Credit Agreement ....................................18
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL HEALTH SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 18,856 $ 7,987
Accounts receivable, net ............................ 15,854 11,912
Inventories ......................................... 25,780 14,784
Prepaid expenses and other current assets ........... 2,991 2,454
--------- ---------
Total current assets ................................ 63,481 37,137
Property and equipment, net ............................. 19,013 7,490
Intangibles and other assets, net ....................... 133,059 158,116
--------- ---------
Total .......................................... $ 215,553 $ 202,743
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable and accrued expenses ............... $ 33,919 $ 18,554
Accrued interest payable ............................ 10,582 4,125
Line of credit ...................................... -- 31,000
--------- ---------
Total current liabilities ........................... 44,501 53,679
Long-term debt ...................................... 257,828 218,832
--------- ---------
Total liabilities .............................. 302,329 272,511
--------- ---------
Commitments and contingencies
Stockholder's Deficit:
Common stock 495,148 shares issued and outstanding .. 473 473
Accumulated deficit ................................. (87,249) (70,241)
--------- ---------
Total stockholder's deficit ......................... (86,776) (69,768)
--------- ---------
Total .......................................... $ 215,553 $ 202,743
========= =========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ----------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales .................................. $ 74,619 $ 42,452 $ 184,330 $ 106,382
Cost of sales .............................. 55,738 30,072 133,218 74,039
----------- ----------- ----------- ----------
Gross profit ............................... 18,881 12,380 51,112 32,343
Selling, general and administrative expenses 6,592 3,456 17,717 8,123
Amortization of intangibles ................ 8,165 6,701 24,514 8,973
----------- ----------- ----------- ----------
Operating income ........................... 4,124 2,223 8,881 15,247
Interest expense, net ...................... 7,544 6,464 22,049 11,335
----------- ----------- ----------- ----------
Income (loss) before income taxes .......... (3,420) (4,241) (13,168) 3,912
Provision for state income taxes ........... 50 37 106 193
----------- ----------- ----------- ----------
Net income (loss) .......................... $ (3,470) $ (4,278) $ (13,274) $ 3,719
=========== =========== =========== ==========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPT. 30, SEPT. 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $ (13,274) $ 3,719
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ............................. 1,516 265
Amortization of goodwill .................................. 24,514 8,973
Non cash portion of interest expense ...................... 1,312 359
Changes in assets and liabilities:
Accounts receivable ....................................... (3,942) 87
Inventories ............................................... (10,996) 316
Prepaid expenses and other current assets ................. (537) (921)
Accounts payable and accrued liabilities .................. 15,365 (1,388)
Accrued interest .......................................... 6,457 10,863
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......................... 20,415 22,273
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ....................... (13,039) (1,785)
Acquisition costs ......................................... (273) --
Purchase of Omni-Pak and Affiliates
Net of cash acquired of $2,640 .......................... -- (135,227)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES ........................... (13,312) (137,012)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock ................................ -- (62,575)
Dividends paid ............................................ (3,734) (14,114)
Issuance of Notes due 2008 ................................ -- 218,502
Debt issue costs .......................................... -- (7,654)
Borrowings (Repayments) of credit line .................... 7,500 (420)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............... 3,766 133,739
----------- -----------
Increase in cash .................................................. 10,869 19,000
Cash at beginning of period ....................................... 7,987 3,768
----------- -----------
Cash at end of period ............................................. $ 18,856 $ 22,768
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
On April 23, 1998, D&F Industries ("D&F," the predecessor), Raven d/b/a
Omni-Pak Industries ("Omni-Pak"), Dynamic Products Inc. ("Dynamic") and
West Coast Sales ("West Coast") entered into a reorganization agreement
pursuant to which (a) D&F changed its name to Global Health Sciences,
Inc., (b) Global Health Sciences, Inc. formed a new subsidiary, Global
Health Sub, Inc. ("Global Sub"), (c) Global Sub formed four new
subsidiaries named D&F Industries, Inc. ("D&F Sub"), Raven Sub, Inc.
("Omni-Pak Merger Sub"), New West Coast Sales, Inc. ("West Coast Merger
Sub") and Dynamic Sub, Inc. ("Dynamic Merger Sub"), (d) Global Health
Sciences, Inc. transferred to D&F Sub all of its assets and liabilities
except for its obligation under the 11% Senior Notes due 2008 (the
"Notes") and the common stock of Global Sub, (e) Global Health
Sciences, Inc. through Global Sub acquired Omni-Pak, Dynamic and West
Coast (together referred to as Omni-Pak and Affiliates) from their
respective shareholders for approximately $137.9 million in cash and
expenses (the "Acquisition"), in transactions accounted for under the
purchase method of accounting pursuant to the mergers of Omni-Pak
Merger Sub and Omni-Pak (with Omni-Pak as the surviving corporation),
Dynamic Merger Sub and Dynamic (with Dynamic as the surviving
corporation), and West Coast Sub and West Coast (with West Coast as the
surviving corporation) and (f) the shareholders of Global Health
Sciences, Inc. received approximately $58.7 million in cash to
repurchase approximately 543,000 outstanding shares from its
stockholders (the "Recapitalization"). The transactions above are
referred to as the "Reorganization".
On December 11, 1998, Global Health Sciences, Inc. acquired the stock
of American Ingredients, Inc. for $36.8 million in cash and expenses in
a transaction accounted for under the purchase method of accounting.
The statement of operations and cash flow for the 1998 periods prior to
April 23,1998 are those of D&F and subsequent to that date include D&F,
Omni-Pak and Affiliates. The financial statements presented for the
1999 period are those of Global Health Sciences, Inc. (which include
the operations of D&F, Omni-Pak and Affiliates and American
Ingredients.) The following are summarized pro forma operating results
assuming that the Reorganization and the acquisition of American
Ingredients occurred as of January 1, 1998 (amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1998 SEPT. 30, 1998
------------------ -----------------
<S> <C> <C>
Sales (net).................................. $48,987 $156,756
Operating income............................. 297 6,266
Interest expense and other................... 7,142 21,390
Net income (loss)............................ (6,880) (15,429)
</TABLE>
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<PAGE>
ACQUISITION FACILITY - The Company has a $41 million line of credit
that matures January 31, 2001. No more than $10 million is available
for working capital and general corporate purposes. Borrowings under
the working capital portion of the facility were $7.5 million at
September 30, 1999. On October 29,1999, the Company and Global Sub
entered into a limited waiver and amendment to the credit facilities,
pursuant to which, among other things, (a) the lenders party thereto
waived certain events of default resulting from Global Sub's failure to
comply with certain financial covenants contained therein, (b)
availability thereunder was reduced from $75 million to $41 million,
(c) the maturity date thereof was accelerated from April 22 , 2003 to
January 31, 2001, (d) certain financial covenants contained therein
were amended to be less restrictive, and (e) the interest rate
thereunder was increased by 0.5%.
GLOBAL HEALTH SCIENCES, INC. is a holding company with no independent
operations other than its investments in its subsidiaries, principally
D&F, Omni-Pak and Affiliates. Pursuant to the indenture governing the
Notes, these subsidiaries (the "Subsidiary Guarantors") have jointly
and severally guaranteed the Notes on a full and unconditional basis.
Separate financial statements related to the Subsidiary Guarantors are
not included herein, as the management of Global Health Sciences, Inc.
has determined that the separate financial statements of the Subsidiary
Guarantors are not material to investors. All significant intercompany
balances and transactions have been eliminated in consolidation.
INTERIM PERIOD PRESENTATION - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Article 10 of Regulation S-X.
In the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the interim period ended
September 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
NEW ACCOUNTING STANDARDS In September 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
This statement will be effective January 1, 2001. The Company has not
yet analyzed the impact of adopting the statement.
COMPREHENSIVE INCOME--There are no adjustments between net income and
comprehensive income for the periods presented.
RECLASSIFICATIONS--Certain amounts from the December 31, 1998 balance
sheet have been reclassified to conform to the current classifications.
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<PAGE>
NOTE 2 - INVENTORIES
Inventories at September 30, 1999 consist of the following (amounts in
thousands):
Raw materials $ 18,881
Work in process 4,431
Finished goods 2,468
-------------
Total Inventory $ 25,780
=============
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1999 consist of the following (amounts
in thousands):
Equipment $ 15,187
Leasehold improvements 15,200
Land 149
Less accumulated depreciation and amortization (11,523)
-------------
Net property and equipment $ 19,013
=============
NOTE 4 - INTANGIBLES AND OTHER ASSETS
Intangibles and Other assets at September 30, 1999 consist of the following
(amounts in thousands):
Goodwill and other intangibles $ 165,722
Deferred financing costs 8,939
Accumulated Amortization
Goodwill (40,188)
Deferred financing costs (1,414)
-------------
$ 133,059
=============
NOTE 5 - COMMITMENTS & CONTINGENCIES
The Company is a defendant in certain litigation in the normal course of
business. The Company believes, after consultation with legal counsel, that
liability incurred in connection with pending or threatened litigation, if any,
will not be material to the Company's results of operations or financial
condition.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the consolidated
financial statements included elsewhere herein.
Prior to its Reorganization in April 1998, the operations of Global Health
Sciences Inc. (the "Company") were conducted by four subchapter S corporations:
D&F, Omni-Pak, Dynamic and West Coast. Together these companies (together, the
"Combined Companies") are one of the world's leading developers and custom
manufacturers of dietary and nutritional supplements. These companies develop
specialty products for branded distribution companies, branded retailers,
television marketing companies and network marketing organizations who then
distribute their products throughout the world. These companies were reorganized
in the Reorganization to consolidate related and complementary business
activities under one holding company, Global Health Sciences, Inc. (see Note 1
to the financial statements). The "Combined Companies" historically operated
under common management and had a high degree of common ownership, customers and
systems, including similar accounting and financial reporting systems. As
subchapter S corporations, all federal and state income taxes (other than a
minimum state income tax of 1.5%) for each of such corporations is paid directly
by its shareholder. The Company has historically distributed, and intends to
continue to distribute, as a quarterly dividend to its shareholder amounts
sufficient for the shareholder to pay his required income taxes.
The Company's historical growth in sales and EBITDA has been primarily
attributable to increased sales to Herbalife, the Company's largest customer.
Sales by the Combined Companies to Herbalife have increased from approximately
$70.5 million in fiscal year 1995, representing approximately 83% of the
Company's sales in that year, to approximately $108.1 million in fiscal year
1998, representing approximately 61% of the Company's sales in that year. Due to
the significant percentage of the Company's sales attributable to Herbalife,
fluctuations in Herbalife's sales and inventory levels have had adverse effects
on Company sales in the past and could have adverse effects in the future. The
Company and Herbalife have a supply agreement, which extends through January
2001. The Company's sales to Herbalife for the nine months ended September 30,
1999 were approximately $108.9 million or 59.1% of net sales.
RESULTS OF OPERATIONS
The following summarizes historical consolidated operating results for Global
Health Sciences, Inc. for the nine months ended September 30, 1999 and
supplemental pro forma consolidated operating results for the nine months ended
September 30,1998, assuming that the Reorganization and the acquisition of
American Ingredients occurred as of January 1, 1998.
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<PAGE>
HISTORICAL STATEMENT OF INCOME
FOR GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales .................................. $ 74,619 $ 42,452 $ 184,330 $ 106,382
Cost of sales .............................. 55,738 30,072 133,218 74,039
----------- ----------- ----------- ----------
Gross profit ............................... 18,881 12,380 51,112 32,343
Selling, general and administrative expenses 6,592 3,456 17,717 8,123
Amortization of intangibles ................ 8,165 6,701 24,514 8,973
----------- ----------- ----------- ----------
Operating income ........................... 4,124 2,223 8,881 15,247
Interest expense, net ...................... 7,544 6,464 22,049 11,335
----------- ----------- ----------- ----------
Income (loss) before income taxes .......... (3,420) (4,241) (13,168) 3,912
Provision for state income taxes ........... 50 37 106 193
----------- ----------- ----------- ----------
Net income (loss) .......................... $ (3,470) $ (4,278) $ (13,274) $ 3,719
=========== =========== =========== ==========
</TABLE>
SUPPLEMENTAL COMBINED STATEMENT OF INCOME DATA
FOR GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F) (1)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
Historical Pro Forma Historical Pro Forma
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales (net) ................................ $ 74,619 $ 48,987 $ 184,330 $ 156,756
Cost of sales .............................. 55,738 34,764 133,218 109,125
----------- ----------- ----------- -----------
Gross profit ............................... 18,881 14,223 51,112 47,631
Selling, general and administrative expenses 6,592 5,711 17,717 16,801
Amortization of intangible assets .......... 8,165 8,215 24,514 24,564
----------- ----------- ----------- -----------
Operating income ........................... 4,124 297 8,881 6,266
Interest expense, net ...................... 7,544 7,142 22,049 21,390
----------- ----------- ----------- -----------
Income (loss) before state taxes ........... (3,420) (6,845) (13,168) (15,124)
Provision for state income taxes ........... 50 35 106 305
----------- ----------- ----------- -----------
Net income (loss) .......................... $ (3,470) $ (6,880) $ (13,274) $ (15,429)
=========== =========== =========== ===========
EBITDA (2) ................................. $ 12,974 $ 8,808 $ 34,849 $ 31,775
EBITDA margin (2) .......................... 17.4% 18.0% 18.9% 20.3%
</TABLE>
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<PAGE>
(1) Supplemental pro forma combined statement of income data reflects the
following as if the transactions occurred January 1, 1998.
a. The acquisition of American Ingredients, Inc.
b. The acquisition of Omni-Pak and Affiliates
c. The impact of borrowing for the recapitalization of Global Health
Sciences, Inc. and the acquisition of American Ingredients, Inc.
d. The amortization of intangibles resulting from the acquisition of
American Ingredients, Inc. and acquisition of Omni-Pak and
Affiliates.
(2) EBITDA is defined as net income before interest income (expense),
income taxes and depreciation and amortization. Management believes
that EBITDA and EBITDA margin are measures commonly used by analysts
and investors to determined a company's ability to service and incur
debt. Accordingly, this information has been presented to permit a more
complete analysis. However, EBITDA as reported may not be comparable to
similarly titled measures used by other companies. EBITDA margin is
computed by dividing EBITDA by net sales. EBITDA should not be
considered a substitute for net income or cash flow data prepared in
accordance with general accepted accounting principles or as a measure
of profitability or liquidity.
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998
The following discussion of results of operations is based on a
comparison of historical 1999 operating results to the 1998 supplemental pro
forma operating data because management believes that such comparison provides
the most meaningful analysis of comparative results.
SALES. In the third quarter of 1999, sales increased by $25.6 million
or 52.2%, to $74.6 million as compared to $49.0 million in the third quarter of
1998. Sales to Herbalife were $45.1 million in the third quarter of 1999 as
compared to $25.0 million in the third quarter of 1998.
COST OF SALES AND GROSS PROFIT. Cost of sales increased by $20.9
million or 60.1%, to $55.7 million in the third quarter of 1999, as compared to
$34.8 million in the third quarter of 1998. Cost of sales as a percentage of
sales increased to 74.7% in the third quarter of 1999 as compared to 71.0% in
the third quarter of 1998, thereby decreasing the gross margin in the third
quarter of 1999 to 25.3% from 29.0% in the third quarter of 1998. The reduction
in gross margin was primarily due to temporarily increased manufacturing
operating costs related to the facility move and costs related to expanding
manufacturing capacity.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $0.9 million to $6.6 million in the third
quarter of 1999, as compared to $5.7 million in the third quarter of 1998. As a
percentage of sales, selling, general and administrative expenses (excluding
amortization of goodwill and other intangibles) decreased to 8.8% in the third
quarter of 1999, as compared to 11.6% in the third quarter of 1998. The
increased expenses were primarily related to the expansion of sales and
manufacturing capacity.
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<PAGE>
NET LOSS. Company net loss decreased by $3.4 million to a net loss of
$3.5 million in the third quarter of 1999, as compared to a $6.9 million net
loss in the third quarter of 1998. The increase in profitability resulted
primarily from the effect of significantly higher sales volume. Gross Margins
were lower due to temporarily increased manufacturing operating costs related to
the facility move and costs related to expanding manufacturing capacity.
Selling, general and administrative expenses increased as a result of the
expansion of sales and manufacturing capacity.
NINE MONTHS ENDED SEPTEMBER 30,1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
SALES. In the first nine months of 1999, sales increased by $27.5
million or 17.5%, to $184.3 million as compared to $156.8 million in the first
nine months of 1998. Sales to Herbalife were $108.9 million in the first nine
months of 1999 as compared to $84.1 million in the first nine months of 1998.
Sales to the Company's second largest customer, EAS, continue to grow with EAS'
continued growth.
COST OF SALES AND GROSS PROFIT. Cost of sales increased by $24.1
million or 22.1% to $133.2 million in the first nine months of 1999 as compared
to $109.1 million in the first nine months of 1998. Cost of sales as a
percentage of sales increased to 72.3% in the first nine months of 1999 as
compared to 69.6% in the first nine months of 1998, thereby decreasing the gross
margin in the first nine months of 1999 to 27.7% from 30.4% in the first nine
months of 1998. The reduction in gross margin was primarily due to temporarily
increased manufacturing operating costs related to the facility move and costs
related to expanding manufacturing capacity.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $0.9 million to $17.7 million in the first
nine months of 1999 as compared to $16.8 in the first nine months of 1998. As a
percentage of sales, selling, general and administrative expenses (excluding
amortization of goodwill and other intangibles) decreased by 1.1% to 9.6% in the
first nine months of 1999 as compared to 10.7% in the first nine months of 1998.
NET LOSS. Company net loss decreased by $2.1 million to a net loss of
$13.3 million in the first nine months of 1999 as compared to a $15.4 million
net loss in the first nine months of 1998. The increase in profitability
resulted primarily from the effect of significantly higher sales volume.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for working capital, prospective
acquisitions and capital expenditures. The Company expects to meet its liquidity
requirements through cash flow from operations and it's acquisition facility.
Cash and cash equivalents were $18.9 million at September 30, 1999 compared to
$8.0 million at December 31, 1998. The Company is required to make semi annual
interest payments on the Notes of $12.4 million on May 1 and November 1.
Cash provided by operating activities for the period ended September 30, 1999
was $20.4 million. This amount primarily represents depreciation and
amortization of $27.3 million, increases in accounts payable, accrued
liabilities, and accrued interest of $21.8 million, net of the loss of $13.3
million and increases in accounts receivable of $3.9 million and inventory of
$11.0 million.
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<PAGE>
Capital expenditures of $13.0 million for the period ended September 30, 1999
were primarily for leasehold improvements on the Company's new manufacturing
facility, additional manufacturing equipment and purchases of management
information systems.
Cash provided by financing activities for the period ended September 30, 1999
was $3.7 million. The Company has elected S Corporation status for federal and
state tax purpose, and other than the 1.5% state tax, income tax is paid by its
shareholder. The Company distributed cash dividends of $3.7 million to its
shareholder to pay federal and state taxes.
ACQUISITION FACILITY - The Company has a $41 million line of credit that matures
January 31, 2001. No more than $10 million is available for working capital and
general corporate purposes. Borrowings under the working capital portion of the
facility were $7.5 million at September 30, 1999. On October 29,1999, the
Company and Global Sub entered into a limited waiver and amendment to the credit
facilities, pursuant to which, among other things, (a) the lenders party thereto
waived certain events of default resulting from Global Sub's failure to comply
with certain financial covenants contained therein, (b) availability thereunder
was reduced from $75 million to $41 million, (c) the maturity date thereof was
accelerated from April 22 , 2003 to January 31, 2001, (d) certain financial
covenants contained therein were amended to be less restrictive, and (e) the
interest rate thereunder was increased by 0.5%.
YEAR 2000 COMPLIANCE
The Company has completed replacing its computer software applications and
systems. We believe the new systems accommodate the "year 2000" dating changes
necessary to permit correct recording of year dates for 2000 and later years.
The cost of the new systems was $2.2 million of which $1.8 was capitalized and
$0.4 was expensed. The Company does not currently have any information
concerning the compliance status of its suppliers. Failure by the Company's
suppliers to be in compliance could have a material adverse effect to the
Company.
FORWARD LOOKING STATEMENTS
Statements other than the actual reported financial results and other historical
information, including without limitation, certain statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and located elsewhere herein regarding Year 2000 compliance and its
effects, if any, if the Company is unable to achieve such compliance, and the
Company's operations and financial position, may constitute forward-looking
statements and are intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "believe," or "continue," or the negative thereof or
variations thereon or similar terminology. All such forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those contemplated by the relevant forward-looking
statement. These risks and uncertainties include, without limitation, the
ability to increase production at the Company's new manufacturing facility, the
continued growth in sales to significant customers and the ability of the
companies suppliers to become year 2000 compliant. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable at this time, it can give no assurance that such expectations will
prove to have been correct.
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<PAGE>
ITEM 3. MARKET RISK
The Company currently uses no material derivative financial instruments that
expose the Company to significant market risk. However, the Company's cash flow,
earnings and the fair value of its debt, may be adversely effected due to
changes in interest rates with respect to its long-term debt. Other than the
amendments to the Acquisition Facility, as described in the Liquidity and
Capital Resources, there have been no significant changes in the Company's
market risk in the quarter ended September 30, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in certain litigation in the normal course of
business. The Company believes, after consultation with legal counsel, that
liability incurred in connection with pending or threatened litigation, if any,
will not be material to the Company's results of operations or financial
condition.
ITEM 2. AMENDMENT TO CREDIT AGREEMENT
See Exhibit #2
ITEM 6. EXHIBITS
Exhibit 27 - Financial Data Schedule for the quarter ended September
30, 1999, which is submitted electronically to the
Commission for information only.
Exhibit 2 - Amendment to Credit Agreement
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 10, 1999
Global Health Sciences, Inc.
Global Health Sub, Inc.
D&F Industries, Inc.
Raven Industries, Inc.
West Coast Sales
Dynamic Products, Inc.
By: /s/ Paul M. Buxbaum
-------------------------------------
Paul M. Buxbaum
Chief Executive Officer
By: /s/ Donald J. Lewis
-------------------------------------
Donald J. Lewis
Chief Financial Officer
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<PAGE>
EXHIBIT 2 - AMENDMENT TO CREDIT AGREEMENT
LIMITED WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT
This LIMITED WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment")
is dated as of October 29, 1999 and is by and among GLOBAL HEALTH SUB, INC., as
Borrower, GLOBAL HEALTH SCIENCES, INC., as Parent Guarantor, the LENDERS party
hereto, CITICORP USA, INC., as Administrative Agent, CITIBANK, N.A., as Issuing
Bank, and BANK OF AMERICA, N.A. (formerly known as Bank of America NT&SA), as
Documentation Agent.
RECITALS
1. The parties hereto have previously entered into that certain Credit Agreement
dated as of April 23, 1998, as amended by that certain First Amendment to Credit
Agreement dated as of December 4, 1998 (the "First Amendment") and that certain
Second Amendment to Credit Agreement dated as of April 30, 1999 (the "Second
Amendment") (as so amended, the "Credit Agreement").
2. The Borrower has requested that the Lenders waive (i) for the period from and
including June 30, 1999 to but not including October 29, 1999 (the "Waiver
Period"), any Event of Default arising under Section 6.11, 6.12, 6.13, 6.14 or
6.15 of the Credit Agreement that would otherwise exist due to the Borrower's
failure to comply with the provisions of such Sections, and (ii) certain other
defaults as more fully set forth in Article II hereof, and the Lenders are
willing to grant such waivers, all on the terms and conditions set forth herein.
2. The Borrower has also requested that the Lenders agree to amendments to
certain provisions of the Credit Agreement and the Lenders are willing to agree
to such amendments, all on the terms and conditions set forth herein.
AGREEMENT
I. DEFINITIONS
1.1. Defined Terms. Capitalized terms used but not otherwise defined herein
shall have the respective meanings assigned to such terms in the Credit
Agreement.
II. LIMITED WAIVER AND CONSENTS
2.1. Limited Waiver. Effective upon the Third Amendment Effective Date (as
defined below), the Required Lenders hereby waive (i) for the duration of the
Waiver Period (and only for such Waiver Period), any Event of Default or
Specified Event of Default arising under Section 6.11, 6.12, 6.13, 6.14 or 6.15
for the period ending June 30, 1999, and (ii) any Event of Default arising from
the Borrower's failure to comply with the provisions of the Loan Documents with
respect to the formation of Herbalogix, Inc. and (iii) any prepayment of the
loans or reduction of the Revolving Commitments required by Section 2.7(b) in
connection with the sale of Herbalogix, Inc. (it being expressly understood and
agreed that any prepayment, if any, at anytime required by Section 2.7(d) of the
Credit Agreement with the proceeds of, or otherwise in connection with, such
sale is not waived); provided, however, that, notwithstanding such waivers,
default interest, as provided pursuant to Section 2.11(c) of the Credit
Agreement, shall be due and payable for the period from and including July 1,
1999 to but not including the Third Amendment Effective Date.
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<PAGE>
III. AMENDMENTS
3.1. Amendments to Credit Agreement. As of the Third Amendment Effective Date,
the Credit Agreement shall be amended as follows:
3.1.1. Section 1.1.
(a) Section 1.1 of the Credit Agreement is hereby amended by adding thereto in
appropriate alphabetical order the following defined terms:
"American Ingredients Joint Venture" means a joint venture between the Borrower
or any of its Subsidiaries and Martin Bauer, Inc. or any of its Affiliates.
"American Ingredients LLC" means American Ingredients LLC, a California limited
liability company.
"American Ingredients Operating Agreement" means the Operating Agreement of
American Ingredients LLC as the same may be amended, supplemented or otherwise
modified from time to time.
"Third Amendment Effective Date" means the date of the effectiveness of the
Limited Waiver and Third Amendment to Credit Agreement dated as of October 29,
1999 by and among the Borrower, Parent Guarantor, the Lenders signatory thereto,
the Administrative Agent, the Issuing Bank and the Documentation Agent."
(b) Section 1.1 of the Credit Agreement is hereby further amended by amending
and restating the following defined term in its entirety:
"Maturity Date" means January 31, 2001.
(c) The definition of "Net Cash Proceeds" set forth in Section 1.1 of the Credit
Agreement is hereby amended by inserting immediately following the words "in
accordance with Section 6.7" appearing in the fourth and fifth lines of such
definition, the following:
"and except for capital contributions in respect of any EBITDA Shortfall Amount
(as defined in Section 6.13)"
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<PAGE>
(d) Section 1.1 of the Credit Agreement is hereby further amended by amending
and restating the following defined term in its entirety:
"`Applicable ABR Margin' and `Applicable Eurodollar Margin' mean, for any day
with respect to any ABR Loan or any Eurodollar Loan, respectively, the
applicable rate per annum set forth below under the caption "ABR Spread" or
"Eurodollar Spread," respectively, based upon the Total Leverage Ratio as of the
most recent determination date:
<TABLE>
<CAPTION>
================================================= ===================== ===========================
TOTAL LEVERAGE RATIO: ABR SPREAD (P.A.) EURODOLLAR SPREAD (P.A.)
- ------------------------------------------------- --------------------- ---------------------------
<S> <C> <C>
LEVEL I
Greater than 5.00 to 1.00 2.00% 3.25%
- ------------------------------------------------- --------------------- ---------------------------
LEVEL II
Greater than 4.50 to 1.00 but less than or equal
to
5.00 to 1.00 1.50% 2.75%
- ------------------------------------------------- --------------------- ---------------------------
LEVEL III
Greater than 3.50 to 1.00 but less than or equal
to
4.50 to 1.00 1.25% 2.50%
- ------------------------------------------------- --------------------- ---------------------------
LEVEL IV
Greater than 2.50 to 1.00 but less than or equal
to
3.50 to 1.00 1.00% 2.25%
- ------------------------------------------------- --------------------- ---------------------------
LEVEL V
Less than or equal to
2.50 to 1.00 0.75% 2.00%
================================================= ===================== ===========================
</TABLE>
For purposes of the foregoing, (a) the Total Leverage Ratio shall be determined
as of the last day of each fiscal quarter in the Borrower's fiscal year based
upon its consolidated financial statements delivered pursuant to Section 5.1(a)
or 5.1(b) (and the Compliance Certificate delivered in connection therewith) and
(b) each change in the Applicable ABR Margin or Applicable Eurodollar Margin
resulting from a change in the Total Leverage Ratio shall be effective during
the period commencing on and including the third Business Day after the date of
delivery to the Administrative Agent of such consolidated financial statements
indicating such change and ending on the date immediately preceding the
effective date of the next such change, provided that the Total Leverage Ratio
shall be deemed to be in Level I (i) at any time that an Event of Default has
occurred and is continuing or (ii) if the Borrower fails to deliver the
consolidated financial statements and the Compliance Certificate required to be
delivered by it pursuant to Section 5.1(a) or 5.1(b), during the period from the
expiration of the time for delivery thereof until such consolidated financial
statements and Compliance Certificate are delivered and, provided further that
the levels set forth in this definition shall not constitute a waiver of any
Default under any other provision of the Credit Agreement or any other Loan
Document (including, without limitation, Section 6.12). Any provision hereof to
the contrary notwithstanding, the Applicable ABR Margin shall be increased at
each level set forth above by (i) 200 basis points on October 1, 2000, and (ii)
by an additional 100 basis points on the first day of each calendar month
thereafter."
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<PAGE>
3.1.2. Section 2.6. Section 2.6(h) of the Credit Agreement is amended and
restated in its entirety to read as follows:
"(h) Any provision hereof to the contrary notwithstanding, from and after the
Third Amendment Effective Date,
(i) no Borrowing may be made, converted to or continued as a Eurodollar
Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted
to an ABR Borrowing at the end of the Interest Period applicable thereto."
3.1.3. Section 2.7. Section 2.7 of the Credit Agreement is hereby amended by
adding thereto new Section 2.7(i) to read as follows:
"(i) The Revolving Commitments shall be permanently and automatically reduced by
$34,000,000 on the Third Amendment Effective Date."
3.1.4. Section 2.10. Section 2.10 of the Credit Agreement is hereby amended by
adding thereto a new clause (e) to read as follows:
(e) On September 30, 2000, the Borrower shall pay to the Administrative Agent,
in immediately available funds for the account of each Lender, a deferred
restructuring fee, in consideration of the waivers and amendments granted
pursuant to the Third Amendment dated as of October 29, 1999, equal to 1.0
percent of (i) such Lender's Revolving Commitment in effect on such date or,
(ii) if the Revolving Commitments have been terminated, the aggregate principal
amount of the Loans owing to such Lender on such date plus such Lender's LC
Exposure at such time.
3.1.5. Article V. Article V of the Credit Agreement is hereby amended by adding
thereto a new Section 5.17 to read as follows:
"Section 5.17 American Ingredients LLC. In the event the Borrower or any of its
Subsidiaries shall enter into the American Ingredients Joint Venture, the
Borrower shall (i) cause the terms of the American Ingredients Operating
Agreement to be satisfactory to the Administrative Agent and the Required
Lenders and (ii) cause American Ingredients LLC promptly to distribute all
available cash in accordance with the provisions of the American Ingredients
Operating Agreement and to limit amounts maintained as reserves to the minimum
amount determined to be reasonable by the managing board or similar body of the
American Ingredients Joint Venture. The Borrower shall at all times maintain
membership interests in American Ingredients LLC sufficient to maintain at least
a 50% ownership percentage of American Ingredients LLC."
3.1.6. Section 6.4. Section 6.4(b) of the Credit Agreement is amended and
restated in its entirety to read as follows: "(b) prior to the Third Amendment
Effective Date, Permitted Acquisitions;".
3.1.7. Sections 6.11 through 6.15. Sections 6.11 through and including Section
6.15 of the Credit Agreement are hereby amended and restated in their entirety
to read as follows:
"Section 6.11 Capital Expenditures. The Borrower and Holdings will not make any
Capital Expenditures except (a) Permitted Acquisitions and (b) other Capital
Expenditures made by the Borrower or a Borrower Subsidiary in an amount which,
in the aggregate for all such other Capital Expenditures made by the Borrower
and the Borrower Subsidiaries, does not (i) for the period of four fiscal
quarters ending as of the end of the third fiscal quarter of 1999, exceed
$13,500,000, (ii) for the period of four fiscal quarters ending as of the end of
the fourth fiscal quarter of 1999, exceed $16,000,000, (iii) for the period of
four fiscal quarters ending as of the end of the first fiscal quarter of 2000,
exceed $11,000,000, or (iv) in any period of four fiscal quarters ending on the
last day of any fiscal quarter, commencing with the fiscal quarter ending March
30, 2000, exceed $7,000,000.
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<PAGE>
Section 6.12 Pro Forma Leverage Ratio. Each of the Borrower and Holdings will
not permit the Pro Forma Leverage Ratio to exceed, as of the last day of any
fiscal quarter ending during any period set forth below, the ratio set forth
opposite such period:
Period Total Leverage Ratio
------ --------------------
Third fiscal quarter 1999 5.50 to 1.0
Fourth fiscal quarter 1999 5.30 to 1.0
First fiscal quarter 2000 5.00 to 1.0
Second fiscal quarter 2000 4.70 to 1.0
Third fiscal quarter 2000 4.40 to 1.0
Fourth fiscal quarter 2000 4.30 to 1.0
Section 6.13 CONSOLIDATED EBITDA. The Borrower and Holdings will not permit
Consolidated EBITDA for any period of four fiscal quarters ending as of the last
day of any fiscal quarter ending during any period set forth below to be less
than the amount set forth opposite such period:
Period Minimum Consolidated Ebitda
------ ---------------------------
Third fiscal quarter 1999 42,000,000
Fourth fiscal quarter 1999 45,000,000
First fiscal quarter 2000 48,000,000
Second fiscal quarter 2000 51,000,000
Third fiscal quarter 2000 51,000,000
Fourth fiscal quarter 2000 53,000,000
provided, however, that in the event the amount set forth above for any period
exceeds the actual amount of Consolidated EBITDA for such period (the amount of
any such excess being referred to herein as the "EBITDA Shortfall Amount"), the
Borrower will be in compliance with this Section 6.13 if within five (5)
Business Days after determination by the Borrower of such EBITDA Shortfall
Amount (and in any event not later than the date on which financial statements
with respect to such period are required to be delivered pursuant to Section
5.1(a) or (b), as applicable), the Borrower provides evidence satisfactory to
the Administrative Agent and the Required Lenders that the Borrower has received
a cash capital contribution in respect of the Borrower's common stock in an
amount at least equal to such EBITDA Shortfall Amount, whereupon, for the
purposes hereof, the amount of any such capital contribution shall be included
in the calculation of Consolidated EBITDA for the applicable period.
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<PAGE>
Section 6.14 Cash Interest Coverage Ratio. The Borrower and Holdings will not
permit the Cash Interest Coverage Ratio, determined as of the last day of any
fiscal quarter ending during any period set forth below, to be less than the
ratio set forth opposite such period below:
PERIOD MINIMUM RATIO
Third fiscal quarter 1999 1.50 to 1.0
Fourth fiscal quarter 1999 1.60 to 1.0
First fiscal quarter 2000 to and including third
fiscal quarter 2000 1.70 to 1.0
Fourth fiscal quarter 2000 1.80 to 1.0
Section 6.15 Fixed Charge Coverage Ratio. The Borrower and Holdings will not
permit the Fixed Charge Coverage Ratio, determined as of the last day of any
fiscal quarter ending during any period set forth below, to be less than the
ratio set forth opposite such period:
PERIOD MINIMUM RATIO
Third fiscal quarter 1999 .90 to 1.0
Fourth fiscal quarter 1999 .90 to 1.0
First fiscal quarter 2000 .90 to 1.0
Second fiscal quarter 2000 1.0 to 1.0
Third fiscal quarter 2000 1.10 to 1.0
Fourth fiscal quarter 2000 1.10 to 1.0
3.1.8. ..Article VI. Article VI is further amended by adding thereto a new
Section 6.17 to read as follows: "Section 6.17 American Ingredients LLC. In the
event the Borrower or any of its Subsidiaries shall enter into the American
Ingredients Joint Venture, each of the Borrower and Holdings will not, and will
not permit any Subsidiary or American Ingredients LLC to, amend, modify or waive
any of its rights, in each case in any way that could be adverse to Holdings,
the Borrower, their respective Subsidiaries, or the Administrative Agent, the
Issuing Bank or any Lender, under the American Ingredients Operating Agreement,
except changes in such agreement that do not relate to or affect any of the
Transactions and are implemented after 30 days prior written notice to the
Administrative Agent and the Lenders, unless within such 30-day period the
Borrower is advised by Required Lenders that, in the opinion of Required
Lenders, such change would be adverse to the interests of the Lenders."
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<PAGE>
IV. REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties. Each of the Borrower and the Parent
Guarantor hereby represents and warrants to the Administrative Agent, the
Lenders and the Issuing Bank as follows:
4.1.1. Such party is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with full power and authority
to carry on its business as now conducted and to enter into and perform its
obligations under this Amendment (and the Credit Agreement as modified hereby)
and, except where the failure to do so, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect, is qualified
to do business in, and is in good standing in, every jurisdiction where such
qualification is required.
4.1.2. Such party has taken all necessary action to authorize the execution,
delivery and performance of this Amendment (and the Credit Agreement as modified
hereby).
4.1.3. This Amendment has been duly executed and delivered by such party and
each of this Amendment and the Credit Agreement as modified hereby constitutes
the legal, valid and binding obligation of such party, enforceable against such
party in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
4.1.4. .The execution, delivery and performance by each member of the Holdings
Group of this Amendment (or the consent hereto, as applicable) (a) do not
require any consent or approval of, registration or filing with, or any other
action by, any Governmental Authority, (b) will not violate any applicable law
or regulation or the charter, by-laws or other organizational documents of any
member of the Holdings Group or any order of any Governmental Authority, (c)
will not violate or result in a default under any indenture, agreement or other
instrument binding upon any member of the Holdings Group or its assets, or give
rise to a right thereunder to require any payment to be made by any member of
the Holdings Group, and (d) will not result in the creation or imposition of any
Lien on any asset of any member of the Holdings Group, except Liens created
under the Loan Documents.
4.1.5. After giving effect to this Amendment, no event has occurred and is
continuing, or would result from the execution and delivery of this Amendment
that would constitute a Default.
4.1.6 All of the capital stock of Herbalogix, Inc. has been sold to Richard
Marconi in compliance with all applicable provisions of the Credit Agreement and
the Senior Note Indenture and the Borrower has received from Richard Marconi in
respect thereof cash reimbursement in an amount at least equal to the aggregate
amount invested by Holdings, the Borrower and the Borrower Subsidiaries in
Herbalogix, Inc.
4.1.7. Each of the representations and warranties contained in this Amendment
and the Credit Agreement as modified hereby is true, correct and complete as if
set forth in full herein and made on the date this Amendment becomes effective,
except to the extent that any such representation and warranty specifically
relates to an earlier date, in which case it was true, correct and complete as
of such earlier date.
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<PAGE>
V. CONDITIONS TO EFFECTIVENESS
The waivers, consents and amendments effected hereby shall not become effective
until the date (the "Third Amendment Effective Date") on which the following
conditions precedent are satisfied or waived in writing by the Required Lenders:
5.1.1. Execution. (i) Parent Guarantor, the Borrower, the Administrative Agent,
the Issuing Bank and the Required Lenders shall have executed and delivered this
Amendment to the Administrative Agent, and (ii) each other Guarantor shall have
executed and delivered the Consent attached hereto to the Administrative Agent.
5.1.2. Herbalogix, Inc. The Borrower shall have certified to the Administrative
Agent that Holdings is in compliance with the provisions of, and no Default (as
defined in the Senior Note Indenture) exists under, the Senior Note Indenture
(including, without limitation, Section 4.18 thereof) with respect to the
formation, existence and sale of Herbalogix, Inc.
5.1.3. Certain Financial Statements. The Administrative Agent and the lenders
shall have received, at least one Business Day prior to the Third Amendment
Effective Date, the financial statements and reports required by Section 5.1(b)
of the Credit Agreement (and the Compliance Certificate relating thereto) for
the period ended September 30, 1999 demonstrating compliance for such period
(and the period of four fiscal quarter ended as of such date, as applicable)
with Sections 6.11, 6.12, 6.13, 6.14 and 6.15 after giving effect to the
amendments to such Sections set forth herein.
5.1.4. Payment of Default Interest, Fees and Expenses. The Borrower shall have
paid in full all default interest as set forth in Section 2.1 hereof and all
fees and expenses for which it has been billed of (i) Crossroads, LLC, (ii) the
Administrative Agent and each Lender, (iii) counsel to the Administrative Agent
(including the allocated costs of internal counsel), and (iv) counsel to each
Lender (including the allocated costs of internal counsel).
5.1.5. Amendment Fee. The Borrower shall have paid to the Administrative Agent
for the account of each Lender executing this Amendment on or prior to October
29, 1999, a non-refundable amendment fee in the amount of 0.125% of each such
Lender's Revolving Commitment as in effect immediately after giving effect to
the reduction in the Revolving Commitments pursuant to Section 2.7(i) of the
Credit Agreement (as amended hereby).
VI. MISCELLANEOUS
6.1. No Waiver. Except as expressly set forth herein, nothing contained herein
or in any other instrument or document executed in connection herewith, nor any
action taken by the Administrative Agent, the Issuing Bank or any Lender, or any
party hereto or any party consenting hereto in connection with this Amendment or
any other action contemplated hereby or thereby shall in any event be construed
or deemed to constitute a waiver of any past, present or future Default or Event
of Default, or a waiver or an estoppel of any cause of action the Administrative
Agent, the Issuing Bank or any Lender, or any party hereto or any party
consenting hereto may have against any other party for any reason whatsoever.
6.2. Full Force and Effect. Except as specifically modified by this Amendment,
all of the terms and provisions of the Credit Agreement, each other Loan
Document and each of the documents referred to therein or delivered in
connection therewith shall remain in full force and effect. The waivers set
forth herein shall be limited precisely as written and shall not be deemed (a)
except as expressly set forth herein, to be a consent to any modification or
waiver of other terms or conditions of the Credit Agreement, any other Loan
Document or any of the documents referred to therein or delivered in connection
therewith or (b) to prejudice any right, remedy, power or privilege which any
party hereto or any party consenting hereto now has or may have in the future
under or in connection with the Credit Agreement, any other Loan Document or any
of the documents referred to therein or delivered in connection therewith. The
term
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<PAGE>
"Agreement" as used in the Credit Agreement, the other Loan Documents and all
other related documents shall mean the Credit Agreement as modified hereby.
Without limiting the generality of the foregoing, the Security Documents and all
of the Collateral described therein do and shall, to the extent set forth
therein, continue to secure the payment of all obligations and liabilities of
the Borrower under the Credit Agreement and/or any of the other Loan Documents,
in each case as amended hereby.
6.3 General Release of Claims.
(a) The Borrower represents and agrees that it has diligently and
thoroughly investigated the existence of any Claim (as defined below), and to
its knowledge and belief, no Claim exists and no facts exist that could give
rise to or support a Claim.
(b) As additional consideration for entering into this Amendment and as
consideration for the waivers and amendments set forth herein, Holdings, the
Borrower and each Guarantor and each of their respective agents, employees,
directors, officers, attorneys, affiliates, subsidiaries, successors and assigns
(individually a "Releasing Party," and collectively the "Releasing Parties")
hereby releases and forever discharges each of the Administrative Agent, the
Documentation Agent, the Arranger, the Issuing Bank and each Lender and all of
their respective agents, direct and indirect shareholders, employees, directors,
officers, attorneys, branches, affiliates, subsidiaries, successors and assigns
(individually, a "Released Party," and collectively, the "Released Parties") of
and from all damage, loss, claims, demands, liabilities, obligations (except for
any such obligations hereafter arising pursuant to the terms of the Loan
Documents, as amended to date), actions and causes of action whatsoever
(collectively "Claims") that the Releasing Parties or any of them may, as of the
date hereof, have or claim to have against each or any of the Released Parties,
in each case whether presently known or unknown or with respect to which the
facts are known (or should have been known) that could give rise to or support a
Claim and of every nature and extent whatsoever on account of or in any way
relating to, arising out of or based upon any Loan Document or this Amendment
(including the foregoing Section 6.3(a)) or the negotiation or documentation
hereof or the amendments under the Loan Documents effected by this Amendment or
the transactions contemplated by the Loan Documents or hereby, or any action or
omission in connection with any of the foregoing, including, without limitation,
all such loss or damage of any kind heretofore sustained, or that may arise as a
consequence of the dealings between the parties up to the date hereof in
connection with or in any way related to any Loan Document or this Amendment.
Each Releasing Party further covenants and agrees that it has not assigned
heretofore, and will not hereafter sue any Released Party upon, any Claim
released or purported to be released under this Section, and the Borrower will
indemnify and hold harmless said Released Parties against any loss or liability
on account of any actions brought by any Releasing Party or its assigns or
prosecuted on behalf of any Releasing Party and relating to any Claim released
or purported to be released under this Section. It is further understood and
agreed that any and all rights under the provisions of Section 1542 of the
California Civil Code are expressly waived by each of the Releasing Parties.
Section 1542 provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
6.4. Expenses. Without limiting any provision of the Amendment or Section 9.3 of
the Credit Agreement, each of the Borrower and Holdings jointly and severally
agrees to pay promptly all reasonable costs and expenses of the Administrative
Agent and the reasonable costs and expenses of the Administrative Agent's legal
counsel and each Lender's legal counsel in connection with the preparation,
negotiation, execution, delivery and administration of this Amendment and the
TRANSACTIONS CONTEMPLATED HEREBY.
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6.5. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of law principles. The provisions of Sections 9.9(b)-(d) and 9.10 of the Credit
Agreement shall apply hereto.
6.6. Severability. The illegality or unenforceability of any provision of this
Amendment, the Credit Agreement (as modified hereby) or any other document or
any other instrument or agreement required hereunder or thereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Amendment, the Credit Agreement (as modified hereby) or such
other document or any other instrument or agreement required hereunder or
thereunder.
6.7. Headings. Article and Section headings used herein are for convenience of
reference only, are not part of this Amendment and shall not affect the
construction of, or be taken into consideration in interpreting, this Amendment
(or the Credit Agreement as modified hereby).
6.8. Counterparts. This Amendment may be executed by one or more of the parties
hereto in any number of separate counterparts, each of which, when so executed
shall be deemed an original, and all of said counterparts taken together shall
be deemed to constitute but one and the same instrument.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
GLOBAL HEALTH SUB, INC.,
as Borrower
By:
----------------------------------------
Name:
Title:
GLOBAL HEALTH SCIENCES, INC.,
as Parent Guarantor
By:
----------------------------------------
Name:
Title:
CITICORP USA, INC.,
as Administrative Agent
By:
----------------------------------------
Name:
Title:
CITIBANK, N.A.,
as Issuing Bank
By:
----------------------------------------
Name:
Title:
BANK OF AMERICA, N.A.,
as Documentation Agent
By:
----------------------------------------
Name:
Title:
CITICORP USA, INC.,
as Lender
By:
----------------------------------------
Name:
Title:
-11-
<PAGE>
BANK OF AMERICA, N.A.,
as Lender
By:
----------------------------------------
Name:
Title:
SANWA BANK CALIFORNIA,
as Lender
By:
----------------------------------------
Name:
Title:
WELLS FARGO BANK, N.A.,
as Lender
By:
----------------------------------------
Name:
Title:
DRESDNER BANK AG,
New York and Grand Cayman Branches,
as Lender
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
<PAGE>
CONSENT
Dated as of October 29, 1999
The undersigned, as Subsidiary Guarantors under the "Guarantee
Agreement" and as Subsidiary Grantors under the "Pledge and Security Agreement"
(as such terms are defined in and under the Credit Agreement referred to in the
foregoing Limited Waiver and Third Amendment to Credit Agreement (the
"Amendment")), each hereby consents and agrees to the foregoing Amendment and
hereby confirms and agrees that (i) the Guarantee Agreement and the Pledge and
Security Agreement are, and shall continue to be, in full force and effect and
are hereby ratified and confirmed in all respects except that, upon the
effectiveness of, and on and after the date of, said Amendment, each reference
in the Guarantee Agreement and the Pledge and Security Agreement to the "Credit
Agreement", "thereunder", "thereof" and words of like import referring to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
modified by said Amendment, and (ii) the Pledge and Security Agreement and all
of the Collateral described therein do, and shall continue to, secure the
payment of all of the Secured Obligations as defined in the Pledge and Security
Agreement.
D&F INDUSTRIES, INC.
RAVEN INDUSTRIES, INC.
DYNAMIC PRODUCTS, INC.
WEST COAST SALES
AMERICAN INGREDIENTS, INC.
By:
----------------------------------------
Name:
Title:
-12-
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> SEP-30-1998 SEP-30-1999
<CASH> 22,768 18,856
<SECURITIES> 0 0
<RECEIVABLES> 5,902 16,511
<ALLOWANCES> 134 657
<INVENTORY> 11,741 25,780
<CURRENT-ASSETS> 41,672 63,481
<PP&E> 15,320 30,536
<DEPRECIATION> 9,458 11,523
<TOTAL-ASSETS> 182,616 215,553
<CURRENT-LIABILITIES> 27,675 44,501
<BONDS> 218,667 219,328
0 0
0 0
<COMMON> 473 473
<OTHER-SE> (64,199) (87,249)
<TOTAL-LIABILITY-AND-EQUITY> 182,616 215,553
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<TOTAL-REVENUES> 106,382 184,330
<CGS> 74,039 133,218
<TOTAL-COSTS> 74,039 133,218
<OTHER-EXPENSES> 8,123 17,717
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (11,335) (22,049)
<INCOME-PRETAX> 3,912 (13,168)
<INCOME-TAX> 193 106
<INCOME-CONTINUING> 3,719 (13,274)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,719 (13,274)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
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