<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<C> <S>
/X/ Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1999.
</TABLE>
or
<TABLE>
<C> <S>
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from to
</TABLE>
COMMISSION FILE NUMBER: 333-52534
------------------------
GLOBAL HEALTH SCIENCES, INC.
SEE PAGE 2 FOR A LIST OF ADDITIONAL REGISTRANTS
<TABLE>
<S> <C>
CALIFORNIA 95-3267801
</TABLE>
987 NORTH ENTERPRISE STREET, ORANGE, CALIFORNIA 92867
(714) 633-2320
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
At March 15, 2000 the aggregate market value of the voting stock held by
non-affiliates of the registrant was $0. For purposes of this information, the
outstanding shares of common stock owned by directors and executive officers of
the registrant were deemed to be shares of Common Stock held by affiliates.
On March 15, 2000 the registrant had outstanding 495,148 shares of common
stock, par value $0.01 per share, which is the registrant's only class of common
stock.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
COMMISSION ADDRESS, INCLUDING
FILE NO./ ZIP CODE AND
EXACT NAME OF STATE OR OTHER PRIMARY STANDARD IRS TELEPHONE NUMBER
REGISTRANT AS JURISDICTION OF NO. OF INDUSTRIAL EMPLOYER AREA CODE OF
SPECIFIED IN ITS INCORPORATION OR SHARES CLASSIFICATION IDENTIFICATION REGISTRANT'S PRINCIPAL
CHARTER ORGANIZATION OUTSTANDING CODE NO. NUMBER EXECUTIVE OFFICER
- - ---------------------- ---------------- ----------- ---------------- -------------- ----------------------
<S> <C> <C> <C> <C> <C>
Global Health Sub, 987 N. Enterprise St.
Inc................... California 100 2833 33-0801650 Orange, CA 92867
(714) 633-2320
Raven Industries, 987 N. Enterprise St.
Inc................... California 100 2833 33-0042849 Orange, CA 92867
(714) 633-2320
West Coast Sales 987 N. Enterprise St.
Inc................... California 100 2833 33-0554820 Orange, CA 92867
(714) 633-2320
Dynamic Products, 987 N. Enterprise St.
Inc................... California 100 2833 33-023847 Orange, CA 92867
(714) 633-2320
D&F Industries, 987 N. Enterprise St.
Inc................... California 100 2833 33-0801652 Orange, CA 92867
(714) 633-2320
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
OVERVIEW
Global Health Sciences, Inc. ("Global Health" or the "Company") is one of
the world's leading developers and custom manufacturers of dietary and
nutritional supplements. The Company develops and manufactures vitamins,
minerals, herbs, teas and other supplements in tablet, capsule and powder form
in a variety of shapes, sizes, colors, flavors and textures designed to meet its
customers' specifications. The Company supplies specialty products for branded
distributors, branded retailers, television marketing companies and network
marketing organizations who then distribute these products around the world. The
Company controls the entire development process for the vast majority of its
products from the initial market identification stage through formulation,
manufacturing, label design and distribution to its customers. The Company
believes that it has distinguished itself during its more than 20 years in the
industry through its ability to develop products in anticipation of market
trends, its superior customer service and its ability to produce a large variety
of high quality products.
The Company's products are sold to over 75 customers, including Herbalife
International, Inc. ("Herbalife"), Natural Supplement Association, Inc. d/b/a
Experimental and Applied Sciences ("EAS") and Metagenics, Inc. ("Metagenics"),
who then distribute these products in over 35 countries. For the fiscal year
ended December 31, 1999, sales to Herbalife represented approximately 57% of the
Company's total sales and sales to EAS represented approximately 23% of the
Company's business. Since 1995, sales to non-Herbalife customers have grown from
$14.8 million to $107 million in 1999. See "Business-Sales and Distribution."
PRODUCTS
The Company manufactures on demand and on a large scale to its customers'
specifications a highly diversified array of products in tablet, capsule, powder
and liquid form. The Company's products may be divided in the following manner:
herbal products; weight control; sports and performance nutrition; and special
products.
HERBAL PRODUCTS. Herbal products may be subdivided into herbal supplements
and herbal teas.
HERBAL SUPPLEMENTS. The Company's herbal supplements are sold to a number
of the Company's customers and are intended to address certain physiological
conditions such as bone and joint function, aging, visual acuity and prostate
health. The Company's herbal supplements are sold primarily in the form of
tablets and capsules. The Company also sells a number of aloe-based products
primarily liquids and gels. The production of all liquid and gel products is
subcontracted to other manufacturers. Common herbs used in the Company's
formulations include St. John's wort, ginkgo biloba, echinacea, saw palmetto,
garlic, schizandra berry extract, valerian root, kava kava, ginseng and lutein.
HERBAL TEAS. The Company manufactures herbal teas in a variety of flavors
and with a number of different ingredients, including black (pekoe) or green
tea, ginseng, guarana and other herbs for toning and cleansing, such as
cardamon. These products are packaged primarily in jars.
WEIGHT CONTROL. The Company's weight control products consist primarily of
meal-replacement powders and various other dietary supplements designed to
satisfy certain nutritional needs and to aid in appetite and weight control. The
Company's weight control products provide a natural alternative for consumers
who demand all-natural products in their dietary weight control regimen. Weight
control products are sold primarily to Herbalife as well as to a number of other
customers. The meal-replacement powders come in different flavors and combine
any of various proteins, vitamins and minerals, polyunsaturated fats,
carbohydrates, dietary fibers and herbs. Weight control products are also sold
in the form of tablets and capsules and contain a variety of herbs, amino acids,
natural fibers and
3
<PAGE>
nutrients. Many of the Company's products are bundled together as part of a full
weight control program.
SPORTS AND PERFORMANCE NUTRITION. These products are formulated for and
targeted to athletes, body builders and others who desire to improve their
physical performance, physique, mental alertness and general well-being in
conjunction with a fitness program. The products are sold to customers such as
EAS and Bally's Total Fitness and consist of a variety of high protein powders,
including those combined with carbohydrates and proper fats and/or enhanced with
creatine or hydroxy methyl butyrate. Sports and performance nutrition products
also include powders high in carbohydrates for rehydration, weight gain and
quick energy, as well as tablets containing ginseng and other ingredients.
SPECIAL PRODUCTS. The Company's special products represent a broad range of
products and may be subdivided into the following categories:
VITAMINS, MINERALS AND AMINO ACIDS. The Company manufactures and sells to a
majority of its customers a number of vitamins, minerals and amino acids
primarily in tablet and capsule form. The most common of such products is the
Company's multivitamins/minerals, which provide a range of essential vitamins
and minerals. The Company also manufactures natural multivitamins, such as
water-soluble B-complex and various vitamin C sources, and multiminerals
containing minerals such as calcium, magnesium, potassium, zinc, chromium and
various trace minerals. The Company's amino acid products come in tablets,
capsules and powders and consist of amino acids such as tyrosine, lysine and
arginine and combinations thereof, and peptide specific peptidase, which is
taken to increase the utilization of certain amino acids.
COMBINATION PRODUCTS. A distinguishing characteristic of the Company is its
ability to develop innovative products by adding herbs to various other
ingredients to create products that combine the benefits of vitamins, minerals
and herbal supplements. This practice allows the Company to meet a wide range of
customer needs. The Company sells these combination products to a majority of
its customers. These products generally come in tablets and capsules and
represent a growing portion of the Company's sales.
OTHER PRODUCTS. The Company manufactures other products in order to meet
the specific requirements of certain customers including pet products and
products intended to aid in the treatment of poisonings. These products
currently account for a small but growing percentage of the Company's sales. The
Company also manufactures over-the-counter ("OTC") drugs and pet products in
solid and powder form. The Company subcontracts to other manufacturers the
production of its liquid, ointment and gel products, including aloe drinks, acne
and arthritis creams, herbal shampoos and fish oil capsules.
PRODUCT DEVELOPMENT
The Company continually monitors new and developing health and nutrition
trends to anticipate its customers' needs and to introduce new products and
reformulate existing ones. The Company's ability to design, develop and
manufacture new products has enabled it to be a "one-stop shop" for most of its
customers, alleviating the necessity of current and potential customers to seek
out multiple manufacturers to fulfill product needs. This approach also creates
a synergy between the Company and its customers in the development and
enhancement of a customer's products or product lines.
The Company will often begin its development process by identifying target
groups with certain physiological needs (E.G., weight control or prostate
health) and then develop a dietary supplement product to respond to these needs.
The Company may also develop a product based on a newly discovered or unique raw
material or on a new application of an existing raw material. After either
identifying a target group or a new raw material, the Company will then develop
a product in its pilot laboratory. The Company refines the new product in the
pilot laboratory to ensure that it contains the
4
<PAGE>
proper mix of ingredients to respond to the physiological problem for which it
has been designed or that it makes proper use of the new raw material. Part of
the process is to establish that the new product can be manufactured on a large
scale, in an economical and efficient manner and with satisfactory size, shape,
color, solubility and shelf life. After developing the product, the Company will
present the product to an appropriate customer who will, if interested, enter
into an agreement with the Company to distribute the new product in return for
the obligation to purchase the new product exclusively from the Company.
Another method of product development is the formulation of new or modified
products in response to a customer's request. Customers will often approach the
Company to request a product containing particular ingredients or designed for a
specific condition. The product development team will then develop such a
product for that customer that meets its particular specifications using the
development techniques discussed above.
The Company's seven-member product development team, led by Mr. Richard D.
Marconi, Chairman of the Board and President of the Company, includes a former
NASA scientist who assisted in the development of a nutrition program for early
space flights and a former member of the USDA's Human Nutrition Institute. The
team is responsible for new product formulations, herbal and nutritional
ingredient use and formulation safety. The Company maintains an extensive
collection of literature on herbal remedies and products and keeps abreast of
new developments by reviewing a wide variety of scientific and medical journals
and attending industry, the U.S. Food and Drug Administration (the "FDA"),
United States Pharmacopoeia Convention, Inc. ("USP") and other scientific
seminars and conferences. The Company also maintains consulting arrangements
with a number of respected scientists and other experts, some of whom
participated in the drafting and passage of the Dietary Supplement Health and
Education Act of 1994 ("DSHEA"). These scientists and other experts are also
consulted periodically in order to identify new health trends prior to and
during the development of new products.
MANUFACTURING AND PRODUCT QUALITY
The Company believes that it has distinguished itself within the dietary and
nutritional supplement industry through consistently manufacturing high quality
products. All of the Company's products are manufactured and packaged at
facilities located in Orange County, California, all of which are located within
a ten-mile radius.
In June 1999, the Company consolidated at a single facility of 286,000
square feet a total of four locations which previously occupied 155,000 square
feet. The consolidation reduced the Company's total number of facilities from
eight to five. In connection with the move the Company substantially increased
its capacity for the manufacturing and packaging of meal replacement and protein
powders and teas. The powder manufacturing and packaging area in the new
facility contains blending equipment consisting of five dual head can-filling
lines, two dual head small bottle-filling lines and twelve automatic packet
lines. Raw materials for the Company's products are received and prepared for
blending in this facility, which also contains resources for the shipment of
finished products to customers. In addition, this facility houses the tablet
packaging area, which has increased capacity to eight packaging lines.
Equipment at the Company's separate 72,000 square foot tablet and capsule
facility includes high-speed tablet presses, encapsulating machines, large
capacity blenders, a large hammer mill, miscellaneous mills and oscillators and
various coating machines and pans. The tablet and capsule facility also contains
production offices and warehousing and receiving departments.
The facilities include a 12,000 square foot facility that contains the
Company's granulation plant and administrative offices. Equipment at the
granulation plant includes wall ovens, fluid bed dryers and wet granulators.
5
<PAGE>
American Ingredients, Inc. ("American") occupies a 37,800 square foot
facility for its manufacturing and warehouse activities. This facility also
serves as the corporate office for American.
The Company's manufacturing facilities are capable of producing over
700 million capsules and tablets and over six million pounds of blended powder
per month. The powder business is capable of filling on a monthly basis
approximately 2.7 million cans and large bottles, approximately 1.5 million
small bottles and approximately 10.0 million packets. The Company custom
manufactures all of its products to meet its customers' specifications and, as a
result, maintains a very low finished goods inventory. The Company normally
operates two work shifts, but has the capability to run three, if necessary, to
meet its customers' needs.
The Company's flexible manufacturing lines enable it to service its
equipment without materially interrupting production by shifting output among
various lines. Equipment servicing is generally completed in-house by employees
of the Company. The Company has also designed modifications to its equipment to
produce better quality products.
The Company purchases its raw materials from several foreign and domestic
third-party suppliers, two of which accounted for more than 10% of the Company's
total purchases in 1999. Several of these raw materials are harvested on a
seasonal basis. The Company's raw material needs are readily available from
multiple suppliers and the Company is not dependent on any single supplier.
The Company maintains a quality control department at each production
facility, led by individuals with backgrounds in pharmacology and nutrition.
Each product undergoes comprehensive quality control testing procedures in the
Company's on-site quality control laboratories from the receipt of all incoming
raw materials through the distribution of the finished product. Each laboratory
contains equipment such as computerized liquid chromatographs, automatic
spectrometers, dissolutioned testers and disintegration testers and each
laboratory has complete microbiological testing capabilities. Incoming raw
materials are subjected to numerous testing procedures, including liquid
chromatography and infrared spectrophotometry, to ensure that the product is
unadulterated and labeled correctly. Moreover, in order to easily identify the
origin of the ingredients contained in its products and ensure traceability, the
Company tracks each ingredient by assigning it a commodity number and lot
number. Tablet products are frequently tested during the manufacturing process
for friability, thickness, hardness and weight. In addition, periodically
throughout production, quality control personnel will take samples to perform
product assays. After a product is manufactured, it is subjected to stability,
dissolution and potency tests. The Company's powder products are tested and
sampled in the laboratory for proper mix and "taste and mouth-feel" to ensure
correct color and consistency.
SALES AND DISTRIBUTION
The Company's products are sold to over 75 customers who distribute them
throughout the United States, Europe and Asia. Herbalife, which has been a
customer of the Company since its formation in 1980, is the Company's largest
customer. Products manufactured for Herbalife are specially formulated and
packaged only for Herbalife's distribution channel and are not available through
retailers. Sales to Herbalife represented 57%, 61%, and 76% of the Company's
total sales in 1999, 1998, and 1997, respectively. Additionally, sales to EAS
represented approximately 23%, 27% and 12% of the Company's sales in 1999, 1998
and 1997, respectively. Since 1995, sales to non-Herbalife customers have grown
from $14.8 million to $106.9 million in 1999. The Company intends to expand its
presence in the health food/retail market through such customers as EAS, in the
growing direct television market through such customers as The Good Doctors, and
in direct sales to fitness centers through Bally's Total Fitness. In addition,
the Company plans to expand its sales in international markets by developing new
customers and by supplying the needs of its existing customers in the growing
markets of Europe, Latin America and Asia.
6
<PAGE>
In September 1997, D&F industries, Inc., a California corporation ("D&F"),
Raven Industries, Inc. d/b/a Omni-Pak Industries, a California corporation
("Omni-Pak"), and Dynamic Products, Inc., a California Corporation ("Dynamic"),
entered into separate three-year agreements with Herbalife replacing their
previous agreements. Pursuant to these agreements, Herbalife is required to
purchase from each of D&F, Omni-Pak and Dynamic, respectively, any combination
of products in an aggregate dollar amount equal to at least the sum of (i) 80%
of the aggregate dollar amount of all purchases made by Herbalife of nutritional
supplement products manufactured by the Company and by another supplier in
accordance with a product formula developed by the Company and (ii) 40% of the
aggregate dollar amount of all purchases made by Herbalife of independent
nutritional supplement products manufactured by suppliers other than the
Company. The agreements cover all products currently manufactured for Herbalife
for distribution in the countries in which Herbalife currently distributes such
products. The prices for the products purchased by Herbalife are fixed, subject
to adjustment in the event of a variation (upwards or downwards) in excess of
five percent in the aggregate actual cost of the raw materials used to
manufacture the products supplied to Herbalife. The agreements also provide the
Company with a right of first refusal to become the primary manufacturing source
for Herbalife for certain new products developed by Herbalife for distribution
in the countries in which Herbalife distributes products currently manufactured
by the Company. Pursuant to the agreements, the Company transferred to Herbalife
those formulas owned by the Company for all products manufactured by the Company
exclusively for Herbalife at January 1998. In the event of a material breach of
the agreement by either party, the breaching party has 60 days to cure such
breach. If such breach is not cured within such period, the non-breaching party
can terminate each agreement with 60 days prior written notice. In addition,
Herbalife may terminate any agreement if the Company fails to meet certain
service level requirements or immediately following a change in control. A
change in control is triggered in the event that, among other things, without
the prior written consent of Herbalife, Mr. Marconi ceases to own more than 50%
of the capital stock of the Company or if Mr. Marconi is no longer an executive
officer of the Company and responsible for the day-to-day operations and
management of the Company.
COMPETITION
The dietary and nutritional supplement industry is highly fragmented. The
industry includes (i) companies that produce products for specialty health and
natural food stores, (ii) companies that manufacture products for the mass
retail market and (iii) direct sales and mail order companies. There are
numerous dietary and nutritional supplement manufacturers of general products,
including Twin Laboratories, Inc., NBTY, Inc., Rexall Sundown, Inc. and Leiner
Health Products Group Inc., some of which are larger and have greater resources
than the Company.
EMPLOYEES
At December 31, 1999, the Company employed 777 persons. Of these employees,
141 are in executive or administrative capacities with the remaining employees
in manufacturing, shipping and packaging positions. None of the Company's
employees are represented by a labor union. The Company considers its
relationship with its employees to be good.
At December 31, 1999, the Company also utilized 579 temporary employees.
These employees are supplied to the Company by a temporary agency that maintains
offices at the Company's manufacturing facilities. This enables the Company to
utilize temporary employees to adjust staffing levels on a daily basis in
response to fluctuations in demand or an unexpected increase in sales volume.
REGULATORY MATTERS
The manufacturing, packaging, labeling, advertising, distribution and sale
of the Company's products are subject to regulation by one or more federal
agencies, including the FDA, the U.S.
7
<PAGE>
Federal Trade Commission ("FTC") and the U.S. Environmental Protection Agency
("EPA"), and various agencies of the states, localities and foreign countries in
which the Company's products are sold. The FDA, pursuant to the Federal Food,
Drug and Cosmetic Act ["FFDC"], regulates the production, packaging, labeling
and distribution of dietary supplements, drugs and cosmetics. The FTC regulates
the advertising of such products.
The FFDC was recently amended by the DSHEA. The DSHEA created a new
statutory framework governing the composition and labeling of dietary
supplements. Under the DSHEA, "dietary supplements" are defined as any product
(except tobacco) intended to supplement the diet that contains at least one of
the following dietary ingredients: (i) a vitamin, (ii) a mineral, (iii) an herb
or botanical, (iv) an amino acid, (v) other dietary ingredients for human use to
supplement the diet or (vi) concentrates, metabolites, extracts or combinations
of (i) through (v) above. Dietary ingredients meeting this definition are
excluded from regulation as a food additive.
Under the DSHEA, dietary ingredients that were on the market in the United
States prior to October 15, 1994 may be sold without the FDA's pre-market
approval and without notifying the FDA. The marketing of a product containing a
new dietary ingredient (one not on the market prior to October 15, 1994)
requires that: (i) it has been used as an article of food without being
chemically altered or (ii) there is evidence of a history of use or other
evidence of safety establishing that it is reasonably expected to be safe and
such evidence is often supplied to the FDA at least 75 days before the initial
use of any new dietary ingredient. There can be no assurance that the FDA will
accept the evidence of prior use or safety presented for any new dietary
ingredient that the Company may decide to use in the future and the FDA's
refusal to accept any such evidence could result in a determination that either
the product is adulterated or the product must be regulated as a food additive,
which requires FDA approval prior to marketing. Under the DSHEA, the burden of
proving the safety of the dietary supplement is shifted from the manufacturers
to the FDA. The FDA may object only if a product or ingredient presents a
"significant and unreasonable risk of illness or injury" or poses an imminent
safety hazard.
The DSHEA provides for specific nutrition labeling requirements for dietary
supplements. The DSHEA permits the manufacturer of a dietary supplement to make
substantiated, truthful and non-misleading "statements of nutritional support"
with respect to the product, including an accurate description of how a nutrient
affects the structure or function of the human body and a general description of
well-being resulting from consumption of a dietary ingredient. The claim must be
accompanied by a disclaimer stating that the product has not been evaluated by
the FDA. There can be no assurance that the FDA will not determine that a given
statement of nutritional support is not adequately substantiated, or is an
unapproved drug claim rather than a statement of nutritional support. Either
determination may entail costly and time-consuming clinical studies and may
entail the deletion or modification of such statement. The FDA has finalized
certain regulations to implement the labeling provisions of the DSHEA. Further
FDA regulations may be proposed by the FDA in response to a report issued in
November 1997 by the Commission on Dietary Supplement Labels which was
established to provide recommendations on labeling claims for dietary
supplements.
The Company exercises significant control over the labeling of its
customers' nutritional and dietary supplement products. The Company designs the
"Nutrition Facts" box required by the NLEA for its powdered products. The
Company performs some review of the proposed structure/function claims made on
the labels of the dietary supplement products for compliance with the DSHEA.
Submission of these claims as required by the FFDC is the obligation of the
Company's customers, but the Company does submit to the FDA labels for many of
the dietary supplements that contain structure/function claims. Maintaining the
substantiation for such claims as required under the FFDC is the obligation of
the Company's customers. Similarly, the Company's customers are responsible for
making the required submissions to the FDA for any new dietary ingredients.
8
<PAGE>
A number of the products sold by the Company, including some protein powders
and any products labeled for meal replacement, are conventional foods as opposed
to dietary supplements. The NLEA dictates the labeling claims permissible for
such products, which are more limited in scope than those for dietary
supplements. Some of the Company's products will require label revisions to
comply.
The DSHEA also allows the dissemination of third party literature to promote
the sale of dietary supplements to consumers at retail or by mail order. Such
literature, if distributed, must (i) not be false or misleading; (ii) not
promote a particular manufacturer or brand; (iii) present a balanced view of the
available information; and (iv) be physically separated from supplement products
if displayed in a store.
The DSHEA authorizes the FDA to promulgate GMPs with respect to the
manufacture of dietary supplements, to be modeled after the current GMPs
applicable to food products. On February 6, 1997, the FDA published an advance
notice of proposed rulemaking ("ANPR") in which it requested public comment
concerning whether to adopt GMP regulations for dietary supplements. The ANPR
reprinted and requested comments on a draft regulatory framework prepared by the
dietary supplement industry addressing the appropriate scope and content for
dietary supplement GMP regulations. The comment period for this ANPR closed on
May 7, 1997. The Company cannot predict in what form such regulations, if
adopted, would be enacted. As with any new regulations, if adopted, the Company
will take all necessary steps to attempt to comply with such new regulations.
On September 23, 1997, the FDA issued final regulations reiterating the
FDA's position that dietary supplements must maintain 100% of the declared value
of added vitamins and minerals for the entire shelf life of the product. As with
any new regulations, the Company will take all necessary steps to attempt to
comply with such new regulations. During the past ten years, the Company has
received four Form 483 notices following customary FDA inspections. These
notices cited numerous GMP deficiencies including those relating to product
labeling, product validation and testing, equipment and facility cleanliness and
maintenance, personnel training, and recordkeeping. The FDA also previously
issued two Warning Letters to the Company stating that products manufactured by
the Company were adulterated because they were not manufactured in accordance
with GMPs.
The NLEA prohibits the use of any health claim describing the relationship
between a nutrient and a disease or health-related condition for foods,
including dietary supplements, unless the claim is supported by significant
scientific agreement and is approved by the FDA by regulation. Regulations
promulgated by the FDA to date allow the use of health claims for dietary
supplements only in connection with osteoporosis and the use of folic acid for
neural tube defects. The NLEA also prohibits the use of most nutrient content
descriptors ("high" or "low") unless the specific descriptor complies with the
FDA regulations governing nutrient content claims. Under the recently enacted
Food and Drug Administration Modernization Act of 1997, both health claims and
nutrient claims are permitted to be made on the basis of authoritative
statements of governmental bodies other than the FDA, so long as the FDA is
notified of the claim and the authoritative statement and is presented with a
balanced representation of the scientific literature concerning such claim.
Certain of the Company's products are regulated as pet foods. The claims
permitted by the FFDC for such products are more limited than those for human
foods or dietary supplements, and such products are not included within the
purview of the NLEA or the DSHEA. A company marketing such products must
register its labels with state authorities. Other products sold by the Company
are OTC drugs or veterinary drugs. The Company must register with the FDA and
the State of California, provide drug listings annually and comply with current
GMP requirements in the manufacture and record keeping relating to these
products. To the extent that certain of the Company's products are sold with
drug claims on their labels, those products would require inclusion as OTC
drugs. The Company will be required to relabel and register some of its products
accordingly. The Company also sells products regulated by the FDA as cosmetics,
which must meet specified labeling requirements and minimum safety standards.
9
<PAGE>
The Company is also subject to regulation under various foreign, state and
local laws that include provisions regulating, among other things, the marketing
of dietary supplements and the operations of direct sales programs.
The Company may be subject to additional laws or regulations administered by
the FDA or other federal, state or foreign regulatory authorities, the repeal of
laws or regulations favorable to the industry (such as the DSHEA), or more
stringent interpretations of current laws or regulations. The FTC, for example,
has actively investigated the dietary and nutritional supplement industry in the
past few years, and certain of the Company's customers have signed consent
orders which could, in the future, affect the volume of product that the
customers will order from the Company. The Company cannot determine what effect
future laws, regulations, guidance or policy of the FDA, when and if
promulgated, will have on its business in the future. Such regulations may,
however, among other things, require changes in manufacturing, expanded or
different labeling for the Company's dietary and nutritional supplements,
require the recall, reformulation, or discontinuance of certain products, or
require scientific substantiation regarding ingredients, product claims or
safety.
The USP is a non-governmental, voluntary standard-setting organization. Its
drug standards are incorporated by reference into the FFDC as the standards that
must be met for the listed drugs, unless compliance with those standards is
specifically disclaimed. USP standards exist for most prescription and
non-prescription pharmaceuticals.
The USP began adopting standards for vitamin and mineral dietary supplements
in 1994. These standards cover composition (nutrient ingredient potency and
combinations), disintegration, dissolution, manufacturing practices and testing
requirements. These standards are codified in the USP Monographs and the USP
Manufacturing Practices. In 1995, USP compliance included the standards for
disintegration and dissolution. While USP standards for vitamins are voluntary,
and not incorporated into federal law, customers of the Company may demand that
products they are supplied meet these standards. Inaccurate label claims of
compliance with the USP may expose a company to FDA scrutiny for such claims. In
addition, the FDA may in the future require compliance, or such a requirement
may be included in new dietary supplement legislation. All of the Company's
vitamin products (excluding certain dietary supplements products for which no
USP standards have been adopted) are formulated to comply with existing USP
standards.
Certain of the Company's products contain a Chinese herb known as "Ma
Huang," which contains naturally occurring ephedrine. The Company estimates that
these products accounted for approximately 2% of the Company's sales in the
fiscal year ended December 31, 1999. Ma Huang has been the subject of certain
adverse publicity in the United States and other countries relating to alleged
harmful or adverse effects, including the deaths of several individuals.
On April 10, 1996, the FDA issued a statement warning consumers not to
purchase or consume dietary supplements containing ephedrine with labels
portraying the products as apparent alternatives to illegal street drugs. None
of the Company's products which contain Ma Huang are marketed for such purpose.
The FDA explained that the products portrayed as alternatives to illegal street
drugs pose significant health risks to consumers-dizziness, headache,
gastrointestinal distress, irregular heartbeat, heart palpitations, heart
attack, strokes, seizures and death, and that the labels on such products claim
or imply that they produce such effects as euphoria, increased sexual
sensations, heightened awareness, increased energy and other effects. In
August 1996, the FDA sent warning letters to several companies marketing such
products as alternatives to street drugs, indicating that enforcement action
with respect to such products may be initiated.
In August 1996, the FDA convened a Food Advisory Committee meeting to review
and make recommendations concerning the safety and appropriate labeling of
dietary supplements containing Ma Huang. The FDA, after considering the
differing views expressed at the Committee meeting, proposed regulations in June
of 1997 that would require reduced dosages coupled with strict manufacturing
10
<PAGE>
standards, labeling restrictions and a prohibition against combining Ma Huang
with body building or weight loss products and with other central nervous system
stimulants such as caffeine. There can be no assurance that such regulations
will not prohibit either the sale of dietary supplements containing Ma Huang in
combination with any other ingredients or the sale of all dietary supplements
containing any Ma Huang. The promulgation of such regulations could require the
Company to reformulate and relabel substantially all of its Ma Huang products.
There can be no assurance as to the final form or content of any FDA regulations
concerning dietary supplements containing Ma Huang or as to the effect that any
attendant adverse publicity or resulting reformulation and relabeling of the
Company's products would have on the sale of such products.
A number of foreign, state and local governmental entities limit ephedrine
levels and require appropriate warnings on product labels, regulate products
containing ephedrine as controlled substances or prohibit sales of products
which contain Ma Huang by individuals other than licensed pharmacists. There are
also federal, state and local proposals to broaden the regulation of, or
otherwise limit or prohibit, the sale of products containing ephedrine.
The Company's products containing Ma Huang may become subject to further
federal, state, local or foreign laws or regulations, which could require the
Company to: (i) reformulate its products with reduced ephedrine levels or with a
substitute for Ma Huang and/or (ii) relabel its products with different warnings
or revised directions for use. Even in the absence of further laws or
regulations, the Company may elect to reformulate and/or relabel its products
which contain Ma Huang. While the Company believes that its Ma Huang products
could be reformulated and relabeled, there can be no assurance in that regard or
that reformulation and/or relabeling would not have a material adverse effect on
sales of such products.
ITEM 2. PROPERTIES.
The Company leases the following facilities in Orange County, California:
(i) a newly improved and occupied 286,000 square foot powder production and
packaging facility; (ii) a 72,000 square foot tablet and capsule manufacturing
facility; (iii) a 12,000 square foot facility that includes a granulation plant
and administrative offices; (iv) a 39,000 square foot warehouse facility; and
(v) a 37,800 square foot facility for American's corporate offices and
warehousing. In addition, as a result of the consolidation of operations from
prior locations to the powder production facility, the Company has sublet two
other leased facilities and is in sublet negotiations on one other leased
facility.
The Company's leases have remaining terms of three to ten years. In 1999,
the Company paid aggregate rent for its facilities of approximately
$2.5 million.
The Company believes that its facilities and equipment are maintained in
good operating condition and are adequate for its current foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time a party to lawsuits arising in the ordinary
course of its business. The Company believes that the ultimate resolution of
pending litigation will not materially and adversely affect the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Common Stock, which is
the Company's only class of common equity. As of the date hereof, Mr. Richard D.
Marconi is the only holder of record of the Common Stock. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management."
Mr. Marconi has granted Mr. Buxbaum an option to acquire up to 20% of the
Common Stock currently owned by Mr. Marconi at the fair market value thereof on
April 23, 1998. This option will vest over a period of years, the term of which
has not yet been determined.
Because the Company has elected S corporation status for federal and state
income tax purposes, taxable income is passed through to the Company's
shareholders. In 1997, 1998 and 1999 the Company distributed as a dividend to
its shareholders amounts sufficient for the shareholders to pay their required
taxes.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data for the Company and
D&F (the "Predecessor") as of and for each of the five years ended December 31,
1999 and is derived from audited financial statements of the Company and the
Predecessor. The information set forth below should be read in conjunction with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, each of which is included
elsewhere herein.
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales...................................... $52,164 $73,523 $85,191 $146,741 $246,941
Cost of sales.............................. 34,895 47,958 55,020 102,756 181,548
Gross Profit............................... 17,269 25,565 30,171 43,985 65,393
Selling, general and administrative
expenses................................. 5,462 6,347 7,088 28,263 57,335
------- ------- ------- -------- --------
Operating income........................... 11,807 19,218 23,083 15,722 8,058
Interest income (expense), net............. 76 56 82 (17,842) (30,744)
------- ------- ------- -------- --------
Income (loss) before state income taxes.... 11,883 19,274 23,165 (2,120) (22,686)
State income taxes (a)..................... 137 280 350 203 64
------- ------- ------- -------- --------
Net income (loss).......................... $11,746 $18,994 $22,815 $ (2,323) $(22,750)
======= ======= ======= ======== ========
BALANCE SHEET DATA
Cash and cash equivalents.................. $ 4,474 $ 4,571 $ 3,768 $ 7,987 $ 6,400
Working Capital............................ 3,258 4,048 5,612 (16,542) (19,434)
Total assets............................... 11,949 13,670 16,736 202,743 202,877
Total liabilities.......................... 640 540 420 272,511 299,342
Shareholders' equity (deficit)............. 5,170 6,328 7,596 (69,768) (96,465)
OTHER DATA
EBITDA..................................... $12,256 $19,722 $23,606 $ 32,661 $ 43,516
EBITDA Margin.............................. 23.5% 26.8% 27.7% 22.3% 17.6%
Cash flows provided by (used in):
Operating Activities....................... $14,447 $18,905 $21,090 $ 12,726 $ 9,459
Investing Activities....................... (420) (871) (226) (173,246) (14,599)
Financing Activities....................... (11,344) (17,936) (21,667) 164,739 3,553
Capital expenditures....................... 420 871 226 2,705 14,099
Dividends (a) (b).......................... (11,214) (17,836) (21,547) (14,114) (3,947)
Depreciation and amortization.............. 449 504 523 15,891 35,522
</TABLE>
- - ------------------------
Note: Amortization of loan fees are included in interest expense
13
<PAGE>
SELECTED SUPPLEMENTAL COMBINED FINANCIAL DATA
The following table sets forth the Company's selected consolidated financial
data as of and for the year ended December 31,1999 and selected historical
combined D&F and Omni-Pak and affiliates financial data ("Combined Financial
Data") as of and for each of the four years in the period ended December 31,
1998. The Combined Financial Data presents the combined group's historical
operating results which, in the opinion of management, provide a more meaningful
representation of the underlying business and cash flows. These entities were
combined on April 23, 1998 to form Global Health and, prior to such date, were
operated under common management and had a high degree of common ownership,
customers and financial and operating systems. The 1998 balance sheet data and
the 1999 statement of income and other data include American Ingredients, Inc.,
which were not included in prior periods. The information set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements,
each of which is included elsewhere herein.
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales.................................... $85,264 $144,735 $182,385 $177,511 $246,941
Cost of sales............................ 55,382 94,758 117,733 123,766 181,548
------- -------- -------- -------- --------
Gross Profit............................. 29,882 49,977 64,652 53,745 65,393
Selling, general and administrative
expenses............................... 8,246 11,203 13,019 30,175 57,335
------- -------- -------- -------- --------
Operating income......................... 21,636 38,774 51,633 23,570 8,058
Interest income (expense), net........... 144 162 279 (17,800) (30,744)
------- -------- -------- -------- --------
Income loss before state income taxes.... 21,780 38,936 51,912 5,570 (22,686)
State income taxes (a)................... 283 567 778 322 64
------- -------- -------- -------- --------
Net income (loss) (a).................... $21,497 $ 38,369 $ 51,134 $ 5,448 $(22,750)
======= ======== ======== ======== ========
BALANCE SHEET DATA
Cash and cash equivalents................ $ 8,155 $ 7,079 $ 8,957 $ 7,987 $ 6,400
Working Capital.......................... 6,601 6,901 12,032 (16,542) (19,434)
Total assets............................. 21,047 23,783 31,505 202,743 202,877
Total liabilities........................ 640 540 420 272,511 299,342
Shareholders' equity (deficit)........... 9,789 11,498 16,643 (69,768) (96,465)
OTHER DATA
EBITDA (b)............................... $22,363 $ 39,676 $ 52,669 $ 42,693 $ 43,516
EBITDA Margin (b)........................ 26.2% 27.4% 28.9% 24.1% 17.6%
Cash flows provided by:
Operating activities..................... $25,814 $ 37,995 $ 49,037 $ 23,971 $ 9,459
Investing activities..................... (786) (2,311) (1,050) (173,246) (14,599)
Financing activities..................... (20,939) (36,760) (46,109) 150,946 3,553
Capital expenditures..................... 786 2,311 1,050 2,283 14,099
Dividends (a) (b)........................ (20,808) (36,660) (45,989) (27,931) (3,947)
Depreciation and amortization............ 727 902 1,036 19,123 35.522
</TABLE>
- - ------------------------
(a) The Company has elected S corporation status for federal and state income
tax purposes, and other than a 1.5% state tax, taxable income is passed
through to the Company's shareholder. The Company has historically
distributed as a dividend to its shareholders amounts sufficient for the
shareholders to pay their required taxes.
14
<PAGE>
(b) 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
determine 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 sales.
EBITDA should not be considered a substitute for net income or cash flow
data prepared in accordance with generally accepted accounting principles
(which is also presented in the accompanying table) or as a measure of
profitability or liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS INCLUDED ELSEWHERE HEREIN.
OVERVIEW
The Company, founded in 1978, is one of the world's leading developers and
custom manufacturers of dietary and nutritional supplements. The Company
develops specialty products for branded distribution companies, branded
retailers, television. marketing companies and network marketing organizations
who then distribute such products throughout the world.
Prior to April 23, 1998, the Company's operations were conducted by four S
corporations: D&F, Omni-Pak, Dynamic and West Coast Sales ("West Coast"). These
companies were reorganized in the Reorganization (as defined below) to
consolidate related and complementary business activities under one holding
company, Global Health (formerly D&F). These companies historically operated
under common management and had a high degree of common ownership, customers and
systems, including similar accounting and financial reporting systems.
Effective April 23, 1998, (i) D&F changed its name to Global Health
Sciences, Inc., (ii) Global Health formed Global Sub, (iii) Global Sub formed
D&F, Raven Sub, Inc. ("Omni-Pak Merger Sub"), Dynamic Sub, Inc. ("Dynamic Merger
Sub") and New West Coast Sales, Inc. ("West Coast Merger Sub"), (iv) Global
Health transferred to D&F Sub all of its assets and liabilities except for its
obligation under the Company's 11% Senior Notes due 2008 (the "Notes") and the
capital stock of Global Sub, (v) Global Health acquired Omni-Pak and affiliates
for approximately $137.9 million in cash and expenses, 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 Merger Sub and West Coast (with West Coast as the surviving corporation)
and, (vi) the shareholders of Global Health received approximately
$58.7 million in cash in exchange for the cancellation of approximately 50% of
the outstanding capital stock of Global Health (collectively, the
"Reorganization"). A portion of the proceeds, $3.9 million, were held back until
the Notes were registered.
IN AUGUST 1998 THE NOTES WERE REGISTERED AND THE $3.9 MILLION WAS PAID TO
THE SHAREHOLDERS. In December 1998, the Company, through its wholly owned
subsidiary, Global Sub, acquired American for $36.3 million. American is a
supplier of raw materials to the nutraceutical industry with 1998 revenues of
$29.5 million and pre-tax income of $4.4 million before payment of $6 million in
one-time bonuses to key employees. The acquisition was financed with cash and
borrowings under the Company's bank line of credit.
15
<PAGE>
The Company's historical growth in sales and EBITDA has been primarily
attributable to increased sales to Herbalife, the Company's largest customer.
Combined sales to Herbalife have increased from approximately $70.5 million in
fiscal year 1995, representing approximately 83% of the Company's combined sales
in that year, to approximately $142 million in fiscal year 1999, representing
approximately 57% of the Company's combined sales in that year. Due to the
significant percentage of the Company's sales attributable to Herbalife,
fluctuations in Herbalife's inventory levels or inaccurate sales forecasting by
Herbalife have had adverse effects on Company sales in the past and could have
adverse effects in the future. The Company and Herbalife are parties to supply
agreements which extend through January, 2001 and have begun preliminary
discussions relating to the extension or renewal of these agreements.There is no
assurance that the Herbalife agreements will be renewed or that Herbalife will
not seek other sources for all or a significant portion of the materials that it
now obtains from the Company. The Company's sales and earnings could suffer
materially if (i) the agreements were not renewed and Herbalife elected to seek
other suppliers for all or a significant portion of the materials which it
currently obtains from the Company or (ii) the agreement or the underlying
relationship were renewed or extended on an unfavorable basis.
In addition to the historical financial information and accompanying
discussion and analysis regarding D&F presented below, supplemental combined
historical financial information and accompanying discussion are also presented
because, in the opinion of management, such information provides a more
meaningful representation of the Company's underlying business and cash flows.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
SALES. In 1999, sales increased by $100.2 million, or 68.3%, to
$246.9 million compared to $146.7 million in 1998. The increase in sales
primarily resulted from increased sales to Herbalife and EAS and the acquisition
of American and the impact of the Reorganization. The sales of Omni-Pak and
affiliates are included for 12 months in 1999. However, in 1998 sales for
Omni-Pak and affiliates are included from date of acquisition, April 23, 1998.
COST OF SALES AND GROSS PROFIT. Cost of sales increased by $78.7 million,
or 76.6%, to $181.5 million in 1999 compared to $102.8 million in 1998. Cost of
sales as a percentage of sales increased to 73.5% in 1999 compared to 70.0% in
1998, thereby reducing gross margin in 1999 to 26.5% from 30.0% in 1998. The
increase in the dollar amount of cost of sales resulted from the increase in
sales in 1999 compared to 1998. The decrease in gross margin as a percent of
sales resulted primarily from relatively higher raw material costs (principally
at American), higher operating costs in the Company's new La Palma facility and
non-recurring start-up costs at the La Palma facility of $0.8 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including amortization of intangibles increased by
$29.0 million, or 102.5%, to $57.3 million in 1999 compared to $28.3 million in
1998. As a percentage of sales, selling, general and administrative expenses
increased by 3.9% to 23.2% in 1999 compared to 19.3% in 1998. The increase in
selling, general and administrative expenses is primarily due to an increase in
amortization of intangibles ($17.0 million) resulting from the Recapitalization
and, the acquisition of American ($4.2 million), the Reorganization
($2.8 million), and the increase in costs to support increased sales
($3.6 million) and costs not expected to recur in year 2000 ($2.4 million).
Amortization of intangibles as a percentage of sales increased by 2.5% to 13.2%
in 1999 compared to 10.7% in 1998. Selling, general and administrative expenses,
excluding the amortization of intangibles, as a percentage of sales increased by
1.4% to 10.0% in 1999 as compared to 8.6% in 1998. Costs not expected to recur
in 2000 were 1.0% of sales.
NET (LOSS) INCOME. Net loss increased by $20.5 million to a net loss of
$22.8 million in 1999 compared to net loss of $2.3 million in 1998. The increase
in net loss reflects the net effect of higher gross profits resulting from
increased sales, offset by increased costs related to the Recapitalization;
interest on senior debt increased $12.9 million and amortization of intangibles
increased $17.0 million,
16
<PAGE>
increased selling, general and administrative costs to support increased sales,
and costs not expected to recur in 2000. In 1999 operating results reflect
interest on senior debt and amortization of intangibles for 12 months, whereas,
the 1998 operating results reflect these costs from the dates of
Recapitalization and Acquisition. Costs not expected to recur in 2000 totaled
$3.2 million, including $0.8 million of start-up costs at the Company's new
facility, $1.0 million of costs expensed in connection with the implementation
of the company's new computer system, and $1.4 million in other costs not
expected to recur in 2000.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
SALES. In 1998, sales increased by $61.5 million, or 72.2%, to
$146.7 million compared to $85.2 million in 1997. The increase in sales
primarily resulted from the impact of the Reorganization. The sales of Omni-Pak
and affiliates are included in the consolidated results from April 23, 1998.
COST OF SALES AND GROSS PROFIT. Cost of sales increased by $47.8 million,
or 86.9%, to $102.8 million in 1998 compared to $55.0 million in 1997, while
cost of sales as a percentage of sales increased to 70.0% in 1998 compared to
64.6% in 1997, thereby reducing gross margin in 1998 to 30.0% from 35.4% in
1997. The increase in cost of sales resulted from the increase in sales in 1998
compared to 1997, and the reduction in gross margin principally resulted from a
change in the mix of business and the impact of the price reduction in the
Herbalife supply agreement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including amortization of intangibles increased by
$21.2 million, or 298.6%, to $28.3 million in 1998 compared to $7.1 million in
1997. As a percentage of sales, selling, general and administrative expenses
increased to 19.3% in 1998 compared to 8.3% in 1997. The increase in selling,
general and administrative expenses primarily resulted from the impact of the
Reorganization and an increase of $15.7 million in amortization of intangibles.
The increase in selling, general and administrative expenses as a percentage of
sales primarily resulted from the amortization of intangibles (10.7% of sales).
NET (LOSS) INCOME. Net income decreased by $25.1 million to a loss of
$2.3 million in 1998 compared to net income of $22.8 million in 1997. This
decrease resulted primarily from interest on senior debt incurred in April 1998
($17.8 million) and amortization of intangibles ($15.7 million).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for working capital, acquisitions and
capital expenditures. Prior to April 22, 1998, the Company financed its cash
requirements through internally generated cash flow. As a result of limited
availability under currently arranged bank lines of credit, the Company expects
that its primary source of ongoing liquidity will be cash flow from operations.
The Company's bank line of credit,(the Facility), provides for up to
$31 million for acquisitions plus $10.0 million for working capital and general
corporate purposes. It is secured by all of the assets of the Company and
matures in January, 2001. As of December 31, 1999, the Company had drawn the
acquisition portion of the Facility and all but $2.5 million of the working
capital portion. The Facility requires the Company to maintain certain ratios of
leverage, fixed charge coverage and interest coverage, all as defined. The
unused balance of the facility cannot be drawn unless the Company is in
compliance with all of the covenants under the Credit Agreement.
As of December 31, 1999, the Company did not meet the minimum EBITDA
requirement under the Credit Agreement. As a result, the Company failed to meet
several covenant requirements. Under the terms of the Credit Agreement, the
Company has the option of raising capital to cure the deficiency. The amount of
capital required to be in full compliance would be $2.9 million. The Company is
currently considering whether to raise the required capital or find a new
lending group.
17
<PAGE>
There can be no assurance that the Company will be able to raise the capital or
find a new lending group before the current lenders declare a default under the
Credit Agreement.
The Company is actively engaged in discussions with other lenders to replace
or refinance the entire line of credit under the Credit Agreement at or prior to
its expiration. There is risk that that Company will not be able to obtain a
replacement facility or that the terms of any replacement facility that may be
available will not be advantageous. Failure to refinance or replace the line of
credit or to cure violations of covenants could have material adverse
consequences for the Company and could result in a default under the Notes. In
any event, the Company does not anticipate that any replacement facility it
obtains will provide it with significant additional liquidity, capital financing
or funding for acquisitions; accordingly, for the foreseeable future, the
Company expects to depend primarily on cash flow from operations to meet its
liquidity and capital needs. Under these circumstances, the Company does not
plan or expect to make additional acquisitions, except in circumstances where
the costs of each acquisition are funded through incremental debt or equity
financing on a basis that reduces the Company's ratio of total debt to EBITDA.
Failure to obtain additional funding for acquisitions could limit the Company's
ability to expand its marketing and production capabilities as necessary to grow
its business and compete effectively.
Cash provided by operating activities for the years ended December 31, 1999,
1998 and 1997, was $9.5 million, $12.7 million and $21.1 million, respectively.
The major operating uses for these periods resulted from changes in accounts
receivable, inventories and prepaid expenses and other current assets, $0.8
million of start-up costs at the Companies new facility, $1.0 million of costs
expensed in connection with the implementation of the company's new computer
system, and $1.4 million in other costs not expected to recur in 2000.
Cash used in investing activities for the years ended December 31, 1999,
1998 and 1997 was $14.6 million, $173.2 million and $0.2 million, respectively.
Investing activities consisted of the buildout and equipment costs for the new
La Palma facility in 1998, the purchase of Omni-Pak and affiliates for
$137.9 million and American for $36.3 million in 1998 and purchases of property
and equipment in all three years.
Cash provided by (used in) financing activities for the years ended
December 31, 1999, 1998, and 1997 was $3.6 million, $164.7 million, and $(21.7)
million respectively. The principal uses of cash for financing activities for
the year ended December 31, 1999 were dividends to shareholders in the amount of
$3.9 million. The principal source of cash from financing activities in 1999
were borrowings from the operating portion of the Facility. The principal source
of cash from financing activities in 1998 was the proceeds from the issuance of
notes, net of issuance costs, of $210.8 million and borrowing under the
acquisition facility of $31 million. The principal use of cash for financing
activities for the years ended December 31, 1998 and 1997 was cash dividends
paid to shareholders in the amounts of $14.1 million and $21.5 million,
respectively, and the repurchase of common stock for $62.6 million in 1998.
COMBINED D&F, OMNI-PAK AND AFFILIATES RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
SALES. In 1999, sales increased by $69.4 million, or 39.1%, to
$246.9 million compared to $177.5 million in 1998. The increase in sales
primarily resulted from the rapid growth in sales to Herbalife and EAS and the
acquisition of American.
COST OF SALES AND GROSS PROFIT. Cost of sales increased by $57.7 million,
or 46.6%, to $181.5 million in 1999 compared to $123.8 million in 1998. Cost of
sales as a percentage of sales increased to 73.5% in 1999 compared to 69.7% in
1998, thereby reducing gross margin in 1999 to 26.5% from 30.3% in 1998. The
increase in the dollar amount of cost of sales resulted from the increase in
sales in 1999
18
<PAGE>
compared to 1998. The decrease in gross margin as a percent of sales resulted
primarily from relatively higher raw material costs (principally at American),
higher operating costs in the Company's new La Palma facility and non-recurring
start-up costs at the La Palma facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, included amortization of intangibles, increased by
$27.1 million, or 89.7%, to $57.3 million in 1999 compared to $30.2 million in
1998. As a percentage of sales, selling, general and administrative expenses
increased by 6.2% to 23.2% in 1999 compared to 17.0% in 1998. The increase in
selling, general and administrative expenses is primarily due to an increase in
amortization of intangibles ($17.0 million) resulting from the Recapitalization
and the acquisition of American (4.2 million), the increase in costs to support
increased sales ($3.6 million) and costs not expected to recur in year 2000
($2.4 million). Amortization of intangibles as a percentage of sales increased
by 4.4% to 13.2% in 1999 compared to 8.8% in 1998. Selling, general and
administrative expenses, excluding the amortization of intangibles, as a
percentage of sales increased by 1.8% to 10.0% in 1999 as compared to 8.2% in
1998. Costs not expected to recur in 2000 were 1.0% of sales.
NET INCOME (LOSS). Net income (loss) decreased by $28.2 million to a loss
of $22.8 million in 1999 compared to net income of $5.4 million in 1998. The
decrease in net income reflects the net effect of higher gross profits resulting
from increased sales, offset by increased costs related to the Recapitalization;
interest on senior debt increased $12.9 million and amortization of intangibles
increased $17.0 million, increased selling, general and administrative costs to
support increased sales, and costs not expected to recur in 2000. In 1999
operating results reflect interest on senior debt and amortization of
intangibles for 12 months, whereas, the 1998 operating results reflect these
costs from the dates of Recapitalization and Acquisition. Costs not expected to
recur in 2000 totaled $3.2 million, including $0.8 million of start-up costs at
the Company's new facility, $1.0 million of costs expensed in connection with
the implementation of the company's new computer system, and $1.4 million in
other costs not expected to recur in 2000.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
SALES. In 1998, sales decreased by $4.9 million, or 2.7%, to
$177.5 million compared to $182.4 million, in 1997. This decrease in sales
primarily resulted from a decrease of approximately $29.5 million or 28.8%, to
$108.1 million, in sales to Herbalife. The principal reasons for the decline
relate to the price reduction from the Herbalife supply agreement, which took
effect in January 1998, and the reduction in the Company's sales to Herbalife
for resale in Russia and Japan. The decline was partly offset by an increase in
sales to other customers of approximately $24.6 million, to $69.4 million, or
54.9%.
COST OF SALES AND GROSS PROFIT. Cost of sales increased by $6.1 million, or
5.2%, to $123.8 million in 1998 compared to $117.7 million in 1997. Cost of
sales as a percentage of sales increased to 69.7% in 1998 compared to 64.6% in
1997, thereby reducing the gross margin in 1998 to 30.3% from 35.4% in 1997. The
increase in cost of sales resulted from changes in the Company's mix of business
in 1998 compared to 1997. The decline in the Company's gross margin principally
resulted from changes brought about by the Herbalife supply agreement and
changes in the Company's mix of business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $17.2 million, or 132.3%, to $30.2 million
in 1998 compared to $13.0 million in 1997. As a percentage of sales, selling,
general and administrative expenses were 17.0% in 1998 compared to 7.1% in 1997.
The increase in selling, general and administrative expenses primarily resulted
from an increase in amortization of intangibles ($15.7 million) resulting from
the Recapitalization. Intangibles are being amortized over five years. The
increase in selling, general and administrative expenses as a percentage of
sales primarily resulted from the impact of the amortization of intangibles, as
the Company's general and administrative expenses remained relatively constant
despite the decrease in sales.
19
<PAGE>
NET INCOME. Net income decreased by $45.7 million, or 89.4%, to
$5.4 million in 1998 compared to $51.1 million in 1997. This decrease resulted
primarily from the decrease in sales, a slight decrease in gross margin in 1998
and an increase in selling, general and administrative costs as a percentage of
sales.
YEAR 2000 UPDATE
As described in the Company's reports on Form 10K for the year ended
December 31, 1998, the company had developed plans to address the possible
exposure related to the impact on its computer systems of the Year 2000. Since
entering the year 2000, the Company has not experienced any major disruption to
its business nor is it aware of any significant Year 2000--related disruptions
impacting its customers and suppliers. Furthermore, the Company did not
experience any material impact on inventories at calendar year end. The Company
will continue to monitor its critical systems over the next several months but
does not anticipate any significant impacts due to Year 2000 exposures from its
internal systems or from the activities of its suppliers and customers.
Costs incurred to achieve Year 2000 readiness, which include contractor
costs to install new systems were charged to expense as incurred. Such costs
totaled $1.0 million of costs expensed in 1999, which were associated with the
implementation of new computer systems.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements in addition to historical
information. Forward-looking statements can be identified by the use of such
terms as "estimates," "projects," "anticipates," "expects," "intends,"
"believes," or by references to plans or strategies that are expressly or
inherently subject to risks and uncertainties. The Company's actual results
could differ materially from those anticipated in its forward-looking
statements. Management cautions the reader that forward-looking statements
contained in this report, such as statements regarding prospective developments
of the Company's business and the Company's availability to finance its ongoing
operations and to replace existing financing, while offered in good faith are
only estimates or predictions based on various assumptions. Actual events or
results may differ materially from those anticipated, particularly as a result
of risks facing the Company or the occurance of circumstances differing from its
assumptions. In particular expected revenues and the Company's availability of
cash from operations to meet its liquidity requirements could be adversely
affected by changes in the Company's existing relationships with Herbalife or
EAS or significant reductions in Herbalife's or EAS's requirements as a result
of economic or other conditions adversely affecting the market for its products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company currently uses no material derivative financial instruments
which 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. The tables below
presents principal cash flows and related weighted average interest rates of the
Company's long-term debt at December 31, 1998 and 1999 by expected maturity
dates. Weighted average variable rates are based on rates in effect at
December 31, 1998 and 1999. These rates should not be considered a predictor of
actual future interest rates.
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 00 DECEMBER 01 DECEMBER 02 DECEMBER 03 DECEMBER 04 THEREAFTER TOTAL
----------- ----------- ----------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Senior Notes Average(1).... $ 0 $ 0 $ 0 $ 0 $ 0 $225,000 $225,000
Interest Rate.............. 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5%
Bank Line (2).............. $38,500 $ 38,500
Average Interest Rate...... 10.75% 10.75% 10.75% 10.75% 10.75% 10.75%
<CAPTION>
FAIR VALUE
----------
<S> <C>
Senior Notes Average(1).... $130,000
Interest Rate..............
Bank Line (2).............. $ 38,500
Average Interest Rate......
</TABLE>
- - ------------------------------
(1) The interest rate is fixed at 11%; original issue discount increases the
effective rate to 11.5%. Fair value is based on quoted prices as of
December 31, 1999.
(2) Consists of debt under which interest rates will fluctuate based on changes
in the prime rate. As of December 31, 1999, the Company did not meet the
minimum EBITDA requirement under the Credit Agreement. As a result, the
Company failed to meet several covenant requirements. Under the terms of the
Credit Agreement, the Company has the option of raising capital to cure the
deficiency. The amount of capital required to be in full compliance would be
$2.9 million. The Company is currently considering whether to raise the
required capital or find a new lending group. There can be no assurance that
the Company will be able to raise the capital or find a new lending group
before the current lenders declare a default under the Credit Agreement.
In making its determination as to the balance of fixed and variable rate
debt, the Company considers the interest rate environment (including interest
rate trends), borrowing alternatives and relative pricing. The Company
periodically monitors the balance of fixed and variable rate debt and can make
appropriate corrections either pursuant to the terms of debt agreements or
through the use of swaps and other financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See attached financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table identifies each of the directors, executive officers and
key personnel of the Company. Each director is elected at the annual meeting of
shareholders to serve until the next annual meeting or until his successor is
elected or appointed.
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- -------- --------
<S> <C> <C>
Richard D. Marconi(1)........... 65 Chairman of the Board, President and Director
Paul M. Buxbaum(1).............. 44 Chief Executive Officer and Director
Donald J. Lewis(1).............. 49 Chief Financial Officer, Senior Vice President and Director
Howard L. Simon................. 56 Chief Operating Officer and Senior Vice President
Arthur J. Salerno............... 59 President of American Ingredients, Inc.
Sen. Dennis DeConcini........... 62 Director
Brad Gates...................... 60 Director
</TABLE>
MR. RICHARD D. MARCONI co-founded the Company in 1978 and is the Chairman of
the Board of Directors and President, as well as the Company's sole stockholder.
Mr. Marconi has been in the food supplement and pharmaceutical industries for
over 40 years. Mr. Marconi is a director of American Health Sciences, Inc. and
is Chairman of the Marconi Foundation for Kids.
MR. PAUL M. BUXBAUM became Chief Executive Officer of the Company on
April 23, 1998. Prior thereto, Mr. Buxbaum was Chief Executive Officer of The
Buxbaum Group, a consumer products consulting group, specializing in asset
evaluations for lending institutions, crisis management services, inventory
acquisitions and bankruptcy liquidations. Since 1993, Mr. Buxbaum has served as
Chairman of the Board of Ames Department Stores, Inc. of Rocky Hill, Connecticut
and since 1997 he has served as a director of Lamonts Apparel, Inc. From 1995
through 1998 Mr. Buxbaum served as a director of Richmond Gordman 1/2 Price
Stores of Omaha, Nebraska. From 1991 through 1996, Mr. Buxbaum served on the
Board of Directors of Herbalife and in 1997 served as Chairman of the Board of
Jay Jacobs Stores of Seattle, Washington.
MR. DONALD J. LEWIS entered into a consulting arrangement with the Company
in February, 1998 and became Chief Financial Officer and Senior Vice President
on April 23, 1998. Prior to joining the Company, Mr. Lewis was Chief Financial
Officer of Visy Industries (U.S.A.), Inc. from 1995 to 1998 and was an audit
partner with Arthur Andersen & Co. from 1984 to 1995.
MR. HOWARD L. SIMON has been Chief Operating Officer and Senior Vice
President of the Company since June 1998. Prior thereto, Mr. Simon was President
of Cosmetic Group USA LLC from September 1997 to May 1998 and Chief Operating
Officer of Cosmetic Group USA, Inc. from January 1994 to August 1997.
MR. ARTHUR J. SALERNO has been President and Chief Executive Officer of
American since 1984.
SENATOR DENNIS DECONCINI became a member of the Board of Directors on
April 23, 1998. From January 1977 through January 1995, Senator DeConcini served
as a United States Senator from Arizona. During his senatorial term, Senator
DeConcini served as a member of the Appropriations Committee and the Judiciary
Committee. Senator DeConcini is a member of the board of directors of
- - ------------------------
(1) Mr. Marconi is also a director, Chairman of the Board and President of
each of Global Sub, D&F, Omni-Pak, Dynamic and West Coast Sales (the
"Subsidiaries"); Mr. Buxbaum is also a director and the Chief Executive
Officer of each of the Subsidiarise; and Mr. Lewis is also a director, the
Chief Financial Officer and Senior Vice President of each of the
Subsidiaries.
22
<PAGE>
the Federal Home Loan Mortgage Corporation, the Schuff Steel Company, Safe T
Lock Incorporated and RDL Commercial Technologies Corporation.
MR. BRAD GATES became a member of the Board of Directors on April 23, 1998.
Since 1974, Mr. Gates has served as Sheriff of Orange County, California.
Mr. Gates currently serves on the boards of directors of the Orange County
Council of the Boy Scouts of America and the Newport Sports Collection
Foundation and is a member of various civic and professional organizations.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for 1999
and 1998 awarded to or earned by the Chief Executive Officer and the other
executive officers as of December 31, 1999, for services rendered to the Company
and subsidiaries.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- - --------------------------- -------- ---------- -------- ----------------
<S> <C> <C> <C> <C>
Richard D. Marconi.................................... 1999 $2,000,000 -- $ 57,692(1)
President and Chairman 1998 2,035,896 -- 31,400(2)
Paul M. Buxbaum(3).................................... 1999 450,000 -- 410,200(4)
Chief Executive Officer 1998 311,538 -- 285,428(5)
Donald J. Lewis(3)....................................
Chief Financial Officer 1999 225,000 -- 15,200(6)
and Senior Vice President 1998 196,269 85,900 7,650(7)
Howard L. Simon(3).................................... 1999 225,000 84,200 16,092(8)
Chief Operating Officer and Senior Vice President 1998 129,808 -- 5,950(9)
Arthur J. Salerno..................................... 1999 300,000 -- 10,200(1)(0)
President, American Ingredients 1998 -- -- --
</TABLE>
- - ------------------------
1. Includes a $5,000 matching contribution to Mr. Marconi's 401(k) Plan and a
$52,692 car allowance.
2. Includes a $5,000 matching contribution to Mr. Marconi's 401(k) Plan and a
$26,400 car allowance.
3. Each of Mr. Buxbaum, Mr. Lewis and Mr. Simon commenced employment with the
Company in 1998.
4. Includes $400,000 paid to BGA Consulting, a company of which Mr. Buxbaum is
president, and a $10,200 car allowance.
5. Includes $277,778 paid to BGA Consulting, a company of which Mr. Buxbaum is
president, and a $7,650 car allowance
6. Includes a $5,000 matching contribution to Mr. Lewis's 401(k) Plan and a
$10,200 car allowance.
7. Car allowance.
8. Includes a $3,392 matching contribution to Mr. Simon's 401(k) Plan, a
$10,200 car allowance, and a $500 life insurance policy.
9. Car allowance.
10. Car allowance.
23
<PAGE>
Non-employee directors of the Company are paid a monthly fee of $2,000.
Employee directors are not separately compensated for their services as
directors. The Company intends to adopt a share incentive plan in order to
provide incentives to attract, retain and motivate highly competent persons as
executive management, employees and directors of the Company and its affiliates.
This plan will provide such persons with opportunities to acquire shares of
common stock of Global Health, or to receive monetary payments based on the
value of such shares. Benefits under the plan will be available for grant in any
one or a combination of stock options, stock appreciation rights, stock awards,
performance awards and stock units.
EMPLOYMENT AND CONSULTING AGREEMENTS
Upon consummation of the Reorganization, the Company entered into employment
agreements with Mr. Marconi, Mr. Buxbaum and Mr. Lewis to serve as President,
Chief Executive Officer, and Chief Financial Officer and Senior Vice President,
respectively, of the Company.
The employment agreement with Mr. Marconi provides that he is employed as
President of the Company for a term of five years, renewable upon 90 days' prior
notice by the Company to Mr. Marconi. The agreement provides for a base salary
of $2 million and an annual bonus to be determined by the Board of Directors of
the Company to the extent the Company's EBITDA exceeds $50 million in any year
during the term of the Agreement, which amount can be up to 15% of the amount by
which EBITDA in such year exceeds $50 million. Upon a change of control (as
defined therein), Mr. Marconi has the right to terminate his employment. In such
event, the Company would be required to pay Mr. Marconi his pro rated base
salary and bonus (if one was received the year prior to termination) at the time
of termination plus one year severance pay equal to his annual salary. The
agreement also provides that Mr. Marconi will serve as Chairman of the Board of
Directors of the Company.
The employment agreement with Mr. Buxbaum provides that he is employed as
Chief Executive Officer of the Company for a term of three years, renewable upon
90 days' prior notice by the Company to Mr. Buxbaum. The agreement provides for
a base salary of $450,000 and an annual bonus to be determined by the Board of
Directors of the Company. Upon a change of control (as defined therein),
Mr. Buxbaum has the right to terminate his employment. In such event, the
Company would be required to pay Mr. Buxbaum his pro rated base salary and bonus
(if one was received the year prior to termination) at the time of termination
plus one year severance pay equal to his annual salary. In addition,
Mr. Marconi has agreed to grant to Mr. Buxbaum an option to acquire up to 20% of
the common stock of the Company owned by Mr. Marconi on April 32, 1998 at the
fair market value thereof as of that date.
The employment agreement with Mr. Lewis provides that he is employed as
Chief Financial Officer and Senior Vice President of the Company for a term of
three years, renewable upon 90 days' prior notice by the Company to Mr. Lewis.
The agreement provides for a base salary of $225,000 and an annual bonus to be
determined by the Board of Directors of the Company. Upon a change of control
(as defined therein), Mr. Lewis has the right to terminate his employment. In
such event, the Company would be required to pay Mr. Lewis his pro rated base
salary and bonus (if one was received the year prior to termination) at the time
of termination plus one year severance pay equal to his annual salary.
In June 1998, the Company entered into an employment agreement with
Mr. Simon to serve as Chief Operating Officer of the Company for a term of three
years, renewable upon 90 days prior notice by the Company to Mr. Simon. The
agreement provides for a base salary of $225,000 and an annual bonus to be
determined by the Board of Directors of the Company. Upon a change in control
(as defined therein), Mr. Simon has the right to terminate his employment. In
such event, the Company would be required to pay Mr. Simon his pro rated base
salary and bonus (if one was received in the
24
<PAGE>
year prior to termination) at the time of termination plus one year's severance
pay equal to his annual salary.
In December 1998, the Company entered into an employment agreement with
Mr. Salerno to serve as President of American. The employment agreement with
Mr. Salerno provides that he is employed as President of American for a term of
three years. The agreement provides for a base salary of $300,000 and an annual
bonus to be determined by the Board of Directors of the Company. If the Company
terminates Mr. Salerno's employment (other than for cause) he is entitled to his
base salary for the remainder of the term, less any compensation he would
receive from a successor employer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to the ownership of
the outstanding common stock of the Company (the "Common Stock"), as of the date
hereof, by each person known to the Company to own beneficially more than 5% of
the Common Stock outstanding on that date. No other person owns any Common
Stock.(1)
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF TOTAL VOTING
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS POWER
- - -------------- ------------------- ---------------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stock Richard D. Marconi 495,148(1) 100% 100%
Global Health Sciences, Inc.
987 N. Enterprise Street
Orange, California 92867
</TABLE>
- - ------------------------
(1) Mr. Marconi has granted Mr. Buxbaum an option to acquire up to 20% of the
Common Stock currently owned by Mr. Marconi at the fair market value thereof
on April 23, 1998. This option will vest over a period of years, the term of
which has not yet been determined.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The facility containing the Company's corporate headquarters and granulation
facility is leased by the Company pursuant to a three-year lease agreement with
Mr. Marconi and certain other persons. The base rent is approximately $7,000 per
month. Mr. Marconi owns shares in American Health Sciences, Inc. ("American
Health Sciences"), a privately held company and customer of the Company.
Aggregate sales to American Health Sciences in 1999 were approximately $128,000.
Mr. Marconi is the sole owner of Herbalogix, Inc., a privately held company and
customer of the Company. Aggregate sales to Herbalogix in 1999 were
approximately $691,000.
The Company engaged BGA Consulting in April 1998 to perform certain
consulting services relating to the operation of the Company. The consulting
agreement has a three-year term and provides for an annual consulting fee of
$400,000. In addition, in consideration for its services to the Company in
connection with the Reorganization, BGA Consulting received directly from the
Company's shareholder at the time of the Reorganization, a fee equal to
approximately $2.4 million. The Company also employed BGA Consulting to assist
in financial due diligence relating to two proposed acquisitions and paid BGA
Consulting $39,407 for these services. Mr. Buxbaum is the President of BGA
Consulting.
The facility occupied by American is leased by the Company under a four-year
lease from Mr. Salerno. The base rent is approximately $21,000 per month.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the day of
March 2000.
<TABLE>
<S> <C> <C>
GLOBAL HEALTH SCIENCES, INC.
GLOBAL HEALTH SUB, INC.
RAVEN INDUSTRIES, INC.
WEST COAST SALES
DYNAMIC PRODUCTS, INC.
D&F INDUSTRIES, INC.
By: /s/ PAUL M. BUXBAUM
-----------------------------------------
Name: Paul M. Buxbaum
Title: Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD J. LEWIS Chief Financial Officer, March 30, 2000
------------------------------------------- Senior Vice President and
Donald J. Lewis Director
(Principal Financial Officer
and Principal Accounting
Officer) of Global Health
Sciences, Inc. and each of the
Subsidiaries
/s/ RICHARD D. MARCONI President, Chairman of the March 30, 2000
------------------------------------------- Board and Director of Global
Richard D. Marconi Health Sciences, Inc. and each
of the Subsidiaries
/s/ DENNIS DECONCINI March 30, 2000
------------------------------------------- Director of Global Health
Dennis DeConcini Sciences, Inc.
/s/ BRADLEY GATES March 30, 2000
------------------------------------------- Director of Global Health
Bradley Gates Sciences, Inc.
/s/ PAUL M. BUXBAUM Chief Executive Officer and March 30, 2000
------------------------------------------- Director (Principal Executive
Paul M. Buxbaum Officer) of Global Health
Sciences, Inc. and each of the
Subsidiaries.
</TABLE>
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) LIST OF FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS:
FINANCIAL STATEMENTS:
The financial statements required to be filed hereunder are listed on page
F-1 hereof.
FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules required to be filed hereunder are listed
on page F-1 hereof.
EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------------------- ------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of April 23,
1998 by and among Global Health Sciences, Inc., Global
Health Sub, Inc., Raven Sub, Inc., Raven Industries, Dynamic
Sub, Inc., Dynamic Products Inc, New West Coast Sales, Inc.,
West Coast Sales and Global Merger Sub, Inc. (incorporated
by reference to Exhibit 4.1 to the Company's registration
statement on Form S-4 (File No. 333-52539 (the "S-4"))
2.2 Stock Purchase Agreement, dated as of December 11, 1998, by
and among Global Health Sub, Inc., Arthur J. Salerno and
Kathleen P. Salerno (incorporated by reference to Exhibit
2.1 to the Company's Form 8-K filed on December 23, 1998)
3.1(i) Articles of Incorporation of Global Health Sciences, Inc.
(incorporated by reference to Exhibit 3.1(i) to the S-4)
3.1(ii) Articles of Incorporation of Global Health Sub, Inc.
(incorporated by reference to Exhibit 3.1(ii) to the S-4)
3.1(iii) Articles of Incorporation of Raven Industries, Inc.
(incorporated by reference to Exhibit 3.1(iii) to the S-4)
3.1(iv) Articles of Incorporation of Dynamic Products Inc.
(incorporated by reference to Exhibit 3.1(iv) to the S-4)
3.1(v) Articles of Incorporation of West Coast Sales (incorporated
by reference to Exhibit 3.1(v) to the S-4)
3.1(vi) Articles of Incorporation of D&F Industries, Inc.
(incorporated by reference to Exhibit 3.1(vi) to the S-4)
3.2(i) By-Laws of Global Health Sciences, Inc. (incorporated by
reference to Exhibit 3.2(i) to the S-4)
3.2(ii) By-Laws of Global Health Sub, Inc. (incorporated by
reference to Exhibit 3.2(ii) to the S-4)
3.2(iii) By-Laws of Raven Industries, Inc. (incorporated by reference
to Exhibit 3.2(iii) to the S-4)
3.2(iv) By-Laws of Dynamic Products Inc. (incorporated by reference
to Exhibit 3.2(iv) to the S-4)
3.2(v) By-Laws of West Coast Sales (incorporated by reference to
Exhibit 3.2(v) to the S-4)
3.2(vi) By-Laws of D&F Industries, Inc. (incorporated by reference
to Exhibit 3.2(vi) to the S-4)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------------------- ------------------------------------------------------------
<S> <C>
4.1 Indenture, dated as of April 23, 1998, by and among the
Registrants and Chase Manhattan Bank and Trust Company,
National Association, as trustee (incorporated by reference
to Exhibit 4.1 to the S-4)
4.2 Form of Notes (included in Exhibit 4.1)
4.3 Guarantees of Global Health Sub, Inc., Raven Industries,
Dynamic Products Inc, New West Coast Sales, Inc., and D&F
Industries, Inc. under Indenture (included in Exhibit 4.1)
4.4(i) Credit Agreement dates as of April 23,1998 among Global
Health Sub, Inc., Global Health Sciences Inc., the Lenders
party thereto, Citicorp USA Inc. Citibank, N.A. and Bank of
America NT&SA (incorporated by reference to Exhibit 4.5 to
the S-4)
4.4(ii) First Amendment to Credit Agreement dated December 4, 1998
among Global Health Sub, Inc., Global Health Sciences, Inc.,
the Lenders party thereto, Citicorp USA, Inc., Citibank,
N.A., and Bank of America NT&SA.
4.4(iii) Second Amendment to Credit Agreement dated April 30, 199
among Global Health Sub, Inc., Global Health Sciences, Inc.,
the Lenders party thereto, Citicorp USA, Inc., Citibank,
N.A., and Bank of America NT&SA.
4.4(iv) Third Amendment to Credit Agreement dated October 29, 1999
among Global Health Sub, Inc., Global Health Sciences, Inc.,
the Lenders party thereto, Citicorp USA, Inc., Citibank,
N.A., and Bank of America NT&SA.
4.5 Guaranty, Indemnity and Subordination Agreement dated as of
April 23, 1998 among Global Health Sciences, Inc., D&F
Industries, Inc., Raven Industries, Inc., Dynamic Products
Inc. and West Coast Sales (incorporated by reference to
Exhibit 4.6 to the S-4)
4.7 Pledge and Security Agreement dated as of April 23, 1998 by
and among Global Health Sub, Inc., Global Health Sciences,
Inc., D&F Industries, Inc., Raven Industries, Inc., Dynamic
Products Inc., West Coast Sales and Citicorp USA, Inc.
(incorporated by reference to Exhibit 4.7 to the S-4)
4.8 Supplemental Indenture, dated as of December 11, 1998, among
American Ingredients Inc., Global Health Sciences, Inc., the
existing subsidiary guarantors named therein and Chase
Manhattan Bank and Trust Company, National Association.
(incorporated by reference to Exhibit 4.8 of the
registrant's annual report on the Form 10K for the year
ended December 31, 1998)
10.1 Supply Agreement dated as of September 2, 1997 by and
between Raven Industries, Inc. and Herbalife International
of America, Inc. ("Herbalife") (incorporated by reference to
Exhibit 10.23 to Herbalife's Form 10-K for the year ended
December 31, 1997)
10.2 Supply Agreement dated as of September 2, 1997 by and
between Dynamic Products Inc. and Herbalife (incorporated by
reference to Exhibit 10.22 to Herbalife's Form 10-K for the
year ended December 31, 1997)
10.3 Supply Agreement dated as of September 2, 1997 by and
between Global Health and Herbalife (incorporated by
reference to Exhibit 10.21 to Herbalife's Form 10-K for the
year ended December 31, 1997)
10.4 Employment Agreement dated as of April 23, 1998 by and
between Global Health Sciences, Inc. and Richard D. Marconi
(incorporated by reference to Exhibit 10.4 to the S-4)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - --------------------- ------------------------------------------------------------
<S> <C>
10.5 Employment Agreement dated as of April 23, 1998 by and
between Global Health Sciences, Inc. and Paul M. Buxbaum
(incorporated by reference to Exhibit 10.5 to the S-4)
10.6 Employment Agreement dated as of April 23, 1998 by and
between Global Health Sciences, Inc. and Donald J. Lewis
(incorporated by reference to Exhibit 10.6 to the S-4)
10.7 Consulting Agreement dated as of April 23, 1998 by and
between Global Health Sciences, Inc. and BGA Consulting
(incorporated by reference to Exhibit 10.7 to the S-4)
10.8 Employment Agreement dated as of June 1, 1998 by and between
Global Health Sciences, Inc. and Howard L. Simon
(incorporated by reference to Exhibit 10.8 to the S-4)
10.9 Employment Agreement dated as of December 11, 1998, between
American Ingredients, Inc. and Arthur J. Salerno.
(incorporated by reference to Exhibit 10.9 of the
registrant's annual report on the Form 10K for the year
ended December 31,1998)
21 Subsidiaries of the Registrants (incorporated by reference
to Exhibit 21 of the registrant's annual report on the
Form 10K for the year ended December 31, 1998)
27 Financial Data Schedule for the fiscal year ended December
31, 1998, which is submitted electronically to the
Commission for information only
</TABLE>
B) REPORTS ON FORM 8-K
None
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Global Health Sciences, Inc:
We have audited the accompanying consolidated balance sheets of Global
Health Sciences, Inc. (formerly D&F Industries Inc.) (the "Company") and
subsidiaries, as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' (deficit) equity, and cash flows for
each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998, and the results of their operations and cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
Los Angeles, California
February 25, 2000
F-1
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 6,400 $ 7,987
Accounts receivable, net of allowance for doubtful
accounts of $601 and $284 at December 31, 1999 and 1998,
respectively............................................ 20,882 11,912
Inventories............................................... 31,532 14,784
Prepaid expenses and other current assets................. 1,601 2,454
-------- --------
Total current assets.................................. 60,415 37,137
PROPERTY AND EQUIPMENT, Net................................. 18,749 7,490
GOODWILL AND OTHER ASSETS, Net.............................. 123,713 158,116
-------- --------
TOTAL....................................................... $202,877 $202,743
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 37,224 $ 18,554
Accrued interest payable.................................. 4,125 4,125
Acquisition facility...................................... 38,500 31,000
-------- --------
Total current liabilities............................. 79,849 53,679
-------- --------
LONG-TERM DEBT.............................................. 219,493 218,832
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' DEFICIT:
Common stock; no par value, 2,000,000 shares authorized;
495,148 shares issued and outstanding at December 31,
1999 and 1998........................................... 473 473
Accumulated deficit....................................... (96,938) (70,241)
-------- --------
Total stockholders' deficit........................... (96,465) (69,768)
-------- --------
TOTAL....................................................... $202,877 $202,743
======== ========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET SALES................................................... $246,941 $146,741 $85,191
COST OF SALES............................................... 181,548 102,756 55,020
-------- -------- -------
GROSS PROFIT................................................ 65,393 43,985 30,171
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 24,654 12,589 7,088
AMORTIZATION OF INTANGIBLES................................. 32,681 15,674
-------- -------- -------
OPERATING INCOME............................................ 8,058 15,722 23,083
INTEREST EXPENSE (INCOME)................................... 30,744 17,842 (82)
-------- -------- -------
(LOSS) INCOME BEFORE PROVISION FOR STATE INCOME TAXES....... (22,686) (2,120) 23,165
PROVISION FOR STATE INCOME TAXES............................ 64 203 350
-------- -------- -------
NET (LOSS) INCOME........................................... $(22,750) $ (2,323) $22,815
======== ======== =======
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(ACCUMULATED TOTAL
COMMON STOCK DEFICIT) STOCKHOLDER
-------------------- RETAINED (DEFICIT)
SHARES AMOUNT EARNING EQUITY
--------- -------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997........................... 1,075,000 $1,026 $ 5,302 $ 6,328
Net income....................................... 22,815 22,815
Dividends........................................ (21,547) (21,547)
--------- ------ -------- --------
BALANCE DECEMBER 31, 1997.......................... 1,075,000 1,026 6,570 7,596
Net loss......................................... (2,323) (2,323)
Dividends........................................ (12,466) (12,466)
Recapitalization................................. (543,085) (518) (58,182) (58,700)
Share repurchase................................. (36,767) (35) (3,840) (3,875)
--------- ------ -------- --------
BALANCE DECEMBER 31, 1998.......................... 495,148 473 (70,241) (69,768)
Net loss......................................... (22,750) (22,750)
Dividends........................................ (3,947) (3,947)
--------- ------ -------- --------
BALANCE DECEMBER 31, 1999.......................... 495,148 $ 473 $(96,938) $(96,465)
========= ====== ======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $(22,750) $ (2,323) $22,815
Adjustments to reconcile net (loss) income to net cash
provided by operating activities, net of acquisition of
American and the
Reorganization:
Depreciation and amortization........................... 35,522 15,891 523
Amortization of loan fees............................... 2,882 1,053
Changes in operating assets and liabilities:
Accounts receivable................................... (8,970) (1,881) (502)
Inventories........................................... (16,748) (18) (3,740)
Prepaid expenses and other current assets............. 853 (1,962) 75
Accounts payable and accrued liabilities.............. 18,670 (2,159) 1,919
Accrued interest payable.............................. 4,125
-------- -------- -------
Net cash provided by operating activities........... 9,459 12,726 21,090
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Omni-Pak and Affiliates, net of cash acquired
of...................................................... (135,227) $ 2,640
Purchase of American, less cash acquired of $773.......... (500) (29,212)
Issuance of note receivable............................... (6,000)
Proceeds from sale of property and equipment.............. 280
Other assets.............................................. (382)
Purchases of property and equipment....................... (14,099) (2,705) (226)
-------- -------- -------
Net cash used in investing activities............... (14,599) (173,246) (226)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid............................................ (3,947) (14,114) (21,547)
Principal payments under line of credit, net................ (420) (120)
Repurchase of common stock................................ (62,575)
Issuance of long-term debt................................ 218,502
Net borrowings on Acquisition Facility.................... 7,500 31,000
Debt issuance costs....................................... (7,654)
-------- -------- -------
Net cash provided by (used in) financing
activities........................................ 3,553 164,739 (21,667)
-------- -------- -------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................................... $(1,587) $ 4,219 $ (803)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 7,987 3,768 4,571
------- ------- ------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... 6,400 7,987 3,768
------- ------- ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION --
Cash paid during the period for:
Interest................................................ $28,436 $13,100 $ 43
Income taxes............................................ $ 277 $ 291 $ 350
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
1. GENERAL AND THE REORGANIZATION
Global Health Sciences, Inc. (the "Company") is primarily engaged in the
manufacture of dietary and nutritional supplements. The Company supplies
specialty products for branded distributors, branded retailers, television
marketing companies and network marketing organizations who then distribute
these products around the world. In addition through its subsidiary American
Ingredients, Inc. the Company is a supplier to the nutritional supplement
industry.
On April 23, 1998, D&F Industries, Inc. ("D&F" or the "Predecessor") Raven
Industries dba 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 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 $137,900 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 $58,700 in cash to repurchase
approximately 543,000 outstanding shares from its stockholders (the
"Recapitalization"). The above transactions were financed principally through
the sale of $225,000 aggregate principal amount of the Notes, the net proceeds
of which were approximately $210,800. The transactions described above are
referred to as the "Reorganization."
The Acquisition has been accounted for under the purchase method of
accounting. The purchase price consists of $136,900 of cash and $1,000 of
transaction costs and was allocated to Omni-Pak and Affiliates assets and
liabilities based on their respective values as of the closing date. The excess
of purchase price over the approximate $1,400 of net asset value at the closing
date has been allocated to goodwill.
The financial statements presented as of and for the year ended
December 31, 1997 are those of D&F. The statements of operations and cash flows
for the period ended December 31, 1998 include those of D&F through April 23,
1998, the date of the Reorganization, and those of Global Health Sciences, Inc.
(which include the operations of D&F and Omni-Pak and Affiliates) subsequent to
April 23, 1998. Intercompany accounts and transactions have been eliminated in
consolidation. The financial statements include the acquisition of American
Ingredients as of December 31, 1998. The operating results reflect the accounts
of American subsequent to such date.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported
F-7
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents. To reduce its credit risk, the Company monitors the credit standing
of the financial institutions that hold the Company's cash and cash equivalents.
ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS--Financial instruments that
potentially subject the Company to a concentration of credit risk consist
primarily of accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential credit
losses.
The Company's largest customer is Herbalife International, Inc.
("Herbalife"). Sales to Herbalife represented 57%, 65%, and 85% of net sales in
1999, 1998 and 1997, respectively. Receivables from Herbalife also represented
14% of total accounts receivable at both December 31, 1999 and 1998.
The Company's second largest customer, Natural Supplement Association, Inc.
dba Experimental and Applied Sciences ("EAS"), represented 23% and 24% of net
sales in 1999 and 1998, respectively. Receivables from EAS also represented 26%
and 28% of total accounts receivable at December 31, 1999 and 1998,
respectively. In addition, at December 31,1999 and 1998, the Company had
accounts receivable from two other customers that aggregated 16% and 21%,
respectively, of the total accounts receivable.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Manufactured product cost
includes the cost of material, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation and amortization are provided for on the straight-line method using
estimated useful lives of 3 to 7 years for equipment and 31 years for buildings.
Leasehold improvements are amortized over the life of the related asset or the
term of the lease, whichever is shorter.
LONG-LIVED ASSETS--Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable based upon undiscounted cash flows. Impairment
losses would be recognized if the carrying amount of the asset exceeds its fair
value.
GOODWILL--Goodwill is being amortized over approximately a five year-period
using the straight-line method.
DEFERRED FINANCING COSTS--Deferred financing costs are being amortized over
the term of the related debt: two years for costs incurred related to the
Facility (see Note 6) and ten years for costs incurred related to the Notes.
During 1999 in connection with the modification of the Facility, the Company
F-8
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accelerated the amortization of the deferred financing costs resulting in an
incremental charge of $900 in 1999.
REVENUE RECOGNITION--The Company recognizes revenues at the time products
are shipped.
INCOME TAXES--The Company has elected S corporation status for federal and
state income tax purposes, and other than a 1.5% state income tax, taxable
income is passed through to the Company's shareholders. Goodwill related to the
Reorganization is not deductible for tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company' financial instruments
consist primarily of cash and cash equivalents, accounts receivable and payable,
and debt instruments. The carrying values of all financial instruments, other
than debt instruments, are representative of their fair values due to their
short maturities. The carrying value of the Company's Facility approximates fair
value because the interest rates are based on current rates offered to the
Company. The fair value of the Long-Term Debt at December 31, 1999 and 1998 was
$130,000 and $146,250, respectively, based on quoted market price.
SEGMENT INFORMATION--The Company operates within a single industry and
geographic segment as a manufacturer and supplier of herbal products, weight
control, sports and performance nutrition products, and special products;
however, the Company does not aggregate financial information by product line.
Revenues from significant customers are provided above.
NEW ACCOUNTING STANDARDS In June, 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities. This statement
will be effective for all fiscal quarters, of all fiscal years, beginning after
June 15, 2000. The Company has not yet analyzed the impact of adopting the
statement.
RECLASSIFICATIONS--Certain prior period amounts have been reclassified to
conform to the current year presentations.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials............................................. $19,360 $12,319
Work in process........................................... 5,565 1,535
Finished goods............................................ 6,607 930
------- -------
Total..................................................... $31,532 $14,784
======= =======
</TABLE>
F-9
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Equipment................................................. $18,274 $13,821
Leasehold improvements.................................... 12,030 3,589
Land...................................................... 150 150
------- -------
$30,454 $17,560
Less accumulated depreciation and amortization............ 11,705 10,070
------- -------
Total..................................................... $18,749 $ 7,490
======= =======
Goodwill and other assets consist of the following:
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill................................................ $165,702 $165,702
Deferred financing costs................................ 9,166 8,666
Other assets............................................ 30 21
-------- --------
174,898 174,389
Less accumulated amortization........................... 51,185 16,273
-------- --------
Total goodwill and other assets, net.................... $123,713 $158,116
======== ========
</TABLE>
6. LONG-TERM DEBT AND REVOLVING COMMITMENT
FACILITY--Effective April 23, 1998, the Company entered into a Credit
Agreement, which provided for a line of credit of up to $50 million secured by
all of the Company's assets and maturing in April 2003. The line is comprised of
a $10 million segment available for working capital and general corporate
purposes (the "Operating Facility") and a $40 million segment available for
acquisitions (the "Acquisition Facility"). Effective October 29, 1999, the
Company agreed to reduce the Acquisition Facility to $31 million, the amount
drawn under that facility as of that date, and agreed to accelerate the maturity
of the entire line of credit to January 31, 2001. As of December 31, 1999, the
Company had drawn $7.5 million under the Operating Facility. Under the terms of
the Facility, borrowings bear interest at the bank's prime rate plus an
additional margin of 200 basis points. The Credit Agreement requires the Company
to maintain certain ratios of leverage, fixed charge coverage and interest
coverage, all as defined. The unused balance of the facility cannot be drawn
unless the Company is in compliance with all of the covenants under the Credit
Agreement.
As of December 31, 1999, the Company did not meet the minimum EBITDA
requirement under the Credit Agreement. As a result, the Company failed to meet
several covenant requirements. Under the terms of the Credit Agreement, the
Company has the option of raising capital to cure the
F-10
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
6. LONG-TERM DEBT AND REVOLVING COMMITMENT (CONTINUED)
deficiency. The amount of capital required to be in full compliance would be
$2.9 million. The Company is currently considering whether to raise the required
capital or find a new lending group. There can be no assurance that the Company
will be able to raise the capital or find a new lending group before the current
lenders declare a default under the Credit Agreement.
The Company is actively engaged in discussions with other lenders to replace
or refinance the entire Facility at or prior to its maturity. There is risk that
that Company will not be able to obtain a replacement facility or that the terms
of any replacement facility that may be available will not be advantageous.
Failure to refinance or replace the Facility or to cure violations of covenants
could have material adverse consequences for the Company and could result in a
default under the Notes. In any event, the Company does not anticipate that any
replacement facility it obtains will provide it with significant additional
liquidity, capital financing or funding for acquisitions; accordingly, for the
foreseeable future, the Company expects to depend primarily on cash flow from
operations to meet its liquidity and capital needs. Under these circumstances,
the Company does not plan or expect to make additional acquisitions, except in
circumstances where the costs of each acquisition are funded through incremental
debt or equity financing on a basis that reduces the Company's ratio of total
debt to EBITDA. Failure to obtain additional funding for acquisitions could
limit the Company's ability to expand its marketing and production capabilities
as necessary to grow its business and compete effectively.
LONG-TERM DEBT--As described in Note 1, the Company issued $225,000 of Notes
due 2008, the net proceeds of which were approximately $210,800. The difference
is being amortized over the term of the Notes. Expenses related to the issuance
of the Notes were approximately $7,700. The stated interest rate on the Notes is
11%. The Notes were issued at a discount of $6,500 for an effective rate of
approximately 11.5%. The indenture places certain limitations on, among other
things, incurrances of additional debt, acquisitions, investments and dividends.
7. EMPLOYEE BENEFITS
The Company has a qualified 401(k) retirement plan for its full-time
employees and makes matching contributions in an amount equal to 50% of the
first 6% of the employee's compensation. In addition, the Company may make
additional contributions at the discretion of the Board of Directors. Total
contributions to the plan were $277, $152, and $92 in 1999, 1998 and 1997
respectively.
8 COMMITMENTS AND CONTINGENCIES
OPERATING LEASES--The Company leases certain of its operating facilities.
Facility leases contain rent escalation clauses. Leases are primarily net
leases, which require the payment of executory costs such as real estate taxes,
insurance, common area maintenance and other operating costs in addition to
minimum rentals. The Company also rents an operating facility from an entity
affiliated through common ownership. The facility is rented on a month-to-month
basis. Total rent paid to this entity was $84 in each of 1999, 1998 and 1997.
The Company also leases facility owned by an officer pursuant to the terms of a
4 year lease agreement at a cost of $252 per year.
F-11
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
7. EMPLOYEE BENEFITS (CONTINUED)
The Company also leases certain equipment under noncancelable operating
leases. The Company is committed under facility and equipment operating leases
for minimum rental payment as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- - -----------
<S> <C>
2000........................................................ $ 3,618
2001........................................................ 3,717
2002........................................................ 3,851
2003........................................................ 3,388
2004........................................................ 3,077
Thereafter.................................................. 8,486
-------
Gross leases................................................ 26,137
Sub leases.................................................. 1,973
-------
Net leases.................................................. $24,164
=======
</TABLE>
Rental expense for the periods ended December 31, 1999, 1998 and 1997 was
$3,295, $1,517 and $669, respectively.
AGREEMENT WITH HERBALIFE--The Company has a three-year agreement with
Herbalife, which became effective on January 12, 1998 and extends through
January 2001. Among other matters, the terms of the agreement require Herbalife
to purchase a minimum of 80% of its inventory requirements of certain specified
products from the Company at agreed-upon prices.
LITIGATION--The Company is subject to legal proceedings and claims that
arise in the ordinary course of business. Management does not expect the
resolution of these legal matters to have a material adverse effect on the
Company's financial statements.
STOCK OPTIONS--Mr. Marconi, Chairman of the Company and sole shareholder,
has granted Mr. Buxbaum, the Company's Chief Executive Officer, an option to
acquire up to 20% of the common stock of the Company at the fair value as of the
date of the Reorganization. The option will vest over a period of years, the
term of which has not yet been determined.
9. RELATED-PARTY TRANSACTIONS
During 1997, the Company sold products to an entity affiliated through
common ownership, which in turn sold products to Herbalife. The entity was
acquired in conjunction with the Reorganization described in Note 1. Sales to
the affiliated company were $1,393 in 1997.
During 1998, BGA Consulting was paid fees of $2,431 related to the
Reorganization, $39 related to the American Acquisition, and $278 as an annual
consulting fee. During 1999, BGA Consulting was paid a consulting fee of $400.
The Company's Chief Executive Officer, Mr. Paul Buxbaum, is the President of BGA
Consulting.
F-12
<PAGE>
GLOBAL HEALTH SCIENCES, INC. AND SUBSIDIARIES
(FORMERLY D&F INDUSTRIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
9. RELATED-PARTY TRANSACTIONS (CONTINUED)
During 1999 the Company sold products to entities affiliated through common
ownership. Sales to the affiliated entities were $819. The Company had accounts
receivable from the affiliated entities of $90.
At December 31, 1999, the Company had net $20 accounts receivable due from
one of the directors.
F-13
<PAGE>
Exhibit 4.4(ii)
FIRST AMENDMENT
TO
CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of December 4, 1998 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 NT&SA, as Documentation Agent.
RECITALS
1. The parties hereto have previously entered into that certain Credit
Agreement dated as of April 23, 1998 (the "Credit Agreement").
2. The Borrower has requested that the Lenders (i) consent to the
consummation of certain Acquisitions that do not constitute Permitted
Acquisitions, and (ii) increase the aggregate amount of the Revolving
Commitments available under the Credit Agreement from $50,000,000 to
$75,000,000, and the Lenders are willing to grant such consent and such
increase, 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.
CONSENTS AND LIMITED WAIVER
2.1 CONSENTS TO CERTAIN ACQUISITIONS. As of the First Amendment
Effective Date (as defined in Section 5.1 hereof), the Required Lenders hereby
consent to the consummation by the Borrower of two Acquisitions disclosed to the
Lenders prior to the date hereof as (i) the purchase (the "Alpha Acquisition")
by the Borrower of 100% of the capital stock of American Ingredients, Inc., a
California corporation ("Alpha"), and (ii) the purchase (the "Beta Acquisition")
by New Micelle, Inc., a wholly owned Subsidiary of the Borrower ("Newco") of
substantially all of the assets of Micelle, Inc. (formerly known as Bioglan
Laboratories, Inc.) ("Beta") (and such Acquisitions shall constitute "Permitted
Acquisitions" for all purposes of the Credit Agreement and the other Loan
Documents) so long as (a) such Acquisitions are consummated for total
Acquisition Consideration not to exceed $36,000,000, in the case of the Alpha
Acquisition, and $28,000,000 in the case of the Beta Acquisition, (b) such
<PAGE>
Acquisitions include substantially all rights and assets, and are otherwise
consummated on the same material terms, as disclosed to the Lenders prior to the
date hereof, (c) the aggregate principal amount of all Indebtedness incurred in
connection with such Acquisitions (including any assumed Indebtedness but
excluding Borrowings under the Credit Agreement) does not exceed $706,000 and
all such Indebtedness is on terms (including amortization schedules, interest
rates, covenants and defaults) satisfactory to the Administrative Agent and the
Required Lenders, (d) Alpha and Beta shall each, prior to the consummation of
the Acquisition of such Person, have entered into arms-length leases with
respect to all real property necessary to the operation of its business on terms
and conditions satisfactory to the Administrative Agent and the Required Lenders
and shall have obtained landlord waivers in form and substance satisfactory to
the Administrative Agent from each lessor under each such lease, and (e) all
conditions to a Permitted Acquisition under the Credit Agreement and the other
Loan Documents are complied with with respect to each such Acquisition
(including, without limitation, Section 5.12 of the Credit Agreement) except
that (1) notwithstanding clause (j) of the definition of "Permitted Acquisition"
set forth in the Credit Agreement, consummation of each such Acquisition may
utilize or require aggregate proceeds of Revolving Loans and Letters of Credit
in excess of $20,000,000 if such Loans and Letters of Credit are otherwise
permitted under the Credit Agreement PROVIDED THAT after giving effect to the
consummation of the Alpha Acquisition and the Beta Acquisition and the Revolving
Loans made to effect such consummation the aggregate Total Exposure of the
Lenders shall not exceed $55,000,000 (subject to increases resulting from
Revolving Loans made, and Letters of Credit issued, after such consummation in
accordance with the terms of the Credit Agreement as amended hereby), (2) clause
(i) of the definition of "Permitted Acquisition" set forth in the Credit
Agreement shall not be applicable to the Alpha Acquisition, and (3) clause (l)
of the definition of "Permitted Acquisition" set forth in the Credit Agreement
(as amended by this Amendment) shall not be applicable to the Alpha Acquisition
or the Beta Acquisition. For the avoidance of doubt, it is understood and agreed
that the Alpha Acquisition and the Beta Acquisition need not close
simultaneously and that the consummation of the Alpha Acquisition is not
conditioned upon the consummation of the Beta Acquisition.
2.2 LIMITED WAIVER OF COMPLIANCE WITH SECTION 5.1(C). As of the First
Amendment Effective Date, the Required Lenders hereby waive compliance by
Holdings and its Subsidiaries with the provisions of Section 5.1(c) of the
Credit Agreement to the extent, and only to the extent, that Holdings and its
Subsidiaries failed, prior to the date hereof, to comply with such provisions
with respect to fiscal months of Holdings ending prior to December 31, 1998. It
is understood and agreed that full compliance with the provisions of Section
5.1(c) of the Credit Agreement shall be required with respect to each fiscal
month of Holdings and its Subsidiaries ending on and after December 31, 1998.
2
<PAGE>
III.
AMENDMENTS
3.1 AMENDMENTS TO CREDIT AGREEMENT; SCHEDULES; EXHIBITS. As of the
First Amendment Effective Date, the Credit Agreement shall be amended as
follows:
3.1.1 SECTION 1.1. Section 1.1 of the Credit Agreement is hereby
amended by:
(a) adding thereto, in appropriate alphabetical order, the
following definition:
"PRE-ACQUISITION UNAUDITED EBITDA" means, with respect to any
assets or Persons acquired in a Permitted Acquisition, EBITDA
attributable to such assets or Persons for any period ended prior to
the period in which the consummation of the related Permitted
Acquisition occurred if (i) the related financial statements with
respect to such assets or Person were unaudited prior to the
consummation of such Permitted Acquisition, and (ii) the financial
statements with respect to such assets or Person for all such prior
periods included in any applicable calculation period have not
subsequently been audited in a manner satisfactory to the
Administrative Agent and the Required Lenders. "
(b) deleting the final parenthetical of the definition of
"REVOLVING COMMITMENT" and substituting the following therefor: "(and the
aggregate amount of the Lenders' Revolving Commitments is $75,000,000)";
(c) amending the definitions of the terms "Cash Interest
Coverage Ratio" and "Fixed Charge Coverage Ratio" by adding to the end of each
such definition the following: "For purposes of the foregoing, the phrase "cash
portion of Consolidated Interest Expense" for any period shall mean all amounts
of Consolidated Interest Expense paid in cash during such period and all amounts
of Consolidated Interest Expense accrued during such period and payable in cash
in any subsequent period.";
(d) amending the definition of "EBITDA" by adding to the end
of such definition the following: "Any contrary provision hereof
notwithstanding, for purposes of determining compliance with Sections 6.13
through 6.14 hereof, the aggregate amount of Pre-Acquisition Unaudited EBITDA
for any calculation period which may be included in the calculation of
Consolidated EBITDA for such period may not exceed 20% of such Consolidated
EBITDA.;
(e) amending the definition of "PRO FORMA LEVERAGE RATIO" by
adding to the end thereof the following: "; PROVIDED, HOWEVER, that any contrary
provision hereof notwithstanding, for purposes of determining compliance with
Section 6.12 hereof, the aggregate amount of Pre-Acquisition Unaudited EBITDA
for any calculation period which may be included in the calculation of Pro Forma
Operating Cash Flow of Holdings, the Borrower and the Borrower Subsidiaries for
such period may not exceed 20% of such Pro Forma Operating Cash Flow;
3
<PAGE>
(f) amending and restating in its entirety the defined term
"Required Lenders" to read as follows:
"`REQUIRED LENDERS' means, (i) at all times prior to the
Revision Date (as defined below), Lenders having Total Exposures and
unused Revolving Commitments representing at least 66.67% of the sum of
the Total Exposures and unused Revolving Commitments at such time;
PROVIDED, HOWEVER, that at all such times prior to the Revision Date,
for purposes of any amendment, modification, waiver or consent with
respect to Sections 5.1 through 5.10, 5.12, 5.13, 5.15 and 5.16 hereof,
"Required Lenders" shall mean Lenders having Total Exposures and unused
Revolving Commitments representing more than 50% of the sum of the
Total Exposures and unused Revolving Commitments at such time, and (ii)
at all times on or after the Revision Date, Lenders having Total
Exposures and unused Revolving Commitments representing more than 50%
of the sum of the Total Exposures and unused Revolving Commitments at
such time. For purposes of this definition, the term "REVISION DATE"
shall mean the first date on or after delivery to the Administrative
Agent of the financial statements and Compliance Certificate required
under Section 5.1 with respect to the fiscal year of the Borrower
ending December 31, 2000 as of which the Borrower has certified to the
Administrative Agent that (1) the Borrower is in compliance with all
terms and conditions of this Agreement, and (2) the Supply Agreements
(or any successor agreement or agreements) have been renewed through at
least December 31, 2003 on substantially the same terms as in effect on
the date of this Agreement (and in no event in any manner materially
less favorable to the Borrower)."; and
(g) amending the definition of "PERMITTED ACQUISITIONS" by (i)
deleting the word "and" appearing at the end of clause (j) of such
definition, (ii) adding the word "and" at the end of clause (k) of such
definition, and (iii) adding a new clause (l) to read as follows:
"(l) Holdings' EBITDA Coverage Ratio (as defined in the Senior
Note Indenture) is at least 2.25 to 1 as provided in Section 4.06(d) of
the Senior Note Indenture after giving effect to such Acquisition and
all Indebtedness (including Loans hereunder) incurred in connection
therewith."
3.1.2 SECTION 3.2(b). Section 3.2(b) of the Credit Agreement
is hereby deleted in its entirety and the following substituted
therefor:
"(b) At the time of and immediately after giving effect to
such Borrowing or the issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, unless the Required Lenders shall
otherwise agree, (i) no Default shall have occurred and be continuing,
(ii) no Default or Event of Default under (and as defined in) the
Senior Note Indenture exists and (iii) if, either before or immediately
after giving effect to such Borrowing, issuance, amendment, renewal or
extension, the sum of the aggregate outstanding principal amount of
Revolving Loans PLUS the aggregate LC Exposure
4
<PAGE>
exceeds $60,000,000, Holdings' EBITDA Coverage Ratio (as defined in the
Senior Note Indenture) is at least 2.0 to 1 as provided in Section
4.06(d) of the Senior Note Indenture. In addition, unless the Required
Lenders otherwise agree, at any time that, either before or immediately
after giving effect to such Borrowing, issuance, amendment, renewal or
extension both (i) the sum of the aggregate outstanding principal
amount of Revolving Loans PLUS the aggregate LC Exposure exceeds
$60,000,000, and (ii) Holdings' EBITDA Coverage Ratio (as defined in
the Senior Note Indenture) would be less than 2.50 to 1, the Borrower
shall deliver to the Administrative Agent, prior to the date of such
Borrowing, issuance, amendment, renewal or extension, a certificate of
the chief financial officer of the Borrower demonstrating and
certifying as to compliance with this section 3.2(b) and setting forth
in reasonable detail the calculation of Holdings' EBITDA Coverage Ratio
both before and immediately after giving effect to such Borrowing,
issuance, amendment, renewal or extension."
3.1.3 SECTION 5.1(C). Section 5.1(c) of the Credit
Agreement is hereby amended and restated in its entirety to read as
follows:
"(c) commencing with December 31, 1998, within 30
days after the end of each fiscal month (and in each case as of the end
of each fiscal month for such fiscal month and the then elapsed portion
of the fiscal year of Holdings), (i) a consolidated balance sheet and
related statements of operations, stockholders' equity and cash flows
for Holdings and (ii) a combining statement of operations for each
Borrower Subsidiary and Holdings, all certified by one of Holdings'
Financial Officers as presenting in all material respects the financial
condition and results of operations of Holdings and the Borrower
Subsidiaries on a consolidated or combined basis (as applicable) in
accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;"
3.1.4 SECTION 6.1. Section 6.1 of the Credit
Agreement is hereby amended by adding thereto a new Section 6.1(c) to
read as follows:
"(c) Any provision hereof to the contrary
notwithstanding, unless the Required Lenders shall otherwise agree,
each of Holdings and the Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any
Indebtedness (as defined in the Senior Note Indenture) in reliance on
the provisions of Section 4.06(j) of the Senior Note Indenture except
for Indebtedness in an aggregate principal amount not to exceed
$706,000 incurred in connection with the consummation of the
Acquisition of the assets of Micelle, Inc."
3.1.5 SCHEDULE 2.1. Schedule 2.1 to the Credit
Agreement is hereby deleted in its entirety and replaced for all
purposes of the Credit Agreement and the other Loan Documents with
Schedule 2.1 attached hereto.
3.1.6 EXHIBIT B. Exhibit B to the Credit Agreement is
hereby amended by (a) deleting the word "and" appearing at the end of
paragraph (C), (b) deleting
5
<PAGE>
the period at the end of paragraph (D) and substituting therefore ";
and" and (c) adding the following immediately following paragraph D:
"(E) at the time of and immediately after giving
effect to such Borrowing, (i) no Default or Event of Default under (and
as defined in) the Senior Note Indenture exists and (ii) if, either
before or immediately after giving effect to such Borrowing, the sum of
the aggregate outstanding principal amount of Revolving Loans PLUS the
aggregate LC Exposure exceeds $60,000,000, Holdings' EBITDA Coverage
Ratio (as defined in the Senior Note Indenture) is at least 2.0 to 1 as
provided in Section 4.06(d) of the Senior Note Indenture."
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 amended 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 amended 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 amended 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 Before and 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.
4.1.5 Each of the representations and warranties
contained in this Amendment and the Credit Agreement as amended hereby
is true, correct and complete as if set forth in full herein and made
on the date this Amendment becomes effective,
6
<PAGE>
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.
4.1.6 All conditions to the consummation of the Alpha
Acquisition, other than the funding of the purchase price, shall have
been satisfied and arrangements satisfactory to the Administrative
Agent shall have been made for the funding of the purchase price
concurrently with the effectiveness of this Amendment.
V.
CONDITIONS TO EFFECTIVENESS
5.1 CONDITIONS TO EFFECTIVENESS. The consents, waivers and
amendments effected by this Amendment shall not become effective until the date
(the "First Amendment Effective Date"), not later than December 15, 1998, on
which the following conditions precedent are satisfied or waived in writing by
the Required Lenders:
5.1.1 EXECUTION OF THIS AGREEMENT; REVOLVING NOTES.
Parent Guarantor, the Borrower, the Administrative Agent, the Issuing
Bank and each Lender shall have executed and delivered this Amendment
to the Administrative Agent and each other Guarantor shall have
executed and delivered the Consent attached hereto to the
Administrative Agent. The Borrower shall have executed and delivered to
the Administrative Agent a new Revolving Note in favor of any Lender
requesting the same.
5.1.2 OPINION OF COUNSEL TO BORROWER, HOLDINGS AND
EACH BORROWER SUBSIDIARY. The Administrative Agent shall have received
a favorable written opinion (addressed to the Administrative Agent, the
Issuing Bank and the Lenders) of Weil, Gotshal & Manges LLP, counsel
for the Loan Parties, covering such matters relating to the Loan
Parties and the Amendment as the Administrative Agent or the Required
Lenders shall reasonably request. The Borrower and Holdings hereby
request such counsel to deliver such opinions.
5.1.3. ORGANIZATIONAL DOCUMENTS. The Administrative
Agent shall have received such documents and certificates as the
Administrative Agent or its counsel may reasonably request relating to
the organization, existence and good standing of each Loan Party, the
authorization of this Amendment and any other legal matters relating to
the Loan Parties and this Amendment, all in form and substance
satisfactory to the Administrative Agent and its counsel.
5.1.4 OFFICER'S CERTIFICATE. The Administrative Agent
shall have received a certificate dated the First Amendment Effective
Date and signed by the President, a Vice President or a Financial
Officer of the Borrower, confirming compliance with the conditions set
forth in this Article V and that each of the representations and
warranties of the Borrower and Holdings contained in this Amendment are
true and correct on and as of the date hereof (except to the extent
that any
7
<PAGE>
such representation and warranty is limited by its terms to an earlier
date, in which case such representation and warranty was true and
correct as of such earlier date).
5.1.5 PAYMENT OF FEES. The Administrative Agent shall
have received all fees and other amounts due and payable on or prior to
the date hereof, including, to the extent invoiced, reimbursement or
payment of all expenses required to be reimbursed or paid by any Loan
Party hereunder or under the Credit Agreement.
5.1.6. REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Amendment and the
Credit Agreement as amended hereby shall be true, correct and complete
as if made on the date this Amendment becomes effective, except to the
extent that such representations and warranties specifically relate to
an earlier date, in which case they are true, correct and complete as
of such earlier date.
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. As of the First Amendment Effective
Date, the Credit Agreement shall be amended to the extent set forth in Section 3
hereof. Except as specifically amended by this Amendment, all of the terms and
provisions of the Credit Agreement or any of the documents referred to therein
or defined in connection therewith shall remain in full force and effect. Such
amendments 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 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 or any of the documents referred to therein or
delivered in connection therewith. The term "Agreement" as used in the Credit
Agreement, the other Loan Documents and all other related documents shall mean
the Credit Agreement as amended hereby.
6.3 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 in connection with the preparation,
negotiation, execution, delivery and administration of this Amendment and the
transactions contemplated hereby.
8
<PAGE>
6.4 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) 9.10 of
the Credit Agreement shall apply hereto.
6.5 SEVERABILITY. The illegality or unenforceability of any
provision of this Amendment, the Credit Agreement (including as amended 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 (including
as amended hereby) or such other document or any other instrument or agreement
required hereunder or thereunder.
6.6 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 amended hereby).
6.7 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
SCHEDULE 2.1
REVOLVING COMMITMENTS
Revolving
Lender Commitment % of Total Commitments
- - ------ ---------- ----------------------
Citicorp USA, Inc. $19,500,000 26%
Bank of America NT&SA $16,500,000 22%
Sanwa Bank California $15,000,000 20%
Wells Fargo Bank, N.A. $12,000,000 16%
Dresdner Bank AG $12,000,000 16%
------------- ------
TOTAL: $75,000,000 100.0%
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Credit Agreement 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:
S-1
<PAGE>
BANK OF AMERICA NT&SA,
as Documentation Agent
By:
----------------------------------------
Name:
Title:
S-2
<PAGE>
CITICORP USA, INC.,
as Lender
By:
----------------------------------------
Name:
Title:
S-3
<PAGE>
BANK OF AMERICA NT&SA,
as Lender
By:
----------------------------------------
Name:
Title:
S-4
<PAGE>
SANWA BANK CALIFORNIA,
as Lender
By:
----------------------------------------
Name:
Title:
S-5
<PAGE>
WELLS FARGO BANK, N.A.,
as Lender
By:
----------------------------------------
Name:
Title:
S-6
<PAGE>
DRESDNER BANK AG,
New York and Grand Cayman Branches,
as Lender
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
S-7
<PAGE>
CONSENT
DATED AS OF DECEMBER 4, 1998
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 First Amendment), each hereby consents and agrees to the foregoing
First 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 First
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 amended by said First 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
By:
----------------------------------------
Name:
Title:
S-1
<PAGE>
Exhibit 4.4(iii)
SECOND AMENDMENT
TO
CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment")
is dated as of April 30, 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 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 (as so amended,
the "Credit Agreement").
2. The Borrower has 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.
AMENDMENTS
2.2. AMENDMENTS TO CREDIT AGREEMENT. As of the Second
Amendment Effective Date, the Credit Agreement shall be amended as follows:
2.1.1. SECTION 1.1.
(a) Section 1.1 of the Credit Agreement is hereby
amended by adding thereto in appropriate alphabetical order the
following defined term:
"`SECOND AMENDMENT EFFECTIVE DATE' means the date of
the effectiveness of the Second Amendment to Credit Agreement dated as
of April 30, 1999 by and among the Borrower, Parent Guarantor, the
Lenders signatory thereto, the Administrative Agent, the Issuing Bank
and the Documentation Agent."
<PAGE>
(b) Clause (g)(ii)(A) of the definition of "Permitted
Acquisition" is hereby amended by inserting the phrase "(as in effect
prior to the Second Amendment Effective Date)" immediately following
the words "Sections 6.12 through 6.15" appearing in such clause.
(c) Clause (g)(ii)(B) of the definition of "Permitted
Acquisition" is hereby amended by inserting the phrase "(as in effect
prior to the Second Amendment Effective Date)" immediately following
the words "compliance with such covenants" appearing in such clause.
2.1.2. SECTION 6.4(B). Section 6.4(b) of the Credit
Agreement is hereby amended and restated in its entirety to read as
follows:
"(b) Permitted Acquisitions after the date of
delivery of the financial statements and Compliance Certificate
required hereunder with respect to the first fiscal quarter of the
Borrower in 2000 if and only if (i) the Borrower is, as of the end of
such fiscal quarter (and each fiscal quarter thereafter) and as of and
after giving effect to the consummation of such Permitted Acquisition,
in compliance with the provisions of Sections 6.11 through and
including 6.15 hereof as in effect prior to the Second Amendment
Effective Date, and (ii) each of the Supply Agreements shall have been
extended until at least December 31, 2003 on substantially the same
terms (and in no event on terms materially less favorable to the Loan
Parties);"
2.1.3. 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 first fiscal quarter of 1999, exceed
$9,250,000, (ii) for the period of four fiscal quarters ending as of
the end of the second fiscal quarter of 1999, exceed $10,500,000, (iii)
for the period of four fiscal quarters ending as of the end of the
third fiscal quarter of 1999, exceed $10,000,000, (iv) for the period
of four fiscal quarters ending as of the end of the fourth fiscal
quarter of 1999, exceed $10,750,000, or (v) in any period of four
fiscal quarters ending on the last day of any fiscal quarter,
commencing with the fiscal quarter ending March 31, 2000, exceed 3% of
revenues of the Borrower and the Borrower Subsidiaries for such
four-quarter period determined on a consolidated basis in accordance
with GAAP.
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:
-2-
<PAGE>
PERIOD TOTAL LEVERAGE RATIO
First fiscal quarter 1999 to and including
second fiscal quarter 1999 5.65 to 1.0
Third fiscal quarter 1999 5.0 to 1.0
Fourth fiscal quarter 1999 to and including
third fiscal quarter 2000 4.25 to 1.0
Fourth fiscal quarter 2000 and thereafter 4.0 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:
MINIMUM CONSOLIDATED EBITDA
PERIOD
First fiscal quarter 1999 $38,500,000
Second fiscal quarter 1999 to and including 40,000,000
third fiscal quarter 1999
Fourth fiscal quarter 1999 to and including 50,000,000
third fiscal quarter 2000
Fourth fiscal quarter 2000 to and including 60,000,000
third fiscal quarter 2001
Fourth fiscal quarter 2001 to and including 70,000,000
third fiscal quarter 2002
Fourth fiscal quarter 2002 and thereafter 80,000,000
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:
-3-
<PAGE>
PERIOD MINIMUM RATIO
First fiscal quarter 1999 to and including second
fiscal quarter 1999 1.55 to 1.0
Third fiscal quarter 1999 1.65 to 1.0
Fourth fiscal quarter 1999 to and including third 2.00 to 1.0
fiscal quarter 2000
Fourth fiscal quarter 2000 to and including third 2.50 to 1.0
fiscal quarter 2001
Fourth fiscal quarter 2001 and thereafter 2.75 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
First fiscal quarter 1999 .95 to 1.0
Second fiscal quarter 1999 .90 to 1.0
Third fiscal quarter 1999 1.05 to 1.0
Fourth fiscal quarter 1999 1.10 to 1.0
First fiscal quarter 2000 to and including third 1.25 to 1.0
fiscal quarter 2000
Fourth fiscal quarter 2000 to and including third 1.35 to 1.0
fiscal quarter 2001
Fourth fiscal quarter 2001 to and including third 1.45 to 1.0
fiscal quarter 2002
Fourth fiscal quarter 2002 and thereafter 1.50 to 1.0"
III.
REPRESENTATIONS AND WARRANTIES
3.1. 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-
<PAGE>
3.1.1. 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 amended 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.
3.1.2. Such party has taken all necessary action to
authorize the execution, delivery and performance of this Amendment and
the Credit Agreement as amended hereby.
3.1.3. This Amendment has been duly executed and
delivered by such party and each of this Amendment and the Credit
Agreement as amended 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).
3.1.4. 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.
3.1.5. Each of the representations and warranties
contained in this Amendment and the Credit Agreement as amended 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.
IV.
CONDITIONS TO EFFECTIVENESS
4.1. CONDITIONS TO EFFECTIVENESS. The consents, waivers and
amendments effected by this Amendment shall not become effective until the date
(the "Second Amendment Effective Date") on which the following conditions
precedent are satisfied or waived in writing by the Required Lenders:
4.1.1. EXECUTION OF THIS AGREEMENT. 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 each other Guarantor shall have executed
and delivered the Consent attached hereto to the Administrative Agent.
4.1.2. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
All representations and warranties contained in this Amendment and the
Credit Agreement as amended
-5-
<PAGE>
hereby shall be true, correct and complete as if made on the date this
Amendment becomes effective, except to the extent that such
representations and warranties specifically relate to an earlier date,
in which case they are true, correct and complete as of such earlier
date and, after giving effect to this Amendment, no event shall have
occurred and be continuing that constitutes a Default.
V.
AMENDMENT FEE
The Borrower shall, on or prior to May 7, 1999, pay to the
Administrative Agent for the account of each Lender executing this Amendment on
or prior to May 6, 1999, a non-refundable amendment fee in the amount of 0.25%
of each such Lender's Revolving Commitment. Failure to pay such fee in full on
or prior to May 7, 1999 shall constitute an Event of Default under the Credit
Agreement.
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. As of the Second Amendment Effective Date,
the Credit Agreement shall be amended to the extent set forth in Section 2
hereof. Except as specifically amended by this Amendment, all of the terms and
provisions of the Credit Agreement or any of the documents referred to therein
or defined in connection therewith shall remain in full force and effect. Such
amendments 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 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 or any of the documents referred to therein or
delivered in connection therewith. The term "Agreement" as used in the Credit
Agreement, the other Loan Documents and all other related documents shall mean
the Credit Agreement as amended hereby.
6.3. 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 in connection with the
-6-
<PAGE>
preparation, negotiation, execution, delivery and administration of this
Amendment and the transactions contemplated hereby.
6.4. 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.
6.5. SEVERABILITY. The illegality or unenforceability of any provision
of this Amendment, the Credit Agreement (including as amended 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 (including
as amended hereby) or such other document or any other instrument or agreement
required hereunder or thereunder.
6.6. 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 amended hereby).
6.7. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to Credit Agreement 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:
S-1
<PAGE>
BANK OF AMERICA NT&SA,
as Documentation Agent
By:
----------------------------------------
Name:
Title:
S-2
<PAGE>
CITICORP USA, INC.,
as Lender
By:
----------------------------------------
Name:
Title:
S-3
<PAGE>
BANK OF AMERICA NT&SA,
as Lender
By:
----------------------------------------
Name:
Title:
S-4
<PAGE>
SANWA BANK CALIFORNIA,
as Lender
By:
----------------------------------------
Name:
Title:
S-5
<PAGE>
WELLS FARGO BANK, N.A.,
as Lender
By:
----------------------------------------
Name:
Title:
S-6
<PAGE>
DRESDNER BANK AG,
New York and Grand Cayman Branches,
as Lender
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
S-7
<PAGE>
CONSENT
DATED AS OF APRIL 30, 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 Second Amendment), each hereby consents and agrees to the foregoing
Second 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 Second
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 amended by said Second 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:
<PAGE>
Exhibit 4.4(iv)
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.
3. 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.
<PAGE>
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.
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.
2
<PAGE>
"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)"
(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 2.00% 3.25%
Greater than 5.00 to 1.00
- - ---------------------------------------------- --------------------------- ---------------------------
LEVEL II
Greater than 4.50 to 1.00 but less than or 1.50% 2.75%
equal to
5.00 to 1.00
- - ---------------------------------------------- --------------------------- ---------------------------
LEVEL III
Greater than 3.50 to 1.00 but less than or 1.25% 2.50%
equal to
4.50 to 1.00
- - ---------------------------------------------- --------------------------- ---------------------------
LEVEL IV
Greater than 2.50 to 1.00 but less than or 1.00% 2.25%
equal to
3.50 to 1.00
- - ---------------------------------------------- --------------------------- ---------------------------
LEVEL V
Less than or equal to 0.75% 2.00%
2.50 to 1.00
============================================== =========================== ===========================
</TABLE>
3
<PAGE>
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."
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
4
<PAGE>
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.
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:
5
<PAGE>
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:
MINIMUM CONSOLIDATED
PERIOD 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.
6
<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 1.70 to 1.0
fiscal quarter 2000
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
7
<PAGE>
Required Lenders that, in the opinion of Required Lenders, such change
would be adverse to the interests of the Lenders."
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.
8
<PAGE>
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.
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).
9
<PAGE>
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 "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
10
<PAGE>
"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.
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
11
<PAGE>
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<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:
S-1
<PAGE>
BANK OF AMERICA, N.A,
as Documentation Agent
By:
----------------------------------------
Name:
Title:
S-2
<PAGE>
CITICORP USA, INC.,
as Lender
By:
----------------------------------------
Name:
Title:
S-3
<PAGE>
BANK OF AMERICA, N.A.,
as Lender
By:
----------------------------------------
Name:
Title:
S-4
<PAGE>
SANWA BANK CALIFORNIA,
as Lender
By:
----------------------------------------
Name:
Title:
S-5
<PAGE>
WELLS FARGO BANK, N.A.,
as Lender
By:
----------------------------------------
Name:
Title:
S-6
<PAGE>
DRESDNER BANK AG,
New York and Grand Cayman Branches,
as Lender
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
S-7
<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:
S-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<NAME> GLOBAL HEALTH
<CIK> 0001060980
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,400
<SECURITIES> 0
<RECEIVABLES> 21,483
<ALLOWANCES> 601
<INVENTORY> 31,532
<CURRENT-ASSETS> 60,415
<PP&E> 30,454
<DEPRECIATION> 11,705
<TOTAL-ASSETS> 202,877
<CURRENT-LIABILITIES> 79,849
<BONDS> 219,493
0
0
<COMMON> 473
<OTHER-SE> (96,938)
<TOTAL-LIABILITY-AND-EQUITY> 202,877
<SALES> 0
<TOTAL-REVENUES> 246,941
<CGS> 181,548
<TOTAL-COSTS> 181,548
<OTHER-EXPENSES> 24,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,744
<INCOME-PRETAX> (22,686)
<INCOME-TAX> 64
<INCOME-CONTINUING> (22,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,750)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
