<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
JUNE 7, 1999 (FEBRUARY 17, 1999)
IRWIN NATURALS/4HEALTH, INC.
(Exact name of registrant as specified in its charter)
UTAH 0-18160 87-046822
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
10549 WEST JEFFERSON BLVD.,
CULVER CITY, CA 90232
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (310) 253-5305
N/A
(Former name and former address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
This Form 8-K/A amends the Form 8-K filed with the Securities and
Exchange Commission on March 4, 1999 (the "Prior Form 8-K"), by Irwin
Naturals/4Health, Inc., a Utah corporation ("IN"), in connection with the
merger of Health & Vitamin Express, Inc., a California corporation, with and
into HealthZone.com, a California corporation wholly-owned by IN.
This Form 8-K/A amends the Prior Form 8-K by setting forth the
following financial information required to be reported by Item 7 of Form 8-K.
(a) Financial Statements of Businesses Acquired.
Balance Sheet of Health & Vitamin Express, Inc. as at
December 31, 1998 and the related statements of
income and retained earnings and cash flows for the
year then ended together with the notes thereto, as
audited by Samuel H. Wong & Co., LLP, independent
accountants, as stated in their report therein.
(b) Pro Forma Financial Information.
Pro Forma statement balance sheet as of December 31,
1998 and Pro Forma statement of operations for the
year ended December 31, 1998 and explanatory notes.
(c) Exhibits
Exhibit 10.10 April 16, 1999 letter of intent
with Klee Irwin
Exhibit 10.11 April 19, 1999 indemnity agreement
with Klee Irwin
1
<PAGE>
THIS REPORT ON FORM 8-K/A INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN STATEMENTS OF
HISTORICAL FACTS INCLUDED IN THIS REPORT, INCLUDING, WITHOUT LIMITATION,
THOSE REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS, MARKETING AND
PRODUCT INTRODUCTION AND DEVELOPMENT PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS
ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO
HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS")
ARE DISCLOSED UNDER "RISKS RELATED TO THE BUSINESS OF 4HEALTH" AND ELSEWHERE
IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND IN "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE
IN THE ANNUAL REPORT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON BEHALF OF THE
COMPANY, ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
ITEM 7 (a) - Financial Statements of Business to be Acquired
To the Board of Directors
Irwin Naturals/4Health, Inc.
We have audited the accompanying balance sheet of Health & Vitamin Express,
Inc. as of December 31, 1998, and the related statements of income, retained
earnings, and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
We did not observe the taking of the physical inventories at December 31,
1998, (stated at $33,061) since that date was prior to the time we were
engaged as auditors for the Company. We were unable to satisfy ourselves
about inventory quantities by means of other auditing procedures.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to observe the physical
inventories taken of December 31, 1998, the financial statements referred to
the first paragraph present fairly, in all material respects, the financial
position of Health & Vitamin Express, Inc. as of December 31, 1998, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
2
<PAGE>
May 6, 1999 Samuel H. Wong & Co., LLP
San Francisco, California Certified Public Accountants
3
<PAGE>
Health & Vitamin Express, Inc.
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Assets
1998
<S> <C>
Current Assets
Accounts Receivable 1,259
Inventory 33,061
Prepaid Expenses 4,237
---------
Total Current Assets 38,557
Property and Equipment (Notes 3)
At Cost 55,125
Accumulated Depreciation (42,029)
---------
13,096
Other Assets (Note 4)
Security Deposits 4,711
---------
Total Assets $ 56,364
---------
---------
<CAPTION>
Liabilities and Stockholders' Equity
1998
<S> <C>
Current Liabilities
Accounts Payable $ 66,116
Payroll Taxes Liabilities 2,975
Taxes Payable 2,688
Accrued Expenses 57,030
Accrued Interest Payable 11,516
Notes Payable (Note 7) 443,785
---------
Total Current Liabilities 584,110
Stockholders' Equity
Common Stock Capital (Note 8) 35,450
Retained Deficits (563,196)
---------
(527,746)
---------
Total Liabilities and Stockholders' Equity $ 56,364
---------
---------
</TABLE>
See Accompanying Notes and Accountants' Report
4
<PAGE>
Health & Vitamin Express, Inc.
Statements of Income and Retained Earnings
Year Ended December 31, 1998
<TABLE>
<CAPTION>
1998
<S> <C>
Net Sales $ 662,180
Cost of Good Sold (359,045)
-------
Gross Profit 303,135
Selling, General, and Administrative Expenses
Administrative Expenses 260,215
Advertising & Marketing Expenses 269,566
Salaries and Wages 93,034
Employee Benefits 28,985
Financial Expenses 31,559
Depreciation & Amortization 3,191
-------
686,550
-------
(Loss) From Operations (383,415)
Other Income/(Expense)
Net Other Income 11,694
-------
(Loss) Before Income Taxes (371,721)
Income Taxes
Current (Note 5) (---)
-------
Net (Loss) (371,721)
Beginning Retained Deficit (191,475)
-------
Ending Retained Deficits $(563,196)
-------
-------
</TABLE>
See Accompanying Notes and Accountants' Report
5
<PAGE>
Health & Vitamin Express, Inc.
Statement of Cash Flows
Year Ended December 31, 1998
<TABLE>
<CAPTION>
1998
<S> <C>
Cash Flows From Operating Activities
Net Loss $(371,721)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and Amortization 3,191
(Increase)/Decrease in:
Accounts Receivable 850
Inventory (31,838)
Prepaid Expenses 16,596
Increase/(Decrease) in:
Accounts Payable (44,697)
Accrued Interest Payable 11,517
Other Current Liabilities 34,604
---------
Net Cash (Used) by Operating Activities (381,498)
Cash Flows From Investing Activities
Purchase of Property and Equipment (10,319)
---------
Net Cash (Used) by Investing Activities (10,319)
Cash Flows From Financing Activities
Net Proceeds/(Repayments) of Loan from Shareholder 124,768
Net Proceeds of Loan from Warrant Holder 250,000
Net Additions to Security Deposits (3,160)
Issuance of Common Stock 250
---------
Net Cash (Used)/Provided by Financing Activities 371,858
---------
Net (Decreased) in Cash (19,959)
Cash at Beginning of Year 19,959
---------
Cash at End of Year $ ---
---------
---------
Supplemental Disclosures
Interest Paid (17,272)
</TABLE>
See Accompanying Notes and Accountants' Report
6
<PAGE>
Health & Vitamin Express, Inc.
Notes to Financial Statements
Year Ended December 31, 1998
1. The Company
Health & Vitamin Express, Inc. (formerly: Vitamin Nutrition Center,
Inc.) is a California Corporation incorporated on September 28, 1992
and began operations shortly after inception. The Company is an on-line
specialty retailer of nutritional supplements and other health and
self-care products.
2. Summary of Significant Accounting Policies
(a) Basis of Reporting
The Company maintains its general ledger and journals with the
accrual method of accounting, for financial reporting and
income tax reporting purposes. Accordingly, the accompanying
financial statements are prepared on the accrual basis of
accounting. In preparing financial statements in conformity
with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
(b) Inventories
Inventories are stated at the lower of cost or market value.
(c) Property and Equipment
Property and Equipment are stated at cost. Repairs and
maintenance of these assets are charged to expense as
incurred; major improvements enhancing the function and/or
useful life of these assets are capitalized. When an asset is
sold or retired, its cost and related accumulated depreciation
are removed from the accounts and any gain/loss arising from
such transaction is recognized.
Property and Equipment are depreciated by the straight line
method over their estimated useful lives of 5 years.
(d) Organization Cost
Organization Cost has been fully amortized over a period of 60
months.
7
<PAGE>
(e) Income Taxes
The Company uses the accrual method of accounting to determine
and report its taxable income and the flow-through method to
account for tax credits, which are reflected as a reduction of
income taxes for the year in which they are available.
In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes. The Company has implemented
this standard.
Income tax liabilities computed according to the Federal and
California tax laws, are provided for the tax effects of
transactions reported in the financial statements and consist
of taxes currently due plus deferred taxes related primarily
to differences between the basis of fixed assets and
intangible assets for financial and tax reporting. The
deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for
operating losses and passive activity losses that are
available to offset future taxable income and tax credits that
are available to offset future Federal and California income
taxes.
(f) Cash Flows
For the statements of cash flows, the company considers all
highly liquid debt instruments with maturity dates of three
months or less to be cash equivalents.
3. Property and Equipment
Property and Equipment are stated at cost, less accumulated
depreciation, and are summarized as follows at December 31:-
<TABLE>
<CAPTION>
1998
<S> <C>
Machinery & Equipment $ 52,618
Furniture & Fixtures 2,507
----------
55,125
Less: Accumulated Depreciation (42,029)
----------
$ 13,096
----------
----------
</TABLE>
4. Other Assets
Other Assets of $4,711 at December 31, 1998 were consisted of Security
Deposits.
8
<PAGE>
5. Income Taxes
The Company incurred minimum $800 state income tax expense for the year
ended December 31, 1998. Deferred income taxes reflect the estimated
future tax effect of temporary differences between amounts for
financial reporting purposes and as measured by tax laws and
regulations for assets and liabilities. Deferred tax, after a valuation
allowance is zero as of December 31, 1998.
<TABLE>
<CAPTION>
1998
Components Federal California Total
<S> <C> <C> <C>
Temporary Differences in
Depreciation and Amortization $ (148) $ (52) $ (200)
Net Operating Losses
Carryforward 116,068 40,744 156,812
--------- --------- ---------
$ 115,920 $ 40,692 $ 156,612
Less: Valuation Allowance (115,920) (40,692) (156,612)
--------- --------- ---------
$ --- $ --- $ ---
</TABLE>
A valuation allowance has been established due to the uncertainty
associated with the realizability of the deferred tax assets.
6. Lease Commitments
The Company entered into a lease of an office space at 5751 Uplander
Way, Culver City, CA 90230, which expired on December 31, 1998, was
extended to December 31, 1999 at a rent of $1,474 per month. The
Company also entered into a lease with a Shareholder's father, certain
premises at 10852 Wilkins Avenue, Los Angeles, CA 90024 for a term
co-terminus with the office lease at a fixed rent of $1,400 per month.
The minimum lease payments for the year 1999 are at a total of $34,488.
9
<PAGE>
7. Notes Payable
At December 31, 1998, notes payable are comprised of the following:
<TABLE>
<CAPTION>
1998
<C> <S> <C>
a) Note payable to a shareholder, secured by Company's assets
interest-bearing at 10%, due on December 31, 1998 $143,785
b) Unsecured notes payable to a shareholder, interest-bearing at 10%,
principal and interest are due on demand 50,000
c) Unsecured note payable to a share warrant holder,
interest-bearing at 10%, payable monthly,
due on September 30, 1999 250,000
--------
$443,785
--------
--------
</TABLE>
8. Common Stock
The Company is authorized by its Restated Articles of Incorporation
(filed with the Secretary of State on July 25, 1997) to issue a total
of 100,000,000 shares of common stock and 10,000,000 shares of
preferred stock at no par value per share, of which 10,250,000 shares
of common stock were issued and outstanding at December 31, 1998, after
a stock split of 1 share to 750 shares on July 25, 1997.
9. Business Acquisition
On March 1, 1998, the Company acquired certain assets including
goodwill from Prozyme of California for $25,973.65.
10. Going Concern
As shown in the accompanying financial statements, the Company incurred
a net loss of $371,721 during the year ended December 31, 1998, and as
of that date, the Company's current liabilities exceeded its current
assets by $545,553 and its total liabilities exceeded its total assets
by $527,746, representing stockholders' deficits. These factors
together with the Company's loan of $143,785 from a shareholder which
is due on December 31, 1998, create an uncertainty about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
10
<PAGE>
11. Year 2000 Issue
Management of Health & Vitamin Express Inc. is aware of the Year 2000
technical issues and have made its software systems (basically the Mail
Order Management and Quickbooks Accounting 6.0 Version) and computer
hardware systems Year 2000 compliant. No further expenditure is
required to upgrade/replace its computer equipment.
11
<PAGE>
ITEM 7 (b), Pro Forma Financial Information
On February 15, 1999, the Company acquired for $2,880,000, Health & Vitamin
Express, Inc. (HVE) by way of merger with and into the Company's newly formed
wholly-owned subsidiary HeathZone.com. The purchase consideration consisted
of the issuance of 363,636 shares of the Company's common stock valued at
$2,273,000 ($6.25 per share) and the assumption of $571,000 of debt. The
Company has accounted for the acquisition as a purchase, and the excess of
the purchase price of $2,880,000 over the fair value of net assets acquired
has been allocated to goodwill and is being amortized over 15 years.
In addition to the 363,636 shares issued upon acquisition, the Company is
contingently obligated to issue to the former shareholders of HVE (i) up to
272,727 shares of the Company's common stock based upon certain revenue
thresholds to be met by HVE during first 42 months subsequent to February 15,
1999 (the "Revenue" shares), and (ii) up to 90,909 shares of the Company's
common stock based upon certain profit thresholds to be met by HVE during the
first seven years subsequent to February 15, 1999 (the "Profit" shares). The
Company has the right to repurchase up to 65% of the shares issued for a
period of one (1) year following the date of issuance at a purchase price of
$13.75 per share (the "Repurchase Price"). The Repurchase Price may be
adjusted if upon repurchase the closing bid price of the Company's common
stock as quoted on the Nasdaq National Market System exceeds $20 per share
(the "Market Price"), the Company will pay to the sellers 50% of the
difference between the Market Price and $20 per share. Furthermore, in the
event Revenue and Profit shares are issued because of a funding failure, the
Repurchase Price shall be reduced to $9.63 per share. The Company has granted
to the Sellers certain "demand registration rights" and "piggyback
registration rights" on these shares, if issued, in the event the Company
undertakes a sale of its securities to the public..
In addition, the Company is obligated to invest or contribute to HVE
operations a minimum of (A) $4,000,000 during the 18 months subsequent to
February 15, 1999 and (B) $10,000,000 (inclusive of the $4,000,000 provided
in clause (A) above) during the 36 months subsequent to February 15, 1999. If
the Company fails to make the investments or contributions defined above, the
former shareholders of HVE will automatically receive the maximum allowable
shares subject to issuance under the provisions relating to the Revenue and
Profit Shares. The Company is currently prohibited by its existing credit
facility of making such investments or contributions.
On April 19, 1999 the Company and Klee Irwin, the Company's former Chief
Executive Officer, entered into an agreement whereby Mr. Irwin agreed to; i)
assume all of the Company's obligations to issue the Revenue and Profit
shares, and ii) reimburse and indemnify the Company for any losses, costs and
expenses incurred by HVE and in connection with the establishment of the
Healthzone.com subsidiary, from 1,600,000 shares of Company common stock he
currently owns.
The following unaudited pro forma condensed income statement gives effect to
the acquisition as if it had occurred at the beginning of the period, while
the unaudited pro forma condensed balance sheet gives effect to the
acquisition as if it had occurred as at December 31, 1998. Pro forma
adjustments include only the effects of events directly attributable to the
transaction that are expected to have a continuing impact and that are
factually supportable. The notes to the pro forma financial information
describe the pro forma amounts and adjustments described below. The pro forma
financial information does not necessarily reflect the operating results that
would have occurred had the acquisition been consummated as of the above
dates, nor is such information indicative of future operating results. See
the discussion relating to the "Forward Looking" information above. The
information shown below should be read in conjunction with the historical
financial statements of HVE and IN, including the respective notes thereto.
12
<PAGE>
IRWIN NATURALS/4HEALTH, INC
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Company Health & Vitamin Pro Forma Combined
------- ---------------- ---------
Express Adjustments
------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash $426,000 $426,000
Accounts receivable, net 6,023,000 $1,000 6,024,000
Inventories 2,855,000 33,000 2,888,000
Building held for sale 1,521,000 1,521,000
Property and equipment, net 627,000 13,000 640,000
Goodwill of HVE 2,837,000 (3) 2,837,000
Other assets 1,635,000 9,000 1,644,000
-------------------------------------------------------------------------
Total assets $13,087,000 $56,000 $2,837,000 $15,980,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND EQUITY
Accounts payable $2,637,000 $66,000 $36,000 (1) $2,739,000
Accrued expenses 942,000 74,000 1,016,000
Notes payable 1,751,000 444,000 2,195,000
Line of credit 1,000,000 1,000,000
Other liabilities 888,000 888,000
-------------------------------------------------------------------------
Total liabilities 7,218,000 584,000 36,000 7,838,000
EQUITY
Common stock 279,000 35,000 (35,000) (2) 283,000
4,000 (1)
Paid in capital 14,333,000 2,269,000 (1) 16,602,000
Treasury stock (50,000) (50,000)
Accumulated deficit (8,693,000) (563,000) 563,000 (2) (8,693,000)
-------------------------------------------------------------------------
Total equity 5,869,000 (528,000) 2,801,000 8,142,000
Total liabilities and equity $13,087,000 $56,000 $2,837,000 $15,980,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
Pro Forma Adjustments for the Unaudited Pro Forma Condensed Balance Sheet at
December 31, 1998 are as follows:
(1) To reflect the acquisition costs of Health & Vitamin Express consisting of
(i) issuance of 363,636 shares of common stock with a value of $6.25 per
share and (ii) acquisition costs of $36,000.
(2) To eliminate the acquired common stock and deficit of Health & Vitamin
Express upon acquisition.
(3) To reflect the allocation of the purchase price to goodwill, which will be
amortized over 15 years.
13
<PAGE>
IRWIN NATURALS/4HEALTH, INC
UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Company Health & Vitamin Pro Forma Combined
------- ---------------- ---------
Express Adjustments
------- -----------
<S> <C> <C> <C> <C>
Net sales $30,547,000 $662,000 $31,209,000
Cost of sales 12,945,000 359,000 13,304,000
-------------------------------------------------------------------------
Gross Profit 17,602,000 303,000 17,905,000
Operating Expenses 15,775,000 687,000 $192,000 16,654,000 (1)
-------------------------------------------------------------------------
Income (loss) from operations 1,827,000 (384,000) (192,000) 1,251,000
Other income (expense) (209,000) 12,000 (197,000)
-------------------------------------------------------------------------
Income (loss) before taxes 1,618,000 (372,000) (192,000) 1,054,000
Provision for taxes 600,000 138,000 462,000 (3)
-------------------------------------------------------------------------
Net income (loss) $1,018,000 ($372,000) ($54,000) $454,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per common share
Basic $0.04 $0.02
Diluted 0.04 0.02
Weighted average common shares
Outstanding - basic 27,747,000 364,000 28,111,000 (2)
Weighted average common shares
Outstanding - diluted 28,221,000 364,000 28,585,000
</TABLE>
Pro Forma Adjustments for the Unaudited Pro Forma Condensed Income Statement at
December 31, 1998 are as follows:
(1) To amortize the goodwill assigned to the acquisition for one year of the
fifteen-year life.
(2) To reflect issuance of shares of the Company's common stock upon
acquisition
(3) To adjust combined provision for taxes for effect of Health & Vitamin
Express loss.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
IRWIN NATURALS/4HEALTH, INC.
Date: June 7, 1999 By:/s/ Lindsey Duncan
---------------------
Lindsey Duncan
Chairman of the Board
15
<PAGE>
I R W I N N A T U R A L S / 4 H E A L T H
MANUFACTURERS OF FINE NUTRITIONAL PRODUCTS
10549 W. Jefferson Blvd.
Culver City, California 90232
310.253.5305 Fax. 310.202.9454
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
April 16, 1999
Mr. Klee Irwin
7825 Veragua Drive
Playa del Rey, CA 90292
Dear Mr. Irwin:
This will confirm our mutual intentions regarding the future status
of our wholly owned subsidiary HealthZone.com, a California corporation
("HealthZone.com") and your continued status as the Chief Executive Officer
of Irwin Naturals/4Health, Inc. (the "Company").
1. Subject to compliance with all applicable laws and assuming no
adverse tax consequences to the Company, as soon as practicable, the Company
will distribute to its stockholders as a stock dividend, 100% of the issued
and outstanding shares of voting capital stock of HealthZone (the
"Spin-Off"). Prior to the the Spin-Off, HealthZone will issue to the Company
a promissory note ("Note"), equaling the expenses (above gross profits)
invested in the setup, maintenance and acquisition of HVE and HealthZone.com,
including all costs that the Company has incurred and is currently incurring
and will incur in the future. As sole security and recourse collateral for
this liability, you will make a pledge of 363,636 shares of unencumbered
common stock of the Company ("Common Stock") registered in your and your
wife's joint names to cover the shares given to HVE, plus 314,464 additional
shares to cover up to $1 million in additional cash outlays by the company
related to HVE and HealthZone.com. This second figure is based on $1.5
million divided by $4.77. Shares required to be sold to fulfill this
obligation shall not be required to be converted under the price of $3.50 and
shall not be converted over the price of $6.00.
2. You will agree to assume all of the Company's obligations to issue
additional shares of Common Stock under that certain Agreement and Plan of
Merger ("Merger Agreement") dated February 15, 1999 by and among the Company,
Health & Vitamin Express, Inc. David Mandel, Jeffrey S. Segal and Gordon
Barker and the Employment Agreement with David Mandel from your own and your
wife's unencumbered shares of Common Stock, including, without limitation,
the issuance of additional Merger Consideration as provided in Section 2.02
of the Merger Agreement.
3. You shall resign as chief executive of the Company without Good
Reason and become chief executive officer of HealthZone.com. The Company
shall pay your salary at the same rate as your current salary until the
earlier of (A) the first anniversary
<PAGE>
of your appointment or (B) the first to occur of either (i) an initial public
offering or (ii) a merger, consolidation or reorganization of HealthZone or
the sale of all or substantially all of its assets.
4. You and the Company will negotiate, execute and deliver as soon as
practicable a definitive agreement, which will address all outstanding
matters involved in connection with the termination of your Employment
Agreement.
The foregoing merely represents our mutual intentions with respect to
the subject matter hereof and shall not be deemed legally binding, unless and
until they are incorporated in one or more definitive agreements approved by
the Board of Directors of the Company, the provisions of which shall
supercede the provisions hereof.
Notwithstanding the foregoing, pending the preparation, execution and
delivery of such definitive agreements, the following shall represent binding
agreements on your part:
1. You agree to keep the matters herein confidential and shall not
disclose them except with the written approval of the Chairman of the Board
of Directors, unless required by law.
2. You shall be responsible for your own fees and expenses, including,
without limitation, legal fees and disbursements incurred in connection with
the matters set forth herein.
If the foregoing accurately sets forth our understanding reached to date
with respect to the subject matter hereof, please signify your approval and
acceptance by signing and returning the enclosed counterpart copy of this
letter to the undersigned.
IRWIN NATURALS/4HEALTH, INC.
By: /s/ R. Lindsey Duncan
---------------------------
R. Lindsey Duncan
Chairman
APPROVED, ACCEPTED AND
AGREED as of the date first above
written
/s/ Klee Irwin
---------------------------------
Klee Irwin
IRWIN NATURALS/4HEALTH
Klee Irwin
<PAGE>
KLEE IRWIN
7825 BERAGUA DRIVE
PLAYA DEL REY, CA 90292
The Board of Directors April 19, 1999
Irwin Naturals/4Health, Inc.
10549 W. Jefferson Blvd.
Culver City, CA 90232
Gentlemen:
In connection with the proposed spin-off of 100% of the capital stock of
HealthZone.com, a California corporation ("HealthZone"), a wholly owned
subsidiary of Irwin Naturals/4Health, Inc, a Utah corporation (the
"Company"), and in consideration of good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged and confirmed the
undersigned (hereinafter referred to as the "Irwin") and the Company hereby
agree as follows:
1. HVE ACQUISITION AND WEB SITE. (a) Irwin hereby agrees to
reimburse, indemnify and hold the Company harmless from any
and all damages, liabilities, claims (including, without
limitation, third party claims), losses, costs and expenses
(including, without limitation, attorneys' and accountants'
fees and disbursements) incurred by the Company in connection
with the (i) acquisition of Health & Vitamin Express, Inc.,
("HVE") pursuant to the provisions of that certain Agreement
and Plan of Merger dated February 15, 1999 by and among the
Company, HVE, David Mandel, Jeffrey D. Segal and Gordon Barker
("Merger Agreement") and the performance by the Company of its
obligations thereunder, including, without limitation, pursuant
to the provisions of Sections 2.02, 6.02, 6.03(d), 8.05, 9.03
and 10.11 of the Merger Agreement and (ii) development and
implementation of the HealthZone.com web site, including,
without limitation, all salaries, fees and expenses of
employees and consultants engaged in the design and
development of such web site.
(b) Irwin hereby assumes all of the Company's obligations to
issue additional shares of the Company's common stock
("Common Stock") under the Merger Agreement and the Employment
Agreement with David Mandel from his own and his wife's,
Margareth Irwin ("Mrs. Irwin") shares of Common Stock,
including, without limitation, the issuance of additional
Merger Consideration as provided pursuant to the provisions of
Section 2.02 of the Merger Agreement.
(c) As collateral security for his obligations under this
Agreement, Irwin shall, and shall cause Mrs. Irwin to deposit
in escrow one or more certificates in a form transferable by
delivery evidencing an aggregate of 1,600,000 shares of the
Company's Common Stock registered in joint
<PAGE>
name with Mrs. Irwin pursuant to the terms of an escrow
agreement to be entered into with the Company.
2. ADDITIONAL UNDERTAKINGS. The provisions of Section 1 shall be
in addition to, and not in lieu of, any other obligations of
Irwin with respect to the subject matter hereof, whether
arising as a matter of contract, by law or otherwise,
including, but not limited to, any obligations which may be
contained in any employment agreement to which Irwin and the
Company or any affiliate of the Company is a party.
3. EXPENSES. Except as otherwise provided in this Agreement,
Irwin agrees to pay his own (and reimburse the Company its)
costs and expenses, including, without limitation, all
reasonable attorneys fees and expenses, incurred in connection
with the negotiation, preparation, execution, delivery and
performance of this Agreement and the transactions
contemplated hereby.
4. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be
deemed to have been duly given or made as of the date
delivered, if delivered personally, or one (1) Business Day
after having been deposited with a courier, if sent by
overnight courier or having been sent by telecopy, if sent by
telecopy (receipt confirmed), or three (3) Business Days after
having been mailed, if mailed by registered or certified mail,
postage prepaid, return receipt requested, as follows:
If to the Company, to: Irwin Naturals/4Health, Inc.
10549 W. Jefferson Boulevard
Culver City, CA 90232
Attn: Chairman of the Board
Copy to: Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, NY 10169
Attn: Peter A. Basilevsky, Esq.
If to Irwin or Mrs. Irwin, to Irwin's address first above
written, or to such other address, as any party shall have
designated by like notice to the other parties hereto (except
that a notice of change of address shall only be effective
upon receipt).
5. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Utah
without regard to its choice of law principles.
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<PAGE>
6. WAIVERS, ETC. The failure of any of the parties hereto at any
time to enforce any of the provisions of this Agreement shall
not be deemed or construed to be a waiver of any such
provision, nor in any way to affect the validity of this
Agreement or any provision hereof or the right of any of the
parties hereto to thereafter enforce each and every provision
of this Agreement. No waiver of any breach of any of the
provisions Agreement shall be effective unless set forth in a
instrument executed by the party or parties against whom
enforcement of such waiver is sought; and no waiver of breach
shall be construed or deemed to be a waiver of any other or
subsequent breach.
7. ASSIGNMENT. Neither this Agreement nor any rights, interests
or obligations hereunder may be assigned (by operation of law
or otherwise) by any party hereto without the prior written
consent of all of the parties hereto, except that the Company
may (a) assign any and all of its rights and remedies and
delegate any and all of its obligations under this Agreement
to any affiliate, subsidiary or any entity owned or controlled
by it, provided such affiliate, subsidiary or entity agrees in
writing to be bound by the terms hereof, and (b) grant a
security interest in its rights under this Agreement to the
Company's lender.
8. BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of, and shall be binding upon, the parties hereto and
their respective successors and permitted assigns. Nothing
herein contained, express or implied, is intended to confer
upon any person other than the parties hereto and their
respective successors and permitted assigns, any rights or
remedies under or by reason of this Agreement.
9. AMENDMENT. This Agreement may only be amended by a written
instrument executed by each of the parties hereto.
10. SEVERABILITY. Any provision of this Agreement which is held by
a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction(s) shall be, as to such
jurisdiction(s), ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
11. ENTIRE AGREEMENT. This Agreement (together with the escrow
agreement to be delivered pursuant to or in connection with
this Agreement) constitute the entire agreement of the parties
hereto with respect to the subject matter hereof, and
supersede all prior agreements and understandings of the
parties, oral and written, with respect to the subject matter
hereof.
12. HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way
limit or affect the meaning or interpretation of any of the
terms or provisions of this Agreement.
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<PAGE>
13. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, and by the different parties hereto
in separate counterparts, each of which shall be deemed to be
an original but all of which taken together shall constitute
one and the same agreement, and shall become effective when
one or more counterparts has been signed by each of the
parties hereto and delivered to each of the other parties
hereto.
14. FURTHER ASSURANCES. Irwin hereby agrees, at his sole cost and
expense, to execute and deliver, and to cause Mrs. Irwin to
execute and deliver to the Company all such further
agreements, instruments or other documents, including, without
limitation, an escrow agreement, as the Company may reasonably
request in order to implement the provisions of this Agreement.
15. SPECIFIC PERFORMANCE. The parties hereby acknowledge and agree
that the failure of Irwin to perform his agreements and
covenants hereunder, will cause irreparable injury to the
Company for which damages, even if available, will not be an
adequate remedy. Accordingly, Irwin hereby consents to the
issuance of injunctive relief by any court of competent
jurisdiction to compel performance of such party's obligations
and to the granting by any court of the remedy of specific
performance of his obligations hereunder and in connection
therewith Irwin hereby waives any right to require any bond or
other security to be paid or furnished by the Company in
connection with any application for such relief.
If the foregoing correctly sets forth our agreement regarding the
subject matter hereof kindly indicate your approval and agreement in the
space provided therefor below on the enclosed copy of this letter returning
the same to the undersigned.
Very truly yours,
/s/ Klee Irwin
Klee Irwin
APPROVED AND AGREED
as of the date first above written
IRWIN NATURALS/4HEALTH, INC.
By: /s/ R. Lindsey Duncan
--------------------------------
R. Lindsey Duncan, Chairman
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