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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Under Section 13 or 15(d) of The Securities Exchange Act
-
of 1934
Fee Required) for the Fiscal Year Ended September 30, 1999
- Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934 (No Fee Required) for the Transition Period from
_________to__________
Commission file number 0-26362
NUTRITION FOR LIFE INTERNATIONAL, INC.
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(Exact name of Registrant as specified in its charter)
Texas 76-0416176
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9101 Jameel
Houston, Texas 77040
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(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (713) 460-1976
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each Class on Which Registered
------------------- -------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act:
$.01 Par value common stock
---------------------------
(Title of Class)
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 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on December 21, 1999 was $9,350,326.
The number of shares outstanding of the Registrant's common stock on
December 21, 1999 was 5,808,595.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K is incorporated by reference to the Registrant's
definitive proxy statement, which is expected to be filed within 120 days of the
end of the Registrant's fiscal year, ended September 30, 1999.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this Annual
Report on Form 10-K to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform Act of 1995 for any
forward looking statements made by, or on behalf of the Company. Forward looking
statements include statements concerning plans, objectives, goals strategies,
future events or performance and underlying assumptions and other statements
which are other than statements of historical facts. Certain statements
contained herein are forward looking statements and, accordingly, involve risks
and uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward looking statements. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result or be achieved or accomplished. Actual events or results
may differ materially as a result of risks facing the Company. Such risks
include, but are not limited to, changes in business conditions, changes in
distributor composition and the network marketing industry, the general economy,
competition, changes in product offerings, international operations, as well as
regulatory developments that could cause actual results to vary materially from
the future anticipated results indicated, expressed or implied, in such forward-
looking statements. The Company disclaims any obligation to update any forward-
looking statement to reflect events or circumstances after the date hereof.
PART I
ITEM 1. BUSINESS
Background
Nutrition For Life International, Inc. (the "Company" or "NFLI") develops
products that are designed for health-conscious consumers, and sells those
products to consumers through its network of independent distributors. The
Company has developed a network of approximately 67,000 distributors. The
Company offers a product line of approximately 400 products in nine categories,
including nutritional supplements, health foods, weight management items, skin
care products, and other consumer products and services.
The Company develops products that it believes will have market appeal to its
distributors and their customers, and assists its distributors in building their
own businesses. The advantage the Company offers to distributors is that they
can start a business without normal start-up costs and other difficulties
usually associated with new ventures. The Company provides product development,
marketing aids, customer service, and essential record-keeping functions for its
distributors. The Company also provides other support programs to the
distributors including teleconferencing calls, international and regional
seminars, a proprietary "monthly" magazine, business training systems and a site
on the World Wide Web of the Internet (www.nutritionforlife.com).
Distributors actively recruit interested people to become new distributors for
the Company. These recruits are placed beneath the recruiting distributor in the
"network" and are referred to by the Company as that distributor's "downline".
Distributors earn commissions on sales generated by the distributors in their
downline as well as on the sales they directly generate.
The Company purchases most of its products directly from manufacturers and
sells them to its independent distributors located in all 50 states, the
District of Columbia, Canada, the United Kingdom, the Republic of Ireland,
Norway, Finland, the Netherlands, Germany, the Republic of Philippines, Guam,
Puerto Rico and Japan. The Company`s operations outside North America are
conducted principally through wholly owned subsidiaries. In addition, the
Company recently completed acquisitions and conducts manufacturing operations
through a wholly owned subsidiary. Unless the context otherwise requires, the
term the "Company" as used in this Annual Report on Form 10-K includes the
Company's subsidiaries.
Over the past several years, public awareness of the positive effects of
nutritional supplements on health has been heightened by widely publicized
reports supporting such claims. Many studies have indicated a correlation
between the consumption of nutritional supplements and reduced incidences of a
wide range of medical conditions. Reports have indicated that the United States
government and universities have generally increased sponsorship of research
relating to nutritional supplements. In addition, Congress has established the
Office of Alternative Medicine within the National Institutes of Health to
foster research into alternative medical treatments that may include natural
remedies. Congress has also directed the Office of Dietary Supplements in the
National Institutes of Health to conduct and coordinate research into the role
of dietary supplements in maintaining health and preventing disease.
The Company believes that the aging of the United States population, together
with a corresponding increased focus on healthcare measures, will continue to
result in increased demand for vitamins and nutritional supplement products.
According to the United States Census Bureau, the 35-and-older age group of
consumers, which represents a substantial majority of regular users of vitamins
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and nutritional supplements, is expected to grow significantly faster than the
general United States population. The Company believes that increased public
awareness of the health benefits of nutritional supplements and favorable
demographic trends toward older Americans who are more likely to consume
nutritional supplements, have contributed to the steady growth of the
nutritional supplement market during the past several years, and that these
trends may contribute to further growth of the nutritional supplement market in
the United States. Although data for international markets is not readily
available, the Company expects that these factors will also contribute to growth
in the sale of nutritional supplements to countries outside the United States,
particularly in Europe and Japan.
The Company intends to pursue its long-term business strategy of increasing
sales and profitability by (1) attracting and retaining distributors to its
network marketing system; (2) increasing product sales to existing distributors;
(3) expanding its marketing activities into new international markets; and (4)
adding complimentary goods and services through new product offerings and
strategic acquisitions.
The Company's executive offices are located at 9101 Jameel, Houston, TX
77040. Its telephone number is (713) 460-1976 and its Web site is
www.nutritionforlife.com.
Recent Acquisitions
The Company recently completed three acquisitions. On November 17, 1999, the
Company finalized the acquisitions of Advanced Nutraceuticals, Inc. ("ANI") and
Bactolac Pharmaceutical Inc. ("Bactolac") ANI was formed to pursue a
consolidation and integration program in the nutrition industry, and its
operations consisted of organizational and financing activities and arrangements
for acquisitions of other companies. Bactolac manufactures nutritional
supplements for private label customers.
On December 1, 1999, the Company completed the acquisition of Ash Corp.
("Ash"). Ash primarily manufacturers liquid pharmaceutical and nutraceutical
products. Ash will be operated as a division of Bactolac. See Item 7 for a
discussion of terms of these acquisitions.
Distribution and Marketing
The Company's products are distributed through a network marketing system
consisting of approximately 67,000 distributors. Distributors are independent
contractors who purchase products directly from the Company for their own use
and for resale to retail consumers. Distributors may elect to work on a full-
time or part-time basis. Management believes that its network marketing system
is well suited to marketing its nutritional supplements and other products
because sales of such products are strengthened by ongoing personal contact
between retail consumers and distributors, many of whom use the Company's
products themselves. The Company encourages its distributors to use the
Company's products. No one distributor directly accounted for more than 5% of
the Company's sales in any of the past three fiscal years.
The Company's ability to increase sales is significantly dependent on its
ability to attract, motivate and retain distributors. The Company utilizes an
innovative marketing program that provides financial incentives, distributor
training and support, low priced starter kits, no inventory requirements, and
low monthly purchase requirements. Management intends to reach potential new
distributors through the Company's site on the World Wide Web, teleconferencing
and regional sales meetings.
Distributors' revenues are derived from several sources. First, distributors
may receive revenues by purchasing the Company's products at wholesale prices
and selling those products to customers at retail prices. Second, distributors
earn the right to receive commissions upon attaining the level of "executive."
Executive level distributors may earn commissions on product purchases by other
distributors in their downline organization. The first level of each executive
may initially have no more than four executives, and, until qualifying as a
Platinum executive, commissions may be earned on the sale of product to
executives in up to the first seven levels of their downline. The qualification
for a distributor to earn commissions is a one time requirement and there are
two ways of meeting this requirement which are as follows:
. Generate cumulative qualifying product volume of $1,000 over any
period of time.
. Qualify to be an Executive right away by purchasing the $199 or
$499 Executive Business Pack, enroll in the Order Assurance
Program (the "OAP") at the monthly level of $100 and subscribe to
the $25 monthly Business Training System.
"Qualifying product volume" is product the distributor and his downline
distributors purchase at wholesale directly from the Company either for personal
use or for sale to other customers at retail prices. There is no time limit to
meet these qualifications, and
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distributors may choose to become executives the same day that they enroll as a
distributor or over any period of time. An executive level distributor may
attain higher levels of commission based on sales generated by distributors
within his or her organization. For distributors who became executives prior to
March 1, 1998, the only qualification to remain an executive is to purchase $100
in product every month, except that distributors who have become executives by
generating cumulative qualifying product value of only $500 must continue their
participation in the other programs noted above for one year from enrollment in
order to maintain executive status. For distributors becoming executives
subsequent to March 1, 1998, the qualifications to remain an executive are to
purchase $100 in product every month and to be enrolled in the Business Training
System. Management believes that the right of executive level distributors to
earn commissions contributes significantly to the Company's ability to retain
its productive distributors. Management also believes that the timely
introduction of new and topical programs and products will assist in increasing
its network of distributors.
To become a distributor, a person must be sponsored by an existing
distributor, sign the official Distributor Agreement and purchase a "distributor
success kit" from the Company. It is emphasized in the Distributor Agreement
that in order for a distributor to be successful in the Company's program, the
distributor must purchase and sell the Company's products at retail and sponsor
other distributors to do the same. It is also noted that the distributor must
retail or use in business building 70% of the product he or she purchases before
more product may be purchased from the Company. A distributor success kit
currently costs approximately $49 and provides sales aids, brochures, order
forms, audio and video cassette recordings and a subscription to the Company's
monthly publication, Lifestyles.
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The following table sets forth the approximate number of the Company's
distributors on the dates indicated:
At September 30,
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1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Approximate number of distributors (1) 67,000 80,000 88,500 87,400 57,300
(1) Includes "active" distributors only. A distributor remains active by
generating a minimum of $40 in sales volume at least once every 12
months. In order to maintain executive status and to be eligible for
commissions and bonuses, an executive distributor must generate a
minimum of $100 in sales volume every month and be enrolled in the
Company's Business Training System.
The Company seeks to expand its distributor base in each market by offering
distributors attractive compensation opportunities. Management believes the
Company's executive level distributor compensation plan offers an opportunity
for the distributor to become successful without having to finance a large
inventory of products and requires only a modest amount of sales to meet the
commission requirements.
The Company participates in rallies in various key cities in North America,
Puerto Rico, the United Kingdom, Europe and Pacific Rim countries and
participates in motivational and training events in key countries, all of which
are designed to inform large numbers of prospective and existing distributors
about the Company's product line and selling techniques. Distributors give
presentations relating to their experiences with the Company's products and the
methods by which they develop their distributor organizations. Specific selling
techniques are explained, and emphasis is placed on the need for consistency in
using such techniques. Participants are encouraged to ask questions regarding
selling techniques and product developments and to share information with other
distributors attending the rallies. Distributors are also given opportunities to
interact with other distributors and to develop confidence in selling and goal-
setting techniques. Motivation is offered to participants in the form of
recognition, gifts, excursions and tours, which are intended to foster an
atmosphere of excitement throughout the distributor organization. Prospective
distributors are educated about the structure, dynamics and benefits of the
Company's network marketing system. During the fiscal years ended September 30,
1999, 1998 and 1997, the Company expended approximately $1,294,000, $679,000 and
$590,000, respectively, on promotional activities related to distributors'
rallies and the annual convention. In February 1998 the Company sponsored a
cruise for certain distributors at an additional cost of approximately $900,000.
The Company is sponsoring another cruise for certain qualifying distributors
which is expected to take place in April, 2000. The Company accrued the expected
cost of approximately $250,000 in the fiscal year ended September 30, 1999. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
In July 1996 the Company entered into an Administrative and Consulting
Services Agreement (the "1996 Agreement") with Distributor Services, L.L.C.
("DS"). DS is an affiliate of Nightingale-Conant ("NC"), at the time a major
supplier of self improvement materials to the Company. The 1996 Agreement
provided that, except to the extent the Company produced its own material in-
house, DS had the exclusive right to produce and sell all of the Company's
recruiting and training material. Such materials were to be produced and
marketed at the expense of DS and DS was entitled to all revenues received from
the sales of such materials. DS was also granted the exclusive right to produce,
organize and sell, at its own expense, admission to all Company sponsored
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recruiting or promotional events and to receive all revenues therefrom. The
Company purchased product and services in the aggregate of approximately
$607,000, $4,387,000 and $6,494,000 from DS and NC in the years ended
September 30, 1999, 1998 and 1997, respectively. Kevin Trudeau, formerly a key
distributor of the Company, was principally responsible for DS's performance in
connection with the 1996 Agreement.
In August 1998, the Company and Kevin Trudeau entered into an agreement
regarding the termination of Mr. Trudeau's distributorship and in October 1998,
the Company, DS and NC entered into a severance agreement terminating the 1996
Agreement. The Company is now internally providing the services previously
performed by DS. To facilitate this the Company has hired three former employees
of DS to assist in event organization and scheduling. The Company now produces,
organizes and, when appropriate, sells admission to its recruiting and
promotional events and retains all such revenue. Additionally, existing in-house
staff, facilities and certain executive distributors are being utilized to
produce the Company's recruiting and training materials, including its monthly
Business Training System. The Company believes that it has the personnel and
facilities to perform the services previously provided by DS.
Special Bonus Programs. The Company offers a car bonus program, whereby it
makes car payments up to $3,500 per month for qualifying distributors. The
Company has no liability relating to the financing or purchasing of the
automobile. The car bonus program was initiated in fiscal 1990. At September 30,
1999, the Company had approximately 100 qualifying distributors in the program.
The Company also offers a house payment bonus program, whereby it makes house
payments up to $10,000 per month. The Company has no liability relating to the
financing or purchasing of the house. The house payment bonus program was
initiated in September 1998. At September 30, 1999 the Company had 22
distributors in the program.
Order Assurance Program. The Company provides a program whereby distributors
may enroll in a minimum ordering program in order to enhance their eligibility
for commissions. Minimum orders ranging from $41 to $301 per month are
automatically placed by credit card or check. Differing amounts for the optional
Order Assurance Program ("OAP") exist to allow generation of sales volume at
various levels that generally correspond to commission and bonus qualification
levels, i.e., $100 is the minimum sales volume to remain an active executive;
$100 is the minimum sales volume qualification level for the car bonus program;
$160 is the minimum sales volume to be eligible for gold executive; $300 is the
minimum sales volume requirement to be a platinum executive; and $300 is the
minimum sales volume qualification level for the house payment program.
Therefore, the OAP promotes sales for the Company and the distributors
participating in bonus programs. The OAP was initiated in fiscal 1993. The OAP
is voluntary and no restrictions are placed upon any participant's ability to
exit the OAP. As of September 30, 1999, 1998 and 1997, respectively, there were
approximately 29,000, 35,000, and 34,400 distributors enrolled in the OAP.
Prior to June 1, 1999 NFLI sold product redemption certificates to
distributors who were enrolled in the Company's OAP. Revenues were recorded when
these certificates were redeemed for product. However, if the certificates were
not redeemed for product, the Company recorded revenues ratably over a 150-day
period commencing with the ending of the expiration period of 120 days.
Subsequent to June 1, 1999 the Company began shipping product packs for most
OAP purchases, the shipment of which results in the recognition of revenue. The
Company now only sells product redemption certificates for certain "big ticket"
items. Such certificates must be redeemed for the specified item upon
accumulation of the required number of certificates.
As a part of the Company's commitment to maintain constant communication with
its distributor network, the Company offers the following support programs:
Unified Messaging System. The Company provides a special voice messaging
program that gives distributors voice messaging capabilities to communicate more
efficiently with their downline. This program also allows the Company to
automatically voice message all distributors on the Unified Messaging System.
Mind And Body Institute. In January 1997, the Company began a series of
one-day product workshops designed to enhance distributor understanding and
appreciation of the Company's product line. Approximately 35 of these workshops
were held during the year ended September 30, 1999.
Business Training System. The Company provides a monthly subscriber service
of leading self development books and audio and video programs that serve as a
link between the philosophy and ideals of the Company and its distributors.
Product Literature. The Company produces for its distributors comprehensive
and attractive four color catalogues and brochures that display and describe the
Company's products.
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Toll Free Access. The Company furnishes toll free numbers for: (1) placement
of orders, (2) customer service assistance, and (3) faxing of orders.
Other Distributor Communication. Management believes that a significant part
of the Company's ability to perform well is dependent upon the enthusiasm and
momentum generated by executive level distributors who are able to motivate
their downline organizations through various marketing methods, including the
use of newsletters, brochures and other sales aids and the holding of meetings
and rallies at the expense of the sponsoring distributor.
The Company also sponsors an Annual Convention and Regional Meetings to
provide additional information and support to its distributor network. The
Company publishes The Lifestyles Magazine, Lifelines Newsletter and Platinum
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Newsletter on a periodic basis to provide important product and marketing
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information to distributors. Additionally the Company's worldwide Web site
provides information regarding the Company and its products to distributors.
Markets
The following chart sets forth the countries in which the Company currently
operates, the year operations were commenced in each country, and historical
sales information by country during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30
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(in Thousands)
Country Year Entered 1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C> <C>
United States 1984 $57,900 $60,400 $73,000 $89,400 $25,800
Canada 1993 3,100 4,800 6,800 6,400 4,200
Puerto Rico 1994 100 200 500 1,200 2,200
Europe(1) 1996 4,700 3,500 2,500 200 ---
Korea(2) 1991 --- --- --- 100 100
Philippines(2) 1993 800 700 200 100 100
Japan(3) 1999 --
</TABLE>
(1) The Company commenced operations in the United Kingdom in 1996, and
expanded into Ireland in 1997, the Netherlands in 1998 and Norway and Finland
in 1999.
(2) The Company has historically sold its products in Korea and the
Philippines which do not use the Company's network marketing system. The
Company introduced its network marketing system through a subsidiary in the
Philippines in July 1997. In October, 1999 the Company finalized its plan to
divest its Philippines subsidiary. The Company expects to continue marketing
its products in the Philippines, but does not expect sales to be substantial.
(3) The Company commenced operations in Japan in November 1999.
The Company's long-term plan is to enter additional markets outside the
continental United States. Regulatory approvals may be required in some
instances. During the regulatory compliance process, the Company may alter the
formulation, packaging or labeling of its products to conform to applicable
regulations as well as local variations in customs and consumer habits, and the
Company may modify certain aspects of its network marketing system as necessary
to comply with applicable regulations.
The Company may also need to undertake the steps necessary to meet the
operational requirements of new markets, including plans to satisfy the
inventory, distribution, personnel and transportation requirements of the new
market. The Company may also need to modify its distributor manuals, cassette
recordings, videocassette and other training materials as necessary to be
suitable for the new market. The Company has prepared manuals in English,
French, Spanish and Japanese. Currently, the Company's products are distributed
to all markets from the Company's Houston, Texas distribution center. The
Company also maintains distribution centers in Alaska, Hawaii and Puerto Rico.
The Company has established an office and warehouse center in Warrington,
England to provide administrative, shipping and warehouse support for the
Company's operations in Europe. The Company also established an office in Pasig
City, Philippines in addition to warehouse centers in Quezon, Davao and Cebu,
Philippines. These facilities will be divested when the Company finalizes the
sale of its Philippines subsidiary.
The uncertain Asian economic situation has had a negative impact on the
Company's operations in the Philippines. The exchange rate between the
Philippines peso and the US dollar has declined from approximately 28 to 1 at
the formation of that subsidiary to approximately 41 to 1 as of September 30,
1999. The Company has realized exchange rate gains (losses) of approximately
$72,500, $(212,000) and $(78,500) for the years ended September 30, 1999, 1998
and 1997, respectively in the Philippines.
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Products
The Company markets and distributes an extensive product line of approximately
400 items in nine different categories: (1) vitamins, minerals and antioxidants;
(2) Nutique personal care items; (3) food and weight management items; (4)
herbal formulas; (5) homeopathic and special formulas; (6) cleaning
concentrates; (7) filtration systems; (8) self-improvement programs; and (9)
services. The line consists of primarily consumable products that are designed
to target the growing consumer interest in natural health alternatives for
nutrition and personal care. In developing its product line, the Company has
emphasized quality, purity, potency, and safety.
Vitamins and minerals and antioxidants. The Company markets 49 vitamin and
mineral products that are offered in a variety of combinations including the
Company's proprietary Grand Master(R), Master-Key-Plus(R), and OraFlow Plus(R)
formulations.
Nutique personal care items. The Company markets 28 Nutique hair and skin
care products including skin care formulas for men and women, shampoo and
conditioner, hand and body lotions, sunscreen, an alphahydroxy acid skin
rejuvenating complex, and a thigh creme. Each of these products contains
ingredients that are formulated to promote healthier looking skin and hair. Food
and weight management items. The Company markets 84 food and weight management
products. These include a whey beverage in five flavors, the Nutri-Mac line of
pastas, the Nutri-Blend flour and baking mixes, instant food shakes, fiber
products, the Nutri-Cookie(R), and Lean Life(R), a herbal weight management
formulation, and a line called Heartful Gourmets(R), which are soy-based meals
and snacks.
Herbal formulas. The Company's 33 herb and herbal formulation products are
produced using only natural ingredients and are precisely measured and carefully
processed into a convenient tablet or capsule form. The line consists of many
traditionally popular herbs such as alfalfa, ginkgo biloba, garlic, Cat's Claw,
and St. John's Wort, as well as special blends developed by the Company.
Homeopathic and special formulas. Homeopathic remedies, when prepared in
minute amounts, mimic disease symptoms and stimulate the body's defense systems.
The Company offers 76 homeopathic remedies that have been formulated in
accordance with the Homeopathic Pharmacopoeia of the United States. In addition,
the Company markets a variety of other special formula products including shark
cartilage liquid and capsules, pain relief formulations, cough syrup, digestive
aids, sports massaging gel, a special formula dentifrice and special
phytochemical products.
Cleaning concentrates. The Company markets household cleaning products that
are non-volatile and biodegradable. There are 29 products, including a liquid
hand and body soap, dishwasher concentrate, laundry concentrates, laundry
softener, a heavy duty cleaner-degreaser, and a pine disinfectant, and a line of
anti-microbial and anti-viral disinfectants.
Filtration systems. The Company markets 52 products designed to test or
improve the quality of air and water, including electrostatic air filters and
water filtration systems.
Self improvement programs. The Company markets 52 motivational and self
improvement tapes and other products. The Company internally produces such tapes
to supplement tapes available from third party suppliers.
Services. Two services are currently being offered to distributors and
customers: LIFEdial 1 Plus and Body Check. LIFEdial 1 Plus is a discounted long
distance package. Distributors may sign-up for the service and sell it to
customers. Body Check is a hair analysis which tests the level of 21 elements
normally found in the body. The resulting report also includes information
regarding exposure to toxic substances. The Body Check report can then be used
to make recommendations for the individual's specific nutritional supplements.
During the last three fiscal years, no single product has accounted for 10
percent or more of the Company's revenue. The Company continually seeks to
identify, develop and introduce innovative, effective and safe products. During
the fiscal years ended September 30, 1999, 1998 and 1997, the approximate number
of new products and services introduced by the Company was 36, 16, and 44,
respectively. Management believes that its ability to introduce new products
increases its distributors' visibility and competitiveness in the marketplace.
The Company maintains significant amounts of products in its inventory to meet
rapid delivery requirements of customers and to minimize product back orders,
which historically have not been significant. Due to the nature of the Company's
business, the Company typically does not carry a substantial backlog of orders.
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New Product Development
The Company expands its product line through the development of new products.
New product ideas are derived from a number of sources, including trade
publications, scientific and health journals, the Company's management and
consultants, and outside parties. Prior to introducing products into the
Company's markets, counsel and other representatives retained by the Company
investigate product formulation matters as they relate to regulatory compliance
and other issues. To the extent possible, the Company's products are formulated
to suit both the regulatory and marketing requirements of the particular market.
The Company does not maintain its own product research, development and
formulation staff but relies upon independent research, vendor research
departments, research consultants and others for such services. When the
Company, one of its consultants or another party identifies a new product
concept or when an existing product must be reformulated for introduction into a
new or existing market, the new product concept or reformulation is generally
submitted to the Company's suppliers for technological development and
implementation. The Company owns the proprietary rights to a majority of its
product formulations.
Consumer Product Warranties and Returns
The Company's product warranties and policy regarding returns of products are
similar to those of other companies in the industry. If a retail purchaser of
any of the Company's products is not satisfied with the product, he may return
it to the distributor from whom he purchased it at any time within 30 days of
his purchase. The distributor is required to refund the purchase price to the
retail purchaser. The distributor may then return the unused portion of the
product to the Company for an exchange of equal value. The manufacturers of
those products warrant most products against defect. Most products returned to
the Company, however, are not found to be defective in manufacture. As a result,
the Company at its cost replaces most products returned to the Company.
Management Information System
The Company maintains a proprietary computerized system for processing
distributor orders and calculating distributor commission and bonus payments
which enables it to remit such payments promptly to distributors. The Company
believes that prompt remittance of commissions and bonuses is vital to
maintaining a motivated network of distributors and that this has enhanced the
loyalty of the distributors to the Company.
The Company's computer system makes available to the Company's distributors a
detailed monthly accounting of sales and recruiting activity. These convenient
statements eliminate the need for substantial record keeping on behalf of the
distributor. The computer system also is fully integrated with the Company's
financial reporting system that generates monthly reports, invoices and payroll.
As a precaution, duplicate copies of the Company's computer records are
transferred frequently to an off-site location for safekeeping.
The Company installed a White(R) automated inventory storage and retrieval
system in 1997 in its warehouse/shipping facilities in Houston. The system has
improved operator productivity, reduced error rates and increased the speed of
throughput. The Company believes that it will be able to handle substantially
increased sales volumes without material staffing increases as a result of the
installation of the White(R) system. The total cost including implementation and
training was approximately $1,000,000.
The Company completed the installation of SAP(R), an enterprise wide
state-of-the-market computer information system during 1998. The system is
expected to provide improved administrative cost control, enhanced customer
service and improved multinational support. The total cost, including
implementation and training, was approximately $3,000,000. The Company has
entered into a lease arrangement for a portion of this system. See Item 1.
"Business-Risk Factors" and Item 7. "Management's Discussion and Analysis of
Financial Conditions and Results of Operations".
Manufacturing and Supplies
During the past three fiscal years the Company purchased all of its vitamins,
nutritional supplements and all other products from third parties that
manufacture such products to the Company's specifications and standards.
In July 1998, the Company entered into an agreement with VitaRich
Laboratories, Inc. ("VitaRich") in which the Company agreed to advance VitaRich
up to $800,000 to secure the purchase of a sufficient quantity of certain
nutritional supplement raw materials to meet the Company's anticipated need for
rapid delivery of product and to obtain such product at discounted prices. The
agreement is for three years and requires that the Company provide VitaRich with
periodic estimates of anticipated needs, as well as actual use rates of the
requested product.
The Company made an initial deposit of $400,000 to VitaRich and has agreed
that it will maintain a deposit in the amount of 40% of its outstanding purchase
orders with VitaRich. VitaRich is required to use the deposit for the purchase
of raw material and the processing of finished product in sufficient kinds and
quantifies to enable the Company to (i) meet its anticipated need for the
product,
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(ii) maximize the costs savings to VitaRich and provide the Company with reduced
prices through the purchase of bulk quantities of raw materials, and (iii)
enable VitaRich to meet the Company's rapid delivery requirements.
Unless the agreement is terminated before its expiration, the Company is not
required to make additional deposits beyond the third year. Additionally,
VitaRich is required to repay any outstanding deposits by crediting the Company
with an amount equal to 10% of each purchase order placed by the Company until
such time as all advances have been repaid. The Company has a first priority
security interest in all of VitaRich's interest in the inventory, warehouse
receipts, documents of title, accounts receivable and proceeds of insurance
related to the raw materials purchased by VitaRich on behalf of the Company. As
of September 30, 1999 the Company had advanced VitaRich a total of $400,000
which amount is included in prepaid expenses in the financial statements in
Item 8.
The Company does not have long term supply agreements with any vendor other
than VitaRich. Although the Company believes that it could establish alternate
sources for most of its products, any delay in locating and establishing
relationships with new sources could result in product shortages and back orders
for the products, with a resulting loss of revenues to the Company. In addition,
such delays could interrupt growth of product sales and distributor recruitment.
With the acquisitions of Ash and Bactolac, the Company has expanded its
operations to include the manufacture of pharmaceutical products and nutritional
supplements. The Company has invested in manufacturing to meet the growing
demand for pharmaceutical and nutritional supplement products, to position
itself to have a ready supply of nutritional supplement products and to
diversify and expand its operations. Ash employs approximately 90 people and
manufactures pharmaceutical products at its 132,000 square foot facility in
Gulfport, Mississippi. Its principal customer is Bayer Corporation, which
accounted for 62% and 70% of Ash's sales for the years ended December 31, 1998
and 1997, respectively. The principal product made by Ash for Bayer is Phillips
Milk of Magnesia. Ash is the sole producer of this product for Bayer in the
U.S., and produces this product pursuant to a supply agreement that expires on
October 10, 2000. It is provided in the agreement that Ash and Bayer will
negotiate in good faith regarding the renewal of the agreement. Ash also
produces Haleys' M-O and other antacid products for Bayer pursuant to this
agreement.
Ash is committed to providing high quality products. All of Ash's products are
manufactured in accordance with the applicable current Good Manufacturing
Practices of the Food and Drug Administration ("FDA"). Ash has established
laboratory controls which encompass scientifically sound and appropriate
specifications, standards, sampling plans, and test procedures and protocols
designed to assure that components, drug product containers, closures, in-
process materials, labeling, and resultant drug products rigorously conform to
appropriate standards of identity, strength, quality and purity. Ash's
laboratory operations are constantly reviewed to assure these operations meet
standards in the industry.
Upon receipt by Ash of a raw material or a finished product at its
manufacturing facilities, the item is placed in quarantine until tested and
passed by Ash's quality control department. Special numbering systems are used
for all components, in-process materials, and finished products to assure strict
adherence to all governing specifications and standards and to permit an audit
trail to be maintained on any product from receipt of raw input materials
through the entire production and packaging processes, to the resultant finished
products.
Bactolac is headquartered in Westbury, New York, where it employs
approximately 24 people in the manufacture of nutritional supplements for
private labeled customers. Bactolac's operations are currently conducted in two
facilities with a total of 15,000 square feet where it produces weight loss,
anti-oxidants, formulas designed for women, formulas for men, children's
formulas, sport nutrition, energy products, stress formulas, relaxation
formulas, life extension, immune enhancement, brain products, cleansing
products, cholesterol products, liver formulas, heart formulas and many herbal
remedies. In addition, Bactolac custom formulates products in response to
customer demand. Bactolac handles the formulation, micropulverization, mixing,
blending, screening, filtering, capleting, and encapsulation of over 100
different vitamins and supplements. Bactolac does limited bottling, labeling and
packaging.
Bactolac is committed to providing high quality products and employs quality
control standards to assure that its operations meet standards in the industry.
Bactolac anticipates finalizing arrangements to relocate to a new facility with
upgraded equipment and technological improvements. Prior to the acquisition of
Bactolac by NFLI, Bactolac was a subcontractor to a supplier to NFLI of
nutritional supplements.
Trademarks and Service Marks
Most products are packaged under the Company's "private label". The Company
has registered trademarks with the United States Patent and Trademark Office for
its Master Key Plus(R), Oraflow Plus(R), LeanLife(R), Nutri-Cookie(R), Requin
3(R), Grand Master(R), Phytonol(R), BioWater(R), E-Lemonator(R), Phytogreen(R),
BioGlow(R), BioRub(R), Whey-To-Go(R), Heartful Gourmets(R), Lifedial Plus(R),
Arthro Support Tri-Pack(R), Enviro Defense System(R), NutriBuddies(R), ,and
Nutrition For Life(R). It has applied for trademark registration for its
Snoreless(TM), ItchBuster(TM), Healthy Chocolates(TM), Soy B-Nuts(TM),
JaNails(TM), Kholesterol-Blocker(TM), Healthy Start(TM), O2 Support(TM),
Ki.Sweet(TM), Immune Support(TM), and PyruBalance(TM).
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Competition
The Company competes with many companies marketing products similar to those
it sells and markets. It also competes intensely with other network marketing
companies in the recruitment of distributors. The Company's ability to remain
competitive depends, in significant part, on its success in recruiting and
retaining distributors. There can be no assurance that the Company's programs
for recruitment and retention of distributors will be successful in the future.
There are many network marketing companies with which the Company competes for
distributors. Some of the largest of these are Amway, Nature's Sunshine, Inc.,
Herbalife International, Inc., and Rexall Sundown, Inc. Each of these companies
is substantially larger than the Company and has significantly greater
resources. The Company competes for distributors by means of its marketing
program that includes its commission structure, training and support services,
and other benefits.
Not all competitors market all types of products marketed by the Company, and
some competitors market products and services in addition to those marketed by
the Company. For example, some competitors are known for and are identified with
sales of herbal formulations, some are known for and are identified with sales
of household cleaning and personal care products, and others are known for and
are identified with sales of nutritional and dietary supplements. The Company's
principal methods of competition for the sale of products are its responsiveness
to changes in consumer preferences and its commitment to quality, purity, and
safety.
In addition, the Company's recently acquired manufacturing operations are
in competition with numerous companies in the manufacture of pharmaceutical
products and nutritional supplements.
Government Regulation
The manufacturing, processing, formulation, packaging, labeling and
advertising of the Company's products are subject to regulation by federal
agencies, including the Food and Drug Administration (the "FDA"), the Federal
Trade Commission, the Consumer Product Safety Commission, the United States
Department of Agriculture, the United States Postal Service and the United
States Environmental Protection Agency. These activities are also subject to
regulation by various agencies of the states and localities in which the
Company's products are sold.
In November 1991, the FDA issued proposed regulations designed to, among other
things, amend its food labeling regulations. The proposed regulations met with
substantial opposition. In October 1994, the "Dietary Supplement Health and
Education Act of 1994" (the "Dietary Supplement Law") was enacted. Section 11 of
the Dietary Supplement Law provided that the advance notice of proposed rule
making by the FDA concerning dietary supplements was null and void. FDA
regulations that became effective on June 1, 1994 would require standard format
nutrition labeling on dietary supplements.
The Dietary Supplement Law broadly regulates nutritional labeling requirements
for dietary supplements. The final regulations were published
September 23, 1997. Provisions relating to notification to FDA of product label
claims considered "Statements of Nutritional Support" and provisions relating to
new dietary ingredients became effective October 23, 1997. Regulations
specifying product label content became effective March 23, 1999.
The Dietary Supplement Law provides for regulation of Statements of
Nutritional Support ("Statements"). These Statements may be made if they are
truthful and not misleading and if "adequate" substantiation for the claims is
available. Statements can describe claims of enhanced well-being from use of the
dietary supplement or product statements that relate to affecting a structure or
function of the body. However, Statements cannot claim to diagnose, treat, cure,
or prevent any disease, regardless of the possible existence of scientific
reports substantiating such claims.
Statements appearing in dietary supplement labeling must be accompanied by a
disclaimer stating that the FDA has not evaluated the Statements. Notification
to the FDA of these Statements is not considered approval of the Statements of
products. If the FDA determines in possible future proceedings that dietary
supplement Statements fail to met the requirements of the Dietary Supplement
Law., a product may be subject to regulation as a drug. The FDA retains all
enforcement means available to it (i.e. seizure, civil or criminal penalties,
etc.), when investigating or enforcing labeling claims.
The Dietary Supplement Law also provided for the formation of a Presidential
Commission on Dietary Supplement Labels, requiring it to consider and comment
upon informational dietary supplement issues. The Commission issued its non-
binding final report on November 24, 1997. The report's findings are similar,
yet distinct from, the regulations enacted by the Dietary Supplement Law. The
report addressed a broad range of issues, including the need for increased
consumer education of dietary supplement
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products. The Company cannot determine what effect the report will have on its
business in the future, or whether the report will lead to any additional
legislative or regulatory intervention.
The FDA also regulates the formulation and manufacture of dietary supplements
distributed by the Company. In February 1997 the FDA published proposed
regulations for the manufacture of dietary supplements. These regulations, if
finalized would require at least some of the quality control provisions related
to drugs to be applied to nutritional supplements. The Company believes that it
complies with good manufacturing practices for foods, as currently required by
the FDA.
The Federal Trade Commission ("FTC") regulates advertising of the Company's
nutritional and dietary supplement products, cosmetics and over-the-counter
drugs. The Federal Trade Commission Act prohibits unfair or deceptive trade
practices and false or misleading advertising. The FTC has recently been very
active in its enforcement of advertising against manufacturers and distributors
of nutritional dietary supplements having instituted several enforcement actions
resulting in signed agreements and payment of large fines. Although the Company
has not been the target of a FTC investigation, there can be no assurance that
the FTC will not investigate the Company's advertising in the future.
On November 18, 1998, the FTC issued it's "Dietary Supplements: An Advertising
Guide for Industry". Such guide provides an application of FTC law to dietary
supplement advertising and includes examples of how principles of advertisement
interpretation and substantiation apply in the context of dietary supplement
advertising. The guide provides additional explanation but does not
substantially change the FTC's existing policy that all supplement marketers
have an obligation to ensure that claims are presented truthfully and to specify
the adequacy of the support behind such claims.
The Company is unable to predict the nature of any future laws, regulations,
interpretations, or applications, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. They could, however, require the
reformulation of certain products not possible to be reformulated, imposition of
additional record keeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling and scientific
substantiation regarding product ingredients, safety or usefulness. Any or all
such requirements could have a material adverse effect on the Company's results
of operations and financial condition.
The Company's network marketing system is subject to governmental laws and
regulations generally directed at ensuring that product sales are made to
consumers of the products and that compensation and advancement within the
marketing organization is based on sales of products rather than investment in
the organization. These laws and FTC regulations include the federal securities
laws, matters administered by the FTC and various state anti-pyramid and
business opportunity laws. Although the Company believes that it is in
compliance with all such laws and regulations, the Company remains subject to
the risk that, in one or more of its present or future markets, its marketing
system or the conduct of certain distributors could be found not to be in
compliance with applicable laws or regulations. Failure by the Company or
significant distributors to comply with these laws and regulations could have an
adverse material effect on the Company in a particular market or in general.
The Company's products are subject to regulation by foreign countries where
they are sold. Government regulations in foreign countries where the Company
plans to commence or expand sales may prevent or delay entry into a market or
prevent or delay the introduction or require the reformulation or relabeling of
certain of the Company's products.
Employees
At September 30, 1999, the Company employed 209 persons; 171 of whom are
employed in the U.S. The majority of the Company's employees are office,
clerical and warehouse employees. The Company believes that its relationship
with its employees is good.
Risk Factors
Important factors that could cause actual results to differ materially from
the Company's expectations are disclosed in this Report, including without
limitation in conjunction with the forward-looking statements included in this
Report, and the following risk factors.
Risks Related to the Company
Recent Losses. The Company has incurred losses in each of the fiscal years
ended September 30, 1999, 1998 and 1997. The loss in 1999 resulted from lower
sales and significant losses experienced by the Company's foreign subsidiaries.
The 1998 loss was principally the result of lower sales, losses experienced by
the Company's foreign subsidiaries and the Company recognizing in September
1998, the cost associated with the termination of its 1996 Agreement with
Nightingale-Conant. The loss in 1997 was attributable primarily to accrual of
expenses related to the settlement of class action lawsuits against the Company.
The Company also experienced declines in net sales for each of the last three
years when compared to the preceding fiscal year. In addition, the Company
experienced increased operating costs in each of those years. Particularly in
view of the Company's increased level of
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expenditures, the Company's future operating results will be negatively impacted
if the Company is not successful in increasing the level of its sales. See Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Distributor Network. The Company's products are distributed through an
extensive network marketing system of distributors. Distributors are
independent contractors who purchase products directly from the Company for
resale and/or for their own use. Distributors typically market the Company's
products on a part-time basis, and may engage in other business activities,
including the sale of products offered by competitors of the Company. The
Company has a large number of distributors, and a relatively small corporate
staff to implement its marketing programs and provide motivational support. The
Company's future growth depends to a significant degree on its ability to retain
and motivate its existing distributors and to attract new distributors by
continuing to offer new products and new marketing programs. See "Product
Competition" and "Competition for Distributors".
Regulatory Scrutiny and Legal Proceedings. The Company's network marketing
system is subject to governmental laws and regulations generally directed at
ensuring that product sales are made to consumers of the products and that
compensation and advancement within the marketing organization is based on sales
of products rather than investment in the organization. These laws and
regulations include the federal securities laws, matters administered by the
Federal Trade Commission and various state anti-pyramid and business opportunity
laws. Although the Company believes that it is in compliance with all such laws
and regulations, the Company remains subject to the risk that, in one or more of
its present or future markets, its marketing system or the conduct of certain
distributors could be found not in compliance with applicable laws or
regulations. Failure by the Company or significant distributors to comply with
these laws and regulations could have a material adverse effect on the Company
in a particular market or in general.
To become a distributor of the Company, a person must be sponsored by an
existing distributor, sign the official Distributor Agreement, and purchase a
"distributor success kit" from the Company, which is currently priced at $49.
The Company's distributors earn the right to receive commissions upon obtaining
the level of "executive." Executive level distributors may earn commissions on
sales generated by other distributors in their downline organization. There are
two ways for a distributor to meet the requirement to become an executive, which
can be met the same day he or she enrolls as a distributor or over an extended
period of time at the election of the distributor. The Company previously used
the terminology of "Instant Executive Program" to reference the qualifications
for becoming an executive distributor on an accelerated basis. The Instant
Executive Program, particularly as marketed by Kevin Trudeau, formerly a key
independent distributor, and his marketing organization, was the subject of
legal and regulatory scrutiny.
In April 1996, the Attorney General of the State of Illinois (the "Attorney
General") filed suit against the Trudeau Marketing Group, Inc., Kevin Trudeau
and Jules Leib (the "Illinois Suit") alleging violations of the Illinois
Consumer Fraud and Deceptive Practices Act and the Illinois Business
Opportunities Sales Law of 1995 by, among other things, operating a "pyramid
sales scheme." Mr. Leib worked with Mr. Trudeau and is an independent
distributor of the Company's products. In addition, the Illinois Secretary of
State issued to Mr. Trudeau and the Trudeau Marketing Group a Summary Order to
Cease and Desist prohibiting them from offering or selling "business
opportunities" in the State of Illinois. Generally, a "business opportunity" is
an agreement involving sales of products or services enabling the purchaser to
start a business when the purchaser is required to pay more than $500. Many
other states have "business opportunity" statutes.
The Company was not named as a defendant in the Illinois Suit, but the
Company's management viewed the Illinois Suit as an opportunity to discuss the
Company's marketing program and to resolve confusion surrounding the program.
On July 16, 1996, the Company entered into an "Assurance of Voluntary
Compliance" (the "AVC") with the Illinois Attorney General. The AVC preserved
the ability of a new distributor to become an executive distributor the day that
he or she enrolls by purchasing at least $1,000 in qualifying products and by
joining the Order Assurance Program and a business training program. Under the
AVC, the Company may maintain its same executive level qualifications, but to
aid clarification, it will no longer use the "Instant Executive" designation.
Other key features of the AVC focus on the Company's commitment to: (a) create
an official explanation of its marketing and compensation plan and to prohibit
distributors from creating their own explanations of how the marketing and
compensation plan works; (b) make clear that there are no mandatory purchases of
product to become a distributor; (c) take further steps to stress distributor
compliance with the Company's policies and procedures; and (d) create a World
Wide Web site on the Internet to provide more information about the Company's
products and programs. The Company also agreed to provide distributor earnings
disclosures and to make clear that executive distributors cannot earn
commissions unless they are engaged in the sale of the Company's products to
consumers at retail, including procedures to verify retail sales. Specifically,
an executive distributor will not be entitled to receive bonuses or commissions
on downline sales unless within the preceding one month period the executive
distributor has made at least five retail sales, or within the preceding two
month period has made ten retail sales. The Company also agreed to take
additional steps to encourage distributors to redeem OAP certificates for
product, to monitor customer purchases, and to make a contribution to the
Illinois Consumer Education Fund.
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The Company entered into similar agreements with the states of Florida,
Hawaii, Idaho, Kansas, Kentucky, Michigan, Missouri, New Jersey and
Pennsylvania. The Company has agreed that in Florida, distributors who want to
receive commissions must state, when placing orders, that they have sold to
consumers 70% of their prior commissionable product purchase. The Company has
agreed to establish procedures to independently verify consumer sales on a
random basis and to sanction distributors submitting false information.
Compliance by the Company with these agreements may make the program less
attractive to distributors and prospective distributors. In particular, the
Company believes that the special requirements in the Florida agreement have had
a negative impact on the Company's ability to retain and attract distributors in
Florida. These factors could negatively impact the Company's future operating
results. The Company maintains an ongoing compliance program, which includes
periodic reporting to the states.
The Company was informed that in July 1996, Mr. Trudeau signed a consent
decree resolving the lawsuit with the Illinois Attorney General and entered into
a settlement agreement with the Illinois Secretary of State resolving the Cease
and Desist Order. Among other things, Mr. Trudeau agreed to abide by all
applicable provisions of the AVC entered into between the Company and the
Illinois Attorney General. The Company was also informed that Mr. Leib entered
an Assurance of Voluntary Compliance with the Illinois Attorney General.
In April 1996, the Company received notice from the Securities and Exchange
Commission of a formal order of private investigation into possible violations
by the Company of the federal securities laws. In December 1996 the Company
received a letter from the Securities and Exchange Commission notifying the
Company that the staff inquiry had been terminated and that no enforcement
action had been recommended at that time to the Commission.
In 1996 class action lawsuits were commenced against the Company alleging,
among other things, that the Company's distributor compensation program
constituted an illegal "pyramid scheme." In 1997, the Company entered into
settlement agreements. The pendancy and settlement of these actions had a
material adverse effect upon the Company's operations and financial condition.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
The Company does not believe that the manner in which it markets its products
constitutes a "pyramid scheme" or a "security." The only financial requirement
to become a distributor is to purchase a "distributor success kit" which is
currently priced at a nominal charge of $49. The Company does not pay a fee or
other compensation to distributors as direct remuneration for enrolling
distributors in their "downline" and the Company encourages all distributors to
retail their products to consumers who are not Company executives. In addition,
the Company does not pay a fee or other compensation to distributors for sales
of product to their downline; thus, all product purchases are to be consumed by
the distributor or sold to the ultimate consumer. The Company believes that the
efforts it has undertaken with the Illinois Attorney General and regulatory
authorities in other states, which culminated in the AVC in Illinois and
elsewhere, will assist the Company in complying with government laws and
regulations in the future. Nonetheless, there can be no assurance that the
appropriate authorities in any states will not initiate court proceedings
against the Company for violation of applicable laws. Furthermore, there can be
no assurances that the Company will not be subject to other lawsuits from other
governmental authorities or private parties in state or federal court. Any such
action could have a material adverse effect upon the Company.
Adverse Publicity. The size of the distribution force and results of the
Company's operations can be particularly impacted by adverse publicity regarding
the Company, or its competitors, including the legality of network marketing,
the quality of the Company's products and product ingredients or those of the
Company's competitors, regulatory investigations of the Company or its
competitors and their products, actions by the Company's distributors and the
public's perception of the Company's distributors and network marketing
businesses generally. Such adverse publicity could have a material adverse
effect on the Company's ability to attract and retain customers or distributors,
or in the Company's results from operations or financial condition generally.
Statements and Other Actions by Distributors. The Company's distributors are
required to sign the Company's official Distributor Agreement that requires them
to abide by the Company's policies. Nonetheless, in certain instances
distributors have created promotional material which does not accurately
describe the Company's marketing program or they may have made statements
regarding potential earnings or other matters not in accordance with the
Company's policies. Although regulatory authorities did not sue the Company,
such actions lead to increased regulatory scrutiny as described above. Although
the Company attempts to monitor its distributors' statements and activities,
there can be no assurance that it will be able to accomplish this objective and
the Company could be subject to regulatory scrutiny and potential claims. In
addition, distributors could make predictive statements about the Company's
operations or other unauthorized remarks regarding the Company that the Company
may be unable to control. Distributors are not authorized to make such
statements on behalf of the Company. Nonetheless, statements or actions by
distributors could also adversely affect the Company.
Product Competition and Competition for Distributors. The business of
distributing and marketing vitamins and minerals, personal care items, weight
management items, and other products offered by the Company is highly
competitive. Numerous
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manufacturers, distributors and retailers compete actively for consumers. Many
of the Company's competitors are substantially larger than the Company and have
greater financial resources. The market is highly sensitive to the introduction
of new products or weight management plans that may rapidly capture a
significant share of the market. As a result, the Company's ability to remain
competitive depends in part upon the successful introduction of new products.
The Company is subject to significant competition from other marketing
organizations for the recruitment of distributors. The Company's ability to
remain competitive depends, in significant part, on the Company's success in
recruiting and retaining distributors. From the last quarter of the fiscal year
ended September 30, 1995 to the last quarter of the fiscal year ended September
30, 1998, one executive level distributor, Mr. Kevin Trudeau and his marketing
organization, were involved in recruiting distributors for the Company. In
August 1998, the Company and Mr. Trudeau entered into an agreement to end their
business relationship. Mr. Trudeau's agreement not to compete with the Company
expired in May 1999. In October 1998 the Company also entered into a severance
Agreement with NC and DS, which had been producing and marketing recruiting and
training materials and sponsoring promotional events for the Company since July
1996. The Company is now internally providing the services previously performed
by NC and DC. See "Business - Distribution and Marketing." There can be no
assurance that the Company's programs for recruitment, training and retention of
distributors will be successful or that existing distributors will not join Mr.
Trudeau in another business venture or otherwise lose interest in the Company's
products and programs.
Dependence on Key Personnel. The Company's future success depends on the
continued availability of certain key management personnel, including David P.
Bertrand and Jana B. Mitcham, founders, officers and directors of the Company.
The Company has obtained "key man" insurance on the lives of Mr. Bertrand and
Ms. Mitcham with benefit amounts to the Company of $1,060,000 and $660,000,
respectively. The Company's growth and profitability also depends on its
ability to attract and retain other management personnel.
Family Relationships. At September 30, 1999, the Company employed
approximately 209 persons. Of these 209 persons, 11 persons have a family
relationship, through birth or marriage, with either David P. Bertrand or Jana
B. Mitcham, executive officers of the Company. The Company's management
believes that all of the Company's employees have been employed by the Company
on the basis of their qualifications, and that their retention by, and
advancement within, the Company has been, and will continue to be, determined by
their individual performances as an employee of the Company, and not due to any
family relationship. Nonetheless, due to the large number of family
relationships, the potential for conflicts of interest could be significant.
Government Regulations. The manufacturing, processing, formulation, packaging,
labeling and advertising of the Company's products are subject to regulation by
federal, state and foreign agencies, including the United States Food and Drug
Administration (the "FDA"), the Federal Trade Commission, the Consumer Product
Safety Commission, the United States Department of Agriculture, the United
States Postal Service and the United States Environmental Protection Agency.
Among other matters, such regulation is concerned with health claims made with
respect to a product that asserts the healing or nutritional value of such
product. Such agencies have a variety of remedies and processes available to
them, including initiating investigations, issuing warning letters and cease and
desist orders, requiring corrective labels or advertising, requiring consumer
redress (for example, by requiring that a Company offer to repurchase products
previously sold to consumers), seeking injunctive relief or product seizure,
imposing civil penalties, or commencing criminal prosecution.
There can be no assurance that the regulatory environment in which the Company
operates will not change or that such regulatory environment, or any specific
action taken against the Company, will not result in a material adverse effect
on the Company's business, financial condition or results of operations. The
Company also cannot predict whether new legislation regulating its activities
will be enacted, which new legislation could have a material adverse effect on
its operations. See Item 1. "Business-Government Regulations."
Expansion Into Foreign Markets. Although the Company intends to continue to
expand into foreign markets, there can be no assurance that the Company can open
markets on a timely basis or that such new markets will prove to be profitable.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of recent start-up expenditures and
increased operating costs associated with expansion into Europe and Japan and
the Company's recent decision to terminate operations in the Philippines.
Significant regulation and legal barriers must be overcome before marketing can
begin in any foreign market. Also, before marketing has commenced, it is
difficult to assess the extent to which the Company's products and sales
techniques will be successful in any given country. In addition to significant
regulatory barriers, the Company may also expect problems related to entering
new markets with different cultural bases and legal systems from those
encountered in the past. See Item 1. "Business-Markets." Moreover, expansion of
the Company's operations into new markets entails substantial working capital
and capital requirements associated with regulatory compliance.
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Effect of Exchange Rate Fluctuations. The Company has commenced efforts to
expand its marketing organization in foreign countries. As a result, exchange
rate fluctuations may have a significant effect on its sales and the Company's
gross margins.
During the year ended September 30, 1999 the Company realized an exchange rate
gain of approximately $65,600. During the years ended September 30, 1998 and
1997 the Company realized exchange rate losses of approximately $318,000, and
$78,500, respectively. There can be no assurance that exchange rates will
continue to improve in the future or that future exchange rate losses will not
exceed those experienced in recent periods. Further, if exchange rates fluctuate
dramatically, it may become uneconomical for the Company to establish or
continue activities in certain countries.
Contracts with Suppliers or Manufacturers. The Company does not have any
written contracts with any of its suppliers or manufacturers or commitments from
any of its suppliers or manufacturers to continue to sell products to the
Company other than a three year agreement with VitaRich Laboratories, Inc.
("VitaRich"). See Item 1. "Business - Manufacturing and Supplies."
Pursuant to an agreement entered into in July 1998, the Company agreed to
advance VitaRich up to $800,000 to secure the purchase of a sufficient quantity
of certain nutritional supplement raw materials to meet the Company's
anticipated need for rapid delivery of product and to obtain such product at
discounted prices. The agreement is for three years and requires that the
Company provide VitaRich with periodic estimates of anticipated needs, as well
as actual use rates of the requested product. Other than its agreement with
VitaRich, the Company does not have long term supply agreements with any vendor.
Accordingly, there is a risk that any of the Company's suppliers or
manufacturers could discontinue selling their products to the Company for any
reason. Although the Company believes that it could establish alternate sources
for most of its products, any delay in locating and establishing relationships
with other sources could result in product shortages and back orders for the
products, with a resulting loss of revenues to the Company. The Company
recently completed acquisitions of Ash and Bactolac that will provide additional
sources for the manufacture of many of the Company's products.
Product Liabilities. The Company, like other manufacturers and distributors of
products that are ingested, faces an inherent risk of exposure to product
liability claims if, among other things, the use of its products results in
injury. The Company currently has product liability insurance for its
operations in amounts the Company believes are adequate for its operations.
There can be no assurance, however, that such insurance will continue to be
available at a reasonable cost, or if available, will be adequate to cover
liabilities.
Dividends. The Company declared an initial cash dividend of $.02 per share of
common stock in September 1996, and paid dividends quarterly until June 1998.
The Company has not declared any dividends subsequent to June 1998. The Company
recently entered into a credit facility that prohibits dividend payments without
the consent of the lender. The determination of whether to pay dividends in the
future will be made by the Board of Directors and will depend on the earnings,
capital requirements, and operating and financial condition of the Company,
among other factors. It is not anticipated that the Company will pay dividends
in the fiscal year ended September 30, 2000. See Item 5. "Market for
Registrant's Common Equity and Related Stockholder Matters".
Ability to Implement Business Strategy; Integration of Acquisitions. The
Company's future results and financial condition are dependent on the successful
implementation of its business strategy. A key component of the Company's long-
term business strategy involves strategic acquisitions. With the recent
acquisitions of Ash and Bactolac, the Company has expanded its operations to
include the manufacture of pharmaceutical products and nutritional supplements.
Although the Company believes that its business strategy will enable it to
improve its financial results, there can be no assurance that its strategy will
be successful, that the anticipated benefits of its strategy will be realized,
that management will be able to implement the strategy on a timely basis, that
the Company will return to profitability levels previously experienced, or that
losses will not be incurred in the future.
The success of the Company will depend, in part, on the Company's ability to
integrate the operations of the acquired companies. There can be no assurance
that the Company's management team will effectively be able to oversee the
combined entity and implement the Company's business strategy. Moreover, no
assurance can be given that the Company will be able to successfully integrate
the recently completed acquisitions of Ash and Bactolac or any future
acquisitions without substantial cost, delays or other problems. The cost of
integration could have an adverse effect on short-term operating results. Such
costs could include severance payments, restructuring charges associated with
the acquisitions and expenses associated with the change of control.
There can be no assurance that the Company will be able to anticipate all the
changing demands the acquisitions will impose on its management personnel,
operational and management information systems and financial systems. The
integration of newly acquired companies may also lead to diversion of management
attention from other ongoing business concerns. The two operating companies
most recently acquired, Ash and Bactolac, are engaged in the manufacture of
pharmaceutical products and nutritional supplements. Although the Company has
been engaged in marketing of nutritional supplements throughout its history, the
Company has never been engaged directly in manufacturing operations. Any or all
of these factors could have a material adverse effect on the Company's
business, financial condition or results of operations.
15
<PAGE>
Risks Related to Acquisition Financing; Leverage. The financing for the
acquisitions of Ash and Bactolac was provided primarily through a new lending
arrangement that commenced in November 1999. The loan facility is secured by
substantially all the assets of the Company and its subsidiaries. The loan
agreement contains various covenants that require the maintenance of certain
financial ratios, as well as additional covenants, including filing of reports
and significant restrictions on dividend payments, issuance of debt and equity,
mergers, changes in business operations and sales of assets. These restrictions
could limit the Company's ability to respond to market conditions, to provide
for unanticipated capital expansions or to take advantage of business or
acquisition opportunities. If any covenant were breached without a waiver or
renegotiation of the terms of that covenant, the lender could have the right to
accelerate the payment of the indebtedness even if the Company has made all
principal and interest payments when due. If the Company breached these
covenants, or if the Company's operating revenues after the acquisitions were to
be insufficient to pay debt service, there would be a risk of default and
foreclosure on the Company's assets.
Subject to obtaining additional financing, the availability of which is not
assured, the Company plans to seek additional acquisitions. The timing, size
and success of the Company's acquisition efforts and any associated capital
commitments cannot be readily predicted. The Company currently intends to
finance future acquisitions by using shares of its stock, cash, borrowed funds
(including the issuance of promissory notes to the sellers of the companies to
be acquired) or a combination thereof. If the Company's stock does not maintain
a sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept stock as part of the consideration for the sale of their
businesses, the Company may be required to use more of its cash resources or
more borrowed funds, in each case if available, in order to acquire additional
companies. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. There can be no assurance that the Company will be able to
obtain any additional financing that it may need for future acquisitions on the
terms that the Company deems acceptable.
Other Factors. Actual results could also differ materially from those
currently anticipated due to, among other things, the Company's inability to
implement its business strategy; lack of market acceptance of the Company's
products; the introduction of new products by the Company's competitors;
consumer perceptions of the Company's products and operations; changes in
regulations that may limit or restrict the sale of certain of the Company's
products; the expansion of the Company's operations into manufacturing and new
markets, or the introduction of the Company's products into new markets; the
Company's failure, or its distributors' failure to comply with applicable
regulations; economic downturns, a weakness in overall consumer demand,
inflation, and cyclical variations in the market for nutritional supplements;
political instability, trade sanctions or restrictions, changes in quota and
duty regulations, delays in shipping, or increased costs of transportation; and
general conditions in the nutritional supplement industry. In addition, the
market price of the Company's common stock, which is quoted on the Nasdaq
National Market, may be subject to significant fluctuation in response to
variations in the Company's operating results and general stock market
volatility unrelated to the Company's operating performance.
Impact of Year 2000. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any computer programs that have time sensitive software may recognize a date
using 00 as the year 1900 rather than the year 2000. The failure of the
Company's or a third party supplier's or vendor's computer system to properly
recognize the date could result in a system failure or miscalculation causing a
disruption of the Company's activities. Such a disruption could have a material
adverse impact on the Company's ability to conduct its business.
The Company completed the installation of SAP(R), an enterprise wide state-
of-the-market computer information system in fiscal 1999. Additionally, the
Company also installed a White(R) automated inventory storage and retrieval
system in its Houston warehouse facility. The total cost of installation and
training associated with both systems was approximately $4,000,000. The Company
has received certification from SAP(R) and White(R) that their systems are Year
2000 compliant. The Company has tested each of the systems for year 2000
compliance and found them to be compliant.
The Company also relies on certain other less significant software systems in
its day to day activities. The Company performed certain detailed tasks
necessary to properly test the Year 2000 compliance of less significant systems
and found them to generally be Year 2000 compliant. The Company presently
believes that, with the recent conversion to the new SAP(R) and White(R) systems
software and modifications to existing, less significant software, the Year 2000
problem should not pose significant operational problems for the Company's
internal information systems.
Additionally, the Company performed an assessment of its significant vendors'
and suppliers' information and non-information systems using a broad overview
and management's informal understanding of their systems. The Company did not
perform detailed tasks necessary to directly assess their Year 2000 compliance
(such as direct coordination with those significant vendors and suppliers).
Based on the Company's assessment of its significant vendors' and suppliers'
vulnerability to Year 2000 related systems failures, management believes that
the Company does not have significant exposure with respect to such third
parties. The Company's assessments indicate that the worst case scenario with
regard to Year 2000 third party issues would be delays in receiving inventory
and/or shipping product to its distributors.
16
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
Properties
The Company's offices and warehouse facilities in Houston, Texas are leased
from non-affiliates. The Company's office building consists of approximately
37,000 square feet and the current monthly rental is $19,945 which escalates
over the one year term remaining on the lease. Additionally, the Company's
warehouse consists of approximately 52,000 square feet and the current monthly
rental is $17,177 that escalates over the two year term remaining on the lease.
The Company also leases warehouse facilities in Alaska and Hawaii with a
combined 3,000 square feet of space for approximately $4,600 per month.
Additionally, the Company leases an office and warehouse center in Warrington,
England from a non-affiliate consisting of approximately 16,000 square feet. The
current monthly rental is $11,000 that escalates over the eight year term
remaining on the lease. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and Item 8. "Financial Statements
and Supplementary Data".
With the acquisitions of Ash and Bactolac, the Company has expanded its
operations to include the manufacture of pharmaceutical products and nutritional
supplements. Ash manufactures pharmaceutical products at its 132,000 square foot
owned facility in Gulfport, Mississippi. Bactolac headquartered in Westbury, New
York, conducts its operations in two leased facilities with a combined total of
approximately 15,000 square feet. The current monthly rent is $7,005 which
escalates over the one year term remaining on the lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, the adverse outcome of
which would, in management's opinion, have a material adverse effect on the
Company's business, financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the National Market System of the
Nasdaq Stock Market under the symbol "NFLI" and its warrants trade under the
symbol "NFLIW".
In connection with a public offering in July 1995 the Company issued warrants
to purchase Common Stock (the "Warrants"). The holder of one Warrant is entitled
to purchase one share of Common Stock at $3.75 per share until October 15, 2000,
unless earlier redeemed by the Company.
<TABLE>
<CAPTION>
Common Stock Warrants
--------------- --------------
Quarter Ended High Low High Low
------------- ----- ---- ----- ----
<S> <C> <C> <C> <C>
Fiscal 1998:
December 31, 1997 $7.88 $5.50 $3.94 $2.38
March 31, 1998 6.44 4.94 2.69 1.63
June 30, 1998 9.00 5.56 5.13 1.88
September 30, 1998 7.13 3.00 3.63 0.50
Fiscal 1999:
December 31, 1998 3.94 2.00 1.06 0.38
March 31, 1999 3.34 2.06 1.13 0.38
June 30, 1999 2.63 2.06 0.88 0.25
September 30, 1999 3.63 1.63 0.94 0.31
</TABLE>
As of December 16, 1999, there were 1,510 record holders of common stock.
The Company declared its first cash dividend on its common stock in September
1996, which dividend of $.02 per share was paid in October 1996. The Company
continued to pay quarterly dividends of $.02 per share of common stock until
June 1998. No dividends have been declared by the Company subsequent to June
1998. It is not likely that dividends will be paid in the fiscal year ending
September 30, 2000. The Company recently obtained a credit facility in
connection with its acquisitions of Ash and Bactolac and may not declare any
dividends without the lender's consent. Subject to obtaining the lender's
consent the determination of the payment of dividends in the future will be
within the discretion of the Company's Board of Directors and will depend on the
earnings, capital requirements and operating and financial condition of the
Company, among other factors. See Item 1. "Business" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for each year in the five-year
period ended September 30, 1999 have been derived from the audited financial
statements of the Company. The data presented below should be read in
conjunction with Company's financial statements and notes thereto and, except
for operating data included therein, Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
(In thousands, except Per Share and Operating Data)
---------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Net Sales $66,570 $69,658 $83,045 $97,404 $32,290
Gross Profit 21,828 21,719 22,767 29,577 8,774
Operating income (loss) (502) 698 (3,276) 13,347 2,921
Net income (loss) (848) (867) (1,981) 8,705 2,244
Earnings (loss) per share:
Basic $ (.15) $ (.15) $ (.35) $ 1.61 $ .65
Diluted $ (.15) $ (.15) $ (.35) $ 1.36 $ .51
Weighted average number of
shares outstanding (1):
Basic 5,809 5,833 5,625 5,408 3,437
Diluted 5,809 5,833 5,625 6,405 4,444
Operating data:
Number of Distributors (2) 67,000 80,000 88,500 87,400 57,300
Average monthly
sales per Distributor (3) $ 76 $ 69 $ 74 $ 112 $ 58
Total products offered 400 380 364 320 270
Balance Sheet Data:
Working capital $ 7,849 $ 7,019 $ 9,570 $14,617 $ 6,082
Total assets 22,241 27,858 29,347 27,689 12,566
Total liabilities 7,893 13,415 13,489 10,087 5,407
Stockholders' equity 14,348 14,443 15,858 17,602 7,159
</TABLE>
(1) The weighted average number of shares of Common Stock outstanding for each
period presented has been calculated giving effect to a three-for-five
stock split on July 10, 1995 and two-for-one stock split on December 8,
1995, and after giving effect to dilutive stock options and warrants.
(2) Includes "active" distributors only at the end of the period indicated.
See Item 1. "Business-Distribution and Marketing".
(3) Computed using a simple average for the periods indicated.
19
<PAGE>
SELECTED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED
(In thousands, except Per Share)
--------------------------------
December 31 March 31 June 30 September 30 Fiscal Year
----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Fiscal 1999:
Net Sales $16,992 $16,536 $17,210 $15,832 $66,570
Gross profit 5,971 5,574 6,006 4,277 21,828
Operating income (loss) 358 107 983 (1,950) (502)
Net income (loss) 404 15 493 (1,760) (848)
Earnings (loss) per
Share:
Basic $ .07 $ .00 $ .08 $ (.30) $ (.15)
Diluted $ .07 $ .00 $ .08 $ (.30) $ (.15)
Dividends per share -- -- -- -- --
Fiscal 1998:
Net Sales $18,384 $17,579 $15,415 $18,280 $69,658
Gross profit 5,028 5,735 4,758 6,198 21,719
Operating income (loss) (181) 925 (385) 339 698
Net income (loss) (1) (248) 605 (321) (903) (867)
Earnings (loss) per
Share:
Basic $ (0.04) $ 0.10 $ (0.05) $ (0.16) $ (0.15)
Diluted $ (0.04) $ 0.10 $ (0.05) $ (0.16) $ (0.15)
Dividends per share $ 0.02 $ 0.02 $ 0.02 -- $ 0.06
Fiscal 1997:
Net Sales $19,269 $21,200 $22,600 $19,976 $83,045
Gross profit 5,085 5,511 5,391 6,780 22,767
Operating income
(loss) (2) (6,921) 1,078 218 2,349 (3,276)
Net income (loss) (4,496) 726 180 1,609 (1,981)
Earnings (loss) per
Share:
Basic $ (0.71) $ 0.12 $ 0.03 $ .21 $ (0.35)
Diluted $ (0.71) $ 0.12 $ 0.03 $ .21 $ (0.35)
Dividends per share $ .02 $ .02 $ .02 $ .02 $ .08
</TABLE>
(1) Includes a $702,000 charge for warrants issued in connection with
a severance agreement.
(2) Includes a $6,425,000 charge incurred and accrued for the
settlement of class action lawsuits.
(3) Includes an $890,000 credit to recognize a reduction in the
remaining estimated liability for the class action lawsuits.
(4) Includes a $782,000 charge for resolution of the state regulatory
issues.
20
<PAGE>
FINANCIAL INFORMATION RELATING TO FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
(In thousands)
--------------
1999 1998 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers:
North America (1) $61,047 $65,387 $80,325 $97,248
Europe (2) 4,690 3,533 2,549 156
Philippines (3) 833 738 171 --
Sales or transfers between geographic areas:
North America -- -- -- --
Europe 1,007 622 682 82
Philippines 104 290 269 --
Operating profit (loss):
North America 861 1,937 (2,342) 13,382
Europe (855) (959) (906) (35)
Philippines (508) (280) (28) --
Identifiable assets:
North America 25,789 29,635 29,827 27,524
Europe 1,680 1,435 1,355 871
Philippines 314 883 708 --
</TABLE>
(1) Includes the United States, Canada, and Puerto Rico.
(2) First began operations in fiscal 1996.
(3) First began operations in fiscal 1997.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth for the periods indicated the percentages that
selected items in the Consolidated Statement of Operations bear to net sales:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 67.2 68.8 72.6
----- ----- ------
Gross profit 32.8 31.2 27.4
Operating expenses 33.6 30.2 31.3
----- ----- ------
Income (loss) from operations (0.8) 1.0 (3.9)
Other income (expense), net 0.3 (1.1) 1.0
----- ----- ------
Income (loss) before income tax expense (benefit) (0.5) (0.1) (2.9)
Income tax expense (benefit) 0.8 1.1 (0.5)
----- ----- ------
Net income (loss) (1.3)% (1.2)% (2.4)%
===== ===== ======
</TABLE>
Year Ended September 30, 1999 Compared to Year Ended September 30, 1998
Net sales for the twelve months ended September 30, 1999 decreased by
$3,088,000 or 4.4% to $66,570,000 as compared to net sales of $69,658,000 for
the twelve months ended September 30, 1998.
The Company has an Order Assurance Program ("OAP"), which allows a distributor
to generate sales volume and maintain qualification to receive monthly
commissions. Prior to June 1, 1999 NFLI sold product redemption certificates to
distributors who were enrolled in the OAP. Revenues were recorded when these
certificates were redeemed for product. However, if the certificates were not
redeemed for product, the Company recorded revenues ratably over a 150-day
period commencing with the ending of the expiration period of 120 days. Such
revenues are recorded as part of the Company's net sales for periods prior to
June 1, 1999.
Subsequent to June 1, 1999 the Company began shipping product packs for most
OAP purchases, the shipment of which results in the recognition of revenue.
Approximately $2,600,000 of revenue related to the shipment of the product packs
was recognized in fiscal 1999. The Company now only sells product redemption
certificates for certain "big ticket" items. Such certificates must be redeemed
for the specified item upon accumulation of the required number of certificates.
As a result of the change in the OAP, the Company does not expect to recognize
substantial revenue from the redemption of product certificates.
At September 30, 1999, the Company had approximately 67,000 distributors as
compared to approximately 80,000 at September 30, 1998. During the twelve months
ended September 30, 1999 the number of active international distributors
increased by approximately 1,500, while active distributors in North America
decreased by approximately 14,000. The ability of the Company to increase its
number of active distributors and its sales per average number of distributors
is material to the future operations and financial condition of the Company. The
decrease in net sales is recapped below:
<TABLE>
<S> <C>
Decrease in sales due to decreased average number of distributors $(8,912,000)
Increase in distributor average sales 5,824,000
---------
$(3,088,000)
=========
</TABLE>
The Company's net sales per average number of distributors per month increased
from $69 during the twelve months ended September 30, 1998 to $76 for the twelve
months ended September 30, 1999.
22
<PAGE>
Cost of sales decreased by $3,197,000 or 6.6% to $44,742,000 for the twelve
months ended September 30, 1999 from $47,939,000 for the twelve months ended
September 30, 1998. Cost of sales as a percentage of net sales decreased from
68.8% in the twelve months ended September 30, 1998 to 67.2% in the twelve
months ended September 30, 1999. Cost of sales, which includes product costs,
commissions and bonuses paid to distributors, and shipping costs, is recapped
below:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1999 1998
----- -----
<S> <C> <C>
Product costs 27.1% 27.6%
Commissions and bonuses paid to distributors 33.0 35.0
Shipping costs 7.1 6.2
---- ----
67.2% 68.8%
==== ====
</TABLE>
Product costs as a percentage of cost of sales decreased 0.5% primarily as a
result of the Company now producing and selling certain recruiting and training
materials which were primarily sold to the Company's distributors by Distributor
Services, L.L.C. during the twelve months ended September 30, 1998. The gross
profit margin on these materials is generally greater than the gross profit
margin on many of the Company's other products. Commissions and bonuses paid to
distributors decreased 2.0% as a percentage of cost of sales as a result of
changes in the mix of higher versus lower bonus value products purchased by
distributors. Shipping costs increased 0.9% primarily from a combination of
increased shipping to continental Europe from the Company's warehouse in the
United Kingdom and the use of an outside contractor for certain shipping.
Gross profit decreased 0.5% or $109,000 from $21,719,000 for the twelve months
ended September 30, 1998 to $21,828,000 for the twelve months ended September
30, 1999. Gross profit as percentage of net sales increased from 31.2% for the
twelve months ended September 30, 1998 to 32.8% for the twelve months ended
September 30, 1999.
Marketing, distribution and administrative expenses increased $1,309,000 or
6.2% from $21,021,000 for the twelve months ended September 30, 1998 to
$22,330,000 for the twelve months ended September 30, 1999. The increase
results primarily from a combination of reduced personnel expenses, increased
depreciation charges on computer hardware and software, and increased promotion
costs for meetings and rallies previously performed by Distributor Services,
L.L.C. As a percentage of net sales, marketing, distribution and administrative
expenses increased to 33.6% for the year ended September 30, 1999 from 30.2% for
the year ended September 30, 1998.
Income (loss) from operations for the year ended September 30, 1999 decreased
$1,200,000 or 172.0% to $502,000 of loss from $698,000 of income from operations
for the year ended September 30, 1998 principally as a result of the increase in
operating expenses as explained above. The income (loss) from operations for the
twelve months ended September 30, 1999 and 1998 includes approximately
$1,363,000 and $1,340,000, respectively, of operating loss from the Company's
wholly-owned, consolidated subsidiaries that operate in foreign countries.
Subsequent to September 30, 1999, the Company executed a letter of intent with
the current managers of RP to purchase the subsidiary. The completion of the
sale is subject to various closing conditions. The Company anticipates that the
realizable value of consideration to be received will be minimal. During the
year ended September 30, 1999, the Company recorded asset impairments and other
writedowns (principally inventory) in RP in the aggregate amount of $300,000.
Additionally the Company began operations in Japan in October 1999. Start-up
costs are expected to be minimal since the Company's operations in Japan will
consist of providing services to Japanese members who will purchase products for
personal use only directly from the Company's US operations.
At September 30, 1999, approximately $425,000 related to the Company's recent
acquisition of ANI, Ash and Bactolac was included in Other Assets. The Company
will amortize that amount plus other acquisition cost incurred prior to the
closing of the acquisition over a MMM year period.
Other income (expense) increased to $211,000 for the twelve months ended
September 30, 1999 from $775,000 of expense for the twelve months September 30,
1998. The increase was primarily the result of a decline in net interest income
due to a decrease in interest bearing deposits and a foreign exchange gain
experienced by the Company's subsidiary in the Philippines.
Income tax expense for the year ended September 30, 1999 is higher than the
amount computed at the statutory rate. As the Company is not currently able to
recognize any tax benefits from foreign operating losses, tax expense is accrued
on the taxable income of domestic operations.
Net loss was $848,000 for the year ended September 30, 1999, compared to a net
loss of $867,000 for the year ended September 30, 1998. The decrease was the
result of the items discussed above.
Year Ended September 30, 1998 Compared to Year Ended September 30, 1997
Net sales for the twelve months ended September 30, 1998 decreased by
$13,387,000 or 16.1% to $69,658,000 as compared to net sales of $83,045,000 for
the twelve months ended September 30, 1997. At September 30, 1998, the Company
had approximately 80,000 distributors as compared to approximately 88,500 at
September 30, 1997. During the twelve months ended September 30, 1998 the number
of active international distributors increased by approximately 500, while
active distributors in North America decreased by approximately 9,000.
Management believes that the regulatory scrutiny and legal proceedings filed
against the Company in fiscal 1996 and concluded during fiscal 1997 as well as
negative media reports continued to have a negative impact on distributor
recruitment and retention and sales efforts by distributors during fiscal 1998.
The ability of the Company to increase its number of active distributors and its
sales per average number of distributors is material to the future operations
and financial condition of the Company. The decrease in net sales is recapped
below:
23
<PAGE>
<TABLE>
<S> <C>
Decrease in sales due to decreased average number of distributors $ (8,010,000)
Decrease in distributors average sales (5,377,000)
------------
$(13,387,000)
============
</TABLE>
The Company's net sales per average number of distributors per month decreased
from $74 during the twelve months ended September 30, 1997 to $69 for the twelve
months ended September 30, 1998.
Cost of sales decreased by $12,339,000 or 20.5% to $47,939,000 for the twelve
months ended September 30, 1998 from $60,278,000 for the twelve months ended
September 30, 1997. Cost of sales as a percentage of net sales decreased from
72.6% in the twelve months ended September 30, 1997 to 68.8% in the twelve
months ended September 30, 1998. Cost of sales, which includes product costs,
commissions and bonuses paid to distributors, and shipping costs, is recapped
below:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1998 1997
----- ----
<S> <C> <C>
Product costs 27.6% 27.1%
Commissions and bonuses paid to distributors 35.0 36.2
Shipping costs 6.2 9.3
---- ----
68.8% 72.6%
==== ====
</TABLE>
Reduced margins resulting from lower initial qualifications for becoming an
Executive resulted in a .5% increase in product cost from 1997 to 1998. The
percentage of commissions and bonuses paid to distributors decreased 1.2%
because of price adjustments initiated during December 1997 and changes in the
mix of higher versus lower bonus value products purchased by distributors. The
3.1% decrease in shipping costs resulted from lower carrier rates and lower cost
of backorders than the prior year.
Gross profit decreased 4.6% or $1,048,000 from $22,767,000 for the twelve
months ended September 30, 1997 to $21,719,000 for the twelve months ended
September 30, 1998. Gross profit as percentage of net sales increased from 27.4%
for the twelve months ended September 30, 1997 to 31.2% for the twelve months
ended September 30, 1998.
Operating expenses decreased $5,022,000 or 19.3% from $26,043,000 for the year
ended September 30, 1997 to $21,021,000 for the twelve months ended September
30, 1998. The primary reason for the decrease was that no class action lawsuit
costs were incurred during the twelve months ended September 30, 1998. The
$6,425,000 lawsuit settlement charge in the three months ended December 31, 1996
represented the Company's estimate of all costs of the lawsuit. Based upon
subsequent experience, the Company revised the estimate to $5,535,000 during the
three months ended September 30, 1997. As a percentage of net sales, marketing,
distribution, and administrative expenses exclusive of the lawsuit charge in
1997 increased to 30.2% for the twelve months ended September 30, 1998 from
24.7% for the year ended September 30, 1997 principally because of the decline
in net sales. As a result of its lower sales and higher operating expenses, the
Company's future operating results may be negatively impacted if it is not
successful in regaining its growth in sales or decreasing its expenditures below
current levels.
In July 1996, the Company entered into an Administrative and Consulting
Services Agreement (the "1996 Agreement") with Distributor Services, L.L.C.
("DS"). DS is an affiliate of Nightingale-Conant ("NC"), at the time a major
supplier to the Company of self-improvement programs. The 1996 Agreement
provided that, except to the extent the Company produced its own material
in-house, DS had the exclusive right to produce and sell all of the Company's
recruiting and training material. Such materials were to be produced and
marketed at the expense of DS and DS was entitled to all revenues received from
sales of such materials. DS also was granted the exclusive right to produce,
organize and sell, at its own expense, admission to all Company sponsored
recruiting or promotional events and to receive all revenues derived therefrom.
The Company had the exclusive right of approval over content of all materials
and meetings produced by DS. Without additional compensation, DS was to provide
consulting services to the Company with respect to the Company's marketing
strategy and program, including the Company's weekly teleconference, magazine
and other communication with distributors. For a fee, DS also produced and
provided to the Company each month at least four master cassettes for sale by
the Company in the Company's Master Developer Series. The term of the 1996
Agreement was fifteen years and the parties agreed to negotiate in good faith
successive fifteen-year terms. The 1996 Agreement could be terminated earlier
for breaches of any material obligation. Kevin Trudeau, formerly a key
distributor of the Company's products, was principally responsible for DS's
performance in connection with the 1996 Agreement.
Associated with the termination of Kevin Trudeau's distributorship in August
1998, the Company, DS and NC agreed to terminate the 1996 Agreement in October
1998. The Company agreed to pay NC and DS $2,047,000 and to issue to NC a
warrant to purchase up to 290,000 shares of the Company's common stock to
satisfy all accounts payable and other amounts claimed by them for materials
previously delivered to the Company, as well as for the purchase of all of DS's
inventory of audio and video tapes, including all of the audio production rights
for such audio and video tapes, and other materials used to promote the Company,
and for cancellation of the remaining term of the 1996 Agreement.
Approximately $967,000 of the amount was paid upon execution of the agreement
in October 1998 with the balance of $1,080,000 represented by a promissory note
payable in 30 equal monthly interest free payments of $36,000 beginning
November 1, 1998. The note is subordinated to working capital loans obtained by
the Company in the ordinary course of business, tax and other governmental
charges, and other obligations incurred in the ordinary course of business for
obtaining goods and services. For financial accounting purposes, the Company has
discounted the non-interest bearing note at 10.25% resulting in a note payable
of $949,000.
The warrant issued to NC entitles NC to purchase up to 290,000 shares of the
Company's common stock at $5.50 per share at any time until October 31, 2003.
The warrant is entitled to the benefit of adjustment of the exercise price and
number of shares of common stock deliverable upon exercise thereof in the event
of certain specified dilutive transactions.
The Company accounted for the transaction as of September 30, 1998. The amount
paid for the audio production rights was approximately $1,400,000 and is being
amortized over an expected recovery period of three years. Expense relative to
the warrants issued to NC was determined by utilizing the Black-Scholes method
to be approximately $702,000. Such expense is included in the accompanying 1998
consolidated financial statements as "Other Expense - contract termination
expense" and "Accrued expense - Nightingale-Conant". The warrants were issued in
October 1998. Additionally, the cash paid upon the execution of the agreement of
approximately $967,000 was also included in "Accrued expenses -
Nightingale-Conant" in the accompanying 1998 consolidated financial statements.
NC also agreed that for a five year period it would not directly or indirectly
seek to acquire a controlling interest, as defined under the rules and
regulations promulgated by the Securities and Exchange Commission, in the
Company without the prior written consent of the Company's Board of Directors.
Income (loss) from operations for the year ended September 30, 1998 increased
$3,974,000 or 121.3% to $698,000 of income from operations from $3,276,000 of
loss from operations for the year ended September 30, 1997 principally as a
result of the decrease in operating expenses as explained above. The income
(loss) from operations for the twelve ended September 30, 1998 and 1997 includes
approximately $1,340,000 and $934,000, respectively, of operating loss from the
Company's wholly-owned, consolidated subsidiaries that operate in foreign
countries.
Other income (expense) decreased to an expense of $775,000 for the year ended
September 30, 1998 from income of $850,000 for the year ended September 30,
1997. The decrease was principally the result of a decline in net interest
income due to a decrease in interest bearing deposits, to the recognition of
interest expense on capital lease obligations and to the recognition expense of
$702,000 associated with the warrants issued to Nightingale-Conant in connection
with the severance agreement described in Item 1 and, an increase in foreign
exchange losses.
Income tax expense for the year ended September 30, 1998 is higher than the
amount computed at the statutory rate. As the Company is not currently able to
recognize any tax benefits from foreign operating losses, tax expense is accrued
on the taxable income of domestic operations.
Net loss was $867,000 for the year ended September 30, 1998, compared to a net
loss of $1,981,000 for the year ended September 30, 1997. The decrease was the
result of the items discussed above.
24
<PAGE>
Acquisitions
On November 17, 1999 the Company finalized the acquisitions of Advanced
Nutraceuticals, Inc. ("ANI") and Bactolac Pharmaceutical Inc. ("BPI"). The
acquisition of ANI was completed through a merger with the Company's wholly
owned subsidiary, NL Acquisition Company. The acquisition of BPI was completed
through a merger with the Company's wholly owned subsidiary, BPI Acquisition
Company. In connection with the merger of BPI into BPI Acquisition Company, the
name of the surviving corporation was changed to Bactolac Pharmaceutical Inc.
ANI was formed to pursue a consolidation and integration program in the
nutrition industry. The former ANI stockholders received an aggregate of 75,000
shares of a newly created Series A Preferred Stock of the Company. Each one
share of Series A Preferred Stock will be automatically converted into ten
shares of the Company's common stock upon approval of the Company's
shareholders. The Series A Preferred Stock has no voting rights (except as
required by law) and no dividend rights. Upon liquidation, dissolution or
winding up of the Company, the Series A Preferred Stock has a preference of
$28.40 per share, payable prior and in preference to any distribution of any
assets or surplus funds of the Company to the holders of the Company's common
stock.
BPI headquartered in Westbury, New York, manufactures nutritional supplements
for private labeled customers. The purchase price of the Bactolac acquisition
consisted of $2,500,000 in cash, a subordinated promissory note in the principal
amount of $2,500,000 and 96,831 shares of Series A Preferred Stock.
Additionally, up to 17,606 shares of Series A Preferred Stock may be issued
pursuant to an earnout agreement BPI entered into an employment agreement and
covenant not to compete agreement with its former owner at the closing on
November 17,1999. The Company intends to continue the operations of BPI and to
use its inventory, machinery and equipment in connection with the manufacture of
nutritional supplements.
On December 1, 1999, the Company finalized the acquisition of Ash Corp.
("ASH"). The acquisition of ASH was completed through a merger with the
Company's wholly owned subsidiary BPI. The purchase price of ASH consisted of
$750,000 in cash, a note payable in the amount of $500,000 and 49,296 shares of
Series A Preferred Stock. Additionally, up to 105,634 shares of Series A
Preferred Stock may be issued pursuant to an earnout agreement. Each one share
of Series A Preferred Stock will be automatically converted into 10 shares of
the Company's common stock upon approval of the Company's shareholders. The
Company intends to continue the operations of ASH and to use its inventory,
machinery and equipment in connection with the manufacture of liquid
pharmaceutical and nutraceutical products. Financing for the acquisition of ASH
was provided primarily through the financing agreement entered into on November
17, 1999 with General Electric Capital Corporation, described below.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $1,395,000 at September 30, 1999
compared to $4,404,000 at September 30, 1998. The cash used in operating
activities of $1,830,000 for the year ended September 30, 1999 was significantly
more than the cash used in operating activities of $571,000 for the twelve
months ended September 30, 1998. The Company used approximately $323,000, and
$1,986,000, respectively, to purchase property and equipment during the years
ended September 30, 1999 and 1998. Working capital was $7,849,000 at September
30, 1999 compared to $7,019,000 at September 30, 1998. The Company believes
that the cash flow generated from its operations and amounts available under its
revolving credit facility described below, should be sufficient to fund its debt
service requirements, working capital needs, anticipated capital expenditures
and other operating expenses for the near term.
On November 17, 1999 the Company finalized the acquisitions of ANI and BPI and
on December 1, 1999, it finalized the acquisition of ASH. The acquisition of ASH
was completed through a merger with the Company's wholly owned subsidiary BPI.
Financing for the acquisitions was provided primarily through a financing
arrangement entered into on November 17,1999 with General Electric Capital
Corporation ("GECC"). The Company borrowed $2,360,000 from GECC pursuant to a
term loan payable in three years, and $6,934,000 under a $12 million revolving
credit facility. Borrowings under the revolving credit are subject to
limitations based upon eligible accounts receivable and inventory. The loan
facility is secured by substantially all of the assets of the Company and its
subsidiaries. The interest rate on borrowing is 0.5% above the prime rate. There
is a fee of 0.25% on the unused portion of the facility and an annual monitoring
fee of $10,000. It is required, among other things, that the Company maintain a
minimum net worth (on a consolidated basis including ASH and Bactolac) of $18
million at September 30, 1999, $25.5 million at September 30, 2000, and $27
million for each fiscal year after September 30, 2000. In addition, the Company
is required to maintain a fixed charge coverage ratio of 2.0 to 1.0 through July
1, 2000, and 1.5 to 1.0 at July 2, 2000 and at all times thereafter. The Company
is also subject to additional covenants, including filing of reports and
significant restrictions on dividend payments, issuance of debt and equity,
mergers, changes in business operations and sales of assets. Such restrictions
could limit the Company's ability to respond to market conditions, to provide
for unanticipated capital expenditures or to take advantage of business or
acquisitions opportunities.
25
<PAGE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
-------------------------------------
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial Accounting
- ----------------------
Standard No. 137, "Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------
- -- Deferral of the Effective Date of FASB Statement No. 133, an Amendment of
- ----------------------------------------------------------------------------
FASB Statement No. 133" (SFAS 137). SFAS 137 delayed the effective date for SFAS
- ----------------------
133 to fiscal years beginning after June 15, 2000. The Company does not believe
that this statement will have a material effect on its financial position or
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in currency
exchange rates as measured against the U.S. dollar. The value of the US dollar
against the foreign currencies in which the Company has operations affects the
Company's financial results. Changes in exchange rates may positively or
negatively affect the Company's sales (as expressed in U.S. dollars), gross
margins, operating expenses, and retained earnings. When the U.S. dollar
sustains a strengthening position against currencies in which the Company sells
products or a weakening exchange rate against currencies in which it incurs
costs, its sales or costs are adversely affected. The Company does not believe
that its exposure to exchange rate fluctuations will have a material impact on
its results of operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On September 16, 1999, the Company determined to engage Grant Thornton LLP as
the principal accountant to audit the Company's financial statements for the
fiscal year ending September 30, 1999. The decision to change accountants was
recommended by the Audit Committee of the Board of Directors of the Company.
The Report of BDO Seidman LLP, on the financial statements of the Company for
either of the past two fiscal years in the period ended September 30, 1998 did
not contain an adverse opinion or disclaimer of opinion nor was it modified as
to uncertainty, audit scope or accounting principles. The Company does not
believe that there were any disagreements with BDO Seidman LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, during those past two fiscal years the subsequent interim
period through September 16, 1999 which, if not resolved to BDO Seidman LLP's
satisfaction, would have caused BDO Seidman LLP to make reference to the
subject matter of the disagreement(s) in connection with its Reports. However,
during fiscal 1990 BDO Seidman informed the Company of the need to evaluate for
impairment the unamortized carrying value of the Audio Production Rights which
balance as of September 30, 1998 and June 30, 1999 was $1,400,000 and
$1,089,000, respectively. The Company evaluated such Audio Production Rights for
impairment at September 30, 1999.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nutrition For Life International, Inc. Consolidated Financial Statements Page
----
<S> <C>
Independent Certified Public Accountants' Report....................................................... F-2
Independent Certified Public Accountants' Report....................................................... F-3
Consolidated Balance Sheets as of September 30, 1999 and 1998.......................................... F-4
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended
September 30, 1999, 1998 and 1997..................................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1999, 1998 and 1997.. F-6
Consolidated Statements of Cash Flows for the Years Ended September 30, 1999, 1998 and 1997............ F-7
Notes to Consolidated Financial Statements............................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
Board of Directors and Stockholders
Nutrition For Life International, Inc.
We have audited the consolidated balance sheet of Nutrition For Life
International, Inc. and Subsidiaries as of September 30, 1999 and the related
consolidated statements of operations and comprehensive income (loss),
stockholders' equity, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Nutrition For Life International, Inc. and Subsidiaries as of September 30, 1999
and the consolidated results of their operations and their consolidated cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Houston, Texas
January 3, 2000
F-2
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Board of Directors
and Shareholders of
Nutrition For Life International, Inc.
We have audited the consolidated balance sheets of Nutrition For Life
International, Inc. as of September 30, 1998, and the related consolidated
statements of operations and comprehensive income (loss), stockholders' equity,
and cash flows for each of the two years in the period ended September 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Nutrition For Life International, Inc. at September 30, 1998 and the results of
its operations and its cash flows for each of the two years in the period ended
September 30, 1998 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Houston, Texas
December 29, 1998
F-3
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 1,395,310 $ 4,404,388
Restricted cash (Note 9) 585,866 --
Marketable securities 996,942 968,196
Receivables 362,315 568,931
Inventories 8,434,220 9,697,495
Deferred tax asset (Note 7) 1,647,000 1,982,000
Refundable federal income taxes (Note 7) -- 200,000
Prepaid expenses and other assets 1,062,513 953,161
----------- -----------
Total Current Assets 14,484,166 18,774,171
Property and equipment, net (Note 3) 6,038,186 7,306,650
Audio production rights (Note 12) 972,222 1,400,000
Other assets 746,246 377,328
----------- -----------
$22,240,820 $27,858,149
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,517,020 $ 3,282,750
Accrued distributor bonuses and commissions 1,384,950 1,646,638
Deferred income (Note 8) 826,464 3,252,598
Accrued expenses and other liabilities 1,344,001 1,420,338
Accrued liability - Nightingale Conant (Note 12) -- 1,669,122
Current portion of capital lease obligation (Note 4) 177,160 163,324
Current portion of long-term debt (Note 12) 385,304 320,263
----------- -----------
Total Current Liabilities 6,634,899 11,755,033
Deferred tax liability (Note 7) 778,000 682,000
Long-term portion of capital lease obligation (Note 4) 170,994 349,520
Long-term debt (Note 12) 308,725 628,737
----------- -----------
Total Liabilities 7,892,618 13,415,290
----------- -----------
Commitments and contingencies (Note 9)
Stockholders' Equity (Note 5):
Preferred stock, $.001 par value; 1,000,000
authorized; none issued -- --
Common stock; $.01 par value; 20,000,000 shares
authorized 58,875 58,875
Additional paid-in capital 11,837,156 11,074,044
Retained earnings 3,110,405 3,958,757
Other comprehensive income (loss) (125,749) (116,332)
----------- -----------
14,880,687 14,975,344
(532,485) (532,485)
Less: Treasury stock 79,000 shares, at cost 14,348,202 14,442,859
Total Stockholders' Equity $22,240,820 $27,858,149
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Net sales (Notes 8 and 10) $ 66,569,875 $ 69,658,095 $ 83,044,577
Cost of sales (Note 9) 44,742,050 47,939,482 60,277,742
-------------- ------------- -------------
Gross profit 21,827,825 21,718,613 22,766,835
-------------- ------------- -------------
Operating expenses:
Marketing, distribution and administrative
expenses 22,329,914 21,021,056 20,508,294
-------------- ------------- -------------
Lawsuit settlement (Note 9) -- -- 5,535,000
-------------- ------------- -------------
22,329,914 21,021,056 26,043,294
Income (loss) from operations (502,089) 697,557 (3,276,459)
-------------- ------------- -------------
Other income (expense)
Interest income (expense), net (21,478) 70,184 667,338
Foreign exchange gain (loss) 65,596 (336,842) (78,561)
Other, net (Note 12) 166,619 (508,305) 261,161
-------------- ------------- -------------
210,737 (774,963) 849,938
-------------- ------------- -------------
Loss before income tax expense (benefit) (291,352) (77,406) (2,426,521)
Income tax expense (benefit) (Note 7) 557,000 790,050 (445,420)
-------------- ------------- -------------
Net loss (848,352) (867,456) (1,981,101)
-------------- ------------- -------------
Other comprehensive income (loss):
Unrealized loss on investments, net of tax (7,136) (38,364) --
Foreign currency translation adjustment (2,281) (86,546) 13,187
-------------- ------------- -------------
(9,417) (124,910) 13,187
-------------- ------------- -------------
Total comprehensive loss $ (857,769) $ (992,366) $ (1,967,914)
============== ============= =============
Basic and diluted loss per common share $ (.15) $ (.15) $ (.35)
============== ============= =============
Weighted average common shares outstanding:
Basic and diluted 5,808,595 5,832,887 5,625,464
============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income (Loss)
---------------------------
Cumulative
Foreign
Common Stock Additional Retained Loss Currency
------------------ Paid-In Earnings on Translation
Shares Amount Capital (Deficit) Investments Adjustment
------ ------ ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, at
October 1, 1996 5,568,562 $55,686 $ 9,939,059 $ 7,611,580 $ -- $ (4,609)
Net loss -- -- -- (1,981,101) -- --
Cash dividends
(Note 5) -- -- -- (453,940) -- --
Issuance of common
stock options
(Note 6) -- -- 105,362 -- -- --
Registration
expenses -- -- (43,872) -- -- --
Foreign currency
translation adjustment -- -- -- -- -- 13,187
Purchase of treasury
stock (Note 5) -- -- -- -- -- --
Exercise of stock
options and warrants 207,273 2,072 688,402 -- -- --
--------- ------- ----------- ----------- ---------- ---------
Balance, at
September 30, 1997 5,775,835 57,758 10,688,951 5,176,539 -- 8,578
Net loss -- -- -- (867,456) -- --
Cash dividends (Note 5) -- -- -- (350,326) -- --
Purchase of treasury
stock (Note 9) -- -- -- -- -- --
Foreign currency
translation adjustment -- -- -- -- -- (86,546)
Issuance of common
stock options (Note 6) -- -- 144,705 -- -- --
Registration expense -- -- (31,487) -- -- --
Unrealized loss on
investment -- -- -- -- (38,364) --
Exercise of stock options
and warrants 111,760 1,117 271,875 -- -- --
--------- ------- ----------- ----------- ---------- ---------
Balance at
September 30, 1998 5,887,595 58,875 11,074,044 3,958,757 (38,364) (77,968)
Net loss -- -- -- (848,352) -- --
Foreign currency
translation adjustment -- -- -- -- -- (2,281)
Issuance of common
stock options and
warrants (Note 12) -- -- 763,112 -- -- --
Unrealized loss on
investment, net of tax -- -- -- -- (7,136) --
--------- ------- ----------- ----------- ---------- ---------
Balance at
September 30, 1999 5,887,595 $58,875 $11,837,156 $ 3,110,405 $ (45,500) $ (80,249)
========== ======== =========== =========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock Total
---------------------- Stockholders'
Shares Amounts Equity
------- --------- ------
<S> <C> <C> <C>
Balance, at
October 1, 1996 -- $ -- $ 17,601,716
Net loss -- -- (1,981,101)
Cash dividends
(Note 5) -- -- (453,940)
Issuance of common
stock options (Note 6) -- -- 105,362
Registration
expenses -- -- (43,872)
Foreign currency
translation adjustment -- -- 13,187
Purchase of treasury
stock (Note 5) (9,000) (73,810) (73,810)
Exercise of stock
options and warrants -- -- 690,474
------- ----------- ------------
Balance, at
September 30, 1997 (9,000) (73,810) 15,858,016
Net loss -- -- (867,456)
Cash dividends (Note 5) -- -- (350,326)
Purchase of treasury
stock (Note 9) (70,000) (458,675) (458,675)
Foreign currency
translation adjustment -- -- (86,546)
Issuance of common
stock options (Note 6) -- -- 144,705
Registration expense -- -- (31,487)
Unrealized loss on
investment -- -- (38,364)
Exercise of stock options
and warrants -- -- 272,992
------- ----------- ------------
Balance at
September 30, 1998 (79,000) (532,485) 14,442,859
Net loss -- -- (848,352)
Foreign currency
translation adjustment -- -- (2,281)
Issuance of common
stock options and
warrants (Note 12) -- -- 763,112
Unrealized loss on
investment, net of tax -- -- (7,136)
------- ----------- ------------
Balance at
September 30, 1999 (79,000) $ (532,485) $14,348,202
======= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (848,352) $ (867,456) $(1,981,101)
Adjustments to
reconcile net
loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 1,944,644 1,397,810 801,039
Bad debt expense 1,093,119 530,880 653,458
Deferred tax
expense (benefit) 460,000 676,608 (488,802)
Stock options/warrants
issued for services 60,990 144,705 105,362
Loss on disposition
of property and
equipment 74,809 -- --
Unrealized losses
on available for
sale securities -- 38,364 --
Changes in assets and
liabilities:
Cash-restricted (585,866) 513,195 (513,195)
Receivables (886,503) 447,668 (1,756,875)
Inventories 1,263,275 (1,777,041) (1,555,104)
Refundable
federal income
taxes 200,000 459,111 (159,111)
Prepaid and other
assets (109,352) (456,643) (236,426)
Other assets -- 5,186 (102,995)
Accounts payable (765,730) (425,181) 1,130,829
Deferred income (2,426,134) (571,873) (69,099)
Accrued expenses
and other
liabilities (1,305,025) (642,865) 2,285,944
Federal and
franchise tax
payable -- (43,216) (806,784)
----------- ----------- -----------
Net cash provided by
(used in) operating
activities (1,830,125) (570,748) (2,692,860)
----------- ----------- -----------
Cash flows from investing
activities:
Acquisition of property
and equipment (323,211) (1,986,114) (4,076,384)
Purchase of marketable
securities (64,882) (1,006,560) --
Purchase of other assets (368,918) -- --
Purchase of intangible
assets -- -- (51,769)
----------- ----------- -----------
Net cash used in
investing activities (757,011) (2,992,674) (4,128,153)
----------- ----------- -----------
Cash flows from financing
activities:
Payment of capital
lease obligations (164,690) (166,307) --
Payment of long term
debt (254,971) -- --
Exercise of stock
options -- 223,642 523,655
Exercise of warrants -- 49,350 166,819
Dividends paid -- (466,124) (449,513)
Registration fees -- (31,487) (43,872)
Purchase of warrants -- (73,675) --
Purchase of treasury stock -- (385,000) (73,810)
----------- ----------- -----------
Net cash provided by
(used in) financing
activities (419,661) (849,601) 123,279
----------- ----------- -----------
Effect of exchange rates on cash
and cash equivalents (2,281) (86,546) 13,187
----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents (3,009,078) (4,499,569) (6,684,547)
Cash and cash
equivalents, beginning
of year 4,404,388 8,903,957 15,588,504
----------- ----------- -----------
Cash and cash
equivalents, end of year $ 1,395,310 $ 4,404,388 $ 8,903,957
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements.
F-7
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BUSINESS
Nutrition For Life International, Inc., ("NFLI" or the "Company"), a Texas
corporation, was formed on September 15, 1993 for the purpose of being the sole
survivor of a merger between Nutrition Express Corporation of Colorado, Inc.
(NEC-Colorado) and Nutrition Express Corporation of Utah, Inc. (NEC-Utah) and
the Company. The effect of the merger was that, instead of NEC-Colorado and NEC-
Utah conducting operations through their ownership of a general partnership,
Nutrition for Life International (the Partnership), these corporations were
merged and the business operations have been conducted through one corporation,
NFLI. The assets and liabilities of the Partnership became the assets and
liabilities of the Company, and the business operations have continued as they
were previously conducted.
The Company operates as a wholesale distributor through its network marketing
organization, by selling a variety of consumer products and services through
independent distributors in the United States and abroad. The Company develops
products that are designed for health-conscious consumers, and sells those
products to consumers through its network of independent distributors. The
Company offers a product line of approximately 400 products in nine categories,
including nutritional supplements, health foods, weight management items, skin
care products, other consumer products, and services.
The Company develops products that it believes will have market appeal to its
distributors and their customers, and assists its distributors in building their
own businesses. The Company provides product development, marketing aids,
customer service and essential record keeping functions for its distributors.
Distributors actively recruit interested people to become new distributors for
the Company. These recruits are placed beneath the recruiting distributor in the
"network" and are referred to by the Company as that distributor's "downline."
Distributors earn commissions on sales generated by the distributors in their
downline as well as on the sales they directly generate. The Company's
operations depend to a significant degree on its ability to retain and motivate
its existing distributors and to attract new distributors by continuing to offer
new products and new marketing programs.
Although the Company confines its activities to marketing and distribution,
the manufacturing, packaging, labeling and advertising of the Company's products
are subject to regulation by several federal agencies, as well as various
agencies of the states in which the Company sells products. In addition, the
Company's network marketing system is subject to governmental regulations
generally directed at ensuring that product sales are made to consumers of the
products and that advancement within the marketing organization is based on
sales of products rather than investments in the organization.
The Company has six wholly-owned subsidiaries that were formed primarily to
operate as wholesale distributors of the Company's products in various areas of
the world.
Principles Of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash And Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and in short-term, interest bearing deposits with original maturities of
three months or less.
Concentration of Credit Risk
At September 30, 1999 and 1998, the Company's cash in financial institutions
exceeded the federally insured deposit limit by approximately $893,000 and
$3,998,000, respectively.
F-8
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Market Value Of Financial Instruments
The Company's financial instruments include accounts receivable, accounts
payable, long-term debt and capital lease obligations. The fair market value of
accounts receivable and accounts payable approximates their carrying values
because their maturities are generally less than one year.
Marketable Securities
Unrealized holding gains and losses on available for sale securities are
reflected as a separate component of accumulated comprehensive income (loss)
until realized. For the purposes of computing realized and unrealized gains and
losses cost is identified on a specific identification basis.
Marketable securities are categorized as available-for-sale securities, as
defined by Statement of Financial Accounting Standards No. 115, "Accounting for
-----------------------------------------------------------------------
Certain Investments in Debt and Equity Securities." and are summarized as
- --------------------------------------------------
follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- -------------------------------------
Bond Money-market Bond Money-market
funds funds Total funds funds Total
----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cost $732,519 $338,923 $1,071,442 $674,035 $332,525 $1,006,560
Fair Value 658,019 338,923 996,942 635,671 332,525 968,196
-------- -------- ---------- -------- ---------- ----------
Gross unrealized loss $ 74,500 $ -- $ 74,500 $ 38,364 $ -- $ 38,364
======== ======== ========== ======== ========== ==========
</TABLE>
The unrealized loss on investment of $45,500 at September 30, 1999 is net of tax
in the amount of $29,000.
Receivables
Receivables consist principally of amounts due from distributors resulting
from credit card sales in the normal course of business. All amounts are
considered collectible.
Inventories
Inventories consist mainly of health and skin care products, dietary
supplements, food products and household cleaning products. Inventories are
valued at the lower of cost or market. Cost is determined on a first-in, first-
out basis.
Property And Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is provided using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the terms of the
respective leases, not in excess of their estimated useful lives. For income tax
purposes, depreciation on fixed assets is calculated using accelerated methods.
The Company reviews the carrying values of its long-lived assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable.
Capital Lease
The Company leases certain computer equipment under a capital lease agreement
that expires in 2002. The asset and liability under this capital lease are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The asset is being amortized beginning in fiscal 1998
over the lesser of the related lease term or its estimated useful life. At the
inception of the capital lease, the Company's incremental borrowing rate was
used to determine the present value of the minimum lease payment. Therefore, the
carrying value of the capital lease obligation approximates market value.
Audio Production Rights
Audio production rights are stated at cost less accumulated amortization.
Amortization is provided using a straight-line method over the estimated three
year life of the Rights. The Company reviews the carrying value of the audio
production rights for possible impairment whenever changes in circumstances
indicate that the carrying amount of the audio production may not be
recoverable.
F-9
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options and Warrants
The Company has elected to account for stock options issued to employees in
accordance with APB No.25. During the years ended September 30, 1999, 1998 and
1997, all options issued to officers and employees were granted at an exercise
price, which equaled or exceeded the market price per share at the date of grant
and accordingly, no compensation expense was recorded relative to those grants.
Effective for the year ended September 30, 1997, the Company adopted the
disclosure requirements of SFAS No.123 "Accounting for Stock-based
--------------------------
Compensation". This statement requires that the Company provide proforma
- ------------
information regarding net income (loss) and income (loss) per share as if
compensation cost for the Company's stock options granted had been determined in
accordance with the fair value based method prescribed in SFAS No. 123 (see
Note 6). Additionally, SFAS No. 123 generally requires that the Company record
options issued to non-employees as an expense, calculated based on the fair
value of the options.
Revenue Recognition
The Company sells its products directly to independent distributors. Sales are
recorded when products are shipped. Net sales represent orders shipped, less
estimated returns and allowances. Provisions are made for estimated returns and
allowances at the time of sale. Included in cost of sales are rebates and other
commissions that are paid monthly and are calculated using specific rates based
on actual sales volume.
Prior to June 1, 1999, NFLI sold product redemption certificates to
distributors who were enrolled in the Company's order assurance program ("OAP").
Revenues were recorded when these certificates were redeemed for product.
However, if the certificates were not redeemed for product, the Company recorded
revenues ratably over a 150 day period commencing with the ending of the
expiration period of 120 days. Such revenues were recorded as part of the
Company's net sales for periods prior to June 1, 1999.
Subsequent to June 1, 1999, the Company began shipping product packs for most
OAP purchases, the shipment of which results in the recognition of revenue.
Approximately $2,600,000 of revenue related to the shipment of the product
packs was recognized in fiscal 1999. The Company now only sells product
redemption certificates for certain "big ticket" items. Such certificates must
be redeemed for the specified item upon accumulation of the required number of
certificates. As a result of the change in the OAP the Company does not expect
to recognize substantial future revenue from the redemption of product
certificates.
Income Taxes
The Company recognizes income tax expense using the liability method of
accounting for deferred income taxes. A deferred tax asset or liability is
recorded based upon the tax effect of temporary differences between the tax
basis of assets and liabilities and their carrying value for financial reporting
purposes. Deferred tax expense or benefit is the result of changes in the
deferred tax assets and liabilities during the year. The Company adjusts the
deferred tax asset valuation allowance based upon the anticipated future
realization of the deferred tax benefits supported by demonstrated trends in the
Company's operating results.
F-10
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings (Loss) Per Common Share
Basic earnings per share includes no dilution and is computed by dividing net
earnings (loss) available to stockholders by the weighted number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the Company's earnings
similar to fully diluted earnings per share.
Earnings per share amounts as required by Statement of Financial Accounting
Standards No. 128 are calculated as follows:
<TABLE>
<CAPTION>
For the Year Ended September 30,
-------------------------------
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Basic and diluted (loss) per share:
Net (loss) available to common
stockholders $ (848,352) $ (867,456) $(1,981,101)
========== ========== -----------
Weighted average common shares outstanding 5,808,595 5,832,887 5,625,464
========== ========== ===========
Basic and diluted (loss) per share $ (.15) $ (.15) $ (.35)
========== ========== ===========
</TABLE>
Diluted earnings per share for the years ended September 30, 1999, 1998 and
1997 did not consider the effect of the warrants and options because they were
anti-dilutive.
Foreign Currency Translation
The asset and liability accounts of the Company's foreign subsidiaries are
translated into US dollar amounts for financial reporting purposes using year-
end exchange rates. Revenue and expense accounts are translated at the average
rates during the year. Foreign exchange rate translation adjustments are
accumulated in a separate component of stockholders' equity. Exchange gains of
approximately $65,000 and exchange losses of approximately $337,000, and $78,500
for the years ended September 30, 1999, 1998 and 1997, respectively, are
included in the accompanying consolidated financial statements as "Other income
(expense)".
Management's Estimates And Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affects the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. The actual results could differ from those estimates.
F-11
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
------------
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
- -----------------------------------------------------------------------------
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial Accounting
- ----------------------- --------------------
Standard No. 137, "Accounting for Derivative Instruments and Hedging Activities
- -------------------------------------------------------------------------------
- -- Deferral of the Effective Date of FASB Statement No. 133 to fiscal years
- ---------------------------------------------------------------------------
beginning after June 15, 2000. The Company does not believe that this statement
- ------------------------------
will have a material effect on its financial position or results of operations.
NOTE 2 -- FOURTH QUARTER ADJUSTMENTS
Aggregate yearend adjustments recorded in the fourth quarter converted
pretax income to a pretax loss by 900,000, and included an inventory writedown
of 350,000, a writedown of assets of Nutrition for Life International
Philippines, Inc. ("RP") of $300,000 (see Note 14), and a bad debts writeoff of
$250,000.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment and their estimated useful lives are summarized as
follows:
<TABLE>
<CAPTION>
September 30,
------------
Lives 1999 1998
----- ------ ------
<S> <C> <C> <C>
Equipment 7 $3,896,260 $ 4,498,928
Computer software 10 3,038,391 3,038,391
Leasehold improvements 5 1,075,345 1,110,167
Furniture and fixtures 5-10 813,555 656,809
Automobiles 5 170,970 151,059
Equipment held under capital
lease (Note 4) 4 679,151 679,151
---------- -----------
9,673,672 10,134,505
Less: Accumulated depreciation and amortization 3,635,486 2,827,855
---------- -----------
$6,038,186 $ 7,306,650
========== ===========
</TABLE>
F-12
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- CAPITAL LEASE OBLIGATION
Minimum future lease payments under capital leases as of September 30, 1999
for each of the next three years and in the aggregate are:
Year ended September 30:
2000 $ 194,880
2001 179,738
2002 789
---------
Total minimum lease payments 375,407
Less: Amount representing interest (27,253)
---------
Present value of net minimum lease payments 348,154
Current portion of capital lease obligation (177,160)
---------
Long-term portion of capital lease obligation $ 170,994
=========
An interest rate of 7.21% on the capital lease was imputed based on the
Company's incremental borrowing rate at the inception of the lease.
NOTE 5 -- COMMON STOCK
On September 16, 1996 the Company's Board of Directors authorized a stock
repurchase program, whereby the Company had the discretion to purchase up to
200,000 shares of its common stock. During the year ended September 30, 1997,
the Company purchased 9,000 shares of common stock for $73,810. The repurchase
program terminated on June 30, 1997.
During the years ended September 30, 1998, and 1997 the Company's Board of
Directors declared cash dividends totaling $350, 326, and $453,940,
respectively. Of such dividends $466,124, and $449,513 was paid during the years
ended September 30, 1998 and 1997, respectively. No dividends have been declared
or paid on the Company's common stock subsequent to June 1998.
NOTE 6 -- STOCK OPTIONS AND WARRANTS
1993 Plan
In planning the Merger, NEC-Utah and NEC-Colorado determined that a stock
option plan would provide incentives for employees and consultants of NFLI who
promote the interests of the Company and its stockholders. The Company's Board
of Directors approved the 1993 Stock Option Plan (the "1993 Plan") in connection
with the approval of the Merger. Pursuant to the 1993 Plan, a total of 282,000
shares of common stock were reserved for the grant of options to purchase the
Company's common stock. At September 30, 1999, there were 106,946 shares
reserved for the grant of options under the 1993 plan. Generally, one-third of
the shares underlying the options become exercisable in cumulative installments
of 12 months, 24 months and 36 months after the date of grant. The maximum term
of the options is 10 years, except that if an employee leaves the Company, the
options will terminate 30 days thereafter. The issuance of options is at the
discretion of the Company's Board of Directors.
1995 Discretionary Plan
The Company's Board of Directors approved the 1995 Stock Option Plan (the
"1995 Plan") in March 1995. Pursuant to the 1995 Plan, as amended in June 1996,
and April 1999 the Company reserved a total of 985,000 shares of common stock
for the grant of options to purchase Common Stock of the Company. The terms of
the options are similar to those of the 1993 Plan. At September 30, 1999, there
were 234,200 shares reserved for the grant of options under the 1995 plan.
1995 Non-Discretionary Plan
In November 1995, the Company adopted the 1995 Non-Discretionary Stock
Option Plan for non-employee directors of the Company who are not eligible to
participate in the other Plans (the "Non-Discretionary Plan"). The Non-
Discretionary Plan provides that the Company grant options to purchase 5,000
shares of the Company's common stock to each eligible director on the date of
adoption of the Non-Discretionary Plan (November 28, 1995), to each person who
thereafter becomes a director of the Company and,
F-13
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as of December 1, of each year (commencing in 1996), options to purchase an
additional 5,000 shares of common stock will be granted to each eligible
director. The exercise price of the options is the fair value of the common
stock at the date of grant of the options. The options expire in five years and
are exercisable in full at the date of grant.
During the years ended September 30, 1998 and 1997, the Company issued
15,000 options to Directors under this plan. Utilizing the Black-Scholes option-
pricing model for the year ended September 30, 1999 and 1998, the Company
determined that the value of the options was not material.
The Non-Discretionary Plan was cancelled on October 6, 1999.
Options and Warrants Issued in Public Offering
In connection with a public offering, the Company issued 920,000 stock
warrants. Each warrant entitles the holder to purchase one share of common stock
at a price of $3.75. The Company's Board of Directors has extended the warrant
expiration date to October 16, 2000. The Company has the right to call all of
the warrants for redemption on 30 days written notice at a redemption price of
$.05 per warrant, subject to certain defined criteria. In addition, the Company
issued warrants to underwriters to purchase 80,000 shares of the Company's
common stock at $3.75 and options to purchase 160,000 shares of the Company's
common stock at $3.23.
Other Warrants
In April 1998, the Company retained the services of Piedmont Consulting,
Inc., ("Piedmont") a public/investor relations firm, to assist in its efforts to
gain a broader investor following. As compensation for its services Piedmont was
paid a monthly retainer and was granted a three year warrant entitling it to
purchase up to 30,000 shares of the Company's common stock at $5.25 per share
and 40,000 shares at $7.00 per share. In July 1998 the Company terminated its
relationship with Piedmont. Pursuant to the provisions of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation", the Company
recognized approximately $144,705 as compensation expense related to the
warrants in the year ended September 30, 1998.
In October 1998, the Company issued a warrant to Nightingale Conant to
purchase up to 290,000 shares of the Company's common stock at $5.50 per share.
The warrant is exercisable at any time until October 31, 2003, and is entitled
to the benefit of adjustment of the exercise price and number of shares
deliverable upon exercise thereof in the event of certain specified dilutive
transactions. Expense of $702,000 has been accrued in the accompanying September
30, 1998 consolidated financial statements.
The Company estimates the fair value of each stock option at the grant date
by using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1999, 1998 and 1997, a dividend yield of
0%, 1% and 1%, a risk-free interest rate of 5.0%, 5.7% and 5.7%, an expected
life ranging from 5-10 years; and, an expected volatility of 92%, 67% and 67%,
respectively.
Had compensation cost been determined on the basis of fair value pursuant
to SFAS No. 123 for stock options issued to employees, net income (loss) and
earnings (loss) per share for years ended September 30, 1999, 1998 and 1997
would have been reduced as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported $ (848,352) $ (867,456) $(1,981,101)
=========== =========== ===========
Pro forma $(1,172,062) $(1,063,456) $(2,457,533)
=========== =========== ===========
Basic and diluted (loss) per share:
As reported $ (.15) $ (.15) $ (.35)
=========== =========== ===========
Pro forma $ (.20) $ (.18) $ (.43)
=========== =========== ===========
</TABLE>
F-14
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the status of option and warrant plans during
the three years ended September 30:
<TABLE>
<CAPTION>
Options Warrants
------- --------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding as of October 1, 1996 502,000 $ 3.51 514,316 $ 3.75
Granted 266,850 $ 12.15 --
Exercised (157,220) $ 3.15 (50,053) $ 3.75
Forfeited (2,300) $ 13.00 --
Cancelled (1,200) $ 7.33 --
--------- ---------
Outstanding as of September 30, 1997 608,130 $ 7.38 464,263 $ 3.75
Granted 80,000 $ 5.67 70,000 $ 5.25
Exercised (97,400) $ 2.27 (13,160) $ 3.75
Forfeited (73,233) $ 11.31 --
Cancelled (12,417) $ 11.56 --
--------- ---------
Outstanding as of September 30, 1998 505,080 $ 7.39 521,103 $ 3.84
Granted 205,000 $ 2.95 290,000 $ 5.50
Exercised
Forfeited (7,200) $ 13.00 --
Cancelled (3,000) $ 13.00 --
--------- ---------
Outstanding as of September 30, 1999 699,880 $ 6.01 811,103 $ 4.59
========= =========
Exercisable as of September 30,
1997 349,146 $ 3.81 464,263 $ 3.75
1998 362,548 $ 5.83 521,103 $ 3.84
1999 441,615 $ 6.58 811,103 $ 4.59
Weighted average fair value of grants
during the year ended September 30,
1997 $ 8.85 $ --
1998 $ 2.45 $ 3.35
1999 $ 2.59 $ 2.42
</TABLE>
F-15
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the status of the options and warrants
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Options and Warrants Outstanding Options and Warrants Exercisable
-------------------------------- --------------------------------
Weighted-Average
Remaining
Range of Contractual Life Weighted-Average Weighted-Average
Exercise Prices Number (years) Exercise Price Number Exercise Price
------------------ ------ ------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.00 - $ 1.98 154,500 1.4 $ 1.72 154,500 $ 1.72
1.98 - 3.95 706,683 3.2 3.43 516,683 3.59
3.95 - 5.93 385,000 4.6 5.46 368,334 5.44
5.93 - 7.90 55,000 1.9 7.00 55,000 7.00
7.90 - 9.88 20,000 7.6 9.00 13,334 9.00
9.88 - 11.85 10,000 7.1 11.50 6,667 11.50
11.85 - 13.83 139,800 6.6 12.93 98,200 12.90
13.83 - 15.80 25,000 6.6 14.25 25,000 14.25
15.80 - 17.78 0 0 0 0 0
17.78 - 19.75 15,000 1.2 19.75 15,000 19.75
--------- ------ ------- ---------- --------
1,510,983 3.8 $ 5.25 1,252,718 $ 5.29
========= ====== ======= ========== ========
</TABLE>
NOTE 7 -- INCOME TAXES
Deferred income taxes are determined based on the temporary differences
between the financial statement and income tax basis of assets and liabilities
as measured by the enacted tax rates which will be in effect when these
differences reverse.
The (benefit) provision for income taxes for the years ended September 30,
1999, 1998 and 1997 consisted of the following:
1999 1998 1997
---- ---- ----
Federal tax (benefit) - current $ 51,000 $ 68,009 $ (12,028)
Federal tax (benefit) - deferred 460,000 676,298 (476,608)
State tax 46,000 45,743 43,216
-------- --------- ---------
$557,000 $ 790,050 $(445,420)
======== ========= =========
The following reconciles federal income taxes (benefit) computed at the
statutory rate with income taxes as reported for the years ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected income tax (benefit) expense at 34% $(99,060) $ (26,318) $(825,017)
State taxes, net of federal benefit 30,400 30,190 28,523
Loss from foreign subsidiaries 592,800 498,000 380,000
Nondeductible amortization of intangible assets -- -- --
Overaccrual of 1997 lawsuit settlement and distributor cruise -- 153,000 --
Accrual differences from 1997 taxes -- 113,608 --
Other items, net 32,860 21,570 (28,926)
-------- --------- ---------
Income tax expense (benefit) $557,000 $ 790,050 $(445,420)
======== ========= =========
</TABLE>
F-16
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current deferred tax assets at September 30, 1999 and 1998 were as follows:
1999 1998
---- ----
Deferred income - certificates $ 132,000 $ 891,000
Additional capitalized inventory costs 561,000 584,000
Cruise accrual 85,000 --
Loss carryforwards 599,000 111,000
Deferred settlement costs - Nightingale Conant -- 275,000
Deferred income - product and literature 42,000 101,000
Other 228,000 20,000
---------- ----------
1,647,000 1,982,000
Less valuation allowance -- --
---------- ----------
Current deferred tax assets $1,647,000 $1,982,000
========== ==========
Non-current deferred tax liability at September 30, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Differences between financial reporting and tax depreciation $(778,000) $(682,000)
========= =========
</TABLE>
At September 30, 1999, the Company had a taxable net operating loss
carryforward of $1,750,000 which is available to offset future taxable income
primarily through the year 2019. It is management's opinion, based on past
operating results and expected future operating results, that it is more likely
than not that the Company will utilize its entire net operating loss
carryforward prior to expiration.
For the year ended September 30, 1997, the Company recorded a federal income
tax receivable of $659,111 from an overpayment of taxes. Of this receivable,
approximately $459,000 was refunded during the year ended September 30, 1998 and
$200,000 remained a receivable as of September 30, 1998 and was received during
the year ended September 30, 1999.
NOTE 8 -- DEFERRED INCOME
The Company's distributors earn monthly commissions based upon their achieving
a pre-determined monthly minimum sales volume. To assist distributors in meeting
their monthly minimum sales volume, the Company has developed an Order Assurance
Program ("OAP"), which allows a distributor to generate sales volume and
maintain qualification to receive monthly commissions. If a distributor's
monthly sales volume is below their pre-authorized OAP level they are
automatically sent a package of products equal to a pre-authorized amount. A
distributor may request that they be allowed to accumulate OAP credits for the
purchase of certain "big ticket" items. Revenue is recognized on these "big
ticket" items when the required purchase price is accumulated and the product is
shipped to the distributor.
Prior to June 1, 1999 distributors were allowed to purchase product redemption
certificates instead of receiving product. The purchase of such certificates
qualified the distributor to receive a commission in a given month even though
actual product purchases were below the required level. The Company recognized
revenue on these certificates when they were redeemed for product or on a
ratable basis over a 150-day period after expiration of the certificates.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
401(k) Plan
In July 1998 the Company established the Nutrition for Life 401(k) Plan and
Trust (the "Plan") which covers all of the Company's full-time employees who are
United States citizens, at least 21 years of age and have completed one quarter
of service with the Company. Pursuant to the plan, employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit and
have the amount of such reduction contributed to the Plan. The Plan provides for
discretionary contributions by the Company. As of September 30, 1999, the
Company has made no such discretionary contributions.
F-17
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating Leases
The Company has noncancelable operating leases, primarily for office, warehouse
space and equipment. Rental expense under operating leases for the years ended
September 30, 1999, 1998 and 1997 amounted to approximately $990,000, $621,000
and $670,000, respectively.
Future minimum rental payments required under operating leases that have an
initial or remaining non-cancelable lease term in excess of one year are as
follows:
Year Ended September 30,
------------------------
2000 $ 885,000
2001 643,000
2002 180,000
2003 142,000
2004 136,000
2005 and thereafter 890,000
-----------
$ 2,876,000
===========
Government Regulations
The Company's activities are subject to regulations by various federal and
state agencies, including the Food and Drug Administration (the "FDA"). The
Company believes that it is in compliance with all federal and state
regulations. However, the Company cannot predict whether new legislation
regulating its activities will be enacted, which could have a material adverse
effect on the Company.
Employment Agreements
Effective October 1, 1996, the Company entered into employment agreements with
its chief executive officer and its executive vice-president through September
30, 1999. On November 1, 1999, each of the employment agreements was extended
until October 30, 2000. Under the agreements, both individuals will receive
their annual salary, plus 5% of pre-tax income from $3,000,000 to $5,000,000, 4%
of the next $5,000,000 of pretax income, and 3% of the next $10,000,000 of
pretax income. No bonuses were paid to these individuals for any of the years
ended September 30, 1999, 1998 or 1997 as the Company did not achieve sufficient
pretax income in these years.
In March 1998, each of these individuals agreed to a 25% reduction in their
annual salaries. Concurrent with the salary reduction each individual was
granted a three year option, pursuant to the Company's 1995 Stock Option Plan,
to purchase up to 20,000 shares of the Company's Common Stock at $5.13 per
share, the closing price of the Company's Common Stock on the date of the grant.
Distributor Agreement
Effective October 24, 1997, the Company entered into an eight year exclusivity
in network marketing agreement with a significant distributor, Mr. Kevin
Trudeau, in which the Company agreed to pay Mr. Trudeau a percentage, as defined
in the agreement, of gross revenues of the Company.
In August 1998, the Company and Mr. Trudeau entered into an agreement to end
the Company's business relationship with Mr. Trudeau. Mr. Trudeau and the
Company agreed that their October 1997 agreement and his distributorship were
terminated and that Mr. Trudeau would not contest such terminations.
Additionally, the Company and Mr. Trudeau agreed that Mr. Trudeau would comply
with the nine-month non-competition provisions of the October 1997 agreement and
that the Company would purchase the approximate 70,000 shares of common stock
and 40,000 stock purchase warrants then owned by Mr. Trudeau. In September 1998,
the Company purchased Mr. Trudeau's common stock and stock purchase warrants for
approximately $459,000.
F-18
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cruise
On February 11, 1997, the Company's Board of Directors approved the rights of
certain distributors to participate in a cruise during February 1998. In
connection with this cruise, the Company conducted seminars for the education
and development of its distributors. The $1.2 million estimated and accrued cost
of the cruise is included in operating expenses for the year ended September 30,
1997. During the year ended September 30, 1998, the Company paid $833,026
representing payment of all obligations related to the cruise. The $362,124 of
overaccrued cost of the cruise is reflected in operating expenses in the
accompanying consolidated financial statements for the year ended September 30,
1998.
In connection with the cruise, the Company obtained letters of credit from a
financial institution to cover the cost of the cruise. At September 30, 1997,
the Company had $737,830 in such letters of credit outstanding that expired in
February 1998.
In connection with a cruise scheduled for April 2000, the Company was required
to obtain a letter of credit from a financial institution to cover the cost of
the cruise. Accordingly, the Company has pledged a certificate of deposit in the
amount of $585,866 which is included in the accompanying financial statements as
of September 30, 1999. At September 30, 1999, the Company had $583,680 in such
letter of credit outstanding that will expire on March 7, 2000. The $250,000
expected cost of the cruise has been credited to accrued expenses and other
liabilities and charged to marketing, distribution and administration expenses.
Product Liability
As of September 30, 1999, the Company did not engage in the manufacturing of
any of the products it markets and distributes; however, it could be exposed to
product liability claims. The Company has not had any such claims to date.
Although the Company maintains product liability insurance which it believes to
be adequate for its needs, there can be no assurance that the Company will not
be subject to claims in the future or that its insurance coverage will be
adequate.
Purchase Commitment
In July 1998, the Company entered into a supply agreement with VitaRich
Laboratories, Inc. ("VitaRich") in which the Company agreed to advance VitaRich
up to $800,000 to secure the purchase of a sufficient quantity of certain
nutritional supplement raw materials to meet the Company's anticipated need for
rapid delivery of product and to obtain such product at discounted prices. The
agreement is for three years and requires that the Company provide VitaRich with
periodic estimates of anticipated needs, as well as actual use rates of the
requested product.
The Company made an initial deposit of $400,000 to VitaRich and has agreed
that it will maintain a deposit in the amount of 40% of its outstanding purchase
orders with VitaRich. VitaRich is required to use the deposit for the purchase
of raw material and the processing of finished product in sufficient kinds and
quantifies to enable the Company to (i) meet its anticipated need for the
product, (ii) maximize the costs savings to VitaRich and provide the Company
with reduced prices through the purchase of bulk quantities of raw materials,
and (iii) enable VitaRich to meet the Company's rapid delivery requirements.
Unless the agreement is terminated before its expiration, the Company is not
required to make additional deposits beyond the third year. Additionally,
VitaRich is required to repay any outstanding deposits by crediting the Company
with an amount equal to 10% of each purchase order placed by the Company until
such time as all advances have been repaid. The Company has a first priority
security interest in all of VitaRich's interest in the inventory, warehouse
receipts, documents of title, accounts receivable and proceeds of insurance
related to the raw materials purchased by VitaRich on behalf of the Company. As
of September 30, 1999, the Company had advanced VitaRich a total of $ 400,000
which is included in prepaid expense in the accompanying consolidated financial
statements.
NOTE 10 -- RELATED PARTY TRANSACTIONS
During 1998 and 1999, respectively, the Company purchased approximately
41,000 and 32,000 copies of a book, "Making A Difference While You're Making A
-----------------------------------------
Living", written by its CEO, David P. Bertrand and his son J. Mark Bertrand,
- ------
also an employee of the Company, at a cost to the Company of $5.00 per book. New
Paradigm Publishing, a company established by J. Mark Bertrand, published the
book and subsequently sold it the Company. The Company sold approximately 10,000
and 3,000 copies of the book during 1999 and 1998, respectively, at an average
selling price of approximately $10.95 per copy. The book has been placed in the
Company's product catalog at per copy prices ranging from $8.95 to $12.95, based
upon quantity ordered, and in 1999 approximately 35,000 of the books were part
of the materials provided to new distributors in the Company's starter kits.
Additionally, in 1998 approximately 19,000 copies of the book were shipped to
distributors as part of the Company's Business Training Systems for that month.
New Paradigm Publishing has agreed to accept return of any books ordered, but
not sold by the Company and to refund to the Company $5.00 per returned copy.
The Company's Board of
F-19
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Directors unanimously approved the purchase of the aforementioned books. As of
September 30, 1999 and 1998, no amounts were owed by the Company to New Paradigm
Publishing.
The Company has purchased a portion of its inventory from one vendor. Until
October 1997, a director of the Company was the president or a consultant of the
vendor, and until June 1995, the vendor was owned by a major stockholder of the
Company. The items purchased are readily available from other vendors. During
the years ended September 30, 1999, 1998 and 1997, the Company purchased $-0-,
$494,000, and $4,190,000, respectively of goods, from this vendor.
NOTE 11 -- FOREIGN SALES
For the years ended September 30, 1999, 1998, and 1997 the Company's net sales
from foreign operations were approximately $8,600,000, $9,000,000 and
$10,000,000, respectively, including sales to customers in Canada totaling
approximately $3,100,000, $4,800,000 and $6,795,000, respectively. The gross
profit percentages on all foreign sales are consistent with the Company's
overall gross profit percentages, however exchange rate fluctuations could have
an impact on the Company's future gross profit margins. Information related to
the Company's domestic and international operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
(In thousands)
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Sales to unaffiliated customers:
North America (1) $61,047 $65,387 $80,325
United Kingdom (2) 4,690 3,533 2,549
Philippines (3) 833 738 171
Sales or transfers between geographic areas:
North America -- -- --
United Kingdom 1,007 622 682
Philippines 104 290 269
Operating profit (loss):
North America 861 1,937 (2,342)
United Kingdom (855) (959) (906)
Philippines (508) (280) (28)
Identifiable assets:
North America 25,789 29,635 29,827
United Kingdom 1,680 1,435 1,355
Philippines 314 883 708
</TABLE>
(1) Includes the United States, Canada, and Puerto Rico.
(2) First began operations in fiscal 1996.
(3) First began operations in fiscal 1997; see Note 2.
NOTE 12 - CONTRACT TERMINATION
In July 1996, the Company entered into an Administrative and Consulting
Services Agreement (the "1996 Agreement") with Distributor Services, L.L.C.
("DS"). DS is an affiliate of Nightingale-Conant ("NC"), at the time a major
supplier to the Company of self-improvement programs. The 1996 Agreement
provided that, except to the extent the Company produced its own material in-
house, DS had the exclusive right to produce and sell all of the Company's
recruiting and training material. Such materials were to be produced and
marketed at the expense of DS and DS was entitled to all revenues received from
sales of such materials. DS also was granted the exclusive right to produce,
organize and sell, at its own expense, admission to all Company sponsored
recruiting or promotional events and to receive all revenues derived therefrom.
The Company had the exclusive right of approval over content of all materials
and meetings produced by DS. Without additional compensation, DS was to provide
consulting services to the Company with respect to the Company's marketing
strategy and program, including the Company's weekly teleconference, magazine
and other
F-20
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
communication with distributors. For a fee, DS also produced and provided to the
Company each month at least four master cassettes for sale by the Company in the
Company's Master Developer Series. The term of the 1996 Agreement was fifteen
years and the parties agreed to negotiate in good faith successive fifteen-year
terms. The 1996 Agreement could be terminated earlier for breaches of any
material obligation. Kevin Trudeau, formerly a key distributor of the Company's
products, was principally responsible for DS's performance in connection with
the 1996 Agreement.
Associated with the termination of Kevin Trudeau's distributorship in August
1998, the Company, DS and NC agreed to terminate the 1996 Agreement in October
1998. The Company agreed to pay NC and DS $2,047,000 and to issue to NC a
warrant to purchase up to 290,000 shares of the Company's common stock to
satisfy all accounts payable and other amounts claimed by them for materials
previously delivered to the Company, as well as for the purchase of all of DS's
inventory of audio and video tapes, including all of the audio production rights
for such audio and video tapes, and other materials used to promote the Company,
and for cancellation of the remaining term of the 1996 Agreement.
Approximately $967,000 of the amount was paid upon execution of the agreement
in October 1998 with the balance of $1,080,000 represented by a promissory note
payable in 30 equal monthly interest free payments of $36,000 beginning November
1, 1998. The note is subordinated to working capital loans obtained by the
Company in the ordinary course of business, tax and other governmental charges,
and other obligations incurred in the ordinary course of business for obtaining
goods and services. For financial accounting purposes, the Company has
discounted the non-interest bearing note at 10.25% resulting in a note payable
of $949,000.
The warrant issued to NC entitles NC to purchase up to 290,000 shares of the
Company's common stock at $5.50 per share at any time until October 31, 2003.
The warrant is entitled to the benefit of adjustment of the exercise price and
number of shares of common stock deliverable upon exercise thereof in the event
of certain specified dilutive transactions.
The Company accounted for the transactions as of September 30, 1998. The
amount paid for the audio production rights was approximately $1,400,000 and is
being amortized over an expected recovery period of three-years. Expense
relative to the warrants issued to NC was determined by utilizing the Black-
Scholes method to be approximately $702,000. Such expense is included in the
accompanying 1998 consolidated financial statements as "Other Expense - contract
termination expense" and "Accrued expense - Nightingale-Conant". The warrants
were issued in October 1998. Additionally, the cash paid upon the execution of
the agreement of approximately $967,000 was also included in "Accrued expenses -
Nightingale-Conant" in the accompanying 1998 consolidated financial statements.
NC also agreed that for a five year period it would not directly or indirectly
seek to acquire a controlling interest, as defined under the rules and
regulations promulgated by the Securities and Exchange Commission, in the
Company without the prior written consent of the Company's Board of Directors.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosure of noncash financing activities:
Purchase of property and equipment under
capital lease $ -- $ 43,192 $ 635,959
Declaration of dividends $ -- -- $ 115,798
Settlement of Nightingale-Conant contract:
Purchase of audio production rights $ -- $1,400,000 --
Issuance of long-term debt $ -- $ 949,000 --
Net increase in liabilities $ -- $ 451,000 --
Supplemental disclosure of cash flow information:
Federal and state income taxes paid $ -- -- $1,400,000
Interest paid $128,900 -- --
</TABLE>
F-21
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- SUBSEQUENT EVENTS
Subsequent to September 30, 1999, the Company executed a letter of intent with
the current managers of RP to purchase the subsidiary. The completion of the
sale is subject to closing various conditions. The Company anticipates that the
realizable value of consideration to be received will be minimal. During the
year ended September 30, 1999, the Company recorded asset impairments and other
writedowns (principally inventory) in RP in the aggregate amount of $300,000.
On November 17, 1999 the Company finalized the acquisitions of Advanced
Nutraceuticals, Inc. ("ANI") and Bactolac Pharmaceutical Inc. ("BPI"). The
acquisition of ANI was completed through a merger with the Company's wholly-
owned subsidiary, NL Acquisition Company. The acquisition of BPI was completed
through a merger with the Company's wholly owned subsidiary, BPI Acquisition
Company. In connection with the merger of BPI into BPI Acquisition Company, the
name of the surviving corporation was changed to Bactolac Pharmaceutical Inc.
ANI was formed to pursue a consolidation and integration program in the
nutrition industry. The former ANI stockholders received an aggregate of 75,000
shares of a newly created Series A Preferred Stock of the Company. Each one
share of Series A Preferred Stock will be automatically converted into ten
shares of the Company's common stock upon approval of the Company's
shareholders. The Series A Preferred Stock has no voting rights (except as
required by law) and no dividend rights. Upon liquidation, dissolution or
winding up of the Company, the Series A Preferred Stock has a preference of
$28.40 per share, payable prior and in preference to any distribution of any
assets or surplus funds of the Company to the holders of the Company's common
stock.
BPI, headquartered in Westbury, New York, manufactures nutritional supplements
for private labeled customers. The purchase price of the Bactolac acquisition
consisted of $2,500,000 in cash, a subordinated promissory note in the principal
amount of $2,500,000 and 96,831 shares of Series A Preferred Stock.
Additionally, up to 17,606 shares of Series A Preferred Stock may be issued
pursuant to an earnout agreement. BPI entered into an employment agreement and
covenant not to compete agreement with its former owner at the closing on
November 17,1999. The Company intends to continue to operate BPI and to use its
inventory, machinery and equipment in connection with the manufacture of
nutritional supplements.
On December 1, 1999, the Company finalized the acquisition of Ash Corp.
("ASH"). The acquisition of ASH was completed through a merger with the
Company's wholly owned subsidiary BPI. The purchase price of ASH consisted of
$750,000 in cash, a note payable in the amount of $500,000 and 49,296 shares of
Series A Preferred Stock. Additionally, up to 105,634 shares of Series A
Preferred Stock may be issued pursuant to an earnout agreement. Each one share
of Series A Preferred Stock will be automatically converted into 10 shares of
the Company's common stock upon approval of the Company's shareholders. The
Company intends to continue the operations of ASH and to use its inventory,
machinery and equipment in connection with the manufacture of liquid
pharmaceutical and nutraceutical products. Financing for the acquisition of ASH
was provided primarily through the financing agreement entered into on November
17, 1999 with General Electric Capital Corporation, described below.
Financing for the acquisitions was provided primarily through a financing
arrangement entered into on November 17,1999 with General Electric Capital
Corporation (the "GECC"). The Company borrowed $2,360,000 from GECC pursuant to
a term loan payable in three years, and is subject to limitations based upon
eligible accounts. The loan facility is secured by substantially all of the
assets of the Company and its subsidiaries. The interest rate on borrowing is
0.5% above the prime rate. There is a fee of 0.25% on the unused portion of the
facility and an annual monitoring fee of $10,000. It is required, among other
provisions, that the Company maintain as of the end of the fiscal year ending
September 30, 1999, a minimum net worth (on a consolidated basis including ASH
and Bactolac) of $18 million and a minimum net worth of $25.5 million at
September 30, 2000, and a minimum net worth of $27 million for each fiscal year
after September 30, 2000. In addition, the Company is required to maintain a
fixed charge coverage ratio of 2.0 to 1.0 through July 1, 2000, and 1.5 to 1.0
at July 2, 2000, and at all times thereafter. The Company is also subject to
additional covenants, including filing of reports and significant restrictions
on dividend payments, issuance of debt and equity, mergers, changes in business
operations and sales of assets.
F-22
<PAGE>
PART III
ITEMS 10, 11, 12 AND 13 constituting Part III of this Form 10-K have been
omitted from this Annual Report pursuant to the provisions of Instruction
G(3) to Form 10-K as the Company intends to file a definitive proxy
statement pursuant to Regulation 14A under the Securities Exchange Act of
1934 within 120 days after the close of its last fiscal year.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a)(1) and (2) See Item 8.
(3) Exhibits
Exhibit 2.1 Agreement and Plan of Reorganization, filed as a
Exhibit to the Registration Statement on Form S-4
(file no. 33-70312), which Exhibit is incorporated
herein by this reference.
Exhibit 2.2 Agreement and Plan of Merger, dated as of November 5,
1999, among Nutrition For Life International, Inc.,
Advanced Nutraceuticals, Inc., BPI Acquisition
Company, Bactolac Pharmaceutical Inc. and Pailla M.
Reddy, filed as an Exhibit to the Report on Form 8-K,
filed on December 2, 1999, which Exhibit is
incorporated herein by this reference.
Exhibit 2.3 Agreement and Plan of Merger, dated as of October 20,
1999, among Nutrition For Life International, Inc.,
Advanced Nutraceuticals, Inc., NL Acquisition Company,
Gregory Pusey and Barry C. Loder, filed as an Exhibit
to the Report on Form 8-K, filed on December 2, 1999,
which Exhibit is incorporated herein by this
reference.
Exhibit 2.4 Agreement and Plan of Merger, dated as of October 25,
1999, among Nutrition For Life International, Inc.,
Advanced Nutraceuticals, Inc., AC Acquisition Company,
Allan I. Sirkin and Neil Sirkin (the "Ash Merger
Agreement"), filed as an Exhibit to the Report on Form
8-K, filed on December 15, 1999, which Exhibit is
incorporated herein by this reference.
26
<PAGE>
Exhibit 2.5 Amendment to Agreement and Plan of Merger, dated
November 24, 1999, to the Ash Merger Agreement, filed as
an Exhibit to the Report on Form 8-K, filed on December
15, 1999, which Exhibit is incorporated herein by this
reference.
Exhibit 3.1 Articles of Incorporation, as amended*
Exhibit 3.2 Bylaws, filed as an Exhibit to the Registration
Statement on Form S-4 (file no. 33-70312), which Exhibit
is incorporated herein by this reference.
Exhibit 4.1 Specimen Certificate of Nutrition for Life
International, Inc.'s Common Stock*
Exhibit 4.2 Specimen Warrant*
Exhibit 4.3 Warrant Agreement with Corporate Stock Transfer, Inc.*
Exhibit 4.4 Statement Establishing a Series of Shares (Series A
Preferred Stock), filed as an Exhibit to the Report on
Form 8-K, filed on December 2, 1999, which Exhibit is
incorporated herein by this reference.
Exhibit 10.1 1993 Stock Option Plan, filed as an Exhibit to the
Registration Statement on Form S-4 (file no. 33-70312),
which Exhibit is incorporated herein by this reference*
Exhibit 10.2 1995 Stock Option Plan, as amended
Exhibit 10.3 Second Amended and Restated Convertible Debenture in the
principal amount of $275,000, dated June 29, 1992 made
by Nutrition Express Corporation of Utah, Inc. in favor
of Shermfin Corp., filed as an Exhibit to the
Registration Statement on Form S-4 (file no. 33-70312),
which Exhibit is incorporated herein by this reference.
Exhibit 10.4 Agreement, dated August 12, 1991 between Nutrition
Express Corporation of Colorado, Inc. and Shermfin
Corp., filed as an Exhibit to the Registration Statement
on Form S-4 (file no. 33-70312), which Exhibit is
incorporated herein by this reference.
Exhibit 10.5 Agreement, dated August 12, 1991 between Nutrition
Express Corporation of Utah, Inc. and Shermfin Corp.,
filed as an Exhibit to the Registration Statement on
Form S-4 (file no. 33-70312), which Exhibit is
incorporated herein by this reference.
Exhibit 10.6 Convertible Promissory Note, dated October 12, 1989, the
principal amount of $250,000 made by Nutrition Express
Corporation of Colorado, Inc. in favor of Shermfin
Corp., filed as an Exhibit to the Registration Statement
on Form S-4 (file no. 33-70312), which Exhibit is
incorporated herein by this reference.
Exhibit 10.7 Employment Agreement dated May 10, 1995, between
Nutrition for Life International, Inc. and David P.
Bertrand*
Exhibit 10.8 Employment Agreement dated May 10, 1995, between
Nutrition for Life International, Inc. and Jana B.
Mitcham*
Exhibit 10.9 Consulting Agreement, dated February 22, 1995, between
Nutrition for Life International, Inc. and Cohig &
Associates, Inc.*
Exhibit 10.10 Form of Consulting Agreement with Cohig & Associates,
Inc.*
Exhibit 10.11 Agreement, dated March 3, 1995, between Nutrition for
Life International, Inc. and Shermfin Corp.*
Exhibit 10.13 Agreement, dated July 15, 1994 between Nutrition for
Life International, Inc. and Dr. David Santiago (N.F.P.
Group, Inc.), as amended by letter dated June 2, 1995*
27
<PAGE>
Exhibit 10.14 Warrant Agreement, dated October 15, 1995 with Kevin
Trudeau, filed as an Exhibit to the Report on Form
10-KSB for the fiscal year ended September 30, 1995
of the Registrant, which Exhibit is incorporated
herein by this reference.
Exhibit 10.15 Lease Agreements for office and warehouse facilities
with non-affiliates, filed as an Exhibit to the
Report on Form 10-KSB for the fiscal year ended
September 30, 1995 of the Registrant, which Exhibit
is incorporated herein by this reference.
Exhibit 10.16 1995 Non-Discretionary Stock Option Plan, filed as an
Exhibit to the Report on Form 10-KSB for the fiscal
year ended September 30, 1995 of the Registrant,
which Exhibit is incorporated herein by this
reference.
Exhibit 10.17 Assurance of Voluntary Compliance for the State of
Illinois, dated July 16, 1996, filed on July 31, 1996
as an Exhibit to the Report on Form 8-K, which
Exhibit is incorporated herein by this reference.
Exhibit 10.18 Administrative and Consulting Services Agreement,
dated July 29, 1996, between Distributor Services,
L.L.C. and Nutrition For Life International, Inc.*
Exhibit 10.19 Form of Distributor Agreement of Nutrition For Life
International, Inc.*
Exhibit 10.20 Employment Agreement, effective October 1, 1996,
between Nutrition For Life International, Inc. and
David P. Bertrand, filed as an Exhibit to the Report
on Form 10-KSB for the fiscal year ended September
30, 1996 of the Registrant which Exhibit is
incorporated herein by this reference.
Exhibit 10.21 Employment Agreement, effective October 1, 1996,
between Nutrition For Life International, Inc. and
Jana B. Mitcham, filed as an Exhibit to the Report on
Form 10-KSB for the fiscal year ended September 30,
1996 of the Registrant which Exhibit is incorporated
herein by this reference.
Exhibit 10.22 Agreement, effective October 24, 1997, among K. T.
Corp., Kevin Trudeau and Registrant, filed as an
Exhibit to the Report on Form 10-K for the fiscal
year ended September 30, 1997 of the Registrant which
Exhibit is incorporated herein by this reference.
Exhibit 10.23 Agreement, dated August 19, 1998, among the
Registrant, Kevin Trudeau and K. T. Corp., filed as
an Exhibit to the Report on Form 8-K, which Exhibit
is incorporated herein by this reference.
Exhibit 10.23.1 Settlement Agreement and Release, dated October 27,
1998, among the Registrant, Kevin Trudeau and K. T.
Corp., filed as an Exhibit to the Report Form 10-K
for the fiscal year ended September 30, 1998, which
Exhibit is incorporated herein by this reference.
Exhibit 10.24 Settlement and Release Agreement, dated October 30,
1998, among the Registrant, Distributor Services,
L.L.C., Tru-Vantage International, L.L.C., Maximum
Impact, L.L.C. and Nightingale-Conant Corporation,
filed as an Exhibit to the Report on Form 8-K, which
Exhibit is incorporated herein by this reference.
Exhibit 10.25 Agreement, dated October 30, 1998, between
Distributor Services, L.L.C. and the Registrant,
filed as an Exhibit to the Report on Form 8-K, which
Exhibit is incorporated herein by this reference.
Exhibit 10.26 Earnout Agreement, dated November 17, 1999, between
Pailla M. Reddy and Nutrition For Life International,
Inc., filed as an Exhibit to the Report on Form 8-K,
filed on December 2, 1999, which Exhibit is
incorporated herein by this reference.
Exhibit 10.26(a) Letter of agreement dated January 10, 2000, to
Earnout Agreement between Pailla M. Reddy and
Nutrition For Life International, Inc.
Exhibit 10.27 Earnout Agreement, dated November 30, 1999, among
Nutrition For Life International, Inc. and the former
shareholders of Ash Corp. filed as an Exhibit to the
Report on Form 8-K, filed on December 15, 1999, which
Exhibit is incorporated herein by this reference.
28
<PAGE>
Exhibit 10.28 Employment Agreement, effective November 1, 1999,
between Nutrition For Life International, Inc. and
David P. Bertrand.
Exhibit 10.29 Employment Agreement, effective November 1, 1999,
between Nutrition For Life International, Inc. and
Jana B. Mitcham.
Exhibit 10.30 Employment Agreement, effective November 17, 1999,
between Nutrition For Life International, Inc. and
Gregory Pusey.
Exhibit 10.31 Employment Agreement, effective November 17, 1999,
between Nutrition For Life International, Inc. and
Barry C. Loder.
Exhibit 10.32 Employment Agreement, dated November 17, 1999, between
Bactolac Pharmaceutical Inc. and Pailla Reddy.
Exhibit 10.33 Employment Agreement, dated November 30, 1999, between
Bactolac Pharmaceutical Inc. and Allan I. Sirkin.
Exhibit 10.34 Employment Agreement, dated November 30, 1999, between
Bactolac Pharmaceutical Inc. and Neil Sirkin.
Exhibit 10.35 Non-Competition Agreement, dated November 17, 1999,
among Gregory Pusey, Nutrition For Life International,
Inc. and NL Acquisition Company.
Exhibit 10.36 Non-Competition Agreement, dated November 17, 1999,
among Barry C. Loder, Nutrition For Life
International, Inc. and NL Acquisition Company.
Exhibit 10.37 Non-Competition Agreement, dated November 17, 1999,
among Pailla M. Reddy, Nutrition For Life
International, Inc. and Bactolac Pharmaceutical Inc.
Exhibit 10.38 Non-Competition Agreement, dated November 30, 1999,
between Bactolac Pharmaceutical Inc. and Allan I.
Sirkin.
Exhibit 10.39 Non-Competition Agreement, dated November 30, 1999,
between Bactolac Pharmaceutical Inc. and Neil Sirkin.
Exhibit 10.40 Subordinated Promissory Note, dated November 17, 1999,
in the principal amount of $2,500,000 made by
Nutrition For Life International, Inc., payable to
Pailla Reddy.
Exhibit 10.41 Subordinated Promissory Note, dated November 17, 1999,
in the principal amount of $450,000 made by Bactolac
Pharmaceutical Inc., payable to Pailla Reddy.
Exhibit 10.42 Subordinated Promissory Note, dated December 1, 1999,
in the principal amount of $155,000 payable by
Nutrition For Life International, Inc., to Neil
Sirkin.
Exhibit 10.43 Subordinated Promissory Note, dated December 1, 1999,
in the principal amount of $345,000 payable by
Nutrition For Life International, Inc., to Allan I.
Sirkin.
Exhibit 10.44 Lock-Up Agreement, dated November 30, 1999, between
Allan I. Sirkin and Nutrition For Life International,
Inc.
Exhibit 10.45 Lock-Up Agreement, dated November 30, 1999, between
Neil Sirkin and Nutrition For Life International, Inc.
Exhibit 10.46 Lock-Up Agreement, dated November 17, 1999, between
Gregory Pusey and Nutrition For Life International,
Inc.
29
<PAGE>
Exhibit 10.47 Lock-Up Agreement, dated November 17, 1999, between
Barry C. Loder and Nutrition For Life International,
Inc.
Exhibit 10.48 Lock-Up Agreement, dated November 17, 1999, between
Pailla Reddy and Nutrition For Life International,
Inc.
Exhibit 10.49 Loan and Security Agreement among General Electric
Capital Corporation, Nutrition For Life International,
Inc., Ash Corp., Bactolac Pharmaceutical Inc. and NL
Acquisition Company.
Exhibit 10.50 First Amendment to Loan and Agreement among General
Electric Capital Corporation, Nutrition For Life
International, Inc., Ash Corp., Bactolac
Pharmaceutical Inc. and NL Acquisition Company.
Exhibit 21 Subsidiaries of the Company.
Exhibit 23.1 Consent of BDO Seidman, LLP.
Exhibit 23.2 Consent of Grant Thornton LLP.
Exhibit 27 Financial Data Schedule Summary.
* These exhibits were previously filed as exhibits to the Company's
Registration Statement on Form SB-2 (File No. 33-92274), and are
incorporated herein by reference.
(b) Reports on Form 8-K
A Report on Form 8-K was filed during the fourth quarter of fiscal
1999 reporting a change in the certifying accountant, effective
September 16, 1999.
(c) Exhibits
(a)(3)above
(d) Financial Statement Schedules
See Item 8 above.
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NUTRITION FOR LIFE INTERNATIONAL, INC.
(Registrant)
Date: January 12, 2000 By:/s/ David P. Bertrand
-----------------------------------------
David P. Bertrand, President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Date: January 12, 2000 /s/ David P. Bertrand
-----------------------------------------
David P. Bertrand, President and Chief
Executive Officer and Director
Date: January 12, 2000 /s/ Jana B. Mitcham
-----------------------------------------
Jana B. Mitcham, Executive Vice President,
Secretary, and Director
Date: January 12, 2000 /s/ David O. Rodrigue
-----------------------------------------
David O. Rodrigue, Vice President and Chief
Financial Officer
Date: January 12, 2000 /s/ John R. Brown, Jr.
----------------------------------------
John R. Brown, Jr., Vice President,
Assistant Secretary and Treasurer
Date: January 12, 2000 /s/ F. Wayne Ballenger
-----------------------------------------
F. Wayne Ballenger, Director
Date: January 12, 2000 /s/ Gregory Pusey
-----------------------------------------
Gregory Pusey, Chairman of the Board of
Directors and Director
31
<PAGE>
EXHIBIT 10.2
NUTRITION FOR LIFE INTERNATIONAL, INC.
1995 STOCK OPTION PLAN, AS AMENDED
This Stock Option Plan (the "Plan") is adopted in consideration for
services rendered and to be rendered to Nutrition For Life International, Inc.
and related companies.
1. Definitions.
-----------
The terms used in this Plan shall, unless otherwise indicated or
required by the particular context, have the following meanings:
Board: The Board of Directors of Nutrition For Life International,
-----
Inc.
Code: The Internal Revenue Code of 1986, as amended.
----
Common Stock: The $.01 par value Common Stock of Nutrition For Life
------------
International, Inc.
Company: Nutrition For Life International, Inc., a corporation
-------
incorporated under the laws of Texas, and any successors in interest by merger,
operation of law, assignment or purchase of all or substantially all of the
property, assets or business of the Company.
Consultant: A Consultant is any person, including any advisor,
----------
engaged by the Company or any Related Company to render consulting services and
who is compensated for such services.
Continuous Status as an Employee or Consultant: The employment by, or
----------------------------------------------
relationship as a Consultant with, the Company is not interrupted or terminated.
The Board, at its sole discretion, may determine whether Continuous Status as an
Employee or Consultant shall be considered interrupted due to personal or other
mitigating circumstances.
Date of Grant: The date on which an Option is granted under the Plan.
-------------
Employee: An Employee is an employee of the Company or any Related
--------
Company.
Fair Market Value: The Fair Market Value of the Option Shares. Such
-----------------
Fair Market Value as of any date shall be reasonably determined by the Option
Committee
<PAGE>
(see below); provided, however, that if there is a public market for the Common
Stock, the Fair Market Value of the Option Shares as of any date shall be the
officially quoted closing price, if available, through the National Association
of Securities Dealers, Inc. or a stock exchange, or if no officially quoted
closing price is available, the representative closing bid price, on the date in
question. In the event there is no officially quoted closing price or bid price
or the Common Stock is not traded publicly, the Fair Market Value of a share of
Common Stock on any date shall be determined, in good faith, by the Board or the
Option Committee after such consultation with outside legal, accounting and
other experts as the Board or the Option Committee may deem advisable, and the
Board or the Option Committee shall maintain a written record of its method of
determining such value.
Incentive Stock Options ("ISOs"): "Incentive Stock Options" as that
--------------------------------
term is defined in Section 422A of the Code.
Key Employee: A person designated by the Option Committee who either
------------
is employed by the Company or a Related Company (see below) and upon whose
judgment, initiative and efforts the Company or a Related Company is largely
dependent for the successful conduct of its business; provided, however, that
Key Employees shall not include those members of the Board who are not employees
of the Company or a Related Company.
Non-Incentive Stock Options ("Non-ISOs"): Options which are not
----------------------------------------
intended to qualify as "Incentive Stock Options" under Section 422A of the Code.
Option: The rights granted to an Employee or Consultant to purchase
------
Common Stock pursuant to the terms and conditions of an Option Agreement (see
below).
Option Agreement: The written agreement (and any amendment or
----------------
supplement thereto) between the Company and an Employee or Consultant
designating the terms and conditions of an Option.
Option Committee: The Plan shall be administered by an Option
----------------
Committee composed of the Board or a committee, selected by the Board,
consisting of two or more persons, each of whom is not an employee of the
Corporation. The foregoing does not apply to Specific Option Grants.
Option Shares: The shares of Common Stock underlying an Option
-------------
granted to an Employee or Consultant.
Optionee: An Employee or Consultant who has been granted an Option.
--------
Related Company: Any corporation that is a "parent corporation" or a
---------------
"subsidiary corporation" with respect to the Company, as those terms are defined
in
-2-
<PAGE>
Section 425 of the Code. The determination of whether a corporation is a Related
Company shall be made without regard to whether the corporation or the
relationship between the corporation and the Company now exists or comes into
existence hereinafter.
Specific Option Grants: The specific grants of Options as provided in
----------------------
Section 9.
2. Purpose and Scope.
-----------------
(a) The purpose of this Plan is to advance the interests of the
Company and its stockholders by affording Employees and Consultants an
opportunity for investment in the Company and the incentive advantages inherent
in stock ownership in this Company.
(b) This Plan authorizes the Option Committee to grant Options to
purchase shares of Common Stock to Employees and Consultants selected by the
Option Committee while considering criteria such as employment position or other
relationship with the Company, duties and responsibilities, ability,
productivity, length of service or association, morale, interest in the Company,
recommendations by supervisors, and other matters.
3. Administration of the Plan. The Plan shall be administered by the
--------------------------
Option Committee. The Option Committee shall have the authority granted to it
under this section and under each other section of the Plan.
In accordance with and subject to the provisions of the Plan, the
Option Committee shall select the Optionees, shall determine (i) the number of
shares of Common Stock to be subject to each Option, (ii) the time at which each
Option is to be granted, (iii) whether an Option shall be granted in exchange
for the cancellation and termination of a previously granted option or options
under the Plan or otherwise, (iv) the purchase price for the Option Shares, (v)
the option period, and (vi) the manner in which the Option becomes exercisable.
Provided, that, the number of shares of Common Stock to be subject to Options
granted to an Optionee shall not exceed 150,000 in any fiscal year of the
Company. In addition, the Option Committee shall fix such other terms of each
Option as the Option Committee may deem necessary or desirable. The Option
Committee shall determine the form of Option Agreement to evidence each Option.
The Option Committee from time to time may adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Option Committee shall keep minutes of
its meetings and those minutes shall be distributed to every member of the
Board.
-3-
<PAGE>
The Board may from time to time make such changes in and additions to
the Plan as it may deem proper and in the best interest of the Company;
provided, however, that no such change or addition shall impair any Option
previously granted under the Plan, and that the approval by the affirmative
votes of the holders of a majority of the Company's securities entitled to vote
and represented at a meeting duly held in accordance with the applicable laws of
the State of Texas, shall be required for any amendment which would:
(a) modify the eligibility requirements for receiving Options under
the Plan;
(b) increase the benefits accruing to Employees under the Plan; or
(c) increase the number of shares of Common Stock that may be issued
under the Plan.
All actions taken and all interpretations and determinations made by
the Option Committee in good faith (including determinations of Fair Market
Value) shall be final and binding upon all Employees, Consultants, the Company
and all other interested persons. No member of the Option Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan, and all members of the Option Committee shall,
in addition to rights they may have if Directors of the Company, be fully
protected by the Company with respect to any such action, determination or
interpretation.
4. The Common Stock. In addition to the Specific Option Grants, the
----------------
Board is authorized to appropriate, issue and sell for the purposes of the Plan,
and the Option Committee is authorized to grant Options with respect to, a total
number, not in excess of 2,000,000 shares of Common Stock, either treasury or
authorized but unissued, or the number and kind of shares of stock or other
securities which in accordance with Section 10 shall be substituted for the
2,000,000 shares or into which such 2,000,000 shares shall be adjusted. All or
any unsold shares subject to an Option that for any reason expires or otherwise
terminates may again be made subject to Options under the Plan.
5. Eligibility. Options which are intended to qualify as ISOs will
-----------
be granted only to Key Employees. Key Employees and other Employees and
Consultants may hold more than one Option under the Plan and may hold Options
under the Plan and options granted pursuant to other plans or otherwise.
6. Option Price. The Option Committee shall determine the purchase
------------
price for the Option Shares, provided that the purchase price to be paid by
Optionees for the Option Shares whether ISOs or non-ISOs, shall not be less than
100 percent of the Fair Market Value of the Option Shares on the Date of Grant.
The purchase price for the Option Shares shall be a fixed, and cannot be a
fluctuating, price.
-4-
<PAGE>
7. Duration and Exercise of Options.
--------------------------------
(a) The option period shall commence on the Date of Grant and shall
be as set by the Option Committee, but not to exceed 10 years in length. No
Option shall be exercised for the period of six months following the Date of
Grant; provided, however, that this limitation shall not apply to the exercise
of an Option pursuant to the terms of the relevant Option Agreement upon the
Optionee's death.
(b) During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee; provided, that in the event of the legal
disability of an Optionee, the guardian or personal representative of the
Optionee may exercise the Option. However, if the Option is an ISO it may be
exercised by the guardian or personal representative of the Optionee only if
such guardian or personal representative obtains a ruling from the Internal
Revenue Service or an opinion of counsel to the effect that neither the grant
nor the exercise of such power is violative of the Code. Any opinion of counsel
must be both from counsel and in a form acceptable to the Option Committee.
(c) The Option Committee may determine whether any Option shall be
exercisable as provided in Paragraph (a) of this Section 7 or whether the
Options shall be exercisable in installments only; if the Option Committee
determines the latter, it shall determine the number of installments and the
percentage of the Option exercisable at each installment date. All such
installments shall be cumulative.
(d) In the event an Optionee's Continuous Status as an Employee or
Consultant terminates because of the death or permanent and total disability of
the Optionee, any Option held by the Optionee on the date of termination may be
exercised within 90 days after the date of termination, but only to the extent
that the Option was exercisable according to its terms on the date of
termination. After such 90-day period, any unexercised portion of an Option
shall expire.
(e) Notwithstanding the provisions of Paragraph (d) of this Section
7, in the event an Optionee's Continuous Status as an Employee or Consultant
terminates for any reason other than the Optionee's death or permanent and total
disability, any unexercised portion of any Option held by the Optionee on the
date of termination may be exercised within 30 days after the date of
termination, but only to the extent that the Option was exercisable according to
its terms on the date of termination. After such 30-day period, any unexercised
portion of an Option shall expire.
(f) Each Option shall be exercised in whole or in part by delivering
to the office of the Treasurer of the Company written notice of the number of
shares with respect to which the Option is to be exercised and by paying in full
the purchase price for the Option Shares purchased as set forth in Section 8;
provided, that an Option may not
-5-
<PAGE>
be exercised in part unless the purchase price for the Option Shares purchased
is at least $2,000.
(g) No Option may be exercised until the Plan is approved by the
shareholders of the Company as provided in Section 16 below.
(h) No Option Shares may be sold, transferred or otherwise disposed
of within six months of the Date of Grant by any person who is subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") on the Date of Grant.
(i) No Option Shares may be sold, transferred or otherwise disposed
of within six months of the date of shareholder approval of the Plan by any
person who is subject to the reporting requirements of Section 16(a) of the
Exchange Act on the date of shareholder approval of the Plan.
8. Payment for Option Shares. If the purchase price of the Option
-------------------------
Shares purchased by any Optionee at one time exceeds $2,000, the Option
Committee may permit all or part of the purchase price for the Option Shares to
be paid by delivery to the Company for cancellation shares of the Company's
Common Stock previously owned by the Optionee with a Fair Market Value as of the
date of payment equal to the portion of the purchase price for the Option Shares
that the Optionee does not pay in cash. In the case of all other Option
exercises, the purchase price shall be paid in cash or certified funds upon
exercise of the Option.
9. Specific Option Grants. The Company hereby grants to the
-----------------------
following Key Employees, Options to purchase the Option Shares set forth
opposite their respective names below in this Section 9, and at Exercise Prices
set forth opposite their respective names, such Options to be exercisable
commencing six months from the date of Shareholder approval of this Plan, and to
expire seven years from the date of Grant, unless earlier terminated in
accordance with the provisions of this Plan:
Name of Optionee Number of Shares Exercise Price
---------------- ---------------- --------------
David P. Bertrand 16,000 $2.25
David P. Bertrand 16,000 $2.70
Jana Mitcham 14,000 $2.25
Jana Mitcham 14,000 $2.70
Ronnie Meaux 7,500 $2.25
Ronnie Meaux 7,500 $2.70
Gregory Pusey 5,000 $2.25
Gregory Pusey 5,000 $2.70
-6-
<PAGE>
10. Change in Stock, Adjustments, Etc. In the event that each of the
----------------------------------
outstanding shares of Common Stock (other than shares held by dissenting
shareholders which are not changed or exchanged) should be changed into, or
exchanged for, a different number or kind of shares of stock or other securities
of the Company, or, if further changes or exchanges of any stock or other
securities into which the Common Stock shall have been changed, or for which it
shall have been exchanged, shall be made (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividends,
reclassification, split-up, combination of shares or otherwise), then there
shall be substituted for each share of Common Stock that is subject to the Plan
but not subject to an outstanding Option thereunder, the number and kind of
shares of stock or other securities into which each outstanding share of Common
Stock (other than shares held by dissenting shareholders which are not changed
or exchanged) shall be so changed or for which each outstanding share of Common
Stock (other than shares held by dissenting shareholders) shall be exchanged.
Any securities so substituted shall be subject to similar successive
adjustments.
In the event of any such changes or exchanges, the Option Committee
shall determine whether, in order to prevent dilution or enlargement of rights,
an adjustment should be made in the number, or kind, or option price of the
shares or other securities then subject to an Option or Options granted pursuant
to the Plan and the Option Committee shall make any such adjustment, and such
adjustments shall be made and shall be effective and binding for all purposes of
the Plan.
11. Relationship to Employment or Position. Nothing contained in the Plan,
--------------------------------------
or in any Option granted pursuant to the Plan, shall confer upon any Optionee
any right with respect to continuance of employment by the Company, as an
Employee or as a Consultant or interfere in any way with the right of the
Company to terminate the Optionee's employment as an Employee or position as a
Consultant, at any time.
12. Nontransferability of Option. No Option granted under the Plan shall
----------------------------
be transferable by the Optionee, either voluntarily or involuntarily, except by
will or the laws of descent and distribution, or except pursuant to a qualified
domestic relations order as defined in the Code, the Employee Retirement Income
Security Act, or rules promulgated thereunder. Except as provided in the
preceding sentence, any attempt to transfer the Option shall void the Option.
13. Rights as a Stockholder. No person shall have any rights as a
-----------------------
shareholder with respect to any share covered by an Option until that person
shall become the holder of record of such share and, except as provided in
Section 10, no adjustments shall be made for dividends or other distributions or
other rights as to which there is an earlier record date.
-7-
<PAGE>
14. Securities Laws Requirements. No Option Shares shall be issued unless
----------------------------
and until, in the opinion of the Company, any applicable registration
requirements of the Securities Act of 1933, as amended, any applicable listing
requirements of any securities exchange on which stock of the same class is then
listed, and any other requirements of law or of any regulatory bodies having
jurisdiction over such issuance and delivery, have been fully complied with.
Each Option and each Option Share certificate may be imprinted with legends
reflecting federal and state securities laws, restrictions and conditions, and
the Company may comply therewith and issue "stop transfer" instructions to its
transfer agent and registrar in good faith without liability.
15. Disposition of Shares. Each Optionee, as a condition of exercise,
---------------------
shall represent, warrant and agree, in a form of written certificate approved by
the Company, as follows: (a) that all Option Shares are being acquired solely
for his own account and not on behalf of any other person or entity; (b) that no
Option Shares will be sold or otherwise distributed in violation of the
Securities Act of 1933, as amended, or any other applicable federal or state
securities laws; (c) that if he is subject to reporting requirements under
Section 16(a) of the Exchange Act, he will (i) not violate Section 16(b) of the
Exchange Act, (ii) furnish the Company with a copy of each Form 4 and Form 5
filed by him, and (iii) timely file all reports required under the federal
securities laws; and (d) that he will report all sales of Option Shares to the
Company in writing on a form prescribed by the Company.
16. Effective Date of Plan; Termination Date of Plan. Subject to the
------------------------------------------------
approval of the Plan by the affirmative vote of the holders of a majority of the
Company's securities entitled to vote and represented at a meeting duly held in
accordance with applicable law, the Plan shall be deemed effective as of March
3, 1995. The Plan shall terminate at midnight on February 28, 2005, except as
to Options previously granted and outstanding under the Plan at that time. No
Options shall be granted after the date on which the Plan terminates. The Plan
may be abandoned or terminated at any earlier time by the Board, except with
respect to any Options then outstanding under the Plan.
17. Limitation on Amount of Option. To the extent that the aggregate Fair
------------------------------
Market Value (determined at the Date of Grant) of Common Stock with respect to
which ISOs are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and Related Company exceeds
$100,000, the Options or portions thereof which exceed such limit (according to
the order in which they were granted) shall be treated as Non-ISOs.
18. Ten Percent Shareholder Rule. With respect to ISO's, no Option may be
----------------------------
granted to a Key Employee who, at the time the Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any "parent corporation" or "subsidiary
corporation", as those terms are defined in Section 425 of the Code, unless at
the time the Option is granted the purchase price for the Option Shares is at
least 110 percent of the Fair Market Value of the Option Shares
-8-
<PAGE>
on the Date of Grant and such Option by its terms is not exercisable after the
expiration of five years from the Date of Grant. For purposes of the preceding
sentence, stock ownership shall be determined as provided in Section 425 of the
Code.
19. Withholding Taxes. The Company, or any Related Company, may take such
-----------------
steps as it may deem necessary or appropriate for the withholding of any taxes
which the Company, or any Related Company, is required by any law or regulation
or any governmental authority, whether federal, state or local, domestic or
foreign, to withhold in connection with any Option including, but not limited
to, the withholding of all or any portion of any payment or the withholding of
issuance of Option Shares to be issued upon the exercise of any Option.
20. Effect of Changes in Control and Certain Reorganizations.
--------------------------------------------------------
(a) In the event of a Change in Control of the Company (as defined
below), the Option Committee may, in its discretion, make any or all of the
following adjustments: (i) provide that all Options granted pursuant to the Plan
shall become exercisable immediately upon such Change in Control (or such other
time as the Committee shall determine), subject to Section 17 with respect to
ISOs; (ii) provide for the payment to an Optionee upon surrender of an Option
(or portion thereof) of an amount in cash equal to the excess of (a) the higher
of (I) the aggregate Fair Market Value of the Option Shares covered by such
Option (or portion thereof) on the date of surrender or (II) the average price
per share paid for the most highly priced one percent of the Common Stock
acquired in connection with the Change in Control times the number of Option
Shares covered by such Option (or portion thereof) over (b) the aggregate
exercise price, except that in no event shall an Optionee have a right to
receive with respect to any ISO an amount in excess of the Fair Market Value on
the date of surrender of the total number of Option Shares with respect to which
such Option is surrendered, less the exercise price which the Optionee would
otherwise have been required to pay upon purchase of such Option Shares had he
exercised the Option; (iii) make any other adjustments, or take such other
action, as the Option Committee, in its discretion, shall deem appropriate. In
the event that the Option Committee provides for the surrender of Options
pursuant to clause (ii) above, to the extent any Option is surrendered, it shall
be deemed to have been exercised for purposes of Section 4. For purposes of this
Section 20, a "Change in Control" of the Company shall mean a change in control
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or
not the Company is then subject to such reporting requirement; provided that,
without limitation, a Change in Control shall be deemed to have occurred if (i)
any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity, or any syndicate or group deemed to
be a person under Section 14(d)(2) of the Exchange Act, is or becomes the
"beneficial owner" (within the meaning of Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of the Company's then
-9-
<PAGE>
outstanding securities entitled to vote in the election of directors of the
Company; or (ii) during any period of two consecutive years (not including any
period prior to the adoption of this Plan), individuals who at the beginning of
such period constituted the Board and any new directors, whose appointment by
the Board or nomination for election by the Company's shareholders was approved
by a vote of at least a majority of the directors then still in office who
either were directors at the beginning of the period or whose appointment or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof.
(b) In the event that (i) the Company is merged or consolidated with
another corporation, (ii) one person becomes the beneficial owner of all of the
issued and outstanding equity securities of the Company (for purposes of this
Section 20(b), the terms "person" and "beneficial owner" shall have the meanings
assigned to them in Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder), (iii) a division or subsidiary of the
Company is acquired by another corporation, person or entity, (iv) all or
substantially all of the assets of the Company are acquired by another
corporation, (v) the Company is reorganized, dissolved or liquidated (each such
event in (i), (ii), (iii), (iv) or (v) being hereinafter referred to as a
"Reorganization Event"), or (vi) the Board shall propose that the Company enter
into a Reorganization Event, then the Option Committee may, in its sole
discretion, make any or all of the following adjustments: (A) by written notice
to each Optionee provide that such Optionee's Options shall be terminated or
cancelled, unless exercised within thirty (30) days (or such other period as the
Option Committee shall determine) after the date of such notice; (B) subject to
Section 17 with respect to ISOs, advance the dates upon which any or all
outstanding Options shall be exercised; (C) provide for the payment upon
termination or cancellation of an Option of an amount in cash or securities
equal to the excess, if any, of the Fair Market Value of the Option Shares
subject to the Option at the time of such termination or cancellation over the
exercise price of such Option; and (D) make any other adjustments, or take such
other action, as the Option Committee, in its discretion, shall deem
appropriate. Any action taken by the Option Committee may be made conditional
upon the consummation of the applicable Reorganization Event.
21. Other Provisions.
----------------
(a) The use of a masculine gender in the Plan shall also include
within its meaning the feminine, and the singular may include the plural, and
the plural may include the singular, unless the context clearly indicates to the
contrary.
(b) Any expenses of administering the Plan shall be borne by the
Company.
(c) This Plan shall be construed to be in addition to any and
all other compensation plans or programs. Neither the adoption of the Plan by
the Board nor the submission of the Plan to the shareholders of the Company for
approval shall be
-10-
<PAGE>
construed as creating any limitations on the power of authority of the Board to
adopt such other additional incentive or other compensation arrangements as the
Board may deem necessary or desirable.
(d) The validity, construction, interpretation, administration
and effect of the Plan and of its rules and regulations, and the rights of any
and all personnel having or claiming to have an interest therein or thereunder
shall be governed by and determined exclusively and solely in accordance with
the laws of the State of Texas.
* * * * * * * *
-11-
<PAGE>
EXHIBIT 10.26(a)
NUTRITION FOR LIFE INTERNATIONAL, INC.
9101 Jameel
Houston, Texas 77040
January 10, 2000
Via Facsimile (516)333-4714
AND U.S. Mail
Pailla M. Reddy
c/o Bactolac Pharmaceutical Inc.
51 Brooklyn
Westbury, New York 11590
Dear Dr. Reddy:
The purpose of this letter is to confirm our understandings regarding the
Earnout Agreement which was entered into on November 17, 1999 between you and
Nutrition For Life International, Inc. ("NFLI"). It is provided in the Earnout
Agreement that if certain operating results of Bactolac Pharmaceutical Inc.
("BPI") are achieved, you will be entitled to receive additional shares of
NFLI's stock.
As you know, when we entered into the Earnout Agreement, NFLI contemplated the
acquisition of Ash Corp. through a wholly-owned subsidiary other than BPI. We
subsequently determined to merge Ash Corp. into BPI. However, it was not the
intent of NFLI or you to have the operating results of Ash Corp. (whose
operations are currently being conducted as a division of BPI), included in the
operating results of BPI for purposes of determining whether you would be
entitled to an earnout payment.
Accordingly, this will confirm our understandings that for purposes of
calculating "Pre-Tax Income" of BPI as that term is defined in the Earnout
Agreement, the operations of the Ash division will not be included in
determining the results of operations of BPI. If this correctly sets forth our
understandings, please so indicate by signing in the place designated below and
returning one signed copy of this letter to me. Except as set forth in this
letter, the Earnout Agreement shall be unamended and unaffected and remains in
full force and effect.
Very truly yours, AGREED:
---------------------------------
Gregory Pusey Pailla M. Reddy
Chairman of the Board of Directors
cc: Robert M. Bearman, Esq.
Via facsimile (303) 894-9239
Anthony T. Scotto, Esq.
Via facsimile (516) 739-5451
<PAGE>
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made effective the 1st day
of November, 1999 by and between Nutrition For Life International, Inc., a Texas
corporation (the "Company") and David Bertrand ("Bertrand").
In consideration of the mutual covenants, promises and agreements herein
contained, the Company and Bertrand hereby covenant, promise and agree to and
with each other as follows:
1. Employment. The Company shall employ Bertrand and Bertrand shall be
employed by the Company upon the terms and conditions set forth in this
Agreement.
2. Positions and Duties of Employment. Bertrand shall be required to
devote his best efforts on a full-time basis to the furtherance of his
managerial duties with the Company as the Company's President. While serving in
these corporate capacities, Bertrand shall have the responsibilities, duties,
obligations, rights, benefits and requisite authority as is customary for his
positions and as may be determined by the Company's Board of Directors (the
"Board") and as set forth in the Bylaws of the Company.
Bertrand understands that his employment as President of the Company
involves a high degree of trust and confidence, that he is employed for the
purpose of furthering the Company's reputation and improving the Company's
operations and profitability, and that in executing this Agreement he undertakes
obligations set forth herein to accomplish such objectives. Bertrand agrees
that he shall serve the Company fully, diligently and competently, and to the
best of his ability. Bertrand certifies that he fully understands his right to
discuss this Agreement with his private attorney, that to the extent, if any, he
desires, he has availed herself of this right, that he has carefully read and
fully understands this entire Agreement, and that he is voluntarily entering
into this Agreement.
3. Term. Except as otherwise provided in this Agreement, the term of
this Agreement (the "Term") shall be for a period of one year commencing
November 1, 1999 and shall automatically renew for two successive periods of one
year each unless either party gives notice of the termination of the Agreement
to the other not fewer than 30 days prior to the expiration of the applicable
yearly period.
4. Compensation. Bertrand shall receive the following as compensation:
(a) Bertrand shall receive a monthly salary of $25,000 for each full
month of his employment by the Company pursuant to this Agreement, payable in
accordance with the Company's customary payroll practices.
(b) In addition to his salary, Bertrand shall be entitled to a bonus,
payable within 105 days of the end of each annual period of the Term, based upon
the Company meeting certain pre-tax income levels defined below (the "Bonus").
Pre-tax income shall be determined in accordance with generally accepted
accounting principles. Provided, that the operations of any companies acquired
by the Company after the commencement of the Term shall not be included in the
-1-
<PAGE>
calculation of pre-tax income. In the event of any dispute over the amount of
pre-tax income, a final determination shall be made by Grant Thornton LLP or
another independent certified public accounting firm selected by the Company.
No Bonus shall be payable unless the Company's annual pre-tax income is
$3,000,000 or more. The amount of the Bonus shall be 5% of the first annual
pre-tax income of the Company, which is between $3,000,000 and $5,000,000; 4% of
the annual pre-tax income of the Company which is between $5,000,000 and
$10,000,000; and 3% of the annual pre-tax income of the Company which is between
$10,000,000 and $20,000,000. No Bonus shall be payable for any annual pre-tax
income of the Company in excess of $20,000,000.
(c) The Company shall provide Bertrand with participation in any
group plans or agreements maintained by the Company relating to health insurance
or other related benefits in accordance with their respective terms.
(d) Bertrand shall be entitled to leaves for vacations for periods
reasonably determined by the Board. In addition, Bertrand shall be entitled to
reasonable absences for attendance at business seminars and conventions.
(e) Any payment which the Company shall make to Bertrand pursuant to
this Agreement shall be reduced by standard withholding and other authorized
deductions.
(f) During the term of his employment, Bertrand shall be reimbursed
for reasonable expenses incurred by his for the benefit of the Company. Any
direct payment or reimbursement of expenses shall be made only upon presentation
of an itemized accounting conforming in form and content to standards prescribed
by the Internal Revenue Service relative to the substantiation of the
deductibility of business expenses.
5. Life Insurance. The Company may, but shall not be obligated to, apply
for and procure as owner and for its own benefit or the benefit of any lender of
the Company, insurance on Bertrand's life, in any amount and form or forms that
the Company may choose. Bertrand shall, at the Company's request, submit to all
medical examinations, supply all information and execute all documents required
by the insurance company or companies to whom the Company has applied for the
insurance.
6. Corporate Data and Antisolicitation. Upon the termination of
Bertrand's employment under this Agreement for any reason, Bertrand shall return
to the Company all data and information, whether written, computer, magnetic,
electronic or in any other physical or tangible form, relating to the business
of the Company or any of its affiliates that Bertrand obtained during the time
of his employment. During the term of this Agreement or for a period of one
year thereafter, Bertrand shall neither disclose to any other person or entity,
nor use for his own personal benefit, any information obtained during his
employment by the Company that is not otherwise publicly known, relating to the
financial affairs, distributor lists or the business operations of the Company
or any of its subsidiaries or affiliates. During the term of this Agreement or
for a period of one year thereafter, Bertrand will not influence or attempt to
influence distributors of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity then
in competition with the business of the Company or any subsidiary or affiliate
of the Company, nor
2
<PAGE>
will he solicit any of the Company's employees who earned annually $25,000 or
more as a Company employee during the last six months of his or his own
employment to work for any individual, partnership, firm, corporation or other
entity then in competition with the business of the Company or any subsidiary or
affiliate of the Company.
7. Termination.
(a) The Company shall have the right at any time to terminate
Bertrand's employment under this Agreement without further liability or
obligation pursuant to this Agreement upon the occurrence of any of the
following events:
(i) By mutual written agreement, signed by both parties; or
(ii) The death of Bertrand; or
(iii) If the Company determines in good faith that the Disability
of Bertrand has occurred (pursuant to the definition of Disability set forth
below), it may give to Bertrand written notice in accordance with Section 13 of
its intention to terminate Bertrand's employment. In such event, Bertrand's
employment with the Company shall terminate effective upon receipt of such
notice by Bertrand, provided that, upon receipt, Bertrand shall not have
returned to full-time performance of his duties. For purposes of this Agreement,
"Disability" shall mean a physical or mental impairment which substantially
limits a major life activity of Bertrand which renders Bertrand unable to
perform the essential functions of his position, even with reasonable
accommodation which does not impose an undue hardship on the Company. The
Company reserves the right, in good faith, to make the determination of
Disability under this Agreement based upon information supplied by Bertrand
and/or his medical personnel as well as information from medical personnel (or
others) selected by the Company or its insurers; or
(iv) Bertrand is convicted of any crime constituting a felony
under the law of the United States or any State; or
(v) A "Material Breach" of this Agreement as determined by the
Board. The exercise of the right of the Company to terminate this Agreement
shall not abrogate the rights and remedies of the Company in respect of the
breach giving rise to such termination. For purposes of this subsection,
"Material Breach" shall mean that the Company, acting in good faith based upon
the information then known to the Company, determines that Bertrand has engaged
or committed: willful misconduct; gross negligence; theft, fraud or other
illegal conduct; refusal or unwillingness to perform his duties; sexual
harassment; violation of any fiduciary duties; violation of any duty of loyalty;
or a material breach of any term of this Agreement. The "Material Breach" shall
be specified in a notice of termination to be delivered by the Company no later
than the date as of which the termination is effective.
(b) If Bertrand's employment is terminated by the Company for any
reason other than those set forth in sections 7(a)(i) through 7(a)(v) above,
then the Company shall pay "Termination Pay" to Bertrand in full settlement of
any and all claims of Bertrand arising out of or in connection with his
employment by the Company which shall be evidenced by a general release
3
<PAGE>
and waiver of claims against the Company and its affiliates in a form reasonably
acceptable to the Company executed by Bertrand. The "Termination Pay" shall
consist of (i) twelve months' salary, which shall be paid in six monthly
installments of $50,000 each, commencing on the first day of the month after the
month in which termination occurred and continuing on the first day of each
month thereafter until all six installments have been paid; and (ii) the product
of the Bonus to which Bertrand would be entitled, multiplied by a fraction
having a numerator equal to the number of days in the annual period preceding
the date of termination and a denominator equal to 365, which shall be paid to
Bertrand no later than 90 days after the end of the annual period in which
termination occurred. Such payments shall be made in accordance with the
Company's customary payroll practices and shall be subject to applicable
withholding and payroll deductions.
(c) If during the term of this Agreement, the Company effects a
merger or acquisition in which it is not the surviving entity or is a party to a
stock exchange or other form of corporate reorganization in which it becomes a
wholly-owned subsidiary of another entity (unless such entity is a holding
company and the shareholders of the Company have approved the reorganization)
and Bertrand's employment is thereafter terminated by the Company
notwithstanding that no "Material Breach" has occurred, then Bertrand shall be
entitled to "Termination Pay."
(d) For purposes of this Section 7, voluntary termination of
employment by Bertrand as a result of a material change by the Company in
Bertrand's job responsibilities shall be deemed to be termination by the Company
without a "Material Breach" and Bertrand shall be entitled to "Termination Pay".
(e) If the Company provides notice of termination to Bertrand prior
to any renewal period specified in Section 3 for any reason other than those set
forth in Sections 7(a)(i) through 7(a)(v) above, then Bertrand shall be entitled
to "Termination Pay."
(f) Bertrand shall have the right to terminate this Agreement in the
event of a default by the Company of any material provision of this Agreement
but only if Bertrand shall have first given written notice of the default to the
Company and if within thirty days after receipt of that notice the Company has
not cured that default. Upon termination neither Bertrand nor the Company shall
have any further obligations under any of the provisions of this Agreement
except that Bertrand shall be entitled to "Termination Pay".
(g) Bertrand agrees that the payments contemplated by this Agreement
shall constitute the exclusive and sole remedy for any termination of his
employment and Bertrand covenants not to assert or pursue any other remedies, at
law or in equity, with respect to any termination of employment.
8. Remedies. If there is a breach or threatened breach of the provisions
of Section 2 or 6 of this Agreement, the Company shall be entitled to an
injunction restraining Bertrand from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for such
breach or threatened breach.
4
<PAGE>
9. Severability. It is the clear intention of the parties to this
Agreement that no term, provision or clause of this Agreement shall be deemed to
be invalid, illegal or unenforceable in any respect, unless such term, provision
or clause cannot be otherwise construed, interpreted, or modified to give effect
to the intent of the parties and to be valid, legal or enforceable. In the
event that such a term, provision, or clause cannot be so construed, interpreted
or modified, the validity, legality and enforceability of the remaining
provisions contained herein and other application(s) thereof shall not in any
way be affected or impaired thereby and shall remain in full force and effect.
10. Waiver of Breach. The waiver by the Company or Bertrand of the breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by that party.
11. Entire Agreement. This document contains the entire agreement between
the parties, supersedes all prior oral agreements, if any, and may not be
changed orally, but only by agreement in writing signed by the parties.
12. Governing Law. This Agreement, its validity, interpretation and
enforcement, shall be governed by the laws of the State of Texas.
13. Notices. Any notice pursuant to this Agreement shall be validly given
or served if that notice is made in writing and delivered personally or sent by
certified mail, return receipt requested, postage prepaid, to the following
addresses:
If to Company: Nutrition For Life International, Inc.
9101 Jameel
Houston, TX 77040
If to Bertrand: To the address for Bertrand set forth below his
signature.
All notices so given shall be deemed effective upon receipt. Either party, by
notice so given, may change the address to which his or its future notices shall
be sent.
14. Assignment and Binding Effect.
(a) This Agreement shall be binding upon Bertrand and the Company and
shall benefit the Company and its successors and assigns.
(b) This Agreement shall not be assignable by Bertrand.
15. Headings. The headings in this Agreement are for convenience only;
they form no part of this Agreement and shall not affect its interpretation.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
the day and year first above written.
NUTRITION FOR LIFE INTERNATIONAL, INC.
By:_______________________________
Authorized Officer
__________________________________
David Bertrand, Individually
Address for Notice:
10622 Great Plains
(Street Address)
Houston, Texas 77064
(City, State and Zip Code)
6
<PAGE>
EXHIBIT 10.29
Employment Agreement
--------------------
This Employment Agreement (the "Agreement") is made effective the 1st day of
November, 1999 by and between Nutrition For Life International, Inc., a Texas
corporation (the "Company") and Jana Mitcham ("Mitcham").
In consideration of the mutual covenants, promises and agreements herein
contained, the Company and Mitcham hereby covenant, promise and agree to and
with each other as follows:
1. Employment. The Company shall employ Mitcham and Mitcham shall be
----------
employed by the Company upon the terms and conditions set forth in this
Agreement.
2. Positions and Duties of Employment. Mitcham shall be required to devote
----------------------------------
her best efforts on a full-time basis to the furtherance of her managerial
duties with the Company as the Company's Executive Vice President. While
serving in these corporate capacities, Mitcham shall have the responsibilities,
duties, obligations, rights, benefits and requisite authority as is customary
for her positions and as may be determined by the Company's Board of Directors
(the "Board") and as set forth in the Bylaws of the Company.
Mitcham understands that her employment as Executive Vice President of the
Company involves a high degree of trust and confidence, that she is employed for
the purpose of furthering the Company's reputation and improving the Company's
operations and profitability, and that in executing this Agreement she
undertakes obligations set forth herein to accomplish such objectives. Mitcham
agrees that she shall serve the Company fully, diligently and competently, and
to the best of her ability. Mitcham certifies that she fully understands her
right to discuss this Agreement with her private attorney, that to the extent,
if any, she desires, she has availed herself of this right, that she has
carefully read and fully understands this entire Agreement, and that she is
voluntarily entering into this Agreement.
3. Term. Except as otherwise provided in this Agreement, the term of this
----
Agreement (the "Term") shall be for a period of one year commencing November 1,
1999 and shall automatically renew for two successive periods of one year each
unless either party gives notice of the termination of the Agreement to the
other not fewer than 30 days prior to the expiration of the applicable yearly
period.
4. Compensation. Mitcham shall receive the following as compensation:
------------
(a) Mitcham shall receive a monthly salary of $23,500 for each full month
of her employment by the Company pursuant to this Agreement, payable in
accordance with the Company's customary payroll practices.
(b) In addition to her salary, Mitcham shall be entitled to a bonus,
payable within 105 days of the end of each annual period of the Term, based upon
the Company meeting certain pre-tax income levels defined below (the "Bonus").
Pre-tax income shall be determined in accordance with generally accepted
accounting principles. Provided, that the operations of
1
<PAGE>
any companies acquired by the Company after the commencement of the Term shall
not be included in the calculation of pre-tax income. In the event of any
dispute over the amount of pre-tax income, a final determination shall be made
by Grant Thornton LLP or another independent certified public accounting firm
selected by the Company. No Bonus shall be payable unless the Company's annual
pre-tax income is $3,000,000 or more. The amount of the Bonus shall be 5% of the
first annual pre-tax income of the Company, which is between $3,000,000 and
$5,000,000; 4% of the annual pre-tax income of the Company which is between
$5,000,000 and $10,000,000; and 3% of the annual pre-tax income of the Company
which is between $10,000,000 and $20,000,000. No Bonus shall be payable for any
annual pre-tax income of the Company in excess of $20,000,000.
(c) The Company shall provide Mitcham with participation in any group
plans or agreements maintained by the Company relating to health insurance or
other related benefits in accordance with their respective terms.
(d) Mitcham shall be entitled to leaves for vacations for periods
reasonably determined by the Board. In addition, Mitcham shall be entitled to
reasonable absences for attendance at business seminars and conventions.
(e) Any payment which the Company shall make to Mitcham pursuant to
this Agreement shall be reduced by standard withholding and other authorized
deductions.
(f) During the term of her employment, Mitcham shall be reimbursed
for reasonable expenses incurred by her for the benefit of the Company. Any
direct payment or reimbursement of expenses shall be made only upon presentation
of an itemized accounting conforming in form and content to standards prescribed
by the Internal Revenue Service relative to the substantiation of the
deductibility of business expenses.
5. Life Insurance. The Company may, but shall not be obligated to,
--------------
apply for and procure as owner and for its own benefit or the benefit of any
lender of the Company, insurance on Mitcham's life, in any amount and form or
forms that the Company may choose. Mitcham shall, at the Company's request,
submit to all medical examinations, supply all information and execute all
documents required by the insurance company or companies to whom the Company has
applied for the insurance.
6. Corporate Data and Antisolicitation. Upon the termination of
-----------------------------------
Mitcham's employment under this Agreement for any reason, Mitcham shall return
to the Company all data and information, whether written, computer, magnetic,
electronic or in any other physical or tangible form, relating to the business
of the Company or any of its affiliates that Mitcham obtained during the time of
her employment. During the term of this Agreement or for a period of one year
thereafter, Mitcham shall neither disclose to any other person or entity, nor
use for her own personal benefit, any information obtained during her employment
by the Company that is not otherwise publicly known, relating to the financial
affairs, distributor lists or the business operations of the Company or any of
its subsidiaries or affiliates. During the term of this Agreement or for a
period of one year thereafter, Mitcham will not influence or attempt to
influence distributors of the company or any of its present or future
subsidiaries or
2
<PAGE>
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company or any subsidiary or affiliate of the Company,
nor will she solicit any of the Company's employees who earned annually $25,000
or more as a Company employee during the last six months of her or her own
employment to work for any individual, partnership, firm, corporation or other
entity then in competition with the business of the Company or any subsidiary or
affiliate of the Company.
7. Termination.
-----------
(a) The Company shall have the right at any time to terminate
Mitcham's employment under this Agreement without further liability or
obligation pursuant to this Agreement upon the occurrence of any of the
following events:
(i) By mutual written agreement, signed by both parties; or
(ii) The death of Mitcham; or
(iii) If the Company determines in good faith that the Disability of
Mitcham has occurred (pursuant to the definition of Disability set
forth below), it may give to Mitcham written notice in accordance with
Section 13 of its intention to terminate Mitcham's employment. In such
event, Mitcham's employment with the Company shall terminate effective
upon receipt of such notice by Mitcham, provided that, upon receipt,
Mitcham shall not have returned to full-time performance of her
duties. For purposes of this Agreement, "Disability" shall mean a
physical or mental impairment which substantially limits a major life
activity of Mitcham which renders Mitcham unable to perform the
essential functions of her position, even with reasonable
accommodation which does not impose an undue hardship on the Company.
The Company reserves the right, in good faith, to make the
determination of Disability under this Agreement based upon
information supplied by Mitcham and/or her medical personnel as well
as information from medical personnel (or others) selected by the
Company or its insurers; or
(iv) Mitcham is convicted of any crime constituting a felony under
the law of the United States or any State; or
(v) A "Material Breach" of this Agreement as determined by the
Board. The exercise of the right of the Company to terminate this
Agreement shall not abrogate the rights and remedies of the Company in
respect of the breach giving rise to such termination. For purposes of
this subsection, "Material Breach" shall mean that the Company, acting
in good faith based upon the information then known to the Company,
determines that Mitcham has engaged or committed: willful misconduct;
gross negligence; theft, fraud or other illegal conduct; refusal or
unwillingness to perform her duties; sexual harassment; violation of
any fiduciary duties; violation of any duty of loyalty; or a material
3
<PAGE>
breach of any term of this Agreement. The "Material Breach" shall be
specified in a notice of termination to be delivered by the Company no
later than the date as of which the termination is effective.
(b) If Mitcham's employment is terminated by the Company for any
reason other than those set forth in sections 7(a)(i) through 7(a)(v) above,
then the Company shall pay "Termination Pay" to Mitcham in full settlement of
any and all claims of Mitcham arising out of or in connection with her
employment by the Company which shall be evidenced by a general release and
waiver of claims against the Company and its affiliates in a form reasonably
acceptable to the Company executed by Mitcham. The "Termination Pay" shall
consist of (i) twelve months' salary, which shall be paid in six monthly
installments of $47,000 each, commencing on the first day of the month after the
month in which termination occurred and continuing on the first day of each
month thereafter until all six installments have been paid; and (ii) the product
of the Bonus to which Mitcham would be entitled, multiplied by a fraction having
a numerator equal to the number of days in the annual period preceding the date
of termination and a denominator equal to 365, which shall be paid to Mitcham no
later than 90 days after the end of the annual period in which termination
occurred. Such payments shall be made in accordance with the Company's customary
payroll practices and shall be subject to applicable withholding and payroll
deductions.
(c) If during the term of this Agreement, the Company effects a
merger or acquisition in which it is not the surviving entity or is a party to a
stock exchange or other form of corporate reorganization in which it becomes a
wholly-owned subsidiary of another entity (unless such entity is a holding
company and the shareholders of the Company have approved the reorganization)
and Mitcham's employment is thereafter terminated by the Company notwithstanding
that no "Material Breach" has occurred, then Mitcham shall be entitled to
"Termination Pay."
(d) For purposes of this Section 7, voluntary termination of
employment by Mitcham as a result of a material change by the Company in
Mitcham's job responsibilities shall be deemed to be termination by the Company
without a "Material Breach" and Mitcham shall be entitled to "Termination Pay".
(e) If the Company provides notice of termination to Mitcham prior to
any renewal period specified in Section 3 for any reason other than those set
forth in Sections 7(a)(i) through 7(a)(v) above, then Mitcham shall be entitled
to "Termination Pay."
(f) Mitcham shall have the right to terminate this Agreement in the
event of a default by the Company of any material provision of this Agreement
but only if Mitcham shall have first given written notice of the default to the
Company and if within thirty days after receipt of that notice the Company has
not cured that default. Upon termination neither Mitcham nor the Company shall
have any further obligations under any of the provisions of this Agreement
except that Mitcham shall be entitled to "Termination Pay".
(g) Mitcham agrees that the payments contemplated by this Agreement
shall constitute the exclusive and sole remedy for any termination of her
employment and Mitcham
4
<PAGE>
covenants not to assert or pursue any other remedies, at law or in equity, with
respect to any termination of employment.
8. Remedies. If there is a breach or threatened breach of the
--------
provisions of Section 2 or 6 of this Agreement, the Company shall be entitled to
an injunction restraining Mitcham from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for such
breach or threatened breach.
9. Severability. It is the clear intention of the parties to this
------------
Agreement that no term, provision or clause of this Agreement shall be deemed to
be invalid, illegal or unenforceable in any respect, unless such term, provision
or clause cannot be otherwise construed, interpreted, or modified to give effect
to the intent of the parties and to be valid, legal or enforceable. In the event
that such a term, provision, or clause cannot be so construed, interpreted or
modified, the validity, legality and enforceability of the remaining provisions
contained herein and other application(s) thereof shall not in any way be
affected or impaired thereby and shall remain in full force and effect.
10. Waiver of Breach. The waiver by the Company or Mitcham of the
----------------
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by that party.
11. Entire Agreement. This document contains the entire agreement between
----------------
the parties, supersedes all prior oral agreements, if any, and may not be
changed orally, but only by agreement in writing signed by the parties.
12. Governing Law. This Agreement, its validity, interpretation and
-------------
enforcement, shall be governed by the laws of the State of Texas.
13. Notices. Any notice pursuant to this Agreement shall be validly
-------
given or served if that notice is made in writing and delivered personally or
sent by certified mail, return receipt requested, postage prepaid, to the
following addresses:
If to Company: Nutrition For Life International, Inc.
9101 Jameel
Houston, TX 77040
If to Mitcham: To the address for Mitcham set forth below her
signature.
All notices so given shall be deemed effective upon receipt. Either party, by
notice so given, may change the address to which her or its future notices shall
be sent.
14. Assignment and Binding Effect.
-----------------------------
(a) This Agreement shall be binding upon Mitcham and the Company and
shall benefit the Company and its successors and assigns.
5
<PAGE>
(b) This Agreement shall not be assignable by Mitcham.
15. Headings. The headings in this Agreement are for convenience only;
--------
they form no part of this Agreement and shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
the day and year first above written.
NUTRITION FOR LIFE INTERNATIONAL, INC.
By:_______________________________
Authorized Officer
__________________________________
Jana Mitcham, Individually
Address for Notice:
10618 Great Plains
----------------------------------
(Street Address)
Houston, Texas 77064
----------------------------------
(City, State and Zip Code)
6
<PAGE>
EXHIBIT 10.30
Employment Agreement
--------------------
This Employment Agreement (the "Agreement") is made effective the 17th day of
November, 1999 by and between Nutrition For Life International, Inc., a Texas
corporation (the "Company") and Gregory Pusey ("Pusey").
In consideration of the mutual covenants, promises and agreements herein
contained, the Company and Pusey hereby covenant, promise and agree to and with
each other as follows:
1. Employment. The Company shall employ Pusey and Pusey shall be employed by
----------
the Company upon the terms and conditions set forth in this Agreement.
2. Positions and Duties of Employment. Pusey shall be required to devote his
----------------------------------
best efforts to the furtherance of his managerial duties with the Company as the
Company's Chairman of the Board of Directors. Pusey agrees to devote such time
to the business of the Company as is necessary to competently perform his duties
for the Company. While serving in these corporate capacities, Pusey shall have
the responsibilities, duties, obligations, rights, benefits and requisite
authority as is customary for his positions and as may be determined by the
Company's Board of Directors (the "Board") and as set forth in the Bylaws of the
Company.
Pusey understands that his employment as Chairman of the Board of
Directors involves a high degree of trust and confidence, that he is employed
for the purpose of furthering the Company's reputation and improving the
Company's operations and profitability, and that in executing this Agreement he
undertakes obligations set forth herein to accomplish such objectives. Pusey
agrees that he shall serve the Company fully, diligently and competently, and to
the best of his ability. Pusey certifies that he fully understands his right to
discuss this Agreement with his private attorney, that to the extent, if any, he
desires, he has availed herself of this right, that he has carefully read and
fully understands this entire Agreement, and that he is voluntarily entering
into this Agreement.
3. Term. Except as otherwise provided in this Agreement, the term of this
----
Agreement (the "Term") shall be for a period of two years commencing on the
effective date of this Agreement and shall terminate two years thereafter.
4. Compensation. Pusey shall receive the following as compensation:
------------
(a) Pusey shall receive a monthly salary of $10,000 for each full month
of his employment by the Company pursuant to this Agreement, payable in
accordance with the Company's customary payroll practices.
(b) In addition to his base salary, Pusey shall be entitled to a
performance bonus at the discretion of the Board.
(c) The Company shall provide Pusey with participation in any group plans
or agreements maintained by the Company relating to health insurance or other
related benefits in accordance with their respective terms.
1
<PAGE>
(d) Pusey shall be entitled to leaves for vacations for periods
reasonably determined by the Board. In addition, Pusey shall be entitled to
reasonable absences for attendance at business seminars and conventions.
(e) Any payment which the Company shall make to Pusey pursuant to this
Agreement shall be reduced by standard withholding and other authorized
deductions.
(f) During the term of his employment, Pusey shall be reimbursed for
reasonable expenses incurred by his for the benefit of the Company. Any direct
payment or reimbursement of expenses shall be made only upon presentation of an
itemized accounting conforming in form and content to standards prescribed by
the Internal Revenue Service relative to the substantiation of the deductibility
of business expenses.
5. Life Insurance. The Company may, but shall not be obligated to, apply for
--------------
and procure as owner and for its own benefit or the benefit of any lender of the
Company, insurance on Pusey's life, in any amount and form or forms that the
Company may choose. Pusey shall, at the Company's request, submit to all
medical examinations, supply all information and execute all documents required
by the insurance company or companies to whom the Company has applied for the
insurance.
6. Corporate Data and Antisolicitation. Upon the termination of Pusey's
-----------------------------------
employment under this Agreement for any reason, Pusey shall return to the
Company all data and information, whether written, computer, magnetic,
electronic or in any other physical or tangible form, relating to the business
of the Company or any of its affiliates that Pusey obtained during the time of
his employment. During the term of this Agreement or for a period of one year
thereafter, Pusey shall neither disclose to any other person or entity, nor use
for his own personal benefit, any information obtained during his employment by
the Company that is not otherwise publicly known, relating to the financial
affairs, distributor lists or the business operations of the Company or any of
its subsidiaries or affiliates. During the term of this Agreement or for a
period of one year thereafter, Pusey will not influence or attempt to influence
distributors of the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company or any subsidiary or affiliate of the Company,
nor will he solicit any of the Company's employees who earned annually $25,000
or more as a Company employee during the last six months of his or his own
employment to work for any individual, partnership, firm, corporation or other
entity then in competition with the business of the Company or any subsidiary or
affiliate of the Company.
7. Termination.
-----------
(a) The Company shall have the right at any time to terminate Pusey's
employment under this Agreement without further liability or obligation pursuant
to this Agreement upon the occurrence of any of the following events:
(i) By mutual written agreement, signed by both parties; or
(ii) The death of Pusey; or
2
<PAGE>
(iii) If the Company determines in good faith that the Disability of
Pusey has occurred (pursuant to the definition of Disability set forth
below), it may give to Pusey written notice in accordance with Section
13 of its intention to terminate Pusey's employment. In such event,
Pusey's employment with the Company shall terminate effective upon
receipt of such notice by Pusey, provided that, upon receipt, Pusey
shall not have returned to full-time performance of his duties. For
purposes of this Agreement, "Disability" shall mean a physical or
mental impairment which substantially limits a major life activity of
Pusey which renders Pusey unable to perform the essential functions of
his position, even with reasonable accommodation which does not impose
an undue hardship on the Company. The Company reserves the right, in
good faith, to make the determination of Disability under this
Agreement based upon information supplied by Pusey and/or his medical
personnel as well as information from medical personnel (or others)
selected by the Company or its insurers; or
(iv) Pusey is convicted of any crime constituting a felony under the
law of the United States or any State; or
(v) A "Material Breach" of this Agreement as determined by the
Board. The exercise of the right of the Company to terminate this
Agreement shall not abrogate the rights and remedies of the Company in
respect of the breach giving rise to such termination. For purposes of
this subsection, "Material Breach" shall mean that the Company, acting
in good faith based upon the information then known to the Company,
determines that Pusey has engaged or committed: willful misconduct;
gross negligence; theft, fraud or other illegal conduct; refusal or
unwillingness to perform his duties; sexual harassment; violation of
any fiduciary duties; violation of any duty of loyalty; or a material
breach of any term of this Agreement. The "Material Breach" shall be
specified in a notice of termination to be delivered by the Company no
later than the date as of which the termination is effective.
(b) If Pusey's employment is terminated by the Company for any
reason other than those set forth in sections 7(a)(i) through 7(a)(v) above,
then the Company shall pay "Termination Pay" to Pusey in full settlement of any
and all claims of Pusey arising out of or in connection with his employment by
the Company which shall be evidenced by a general release and waiver of claims
against the Company and its affiliates in a form reasonably acceptable to the
Company executed by Pusey. The "Termination Pay" shall consist of three months'
salary, which shall be paid in three monthly installments of $10,000 each,
commencing on the first day of the month after the month in which termination
occurred and continuing on the first day of each month thereafter until all
three installments have been paid. Such payments shall be made in accordance
with the Company's customary payroll practices and shall be subject to
applicable withholding and payroll deductions.
(c) If during the term of this Agreement, the Company effects a
merger or acquisition in which it is not the surviving entity or is a party to a
stock exchange or other form of corporate reorganization in which it becomes a
wholly-owned subsidiary of another entity (unless such entity is a holding
company and the shareholders of the Company have approved the reorganization)
3
<PAGE>
and Pusey's employment is thereafter terminated by the Company notwithstanding
that no "Material Breach" has occurred, then Pusey shall be entitled to
"Termination Pay."
(d) For purposes of this Section 7, voluntary termination of
employment by Pusey as a result of a material change by the Company in Pusey's
job responsibilities shall be deemed to be termination by the Company without a
"Material Breach" and Pusey shall be entitled to "Termination Pay".
(e) Pusey shall have the right to terminate this Agreement in the
event of a default by the Company of any material provision of this Agreement
but only if Pusey shall have first given written notice of the default to the
Company and if within thirty days after receipt of that notice the Company has
not cured that default. Upon termination neither Pusey nor the Company shall
have any further obligations under any of the provisions of this Agreement
except that Pusey shall be entitled to "Termination Pay".
(f) Pusey agrees that the payments contemplated by this Agreement
shall constitute the exclusive and sole remedy for any termination of his
employment and Pusey covenants not to assert or pursue any other remedies, at
law or in equity, with respect to any termination of employment.
8. Remedies. If there is a breach or threatened breach of the
--------
provisions of Section 2 or 6 of this Agreement, the Company shall be entitled to
an injunction restraining Pusey from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for such
breach or threatened breach.
9. Severability. It is the clear intention of the parties to this
------------
Agreement that no term, provision or clause of this Agreement shall be deemed to
be invalid, illegal or unenforceable in any respect, unless such term, provision
or clause cannot be otherwise construed, interpreted, or modified to give effect
to the intent of the parties and to be valid, legal or enforceable. In the event
that such a term, provision, or clause cannot be so construed, interpreted or
modified, the validity, legality and enforceability of the remaining provisions
contained herein and other application(s) thereof shall not in any way be
affected or impaired thereby and shall remain in full force and effect.
10. Waiver of Breach. The waiver by the Company or Pusey of the breach of
----------------
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by that party.
11. Entire Agreement. This document contains the entire agreement between
----------------
the parties, supersedes all prior oral agreements, if any, and may not be
changed orally, but only by agreement in writing signed by the parties.
12. Governing Law. This Agreement, its validity, interpretation and
-------------
enforcement, shall be governed by the laws of the State of Texas.
13. Notices. Any notice pursuant to this Agreement shall be validly
-------
given or served if that notice is made in writing and delivered personally or
sent by certified mail, return receipt requested, postage prepaid, to the
following addresses:
4
<PAGE>
If to Company: Nutrition For Life International, Inc.
9101 Jameel
Houston, TX 77040
If to Pusey: To the address for Pusey set forth below his signature.
All notices so given shall be deemed effective upon receipt. Either party, by
notice so given, may change the address to which his or its future notices shall
be sent.
14. Assignment and Binding Effect.
-----------------------------
(a) This Agreement shall be binding upon Pusey and the Company and
shall benefit the Company and its successors and assigns.
(b) This Agreement shall not be assignable by Pusey.
15. Headings. The headings in this Agreement are for convenience only;
--------
they form no part of this Agreement and shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed the
day and year first above written.
NUTRITION FOR LIFE INTERNATIONAL, INC.
By:_______________________________
Authorized Officer
__________________________________
Gregory Pusey, Individually
Address for Notice:
1722 Buffehr Creek Road
-----------------------
(Street Address)
Vail, Colorado 81657
---------------------
(City, State and Zip Code)
<PAGE>
EXHIBIT 10.31
Employment Agreement
--------------------
This Employment Agreement (the "Agreement") is made effective the 17th day of
November, 1999 by and between Nutrition For Life International, Inc., a Texas
corporation (the "Company") and Barry C. Loder ("Loder").
In consideration of the mutual covenants, promises and agreements herein
contained, the Company and Loder hereby covenant, promise and agree to and with
each other as follows:
1. Employment. The Company shall employ Loder and Loder shall be employed by
----------
the Company upon the terms and conditions set forth in this Agreement.
2. Positions and Duties of Employment. Loder shall be required to devote his
----------------------------------
best efforts to the furtherance of his managerial duties with the Company as the
Company's Vice President of Corporate Development. Loder agrees to devote such
time to the business of the Company as is necessary to competently perform his
duties as an officer of the Company. While serving in these corporate
capacities, Loder shall have the responsibilities, duties, obligations, rights,
benefits and requisite authority as is customary for his positions and as may be
determined by the Company's Board of Directors (the "Board") and as set forth in
the Bylaws of the Company.
Loder understands that his employment as Vice President of Corporate
Development of the Company involves a high degree of trust and confidence, that
he is employed for the purpose of furthering the Company's reputation and
improving the Company's operations and profitability, and that in executing this
Agreement he undertakes obligations set forth herein to accomplish such
objectives. Loder agrees that he shall serve the Company fully, diligently and
competently, and to the best of his ability. Loder certifies that he fully
understands his right to discuss this Agreement with his private attorney, that
to the extent, if any, he desires, he has availed herself of this right, that he
has carefully read and fully understands this entire Agreement, and that he is
voluntarily entering into this Agreement.
3. Term. Except as otherwise provided in this Agreement, the term of this
----
Agreement (the "Term") shall be for a period of one year commencing on the
effective date of this Agreement and shall terminate one year thereafter.
4. Compensation. Loder shall receive the following as compensation:
------------
(a) Loder shall receive a monthly salary of $8,333 for each full month
of his employment by the Company pursuant to this Agreement, payable in
accordance with the Company's customary payroll practices.
(b) In addition to his base salary, Loder shall be entitled to a
performance bonus at the discretion of the Board.
(c) The Company shall provide Loder with participation in any group
plans or agreements maintained by the Company relating to health insurance or
other related benefits in accordance with their respective terms.
1
<PAGE>
(d) Loder shall be entitled to leaves for vacations for periods
reasonably determined by the Board. In addition, Loder shall be entitled to
reasonable absences for attendance at business seminars and conventions.
(e) Any payment which the Company shall make to Loder pursuant to this
Agreement shall be reduced by standard withholding and other authorized
deductions.
(f) During the term of his employment, Loder shall be reimbursed for
reasonable expenses incurred by his for the benefit of the Company. Any direct
payment or reimbursement of expenses shall be made only upon presentation of an
itemized accounting conforming in form and content to standards prescribed by
the Internal Revenue Service relative to the substantiation of the deductibility
of business expenses.
5. Life Insurance. The Company may, but shall not be obligated to, apply for
--------------
and procure as owner and for its own benefit or the benefit of any lender of the
Company, insurance on Loder's life, in any amount and form or forms that the
Company may choose. Loder shall, at the Company's request, submit to all
medical examinations, supply all information and execute all documents required
by the insurance company or companies to whom the Company has applied for the
insurance.
6. Corporate Data and Antisolicitation. Upon the termination of Loder's
-----------------------------------
employment under this Agreement for any reason, Loder shall return to the
Company all data and information, whether written, computer, magnetic,
electronic or in any other physical or tangible form, relating to the business
of the Company or any of its affiliates that Loder obtained during the time of
his employment. During the term of this Agreement or for a period of one year
thereafter, Loder shall neither disclose to any other person or entity, nor use
for his own personal benefit, any information obtained during his employment by
the Company that is not otherwise publicly known, relating to the financial
affairs, distributor lists or the business operations of the Company or any of
its subsidiaries or affiliates. During the term of this Agreement or for a
period of one year thereafter, Loder will not influence or attempt to influence
distributors of the Company or any of its present or future subsidiaries or
affiliates, either directly or indirectly, to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company or any subsidiary or affiliate of the Company,
nor will he solicit any of the Company's employees who earned annually $25,000
or more as a Company employee during the last six months of his or his own
employment to work for any individual, partnership, firm, corporation or other
entity then in competition with the business of the Company or any subsidiary or
affiliate of the Company.
7. Termination.
-----------
(a) The Company shall have the right at any time to terminate Loder's
employment under this Agreement without further liability or obligation pursuant
to this Agreement upon the occurrence of any of the following events:
(i) By mutual written agreement, signed by both parties; or
(ii) The death of Loder; or
2
<PAGE>
(iii) If the Company determines in good faith that the Disability of
Loder has occurred (pursuant to the definition of Disability set forth
below), it may give to Loder written notice in accordance with Section
13 of its intention to terminate Loder's employment. In such event,
Loder's employment with the Company shall terminate effective upon
receipt of such notice by Loder, provided that, upon receipt, Loder
shall not have returned to full-time performance of his duties. For
purposes of this Agreement, "Disability" shall mean a physical or
mental impairment which substantially limits a major life activity of
Loder which renders Loder unable to perform the essential functions of
his position, even with reasonable accommodation which does not impose
an undue hardship on the Company. The Company reserves the right, in
good faith, to make the determination of Disability under this
Agreement based upon information supplied by Loder and/or his medical
personnel as well as information from medical personnel (or others)
selected by the Company or its insurers; or
(iv) Loder is convicted of any crime constituting a felony under the
law of the United States or any State; or
(v) A "Material Breach" of this Agreement as determined by the
Board. The exercise of the right of the Company to terminate this
Agreement shall not abrogate the rights and remedies of the Company in
respect of the breach giving rise to such termination. For purposes of
this subsection, "Material Breach" shall mean that the Company, acting
in good faith based upon the information then known to the Company,
determines that Loder has engaged or committed: willful misconduct;
gross negligence; theft, fraud or other illegal conduct; refusal or
unwillingness to perform his duties; sexual harassment; violation of
any fiduciary duties; violation of any duty of loyalty; or a material
breach of any term of this Agreement. The "Material Breach" shall be
specified in a notice of termination to be delivered by the Company no
later than the date as of which the termination is effective.
(b) If Loder's employment is terminated by the Company for any
reason other than those set forth in sections 7(a)(i) through 7(a)(v) above,
then the Company shall pay "Termination Pay" to Loder in full settlement of any
and all claims of Loder arising out of or in connection with his employment by
the Company which shall be evidenced by a general release and waiver of claims
against the Company and its affiliates in a form reasonably acceptable to the
Company executed by Loder. The "Termination Pay" shall consist of one and one-
half months' salary, which shall be paid in two installments, with the first
installment of $8,333 to be paid on the first day of the month after the month
in which termination occurred and the second and final installment of $4,167 to
be paid on the first day of the second month after the month in which
termination occurred. Such payments shall be made in accordance with the
Company's customary payroll practices and shall be subject to applicable
withholding and payroll deductions.
(c) If during the term of this Agreement, the Company effects a
merger or acquisition in which it is not the surviving entity or is a party to a
stock exchange or other form of corporate reorganization in which it becomes a
wholly-owned subsidiary of another entity (unless such
3
<PAGE>
entity is a holding company and the shareholders of the Company have approved
the reorganization) and Loder's employment is thereafter terminated by the
Company notwithstanding that no "Material Breach" has occurred, then Loder shall
be entitled to "Termination Pay."
(d) For purposes of this Section 7, voluntary termination of
employment by Loder as a result of a material change by the Company in Loder's
job responsibilities shall be deemed to be termination by the Company without a
"Material Breach" and Loder shall be entitled to "Termination Pay".
(e) Loder shall have the right to terminate this Agreement in the
event of a default by the Company of any material provision of this Agreement
but only if Loder shall have first given written notice of the default to the
Company and if within thirty days after receipt of that notice the Company has
not cured that default. Upon termination neither Loder nor the Company shall
have any further obligations under any of the provisions of this Agreement
except that Loder shall be entitled to "Termination Pay".
(f) Loder agrees that the payments contemplated by this Agreement
shall constitute the exclusive and sole remedy for any termination of his
employment and Loder covenants not to assert or pursue any other remedies, at
law or in equity, with respect to any termination of employment.
8. Remedies. If there is a breach or threatened breach of the
--------
provisions of Section 2 or 6 of this Agreement, the Company shall be entitled to
an injunction restraining Loder from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for such
breach or threatened breach.
9. Severability. It is the clear intention of the parties to this
------------
Agreement that no term, provision or clause of this Agreement shall be deemed to
be invalid, illegal or unenforceable in any respect, unless such term, provision
or clause cannot be otherwise construed, interpreted, or modified to give effect
to the intent of the parties and to be valid, legal or enforceable. In the event
that such a term, provision, or clause cannot be so construed, interpreted or
modified, the validity, legality and enforceability of the remaining provisions
contained herein and other application(s) thereof shall not in any way be
affected or impaired thereby and shall remain in full force and effect.
10. Waiver of Breach. The waiver by the Company or Loder of the breach of
----------------
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by that party.
11. Entire Agreement. This document contains the entire agreement between
----------------
the parties, supersedes all prior oral agreements, if any, and may not be
changed orally, but only by agreement in writing signed by the parties.
12. Governing Law. This Agreement, its validity, interpretation and
-------------
enforcement, shall be governed by the laws of the State of Texas.
4
<PAGE>
13. Notices. Any notice pursuant to this Agreement shall be validly
-------
given or served if that notice is made in writing and delivered personally or
sent by certified mail, return receipt requested, postage prepaid, to the
following addresses:
If to Company: Nutrition For Life International, Inc.
9101 Jameel
Houston, TX 77040
If to Loder: To the address for Loder set forth below his signature.
All notices so given shall be deemed effective upon receipt. Either party, by
notice so given, may change the address to which his or its future notices shall
be sent.
14. Assignment and Binding Effect.
-----------------------------
(a) This Agreement shall be binding upon Loder and the Company and
shall benefit the Company and its successors and assigns.
(b) This Agreement shall not be assignable by Loder.
15. Headings. The headings in this Agreement are for convenience only;
--------
they form no part of this Agreement and shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
the day and year first above written.
NUTRITION FOR LIFE INTERNATIONAL, INC.
By:_______________________________
Authorized Officer
__________________________________
Barry C. Loder, Individually
Address for Notice:
2912 Lafayette
----------------------------------
(Street Address)
Houston, Texas 77005
----------------------------------
(City, State and Zip Code)
5
<PAGE>
EXHIBIT 10.32
Employment Agreement
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of November
17, 1999 between BPI Acquisition Company, a Delaware corporation (the "Company")
and Pailla Reddy (the "Executive").
RECITALS
A. This Agreement is entered into in connection with the acquisition by
the Company of Bactolac Pharmaceuticals, Inc., a New York corporation ("BPI")
pursuant to that certain Agreement and Plan of Merger dated November 5, 1999
(the "Merger Agreement") by and among Nutrition For Life International, Inc.,
Advanced Nutraceuticals, Inc., the Company, BPI and the shareholder of BPI.
B. The Company desires to employ the Executive, and the Executive desires
to be so employed by the Company, on the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement, the Company and the Executive hereby agree as
follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the Company
employs the Executive, and the Executive accepts such employment, from the date
hereof until the earlier of (i) November 12, 2001 or (ii) the date such
employment is terminated pursuant to Section 4 of this Agreement. During the
Executive's employment under this Agreement, the Executive shall perform such
duties for the Company as may from time to time be assigned to the Executive by
the Board of Directors of the Company (the "Board"). The Executive shall have
the title of President and such additional titles as from time to time may be
assigned to the Executive by the Board.
(b) The Executive will devote his entire business time, energy, attention
and skill to the services of the Company and its affiliates and to the promotion
of their interests; provided, however, the Executive may from time to time
render some services to Maxus Worldwide, Inc., which will not interfere in any
material respect with his duties to the Company. So long as the Executive is
employed by the Company, the Executive shall not, without the written consent of
the Company:
(i) engage in any other activity for compensation, profit or other
pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
<PAGE>
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Executive's investment solely as a shareholder
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of two percent (2%) of any class of shares that are traded on a
national securities exchange or quoted on the NASDAQ National Market; and,
provided further, Executive may maintain his stock ownership interest in Maxus
Worldwide, Inc., a company in the business of pharmaceuticals which Executive
represents is not in, nor will it enter, the business of manufacturing
nutritional supplements.
2. Location of Employment. The Executive's principal place of employment
----------------------
shall be at the executive offices of the Company located in Westbury, New York
or in the same general area; provided, that at the direction of the Board, the
Executive may from time to time be required to travel to various domestic and
foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Executive's obligations
and duties under this Agreement, the Company shall pay the Executive a base
salary at a monthly rate of $16,666.66, payable in accordance with the Company's
standard payroll practices. In any month in which the Executive shall be
employed for less than the entire number of days in such month, the compensation
payable under this Section 3(a) shall be prorated on the basis of the number of
days during which the Executive was actually employed divided by the number of
days in such month. The base salary described in subsection (a) hereof is a
gross amount, and the Company shall be required to withhold from such amount
deductions with respect to Federal, state and local taxes, FICA, unemployment
compensation taxes and similar taxes, assessments or withholding requirements.
(b) In addition to the base salary, Executive shall be entitled to a
performance bonus (the "Bonus") at the discretion of the Board.
(c) During the Executive's employment under this Agreement, the
Executive shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Executive, consistent with the
policies established by the Board, in rendering to the Company the services
provided for in this Agreement, upon presentation of expense statements or such
other supporting information as is consistent with the policies of the Company.
(d) The Executive shall be entitled to 15 business days vacation for
each full year of employment under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(e) The Executive shall be entitled to participate in all benefit
plans (including deferred compensation plans and any medical, dental or life
insurance plans) which shall be available from time to time to the domestic
management employees of the Company generally, except to the extent such
participation in any plan would alter the intended tax treatment of such plan;
provided, however, that the Executive shall have no right under this Agreement
to participate in any additional stock option, stock purchase or other plan
relating to shares of capital stock of the Company or its affiliates. The
Executive acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
-2-
<PAGE>
(f) The Executive shall be entitled to the continued use of the car
presently leased by Bactolac.
4. Termination.
-----------
(a) The employment of the Executive under this Agreement may be
terminated by the Company immediately upon giving the Executive notice if the
Executive has been unable to discharge his essential job duties by reason of
illness or injury for either (A) a period of ninety (90) consecutive days or (B)
one hundred eighty (180) days in any twelve month period. In the event of any
dispute regarding the existence of Executive's Disability hereunder, the matter
will be resolved by the determination of a majority of three physicians
qualified to practice medicine in New York, one to be selected by each of
Executive and the Board and the third to be selected by the two designated
physicians. For this purpose, Executive will submit to appropriate medical
examinations.
(b) The employment of the Executive under this Agreement shall
terminate on the date of the Executive's death.
(c) The employment of the Executive under this Agreement may be
terminated by the Company for Cause. For purposes of this Agreement, "Cause"
shall mean (i) the willful failure or refusal by the Executive to perform his
duties hereunder which has not ceased within ten (10) business days after
written demand for substantial performance is delivered to the Executive by the
Company, which demand identifies the manner in which the Company believes that
the Executive has not performed such duties; (ii) the Executive shall
intentionally engage in misconduct toward the Company which is materially
injurious to the Company or its Subsidiaries, monetarily or otherwise
(including, but not limited to, conduct in violation of the confidentiality or
solicitation agreements herein or the non-competition agreement executed with
respect to the merger of Bactolac Pharmaceuticals, Inc. and the Company); or
(iii) the conviction of the Executive of or the entering of a plea of nolo
contendre by the Executive with respect to, a felony or a crime involving moral
turpitude.
(d) The employment of the Executive under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Executive or, if no notice is given, on the date on which the Executive
voluntarily terminates his employment relationship with the Company.
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Executive's employment for
any reason or no reason and with or without cause or prior notice.
(f) If the Executive's employment is terminated pursuant to this
Section 4 or for any other reason, the Executive shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) base salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination;
-3-
<PAGE>
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
(iii) if the Executive's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Executive the
base salary described in Section 3(a) above until the earlier of (A) twelve (12)
months following such termination or (B) the termination date set forth in
Section 1(a)(i) of this Agreement.
(g) Executive may terminate his employment hereunder for "Good
Reason" (as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean:
(A) a reduction in Executive's base salary then in effect; (B) a material
reduction in Executive's positions, duties and responsibilities from those
described in Section 1(a) of this Agreement; or (C) the failure of the Company
to obtain the assumption of this Agreement by any successor to the extent
required pursuant to Section 12(a) of this Agreement.
(ii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (A) if Executive shall have
specifically consented in writing to the occurrence of the event giving rise to
the claim of termination for Good Reason or (B) unless Executive, within thirty
(30) days after receiving written notice from the Company specifying in
reasonable detail the occurrence of one of such events, shall have delivered a
written notice to the Company stating that he intends to terminate his
employment for Good Reason and specifying the factual basis for such termination
and such event, if capable of being cured, shall not have been cured within
thirty (30) days of the receipt by the Company of such notice.
(iii) If Executive shall terminate his employment for Good Reason
pursuant to this subsection (g), the Company shall pay Executive (or, in the
event of his death, his devisee, legatee or, if there is none, his estate) a
lump-sum amount equal to the lesser of (A) the Executive's monthly base salary
in effect on the date of termination, multiplied by a factor twelve (12), or (B)
the Executive's monthly base salary in effect on the date of termination,
multiplied by the number of months remaining until the termination date set
forth in Section 1(a)(i) of this Agreement. Executive will also be entitled to
any vested benefits under any employee benefit plans.
(h) As a condition to and in consideration of the payments under
subsections (f) and (g) hereof, the Executive shall execute a general release as
to both known and unknown matters occurring prior to the date of termination.
5. Executive's Representations.
---------------------------
(a) The Executive represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Executive from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Executive hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs
-4-
<PAGE>
(including reasonable attorney's fees) arising out of a breach, or claimed
breach, of any of the representations, warranties and covenants of the Executive
set forth in this Agreement.
(c) The Executive acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Executive has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Executive is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Confidentiality; Non-Solicitation.
---------------------------------
(a) Disclosure. The Executive acknowledges that, in the performance
----------
of duties on behalf of the Company, the Executive shall have access to, receive
and be entrusted with confidential information, including but in no way limited
to development, marketing, organizational, financial, management,
administrative, production, distribution and sales information, data,
specifications and processes presently owned or at any time in the future
developed by, the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to the
Executive in confidence. Except in the performance of the Executive's duties on
behalf of the Company, the Executive shall not, directly or indirectly for any
reason whatsoever, disclose or use any such Confidential Material, unless such
Confidential Material ceases (through no fault of Executive's) to be
confidential because it has become part of the public domain. All records,
files, drawings, documents, equipment and other tangible items, wherever
located, relating in any way to the Confidential Material or otherwise to the
Company's business, which the Executive prepares, uses, or encounters, shall be
and remain the Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement by any means, or
whenever requested by the Company, the Executive shall promptly deliver to the
Company any and all of the Confidential Material not previously delivered to the
Company that may be or at any previous time has been in the Executive's
possession or under the Executive's control.
(b) Unfair Competition. The Executive hereby acknowledges that the
------------------
sale or unauthorized use or disclosure of any of the Company's Confidential
Material by Executive by any means whatsoever at any time before, during or
after the Executive's employment with the Company shall constitute "Unfair
Competition." The Executive agrees that the Executive shall not engage in
Unfair Competition either during the time the Executive is employed by the
Company or at any time thereafter.
(c) Other. In the event of the termination of the Executive's
-----
employment for any reason, the Executive (and any corporation or entity of which
the Executive is a director, officer, employee or greater than ten percent (10%)
shareholder) shall not, directly or indirectly, for a period of two (2) years:
(i) solicit for employment and/or employ any employee,
consultant, agent or representative (an "employee") of the Company or any of its
affiliates or subsidiaries (or any such employee who has been "employed" by the
Company during the six (6) month period prior to the termination of this
Agreement) or induce or attempt to induce any customer, supplier, licensee or
other business relation of the Company or any of its affiliates or subsidiaries
to cease
-5-
<PAGE>
doing business with the Company or such affiliate or subsidiary or interfere in
any way with the relationship between any such customer, supplier, licensee or
business relation and the Company or any affiliate or subsidiary; or
(ii) make any public statement concerning the Company, any of its
affiliates or subsidiaries, or the Executive's employment unless previously
approved by the Company, except as may be required by law.
(d) In the event of the breach or a threatened breach by the
Executive of any of the provisions of this Section 6, the Company, in addition
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions thereof (without posting a bond or other security).
(e) Upon termination of this Agreement, the Executive shall be deemed
to have resigned from all offices and directorships then held with the Company
or any affiliate entity.
7. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach hereof or the Executive's employment by the
Company or termination thereof, shall be settled by arbitration (other than
injunctive relief) by one arbitrator in accordance with the rules of the
American Arbitration Association, and judgment upon such award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitration shall be held in New York, New York or such other place as may be
agreed upon at the time by the parties to the arbitration.
8. Mitigation of Damages. In the event of any termination of the
---------------------
Executive's employment by the Company, the Executive shall not be required to
seek other employment to mitigate damages.
9. Equitable Relief. The Executive acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Executive are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Executive hereby agrees that in addition to the remedies
available to the Company by law or under this Agreement, the Company shall be
entitled to obtain such equitable relief (without bond) as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Executive of
any term or provision of this Agreement. In the event of an action pursuant to
this Agreement, the prevailing party shall be entitled to its costs and
expenses, including reasonable attorneys' fees.
10. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts) of the State of Delaware.
11. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Executive by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to
-6-
<PAGE>
such employment; all prior agreements, promises, representations and
understandings relative thereto being herein merged.
12. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or substantially all
of the Company's business or assets shall be transferred in any manner to any
other corporation, partnership or business entity, then such successor to the
Company shall thereupon succeed to, and be subject to, all rights, interests,
duties and obligations of, and shall thereafter be deemed for all purposes
hereof to be, the "Company" under this Agreement. This Agreement shall inure to
the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die, any amounts payable to him
hereunder shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee or, if there be no such
designee, to his estate.
(b) This Agreement is personal in nature and the Executive shall not,
without the written consent of the Company, assign or transfer this Agreement or
any rights or obligations hereunder.
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
13. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
14. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 14. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
15. Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
-7-
<PAGE>
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16. Survival. The representations and agreements of the parties set
--------
forth in Sections 5, 6, 7, 8 and 9 of this Agreement shall survive the
expiration or termination of this Agreement (irrespective of the reason for such
expiration or termination).
[SIGNATURE PAGE FOLLOWS]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
BPI ACQUISITION COMPANY,
a Delaware corporation
By:_________________________
Name:____________________
Title:___________________
Address for Notices:
51 Brooklyn
Westbury, New York 11590
Facsimile: (516) 333-4714
Attention:__________________
with a copy to:
2715 Bissonnett, Suite 305
Houston, Texas 77005
Facsimile: (713) 874-1443
Attention: Mr. Barry Loder
Patton Boggs, LLP
1660 Lincoln Street, Suite 1900
Denver, Colorado 80264
Facsimile: (303) 894-9239
Attention: Robert M. Bearman
____________________________
Pailla Reddy
Address for Notices
51 Brooklyn
Westbury, New York 11590
Facsimile: (516) 333-4714
with a copy to:
Anthony T. Scotto, Esq.
401 Franklin Avenue
Garden City, New York 11530
Facsimile: (516) 739-5451
-9-
<PAGE>
EXHIBIT 10.33
Employment Agreement
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of November
30, 1999 between Bactolac Pharmaceutical Inc., a Delaware corporation (the
"Company") and Allan I. Sirkin (the "Executive").
RECITALS
A. This Agreement is entered into in connection with the acquisition by
the Company of ASH Corp., a Mississippi corporation ("ASH") pursuant to that
certain Agreement and Plan of Merger dated October 25, 1999 by and among
Nutrition For Life International, Inc., Advanced Nutraceuticals, Inc., AC
Acquisition Company, ASH and the shareholders of ASH, as amended on November 24,
1999, which included the addition of the Company as a party (the "Merger
Agreement").
B. The Company desires to employ the Executive, and the Executive desires
to be so employed by the Company, on the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement, the Company and the Executive hereby agree as
follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the Company
employs the Executive, and the Executive accepts such employment, from the date
hereof until the earlier of (i) November 30, 2002 or (ii) the date such
employment is terminated pursuant to Section 4 of this Agreement. During the
Executive's employment under this Agreement, the Executive shall perform such
duties for the Company as may from time to time be assigned to the Executive by
the Board of Directors of the Company (the "Board"). The Executive shall have
the title of Chief Executive Officer of the ASH Division of the Company and such
other titles as from time to time may be assigned to the Executive by the Board.
(b) The Executive will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Executive is employed by the
Company, the Executive shall not, without the written consent of the Company:
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not
<PAGE>
such activity, occupation or endeavor is similar to, competitive with, or
adverse to the business or welfare of the Company; or
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Executive's investment solely as a shareholder
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of two percent (2%) of any class of shares that are traded on a
national securities exchange or quoted on the NASDAQ National Market.
2. Location of Employment. The Executive's principal place of employment
----------------------
shall be at the executive offices of the ASH Division of the Company located in
Gulfport, Mississippi or in the same general area; provided, that at the
direction of the Board, the Executive may from time to time be required to
travel to various domestic and foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Executive's obligations
and duties under this Agreement, the Company shall pay the Executive a base
salary at a monthly rate of $12,500, payable in accordance with the Company's
standard payroll practices. In any month in which the Executive shall be
employed for less than the entire number of days in such month, the compensation
payable under this Section 3(a) shall be prorated on the basis of the number of
days during which the Executive was actually employed divided by the number of
days in such month. The base salary described in subsection (a) hereof is a
gross amount, and the Company shall be required to withhold from such amount
deductions with respect to Federal, state and local taxes, FICA, unemployment
compensation taxes and similar taxes, assessments or withholding requirements.
(b) In addition to the base salary, Executive shall be entitled to a
performance bonus (the "Bonus") at the discretion of the Board.
(c) During the Executive's employment under this Agreement, the
Executive shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Executive, consistent with the
policies established by the Board, in rendering to the Company the services
provided for in this Agreement, upon presentation of expense statements or such
other supporting information as is consistent with the policies of the Company.
(d) The Executive shall be entitled to 15 business days vacation for
each full year of employment under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(e) The Executive shall be entitled to participate in all benefit
plans (including deferred compensation plans and any medical, dental or life
insurance plans) which shall be available from time to time to the domestic
management employees of the Company generally, except to the extent such
participation in any plan would alter the intended tax treatment of such plan;
provided, however, that the Executive shall have no right under this Agreement
to participate in any additional stock option, stock purchase or other plan
relating to shares of capital stock of the Company or its
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<PAGE>
affiliates. The Executive acknowledges and agrees that the Board may in its
discretion terminate at any time or modify from time to time any such benefit
plans.
(f) The Executive shall be entitled to the continued use of the car
presently leased by Bactolac.
4. Termination.
-----------
(a) The employment of the Executive under this Agreement may be
terminated by the Company immediately upon giving the Executive notice if the
Executive has been unable to discharge his essential job duties by reason of
illness or injury for either (A) a period of ninety (90) consecutive days or (B)
one hundred eighty (180) days in any twelve month period. In the event of any
dispute regarding the existence of Executive's Disability hereunder, the matter
will be resolved by the determination of a majority of three physicians
qualified to practice medicine in Mississippi, one to be selected by each of
Executive and the Board and the third to be selected by the two designated
physicians. For this purpose, Executive will submit to appropriate medical
examinations.
(b) The employment of the Executive under this Agreement shall
terminate on the date of the Executive's death.
(c) The employment of the Executive under this Agreement may be
terminated by the Company for Cause. For purposes of this Agreement, "Cause"
shall mean (i) the willful failure or refusal by the Executive to perform his
duties hereunder which has not ceased within ten (10) business days after
written demand for substantial performance is delivered to the Executive by the
Company, which demand identifies the manner in which the Company believes that
the Executive has not performed such duties; (ii) the Executive shall recklessly
or intentionally engage in misconduct toward the Company which is materially
injurious to the Company or its Subsidiaries, monetarily or otherwise
(including, but not limited to, conduct in violation of the confidentiality or
solicitation agreements herein or the non-competition agreement executed with
respect to the merger of ASH Corporation and the Company); (iii) the conviction
of the Executive of or the entering of a plea of nolo contendre by the Executive
with respect to, a felony or a crime involving moral turpitude; or (iv) breach
of this Agreement, including performance by Executive of Executive's duties
determined by the Board to be inadequate in a material respect.
(d) The employment of the Executive under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Executive or, if no notice is given, on the date on which the Executive
voluntarily terminates his employment relationship with the Company.
(e) If the Executive's employment is terminated pursuant to this
Section 4 the Executive shall not be entitled to any compensation or benefits
from the Company, under Section 3 of this Agreement or otherwise, except for the
following:
(i) base salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination; and
-3-
<PAGE>
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA).
(f) Executive may terminate his employment hereunder for "Good
Reason" (as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean:
(A) a reduction in Executive's base salary then in effect; (B) a material
reduction in Executive's positions, duties and responsibilities from those
described in Section 1(a) of this Agreement; or (C) the failure of the Company
to obtain the assumption of this Agreement by any successor to the extent
required pursuant to Section 12(a) of this Agreement.
(ii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (A) if Executive shall have
specifically consented in writing to the occurrence of the event giving rise to
the claim of termination for Good Reason or (B) unless Executive, within thirty
(30) days after receiving written notice from the Company specifying in
reasonable detail the occurrence of one of such events, shall have delivered a
written notice to the Company stating that he intends to terminate his
employment for Good Reason and specifying the factual basis for such termination
and such event, if capable of being cured, shall not have been cured within
thirty (30) days of the receipt by the Company of such notice.
(iii) If Executive shall terminate his employment for Good Reason
pursuant to this subsection (g), the Company shall pay Executive (or, in the
event of his death, his devisee, legatee or, if there is none, his estate) a
lump-sum amount equal to the lesser of (A) the Executive's monthly base salary
in effect on the date of termination, multiplied by a factor twelve (12), or (B)
the Executive's monthly base salary in effect on the date of termination,
multiplied by the number of months remaining until the termination date set
forth in Section 1(a)(i) of this Agreement. Executive will also be entitled to
any vested benefits under any employee benefit plans.
(g) As a condition to and in consideration of the payments under
subsections (e) and (f) hereof, the Executive shall execute a general release as
to both known and unknown matters occurring prior to the date of termination.
5. Executive's Representations.
---------------------------
(a) The Executive represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Executive from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Executive hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Executive set forth in this Agreement.
-4-
<PAGE>
(c) The Executive acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Executive has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Executive is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Confidentiality; Non-Solicitation.
---------------------------------
(a) Disclosure. The Executive acknowledges that, in the performance
----------
of duties on behalf of the Company, the Executive shall have access to, receive
and be entrusted with confidential information, including but in no way limited
to development, marketing, organizational, financial, management,
administrative, production, distribution and sales information, data,
specifications and processes presently owned or at any time in the future
developed by, the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to the
Executive in confidence. Except in the performance of the Executive's duties on
behalf of the Company, the Executive shall not, directly or indirectly for any
reason whatsoever, disclose or use any such Confidential Material, unless such
Confidential Material ceases (through no fault of Executive's) to be
confidential because it has become part of the public domain. All records,
files, drawings, documents, equipment and other tangible items, wherever
located, relating in any way to the Confidential Material or otherwise to the
Company's business, which the Executive prepares, uses, or encounters, shall be
and remain the Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement by any means, or
whenever requested by the Company, the Executive shall promptly deliver to the
Company any and all of the Confidential Material not previously delivered to the
Company that may be or at any previous time has been in the Executive's
possession or under the Executive's control.
(b) Unfair Competition. The Executive hereby acknowledges that the
------------------
sale or unauthorized use or disclosure of any of the Company's Confidential
Material by Executive by any means whatsoever at any time before, during or
after the Executive's employment with the Company shall constitute "Unfair
Competition." The Executive agrees that the Executive shall not engage in
Unfair Competition either during the time the Executive is employed by the
Company or at any time thereafter.
(c) Other. In the event of the termination of the Executive's
-----
employment for any reason, the Executive (and any corporation or entity of which
the Executive is a director, officer, employee or greater than ten percent (10%)
shareholder) shall not, directly or indirectly, for a period of two (2) years:
(i) solicit for employment and/or employ any employee,
consultant, agent or representative (an "employee") of the Company or any of its
affiliates or subsidiaries (or any such employee who has been "employed" by the
Company during the six (6) month period prior to the termination of this
Agreement) or induce or attempt to induce any customer, supplier, licensee or
other business relation of the Company or any of its affiliates or subsidiaries
to cease doing business with the Company or such affiliate or subsidiary or
interfere in any way with the
-5-
<PAGE>
relationship between any such customer, supplier, licensee or business relation
and the Company or any affiliate or subsidiary; or
(ii) make any public statement concerning the Company, any of its
affiliates or subsidiaries, or the Executive's employment unless previously
approved by the Company, except as may be required by law.
(d) In the event of the breach or a threatened breach by the
Executive of any of the provisions of this Section 6, the Company, in addition
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions thereof (without posting a bond or other security).
(e) Upon termination of this Agreement, the Executive shall be deemed
to have resigned from all offices and directorships then held with the Company
or any affiliate entity.
7. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or any breach hereof or the Executive's employment by the Company
or termination thereof, shall be settled by arbitration (other than injunctive
relief) by one arbitrator in accordance with the rules of the American
Arbitration Association, and judgment upon such award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. The arbitration shall
be held in Houston, Texas or such other place as may be agreed upon at the time
by the parties to the arbitration.
8. Mitigation of Damages. In the event of any termination of the
---------------------
Executive's employment by the Company, the Executive shall not be required to
seek other employment to mitigate damages.
9. Equitable Relief. The Executive acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Executive are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Executive hereby agrees that in addition to the remedies
available to the Company by law or under this Agreement, the Company shall be
entitled to obtain such equitable relief (without bond) as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Executive of
any term or provision of this Agreement. In the event of an action pursuant to
this Agreement, the prevailing party shall be entitled to its costs and
expenses, including reasonable attorneys' fees.
10. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts) of the State of Delaware.
11. Entire Agreement. This Agreement constitutes the whole agreement of
----------------
the parties hereto in reference to any employment of the Executive by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to
-6-
<PAGE>
such employment; all prior agreements, promises, representations and
understandings relative thereto being herein merged.
12. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or substantially all
of the Company's business or assets shall be transferred in any manner to any
other corporation, partnership or business entity, then such successor to the
Company shall thereupon succeed to, and be subject to, all rights, interests,
duties and obligations of, and shall thereafter be deemed for all purposes
hereof to be, the "Company" under this Agreement. This Agreement shall inure to
the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die, any amounts payable to him
hereunder shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee or, if there be no such
designee, to his estate.
(b) This Agreement is personal in nature and the Executive shall not,
without the written consent of the Company, assign or transfer this Agreement or
any rights or obligations hereunder.
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
13. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
14. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 14. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
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<PAGE>
15. Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16. Survival. The representations and agreements of the parties set
--------
forth in Sections 5, 6, 7, 8 and 9 of this Agreement shall survive the
expiration or termination of this Agreement (irrespective of the reason for such
expiration or termination).
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
BACTOLAC PHARMACEUTICAL INC.,
a Delaware corporation
By:__________________________________
Name:_____________________________
Title:____________________________
Address for Notices:
51 Brooklyn Avenue
Westbury, New York 11590
Facsimile: (516) 333-4714
Attention: President
with a copy to:
9101 Jameel, Suite 180
Houston, Texas 77040
Facsimile: (713) 895-8927
Attention: Mr. Gregory Pusey
Patton Boggs, LLP
1660 Lincoln Street, Suite 1900
Denver, Colorado 80264
Facsimile: (303) 894-9239
Attention: Robert M. Bearman
_____________________________________
Allan I. Sirkin
Address for Notices
3600 25/th/ Avenue
Gulfport, Mississippi 39501
Facsimile: (228) 865-0842
with a copy to:
Alfred R. Koenenn, Esq.
1109 Hancock Bank Building
Gulfport, Mississippi 39502
Facsimile: (228) 864-9052
-9-
<PAGE>
EXHIBIT 10.34
Employment Agreement
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of November
30, 1999 between Bactolac Pharmaceutical Inc., a Delaware corporation (the
"Company") and Neil Sirkin (the "Executive").
RECITALS
A. This Agreement is entered into in connection with the acquisition by
the Company of ASH Corp., a Mississippi corporation ("ASH") pursuant to that
certain Agreement and Plan of Merger dated October 25, 1999 by and among
Nutrition For Life International, Inc., Advanced Nutraceuticals, Inc., AC
Acquisition Company, ASH and the shareholders of ASH, as amended on November 24,
1999, which included the addition of the Company as a party (the "Merger
Agreement").
B. The Company desires to employ the Executive, and the Executive desires
to be so employed by the Company, on the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement, the Company and the Executive hereby agree as
follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the Company
employs the Executive, and the Executive accepts such employment, from the date
hereof until the earlier of (i) November 12, 2002 or (ii) the date such
employment is terminated pursuant to Section 4 of this Agreement. During the
Executive's employment under this Agreement, the Executive shall perform such
duties for the Company as may from time to time be assigned to the Executive by
the Board of Directors of the Company (the "Board"). The Executive shall have
the title of President of the Ash Division of the Company and such other titles
as from time to time may be assigned to the Executive by the Board.
(b) The Executive will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Executive is employed by the
Company, the Executive shall not, without the written consent of the Company:
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not
<PAGE>
such activity, occupation or endeavor is similar to, competitive with, or
adverse to the business or welfare of the Company; or
(iii) invest in or become a shareholder of another corporation
or other entity; provided, that the Executive's investment solely as a
shareholder in another corporation shall not be prohibited hereby so long as
such investment is not in excess of two percent (2%) of any class of shares that
are traded on a national securities exchange or quoted on the NASDAQ National
Market.
2. Location of Employment. The Executive's principal place of employment
----------------------
shall be at the executive offices of the Ash Division of the Company located in
Gulfport, Mississippi or in the same general area; provided, that at the
direction of the Board, the Executive may from time to time be required to
travel to various domestic and foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Executive's obligations
and duties under this Agreement, the Company shall pay the Executive a base
salary at a monthly rate of $12,500, payable in accordance with the Company's
standard payroll practices. In any month in which the Executive shall be
employed for less than the entire number of days in such month, the compensation
payable under this Section 3(a) shall be prorated on the basis of the number of
days during which the Executive was actually employed divided by the number of
days in such month. The base salary described in subsection (a) hereof is a
gross amount, and the Company shall be required to withhold from such amount
deductions with respect to Federal, state and local taxes, FICA, unemployment
compensation taxes and similar taxes, assessments or withholding requirements.
(b) In addition to the base salary, Executive shall be entitled to a
performance bonus (the "Bonus") at the discretion of the Board.
(c) During the Executive's employment under this Agreement, the
Executive shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Executive, consistent with the
policies established by the Board, in rendering to the Company the services
provided for in this Agreement, upon presentation of expense statements or such
other supporting information as is consistent with the policies of the Company.
(d) The Executive shall be entitled to 15 business days vacation for
each full year of employment under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(e) The Executive shall be entitled to participate in all benefit
plans (including deferred compensation plans and any medical, dental or life
insurance plans) which shall be available from time to time to the domestic
management employees of the Company generally, except to the extent such
participation in any plan would alter the intended tax treatment of such plan;
provided, however, that the Executive shall have no right under this Agreement
to participate in any additional stock option, stock purchase or other plan
relating to shares of capital stock of the Company or its
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<PAGE>
affiliates. The Executive acknowledges and agrees that the Board may in its
discretion terminate at any time or modify from time to time any such benefit
plans.
(f) The Executive shall be entitled to the continued use of the car
presently leased by Bactolac.
4. Termination.
-----------
(a) The employment of the Executive under this Agreement may be
terminated by the Company immediately upon giving the Executive notice if the
Executive has been unable to discharge his essential job duties by reason of
illness or injury for either (A) a period of ninety (90) consecutive days or (B)
one hundred eighty (180) days in any twelve month period. In the event of any
dispute regarding the existence of Executive's Disability hereunder, the matter
will be resolved by the determination of a majority of three physicians
qualified to practice medicine in Mississippi, one to be selected by each of
Executive and the Board and the third to be selected by the two designated
physicians. For this purpose, Executive will submit to appropriate medical
examinations.
(b) The employment of the Executive under this Agreement shall
terminate on the date of the Executive's death.
(c) The employment of the Executive under this Agreement may be
terminated by the Company for Cause. For purposes of this Agreement, "Cause"
shall mean (i) the willful failure or refusal by the Executive to perform his
duties hereunder which has not ceased within ten (10) business days after
written demand for substantial performance is delivered to the Executive by the
Company, which demand identifies the manner in which the Company believes that
the Executive has not performed such duties; (ii) the Executive shall recklessly
or intentionally engage in misconduct toward the Company which is materially
injurious to the Company or its Subsidiaries, monetarily or otherwise
(including, but not limited to, conduct in violation of the confidentiality or
solicitation agreements herein or the non-competition agreement executed with
respect to the merger of ASH Corporation and the Company); (iii) the conviction
of the Executive of or the entering of a plea of nolo contendre by the Executive
with respect to, a felony or a crime involving moral turpitude; or (iv) breach
of this Agreement, including performance by Executive of Executive's duties
determined by the Board to be inadequate in a material respect.
(d) The employment of the Executive under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Executive or, if no notice is given, on the date on which the Executive
voluntarily terminates his employment relationship with the Company.
(e) If the Executive's employment is terminated pursuant to this
Section 4 the Executive shall not be entitled to any compensation or benefits
from the Company, under Section 3 of this Agreement or otherwise, except for the
following:
(i) base salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination; and
-3-
<PAGE>
(ii) such benefits, if any, as may be required to be provided
by the Company under the Comprehensive Omnibus Budget Reconciliation Act
(COBRA).
(f) Executive may terminate his employment hereunder for "Good
Reason" (as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean:
(A) a reduction in Executive's base salary then in effect; (B) a material
reduction in Executive's positions, duties and responsibilities from those
described in Section 1(a) of this Agreement; or (C) the failure of the Company
to obtain the assumption of this Agreement by any successor to the extent
required pursuant to Section 12(a) of this Agreement.
(ii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (A) if Executive shall have
specifically consented in writing to the occurrence of the event giving rise to
the claim of termination for Good Reason or (B) unless Executive, within thirty
(30) days after receiving written notice from the Company specifying in
reasonable detail the occurrence of one of such events, shall have delivered a
written notice to the Company stating that he intends to terminate his
employment for Good Reason and specifying the factual basis for such termination
and such event, if capable of being cured, shall not have been cured within
thirty (30) days of the receipt by the Company of such notice.
(iii) If Executive shall terminate his employment for Good Reason
pursuant to this subsection (g), the Company shall pay Executive (or, in the
event of his death, his devisee, legatee or, if there is none, his estate) a
lump-sum amount equal to the lesser of (A) the Executive's monthly base salary
in effect on the date of termination, multiplied by a factor twelve (12), or (B)
the Executive's monthly base salary in effect on the date of termination,
multiplied by the number of months remaining until the termination date set
forth in Section 1(a)(i) of this Agreement. Executive will also be entitled to
any vested benefits under any employee benefit plans.
(g) As a condition to and in consideration of the payments under
subsections (e) and (f) hereof, the Executive shall execute a general release as
to both known and unknown matters occurring prior to the date of termination.
5. Executive's Representations.
---------------------------
(a) The Executive represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Executive from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Executive hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Executive set forth in this Agreement.
-4-
<PAGE>
(c) The Executive acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Executive has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Executive is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Confidentiality; Non-Solicitation.
---------------------------------
(a) Disclosure. The Executive acknowledges that, in the performance
----------
of duties on behalf of the Company, the Executive shall have access to, receive
and be entrusted with confidential information, including but in no way limited
to development, marketing, organizational, financial, management,
administrative, production, distribution and sales information, data,
specifications and processes presently owned or at any time in the future
developed by, the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to the
Executive in confidence. Except in the performance of the Executive's duties on
behalf of the Company, the Executive shall not, directly or indirectly for any
reason whatsoever, disclose or use any such Confidential Material, unless such
Confidential Material ceases (through no fault of Executive's) to be
confidential because it has become part of the public domain. All records,
files, drawings, documents, equipment and other tangible items, wherever
located, relating in any way to the Confidential Material or otherwise to the
Company's business, which the Executive prepares, uses, or encounters, shall be
and remain the Company's sole and exclusive property and shall be included in
the Confidential Material. Upon termination of this Agreement by any means, or
whenever requested by the Company, the Executive shall promptly deliver to the
Company any and all of the Confidential Material not previously delivered to the
Company that may be or at any previous time has been in the Executive's
possession or under the Executive's control.
(b) Unfair Competition. The Executive hereby acknowledges that the
------------------
sale or unauthorized use or disclosure of any of the Company's Confidential
Material by Executive by any means whatsoever at any time before, during or
after the Executive's employment with the Company shall constitute "Unfair
Competition." The Executive agrees that the Executive shall not engage in
Unfair Competition either during the time the Executive is employed by the
Company or at any time thereafter.
(c) Other. In the event of the termination of the Executive's
-----
employment for any reason, the Executive (and any corporation or entity of which
the Executive is a director, officer, employee or greater than ten percent (10%)
shareholder) shall not, directly or indirectly, for a period of two (2) years:
(i) solicit for employment and/or employ any employee,
consultant, agent or representative (an "employee") of the Company or any of its
affiliates or subsidiaries (or any such employee who has been "employed" by the
Company during the six (6) month period prior to the termination of this
Agreement) or induce or attempt to induce any customer, supplier, licensee or
other business relation of the Company or any of its affiliates or subsidiaries
to cease doing business with the Company or such affiliate or subsidiary or
interfere in any way with the
-5-
<PAGE>
relationship between any such customer, supplier, licensee or business relation
and the Company or any affiliate or subsidiary; or
(ii) make any public statement concerning the Company, any of its
affiliates or subsidiaries, or the Executive's employment unless previously
approved by the Company, except as may be required by law.
(d) In the event of the breach or a threatened breach by the
Executive of any of the provisions of this Section 6, the Company, in addition
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions thereof (without posting a bond or other security).
(e) Upon termination of this Agreement, the Executive shall be deemed
to have resigned from all offices and directorships then held with the Company
or any affiliate entity.
7. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or any breach hereof or the Executive's employment by the Company
or termination thereof, shall be settled by arbitration (other than injunctive
relief) by one arbitrator in accordance with the rules of the American
Arbitration Association, and judgment upon such award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. The arbitration shall
be held in Houston, Texas or such other place as may be agreed upon at the time
by the parties to the arbitration.
8. Mitigation of Damages. In the event of any termination of the
---------------------
Executive's employment by the Company, the Executive shall not be required to
seek other employment to mitigate damages.
9. Equitable Relief. The Executive acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Executive are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Executive hereby agrees that in addition to the remedies
available to the Company by law or under this Agreement, the Company shall be
entitled to obtain such equitable relief (without bond) as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Executive of
any term or provision of this Agreement. In the event of an action pursuant to
this Agreement, the prevailing party shall be entitled to its costs and
expenses, including reasonable attorneys' fees.
10. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts) of the State of Delaware.
11. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Executive by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to
-6-
<PAGE>
such employment; all prior agreements, promises, representations and
understandings relative thereto being herein merged.
12. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or substantially all
of the Company's business or assets shall be transferred in any manner to any
other corporation, partnership or business entity, then such successor to the
Company shall thereupon succeed to, and be subject to, all rights, interests,
duties and obligations of, and shall thereafter be deemed for all purposes
hereof to be, the "Company" under this Agreement. This Agreement shall inure to
the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die, any amounts payable to him
hereunder shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee or, if there be no such
designee, to his estate.
(b) This Agreement is personal in nature and the Executive shall not,
without the written consent of the Company, assign or transfer this Agreement or
any rights or obligations hereunder.
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
13. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
14. Notice. All notices, requests or consents required or permitted under
------
this Agreement shall be made in writing and shall be given to the other parties
by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 14. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
-7-
<PAGE>
15. Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
16. Survival. The representations and agreements of the parties set forth
--------
in Sections 5, 6, 7, 8 and 9 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration or
termination).
[SIGNATURE PAGE FOLLOWS]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
BACTOLAC PHARMACEUTICAL INC.,
a Delaware corporation
By:____________________________
Name:_______________________
Title:______________________
Address for Notices:
51 Brooklyn Avenue
Westbury, New York 11590
Facsimile: (516) 333-4714
Attention: President
with a copy to:
9101 Jameel, Suite 180
Houston, Texas 77040
Facsimile: (713) 895-8927
Attention: Mr. Barry Loder
Patton Boggs, LLP
1660 Lincoln Street, Suite 1900
Denver, Colorado 80264
Facsimile: (303) 894-9239
Attention: Robert M. Bearman
_______________________________
Neil Sirkin
Address for Notices
3600 25/th/ Avenue
Gulfport, Mississippi 39501
Facsimile: (228) 865-0842
with a copy to:
Alfred R. Koenenn, Esq.
1109 Hancock Bank Building
Gulfport, Mississippi 39502
Facsimile: (228) 864-9052
-9-
<PAGE>
EXHIBIT 10.35
NON-COMPETITION AGREEMENT
This NON-COMPETITION AGREEMENT (this "Agreement") is entered into as of
November 17/th/, 1999 by and among Gregory Pusey ("Shareholder"), a shareholder
of Advanced Nutraceuticals, Inc., a Delaware corporation (the "Company"),
Nutrition For Life International, Inc., a Texas corporation ("Buyer"), and its
wholly-owned subsidiary NL Acquisition Company, a Delaware corporation
("Newco").
RECITALS
A. This Agreement is entered into in connection with the acquisition by
Buyer of the Company pursuant to that certain Agreement and Plan of Merger dated
October 20, 1999 (the "Merger Agreement") by and among Buyer, Advanced
Nutraceuticals, Inc. ("ANI"), Newco, the Company and the Controlling
Shareholders of the Company named therein.
B. Pursuant to the Merger Agreement, among other things, the Company shall
be merged (the "Merger") with and into Newco (sometimes referred to herein as,
the "Surviving Corporation") and the Shareholder shall receive shares of
preferred stock, par value $.001 per share, of the Buyer.
C. Shareholder has agreed to execute and deliver this Agreement and to be
bound by its terms (i) to induce Buyer, ANI and Newco to complete the Merger,
(ii) with the intention of causing the effective preservation of the goodwill of
the Surviving Corporation unimpaired, and (iii) to provide assurance to Buyer,
ANI and Newco that Shareholder will take no action that could frustrate or
interfere with such preservation or otherwise impair such goodwill.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing facts and such other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Shareholder hereby covenants to and agrees with the Buyer and Newco
that, except as otherwise expressly provided in this Agreement or consented to,
approved or otherwise permitted by the board of directors of Buyer in writing,
for the period ending two years from the date hereof, Shareholder shall not,
directly or indirectly, acting alone or as a member of a partnership or other
business entity or as a holder of any security (including debt securities) of
any class (other than as a holder of less than five percent (5%) of the
outstanding amount of any security listed on a national securities exchange or
designated as a National Market System security by the National Association of
Securities Dealers, Inc.), or as an officer, director, partner, employee,
consultant, agent or representative of any corporation or other business entity;
(a) engage, within any county or other political subdivision of any
other state of the United States of America or in any foreign country in the
Nutritional Supplement Business (as hereinafter defined) or in any business,
trade or other enterprise substantially similar to, or directly or indirectly in
competition with, the Nutritional Supplement Business conducted by the Buyer or
the Surviving Corporation, during the term hereof, extend to or assist in
arranging credit to establish
<PAGE>
or conduct any such business or to acquire all or any portion of any such
business or permit Shareholder's name, reputation or affiliations to be used in
connection with any such business. For the purposes hereof, the "Nutritional
Supplement Business" shall mean the cultivation, gathering, preparation,
processing, trading, manufacture, distribution, marketing or selling (whether at
wholesale or retail, by any method or means) of vitamins, minerals or other
nutritional supplements, whether for humans or animals, or the ingredients
therein or therefor;
(b) disclose to any person, firm, corporation, association or other
entity any confidential or proprietary information pertaining to the
organization or business conducted by the Buyer or Surviving Corporation at any
time;
(c) request, induce or attempt to influence any person who is or was a
customer or supplier of the Buyer, the Surviving Corporation or the Company to
limit, curtail or cancel its business with the Buyer or the Surviving
Corporation; or
(d) request, induce or attempt to influence any current or future
officer, director, employee, consultant, agent or representative of the Buyer or
Surviving Corporation to (i) terminate his, her or its employment or business
relationship with the Buyer or Surviving Corporation; (ii) commit any act that,
if committed by Shareholder, would constitute a breach of any provision hereof;
or (iii) hire any such person.
Provided, however, that such period set forth in this paragraph 1 shall be
extended by and for the duration of any period of time during which Shareholder
is in violation of any provision of this Agreement and, provided, further, that
such period shall not apply to subparagraph (b) above, which shall remain in
effect indefinitely. The provisions of clauses (a), (b), (c) and (d) above are
separate and distinct commitments independent of each of the other such clauses.
Shareholder agrees that the Buyer and Surviving Corporation have no adequate
remedy at law for any breach or threatened or attempted breach by Shareholder of
the covenants and agreements set forth in this Paragraph 1 and, accordingly,
Shareholder also agrees that the Buyer or Surviving Corporation may, in addition
to the other remedies that may be available to it under this Agreement, under
the Merger Agreement or at law, be entitled to an injunction without bond
temporarily or permanently enjoining Shareholder from breaching or threatening
or attempting any such breach of such covenants and agreements; and for purposes
of any such proceeding in equity, it shall be presumed that the remedies at law
available to the Buyer or Surviving Corporation would be inadequate and that
they would suffer irreparable harm as a result of the violation of any provision
hereof by Shareholder. The prevailing party or parties in any proceeding in
equity or at law commenced in respect of this Agreement shall be entitled to
recover from the other party or parties to such proceeding all reasonable fees,
costs and expenses (including reasonable fees and disbursements of counsel)
incurred in connection with such proceeding and any appeals therefrom.
2. The Buyer, Newco and Shareholder agree that if the scope of the
covenant set forth in Paragraph 1 hereof is deemed by any court to be overly
broad, the court may reduce the scope thereof to that which it deems reasonable
under the circumstances. If any one or more provisions hereof are held to be
invalid or unenforceable, the validity and enforceability of the remaining
provisions shall not be affected hereby.
3. The covenants and agreements of Shareholder hereunder are independent
of the covenants, representations, warranties and agreements of all the parties
to the Merger Agreement
<PAGE>
under the Merger Agreement, and no default, breach or failure to perform by any
party to the Merger Agreement shall constitute an excuse or other justification
for Shareholder to fail to observe fully Shareholder's covenants and agreements
hereunder. No course of dealing between or among the Buyer, Surviving
Corporation and Shareholder and no delay by the Buyer or Surviving Corporation
in exercising any right, power or remedy hereunder, in equity or at law shall
constitute a waiver of, or otherwise prejudice, any such right, power or remedy.
4. This Agreement (i) constitutes the entire agreement and supersedes all
prior and contemporaneous agreement and understandings, both written and oral,
between the parties hereto with regard to the subject matter hereof, (ii) is not
intended to confer upon any other person any rights or remedies hereunder or
with respect to the subject matter hereof and (iii) shall inure to the benefit
of and be enforceable by the Buyer and Surviving Corporation and their
successors and assigns. All notices and other communications under or in
connection with this Agreement shall be given and deemed effective in the manner
set forth in Section 13.7 of the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above set forth.
SHAREHOLDER: _____________________________________________
GREGORY PUSEY
BUYER: NUTRITION FOR LIFE INTERNATIONAL, INC.,
a Texas corporation
By:__________________________________________
Name:____________________________________
Title:___________________________________
NEWCO: (and after the NL ACQUISITION COMPANY,
Merger, SURVIVING a Delaware corporation
CORPORATION:
By:__________________________________________
Name:____________________________________
Title:___________________________________
<PAGE>
EXHIBIT 10.36
Non-Competition Agreement
This NON-COMPETITION AGREEMENT (this "Agreement") is entered into as of
November 17th, 1999 by and among Barry C. Loder ("Shareholder"), a shareholder
of Advanced Nutraceuticals, Inc., a Delaware corporation (the "Company"),
Nutrition For Life International, Inc., a Texas corporation ("Buyer"), and its
wholly-owned subsidiary NL Acquisition Company, a Delaware corporation
("Newco").
RECITALS
A. This Agreement is entered into in connection with the acquisition by
Buyer of the Company pursuant to that certain Agreement and Plan of Merger dated
October 20, 1999 (the "Merger Agreement") by and among Buyer, Advanced
Nutraceuticals, Inc. ("ANI"), Newco, the Company and the Controlling
Shareholders of the Company named therein.
B. Pursuant to the Merger Agreement, among other things, the Company shall
be merged (the "Merger") with and into Newco (sometimes referred to herein as,
the "Surviving Corporation") and the Shareholder shall receive shares of
preferred stock, par value $.001 per share, of the Buyer.
C. Shareholder has agreed to execute and deliver this Agreement and to be
bound by its terms (i) to induce Buyer, ANI and Newco to complete the Merger,
(ii) with the intention of causing the effective preservation of the goodwill of
the Surviving Corporation unimpaired, and (iii) to provide assurance to Buyer,
ANI and Newco that Shareholder will take no action that could frustrate or
interfere with such preservation or otherwise impair such goodwill.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing facts and such other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Shareholder hereby covenants to and agrees with the Buyer and Newco
that, except as otherwise expressly provided in this Agreement or consented to,
approved or otherwise permitted by the board of directors of Buyer in writing,
for the period ending one year from the date hereof, Shareholder shall not,
directly or indirectly, acting alone or as a member of a partnership or other
business entity or as a holder of any security (including debt securities) of
any class (other than as a holder of less than five percent (5%) of the
outstanding amount of any security listed on a national securities exchange or
designated as a National Market System security by the National Association of
Securities Dealers, Inc.), or as an officer, director, partner, employee,
consultant, agent or representative of any corporation or other business entity;
(a) engage, within any county or other political subdivision of any
other state of the United States of America or in any foreign country in the
Nutritional Supplement Business (as hereinafter defined) or in any business,
trade or other enterprise substantially similar to, or directly or indirectly in
competition with, the Nutritional Supplement Business conducted by the Buyer or
the Surviving Corporation, during the term hereof, extend to or assist in
arranging credit to establish
<PAGE>
or conduct any such business or to acquire all or any portion of any such
business or permit Shareholder's name, reputation or affiliations to be used in
connection with any such business. For the purposes hereof, the "Nutritional
Supplement Business" shall mean the cultivation, gathering, preparation,
processing, trading, manufacture, distribution, marketing or selling (whether at
wholesale or retail, by any method or means) of vitamins, minerals or other
nutritional supplements, whether for humans or animals, or the ingredients
therein or therefor;
(b) disclose to any person, firm, corporation, association or other
entity any confidential or proprietary information pertaining to the
organization or business conducted by the Buyer or Surviving Corporation at any
time;
(c) request, induce or attempt to influence any person who is or was a
customer or supplier of the Buyer, the Surviving Corporation or the Company to
limit, curtail or cancel its business with the Buyer or the Surviving
Corporation; or
(d) request, induce or attempt to influence any current or future
officer, director, employee, consultant, agent or representative of the Buyer or
Surviving Corporation to (i) terminate his, her or its employment or business
relationship with the Buyer or Surviving Corporation; (ii) commit any act that,
if committed by Shareholder, would constitute a breach of any provision hereof;
or (iii) hire any such person.
Provided, however, that such period set forth in this paragraph 1 shall be
- -------- -------
extended by and for the duration of any period of time during which Shareholder
is in violation of any provision of this Agreement and, provided, further, that
-------- -------
such period shall not apply to subparagraph (b) above, which shall remain in
effect indefinitely. The provisions of clauses (a), (b), (c) and (d) above are
separate and distinct commitments independent of each of the other such clauses.
Shareholder agrees that the Buyer and Surviving Corporation have no adequate
remedy at law for any breach or threatened or attempted breach by Shareholder of
the covenants and agreements set forth in this Paragraph 1 and, accordingly,
Shareholder also agrees that the Buyer or Surviving Corporation may, in addition
to the other remedies that may be available to it under this Agreement, under
the Merger Agreement or at law, be entitled to an injunction without bond
temporarily or permanently enjoining Shareholder from breaching or threatening
or attempting any such breach of such covenants and agreements; and for purposes
of any such proceeding in equity, it shall be presumed that the remedies at law
available to the Buyer or Surviving Corporation would be inadequate and that
they would suffer irreparable harm as a result of the violation of any provision
hereof by Shareholder. The prevailing party or parties in any proceeding in
equity or at law commenced in respect of this Agreement shall be entitled to
recover from the other party or parties to such proceeding all reasonable fees,
costs and expenses (including reasonable fees and disbursements of counsel)
incurred in connection with such proceeding and any appeals therefrom.
2. The Buyer, Newco and Shareholder agree that if the scope of the
covenant set forth in Paragraph 1 hereof is deemed by any court to be overly
broad, the court may reduce the scope thereof to that which it deems reasonable
under the circumstances. If any one or more provisions hereof are held to be
invalid or unenforceable, the validity and enforceability of the remaining
provisions shall not be affected hereby.
3. The covenants and agreements of Shareholder hereunder are independent
of the covenants, representations, warranties and agreements of all the parties
to the Merger Agreement
<PAGE>
under the Merger Agreement, and no default, breach or failure to perform by any
party to the Merger Agreement shall constitute an excuse or other justification
for Shareholder to fail to observe fully Shareholder's covenants and agreements
hereunder. No course of dealing between or among the Buyer, Surviving
Corporation and Shareholder and no delay by the Buyer or Surviving Corporation
in exercising any right, power or remedy hereunder, in equity or at law shall
constitute a waiver of, or otherwise prejudice, any such right, power or remedy.
4. This Agreement (i) constitutes the entire agreement and supersedes all
prior and contemporaneous agreement and understandings, both written and oral,
between the parties hereto with regard to the subject matter hereof, (ii) is not
intended to confer upon any other person any rights or remedies hereunder or
with respect to the subject matter hereof and (iii) shall inure to the benefit
of and be enforceable by the Buyer and Surviving Corporation and their
successors and assigns. All notices and other communications under or in
connection with this Agreement shall be given and deemed effective in the manner
set forth in Section 13.7 of the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above set forth.
SHAREHOLDER: __________________________________________
BARRY C. LODER
BUYER: NUTRITION FOR LIFE INTERNATIONAL, INC.,
a Texas corporation
By:_______________________________________
Name:__________________________________
Title:_________________________________
NEWCO: (and after the NL ACQUISITION COMPANY,
Merger, SURVIVING a Delaware corporation
CORPORATION:
By:_______________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
EXHIBIT 10.37
Non-Competition Agreement
This NON-COMPETITION AGREEMENT (this "Agreement") is entered into as of
November 17, 1999 by and among Pailla M. Reddy ("Shareholder"), the shareholder
of Bactolac Pharmaceuticals, Inc., a New York corporation (the "Company"),
Nutrition For Life International, Inc., a Texas corporation ("Buyer"), and its
wholly-owned subsidiary BPI Acquisition Company, a Delaware corporation
("Newco").
RECITALS
A. This Agreement is entered into in connection with the acquisition by
Buyer of the Company pursuant to that certain Agreement and Plan of Merger dated
November 5, 1999 (the "Merger Agreement") by and among Buyer, Advanced
Nutraceuticals, Inc. ("ANI"), Newco, the Company and the Shareholder of the
Company named therein.
B. Pursuant to the Merger Agreement, among other things, the Company shall
be merged (the "Merger") with and into Newco (sometimes referred to herein as,
the "Surviving Corporation") and the Shareholder shall receive shares of
preferred stock, par value $.001 per share, of the Buyer.
C. Shareholder has agreed to execute and deliver this Agreement and to be
bound by its terms (i) to induce Buyer, ANI and Newco to complete the Merger,
(ii) with the intention of causing the effective preservation of the goodwill of
the Surviving Corporation unimpaired, and (iii) to provide assurance to Buyer,
ANI and Newco that Shareholder will take no action that could frustrate or
interfere with such preservation or otherwise impair such goodwill.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing facts and such other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Shareholder hereby covenants to and agrees with the Buyer and Newco
that, except as otherwise expressly provided in this Agreement or consented to,
approved or otherwise permitted by the board of directors of Buyer or the
Surviving Corporation in writing, for the period ending the later of (i) three
(3) years from the date hereof, or (ii) one (1) year following the termination
of Shareholder's employment or consulting relationship with Buyer or the
Surviving Corporation, Shareholder shall not, directly or indirectly, acting
alone or as a member of a partnership (other than as a passive partner of Maxus
Worldwide, Inc., a company in the business of pharmaceuticals which Shareholder
represents to Buyer is not in, nor will it enter, the Nutritional Supplement
Business, as hereinafter defined) or other business entity or as a holder of any
security (including debt securities) of any class (other than as a holder of
less than two percent (2%) of the outstanding amount of any security listed on a
national securities exchange or designated as a National Market System security
by the National Association of Securities Dealers, Inc.), or as an officer,
director, partner, employee, consultant, agent or representative of any
corporation or other business entity;
<PAGE>
(a) engage, within any county or other political subdivision of any other
state of the United States of America or in any foreign country in the
Nutritional Supplement Business (as hereinafter defined) or in any business,
trade or other enterprise substantially similar to, or directly or indirectly in
competition with, the Nutritional Supplement Business conducted by the Buyer or
the Surviving Corporation, during the term hereof, extend to or assist in
arranging credit to establish or conduct any such business or to acquire all or
any portion of any such business or permit Shareholder's name, reputation or
affiliations to be used in connection with any such business. For the purposes
hereof, the "Nutritional Supplement Business" shall mean the cultivation,
gathering, preparation, processing, trading, manufacture, distribution,
marketing or selling (whether at wholesale or retail, by any method or means) of
vitamins, minerals or other nutritional supplements, whether for humans or
animals, or the ingredients therein or therefor;
(b) disclose to any person, firm, corporation, association or other entity
any confidential or proprietary information pertaining to the organization or
business conducted by the Buyer or Surviving Corporation at any time;
(c) request, induce or attempt to influence any person who is or was a
customer or supplier of the Buyer, the Surviving Corporation or the Company to
limit, curtail or cancel its business with the Buyer or the Surviving
Corporation; or
(d) request, induce or attempt to influence any current or future officer,
director, employee, consultant, agent or representative of the Buyer or
Surviving Corporation to (i) terminate his, her or its employment or business
relationship with the Buyer or Surviving Corporation; (ii) commit any act that,
if committed by Shareholder, would constitute a breach of any provision hereof;
or (iii) hire any such person.
Provided, however, that such period set forth in this paragraph 1 shall be
- -------- -------
extended by and for the duration of any period of time during which Shareholder
is in violation of any provision of this Agreement and, provided, further, that
-------- -------
such period shall not apply to subparagraph (b) above, which shall remain in
effect indefinitely. The provisions of clauses (a), (b), (c) and (d) above are
separate and distinct commitments independent of each of the other such clauses.
Shareholder agrees that the Buyer and Surviving Corporation have no adequate
remedy at law for any breach or threatened or attempted breach by Shareholder of
the covenants and agreements set forth in this Paragraph 1 and, accordingly,
Shareholder also agrees that the Buyer or Surviving Corporation may, in addition
to the other remedies that may be available to it under this Agreement, under
the Merger Agreement or at law, be entitled to an injunction without bond
temporarily or permanently enjoining Shareholder from breaching or threatening
or attempting any such breach of such covenants and agreements; and for purposes
of any such proceeding in equity, it shall be presumed that the remedies at law
available to the Buyer or Surviving Corporation would be inadequate and that
they would suffer irreparable harm as a result of the violation of any provision
hereof by Shareholder. The prevailing party or parties in any proceeding in
equity or at law commenced in respect of this Agreement shall be entitled to
recover from the other party or parties to such proceeding all reasonable fees,
costs and expenses (including reasonable fees and disbursements of counsel)
incurred in connection with such proceeding and any appeals therefrom.
2. The Buyer, Newco and Shareholder agree that if the scope of the
covenant set forth in Paragraph 1 hereof is deemed by any court to be overly
broad, the court may reduce the scope
-2-
<PAGE>
thereof to that which it deems reasonable under the circumstances. If any one or
more provisions hereof are held to be invalid or unenforceable, the validity and
enforceability of the remaining provisions shall not be affected hereby.
3. The covenants and agreements of Shareholder hereunder are independent
of the covenants, representations, warranties and agreements of all the parties
to the Merger Agreement under the Merger Agreement, and no default, breach or
failure to perform by any party to the Merger Agreement shall constitute an
excuse or other justification for Shareholder to fail to observe fully
Shareholder's covenants and agreements hereunder. No course of dealing between
or among the Buyer, Surviving Corporation and Shareholder and no delay by the
Buyer or Surviving Corporation in exercising any right, power or remedy
hereunder, in equity or at law shall constitute a waiver of, or otherwise
prejudice, any such right, power or remedy.
4. This Agreement (i) constitutes the entire agreement and supersedes all
prior and contemporaneous agreement and understandings, both written and oral,
between the parties hereto with regard to the subject matter hereof, (ii) is not
intended to confer upon any other person any rights or remedies hereunder or
with respect to the subject matter hereof and (iii) shall inure to the benefit
of and be enforceable by the Buyer and Surviving Corporation and their
successors and assigns. All notices and other communications under or in
connection with this Agreement shall be given and deemed effective in the manner
set forth in Section 13.7 of the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above set forth.
SHAREHOLDER:
---------------------------------------
PAILLA M. REDDY
BUYER: NUTRITION FOR LIFE INTERNATIONAL, INC.,
a Texas corporation
By:____________________________________
Name:_______________________________
Title:______________________________
NEWCO: (and after the BPI ACQUISITION COMPANY,
Merger, SURVIVING a Delaware corporation
CORPORATION:
By:____________________________________
Name:_______________________________
Title:______________________________
-3-
<PAGE>
EXHIBIT 10.38
Non-Competition Agreement
This NON-COMPETITION AGREEMENT (this "Agreement") is entered into as of
November 30, 1999 by and among Allan I. Sirkin ("Shareholder"), the shareholder
of ASH Corp., a Mississippi corporation (the "Company"), Nutrition For Life
International, Inc., a Texas corporation ("Buyer"), and its wholly-owned
subsidiary Bactolac Pharmaceutical Inc., a Delaware corporation ("BPI").
RECITALS
A. This Agreement is entered into in connection with the acquisition by
Buyer of the Company pursuant to that certain Agreement and Plan of Merger dated
October 25, 1999 by and among Buyer, Advanced Nutraceuticals, Inc. ("ANI"), AC
Acquisition Company, the Company and the Shareholder of the Company named
therein, as amended on November 24, 1999, which included the addition of BPI as
a party (the "Merger Agreement").
B. Pursuant to the Merger Agreement, among other things, the Company
shall be merged (the "Merger") with and into BPI (sometimes referred to herein
as, the "Surviving Corporation") and the Shareholder shall receive, among other
things, shares of preferred stock, par value $.001 per share, of the Buyer.
C. Shareholder has agreed to execute and deliver this Agreement and to be
bound by its terms (i) to induce Buyer, ANI and BPI to complete the Merger, (ii)
with the intention of causing the effective preservation of the goodwill of the
Surviving Corporation unimpaired, and (iii) to provide assurance to Buyer, ANI
and BPI that Shareholder will take no action that could frustrate or interfere
with such preservation or otherwise impair such goodwill.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing facts and such other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Shareholder hereby covenants to and agrees with the Buyer and BPI
that, except as otherwise expressly provided in this Agreement or consented to,
approved or otherwise permitted by the board of directors of Buyer or the
Surviving Corporation in writing, for the period ending the later of (i) four
(4) years from the date hereof, or (ii) one (1) year following the termination
of Shareholder's employment or consulting relationship with Buyer or the
Surviving Corporation, Shareholder shall not, directly or indirectly, acting
alone or as a member of a partnership or other business entity or as a holder of
any security (including debt securities) of any class (other than as a holder of
less than two percent (2%) of the outstanding amount of any security listed on a
national securities exchange or designated as a National Market System security
by the National Association of Securities Dealers, Inc.), or as an officer,
director, partner, employee, consultant, agent or representative of any
corporation or other business entity;
(a) engage, within any county or other political subdivision of any
other state of the United States of America or in any foreign country in the
Nutritional Supplement Business (as
<PAGE>
hereinafter defined) or in any business, trade or other enterprise substantially
similar to, or directly or indirectly in competition with, the Nutritional
Supplement Business conducted by the Buyer or the Surviving Corporation, during
the term hereof, extend to or assist in arranging credit to establish or conduct
any such business or to acquire all or any portion of any such business or
permit Shareholder's name, reputation or affiliations to be used in connection
with any such business. For the purposes hereof, the "Nutritional Supplement
Business" shall mean the cultivation, gathering, preparation, processing,
trading, manufacture, distribution, marketing or selling (whether at wholesale
or retail, by any method or means) of vitamins, minerals or other nutritional
supplements, whether for humans or animals, or the ingredients therein or
therefor;
(b) disclose to any person, firm, corporation, association or other
entity any confidential or proprietary information pertaining to the
organization or business conducted by the Buyer or Surviving Corporation at any
time;
(c) request, induce or attempt to influence any person who is or was
a customer or supplier of the Buyer, the Surviving Corporation or the Company to
limit, curtail or cancel its business with the Buyer or the Surviving
Corporation; or
(d) request, induce or attempt to influence any current or future
officer, director, employee, consultant, agent or representative of the Buyer or
Surviving Corporation to (i) terminate his, her or its employment or business
relationship with the Buyer or Surviving Corporation; (ii) commit any act that,
if committed by Shareholder, would constitute a breach of any provision hereof;
or (iii) hire any such person.
Provided, however, that such period set forth in this paragraph 1 shall be
- -------- -------
extended by and for the duration of any period of time during which Shareholder
is in violation of any provision of this Agreement and, provided, further, that
-------- -------
such period shall not apply to subparagraph (b) above, which shall remain in
effect indefinitely. The provisions of clauses (a), (b), (c) and (d) above are
separate and distinct commitments independent of each of the other such clauses.
Shareholder agrees that the Buyer and Surviving Corporation have no adequate
remedy at law for any breach or threatened or attempted breach by Shareholder of
the covenants and agreements set forth in this Paragraph 1 and, accordingly,
Shareholder also agrees that the Buyer or Surviving Corporation may, in addition
to the other remedies that may be available to it under this Agreement, under
the Merger Agreement or at law, be entitled to an injunction without bond
temporarily or permanently enjoining Shareholder from breaching or threatening
or attempting any such breach of such covenants and agreements; and for purposes
of any such proceeding in equity, it shall be presumed that the remedies at law
available to the Buyer or Surviving Corporation would be inadequate and that
they would suffer irreparable harm as a result of the violation of any provision
hereof by Shareholder. The prevailing party or parties in any proceeding in
equity or at law commenced in respect of this Agreement shall be entitled to
recover from the other party or parties to such proceeding all reasonable fees,
costs and expenses (including reasonable fees and disbursements of counsel)
incurred in connection with such proceeding and any appeals therefrom.
2. The Buyer, BPI and Shareholder agree that if the scope of the covenant
set forth in Paragraph 1 hereof is deemed by any court to be overly broad, the
court may reduce the scope thereof to that which it deems reasonable under the
circumstances. If any one or more provisions hereof are held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions shall
not be affected hereby.
-2-
<PAGE>
3. The covenants and agreements of Shareholder hereunder are independent
of the covenants, representations, warranties and agreements of all the parties
to the Merger Agreement under the Merger Agreement, and no default, breach or
failure to perform by any party to the Merger Agreement shall constitute an
excuse or other justification for Shareholder to fail to observe fully
Shareholder's covenants and agreements hereunder. No course of dealing between
or among the Buyer, Surviving Corporation and Shareholder and no delay by the
Buyer or Surviving Corporation in exercising any right, power or remedy
hereunder, in equity or at law shall constitute a waiver of, or otherwise
prejudice, any such right, power or remedy.
4. This Agreement (i) constitutes the entire agreement and supersedes all
prior and contemporaneous agreement and understandings, both written and oral,
between the parties hereto with regard to the subject matter hereof, (ii) is not
intended to confer upon any other person any rights or remedies hereunder or
with respect to the subject matter hereof and (iii) shall inure to the benefit
of and be enforceable by the Buyer and Surviving Corporation and their
successors and assigns. All notices and other communications under or in
connection with this Agreement shall be given and deemed effective in the manner
set forth in Section 13.7 of the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above set forth.
SHAREHOLDER: ___________________________________________
ALLAN I. SIRKIN
BUYER: NUTRITION FOR LIFE INTERNATIONAL, INC.,
a Texas corporation
By:________________________________________
Name:___________________________________
Title:__________________________________
BPI (and after the BACTOLAC PHARMACEUTICAL INC.,
Merger, SURVIVING a Delaware corporation
CORPORATION):
By:________________________________________
Name:___________________________________
Title:__________________________________
-3-
<PAGE>
EXHIBIT 10.39
Non-Competition Agreement
This NON-COMPETITION AGREEMENT (this "Agreement") is entered into as of
November 30, 1999 by and among Neil Sirkin ("Shareholder"), the shareholder of
ASH Corp., a Mississippi corporation (the "Company"), Nutrition For Life
International, Inc., a Texas corporation ("Buyer"), and its wholly-owned
subsidiary Bactolac Pharmaceutical Inc., a Delaware corporation ("BPI").
RECITALS
A. This Agreement is entered into in connection with the acquisition by
Buyer of the Company pursuant to that certain Agreement and Plan of Merger dated
October 25, 1999 by and among Buyer, Advanced Nutraceuticals, Inc. ("ANI"), AC
Acquisition Company, the Company and the Shareholder of the Company named
therein, as amended on November 24, 1999, which included the addition of BPI as
a party (the "Merger Agreement").
B. Pursuant to the Merger Agreement, among other things, the Company shall
be merged (the "Merger") with and into BPI (sometimes referred to herein as, the
"Surviving Corporation") and the Shareholder shall receive shares of preferred
stock, par value $.001 per share, of the Buyer.
C. Shareholder has agreed to execute and deliver this Agreement and to be
bound by its terms (i) to induce Buyer, ANI and BPI to complete the Merger, (ii)
with the intention of causing the effective preservation of the goodwill of the
Surviving Corporation unimpaired, and (iii) to provide assurance to Buyer, ANI
and BPI that Shareholder will take no action that could frustrate or interfere
with such preservation or otherwise impair such goodwill.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing facts and such other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Shareholder hereby covenants to and agrees with the Buyer and BPI that,
except as otherwise expressly provided in this Agreement or consented to,
approved or otherwise permitted by the board of directors of Buyer or the
Surviving Corporation in writing, for the period ending the later of (i) four
(4) years from the date hereof, or (ii) one (1) year following the termination
of Shareholder's employment or consulting relationship with Buyer or the
Surviving Corporation, Shareholder shall not, directly or indirectly, acting
alone or as a member of a partnership or other business entity or as a holder of
any security (including debt securities) of any class (other than as a holder of
less than two percent (2%) of the outstanding amount of any security listed on a
national securities exchange or designated as a National Market System security
by the National Association of Securities Dealers, Inc.), or as an officer,
director, partner, employee, consultant, agent or representative of any
corporation or other business entity;
(a) engage, within any county or other political subdivision of any
other state of the United States of America or in any foreign country in the
Nutritional Supplement Business (as
<PAGE>
hereinafter defined) or in any business, trade or other enterprise substantially
similar to, or directly or indirectly in competition with, the Nutritional
Supplement Business conducted by the Buyer or the Surviving Corporation, during
the term hereof, extend to or assist in arranging credit to establish or conduct
any such business or to acquire all or any portion of any such business or
permit Shareholder's name, reputation or affiliations to be used in connection
with any such business. For the purposes hereof, the "Nutritional Supplement
Business" shall mean the cultivation, gathering, preparation, processing,
trading, manufacture, distribution, marketing or selling (whether at wholesale
or retail, by any method or means) of vitamins, minerals or other nutritional
supplements, whether for humans or animals, or the ingredients therein or
therefor;
(b) disclose to any person, firm, corporation, association or other
entity any confidential or proprietary information pertaining to the
organization or business conducted by the Buyer or Surviving Corporation at any
time;
(c) request, induce or attempt to influence any person who is or was
a customer or supplier of the Buyer, the Surviving Corporation or the Company to
limit, curtail or cancel its business with the Buyer or the Surviving
Corporation; or
(d) request, induce or attempt to influence any current or future
officer, director, employee, consultant, agent or representative of the Buyer or
Surviving Corporation to (i) terminate his, her or its employment or business
relationship with the Buyer or Surviving Corporation; (ii) commit any act that,
if committed by Shareholder, would constitute a breach of any provision hereof;
or (iii) hire any such person.
Provided, however, that such period set forth in this paragraph 1 shall be
- -------- -------
extended by and for the duration of any period of time during which Shareholder
is in violation of any provision of this Agreement and, provided, further, that
-------- -------
such period shall not apply to subparagraph (b) above, which shall remain in
effect indefinitely. The provisions of clauses (a), (b), (c) and (d) above are
separate and distinct commitments independent of each of the other such clauses.
Shareholder agrees that the Buyer and Surviving Corporation have no adequate
remedy at law for any breach or threatened or attempted breach by Shareholder of
the covenants and agreements set forth in this Paragraph 1 and, accordingly,
Shareholder also agrees that the Buyer or Surviving Corporation may, in addition
to the other remedies that may be available to it under this Agreement, under
the Merger Agreement or at law, be entitled to an injunction without bond
temporarily or permanently enjoining Shareholder from breaching or threatening
or attempting any such breach of such covenants and agreements; and for purposes
of any such proceeding in equity, it shall be presumed that the remedies at law
available to the Buyer or Surviving Corporation would be inadequate and that
they would suffer irreparable harm as a result of the violation of any provision
hereof by Shareholder. The prevailing party or parties in any proceeding in
equity or at law commenced in respect of this Agreement shall be entitled to
recover from the other party or parties to such proceeding all reasonable fees,
costs and expenses (including reasonable fees and disbursements of counsel)
incurred in connection with such proceeding and any appeals therefrom.
2. The Buyer, BPI and Shareholder agree that if the scope of the covenant
set forth in Paragraph 1 hereof is deemed by any court to be overly broad, the
court may reduce the scope thereof to that which it deems reasonable under the
circumstances. If any one or more provisions hereof are held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions shall
not be affected hereby.
-2-
<PAGE>
3. The covenants and agreements of Shareholder hereunder are independent
of the covenants, representations, warranties and agreements of all the parties
to the Merger Agreement under the Merger Agreement, and no default, breach or
failure to perform by any party to the Merger Agreement shall constitute an
excuse or other justification for Shareholder to fail to observe fully
Shareholder's covenants and agreements hereunder. No course of dealing between
or among the Buyer, Surviving Corporation and Shareholder and no delay by the
Buyer or Surviving Corporation in exercising any right, power or remedy
hereunder, in equity or at law shall constitute a waiver of, or otherwise
prejudice, any such right, power or remedy.
4. This Agreement (i) constitutes the entire agreement and supersedes all
prior and contemporaneous agreement and understandings, both written and oral,
between the parties hereto with regard to the subject matter hereof, (ii) is not
intended to confer upon any other person any rights or remedies hereunder or
with respect to the subject matter hereof and (iii) shall inure to the benefit
of and be enforceable by the Buyer and Surviving Corporation and their
successors and assigns. All notices and other communications under or in
connection with this Agreement shall be given and deemed effective in the manner
set forth in Section 13.7 of the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above set forth.
SHAREHOLDER:
---------------------------------------
NEIL SIRKIN
BUYER: NUTRITION FOR LIFE INTERNATIONAL, INC.,
a Texas corporation
By:____________________________________
Name:_______________________________
Title:______________________________
BPI (and after the BACTOLAC PHARMACEUTICAL INC.,
Merger, SURVIVING a Delaware corporation
CORPORATION):
By:____________________________________
Name:_______________________________
Title:______________________________
-3-
<PAGE>
EXHIBIT 10.40
This Note has not been registered under the Securities Act of 1933, as amended
(the "Act'), and is not a "restricted security," as that term is defined in Rule
144 under the Act. This Note may not be offered for sale, sold, or otherwise
transferred except pursuant to an effective Registration Statement under the
Act, or pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the Borrower.
SUBORDINATED PROMISSORY NOTE
$2,500,000 Date: November 17, 1999
Due: November 17, 2002
FOR VALUE RECEIVED, Nutrition For Life International, Inc., a Texas corporation
("NFLI") hereby promises to pay to the order of Pailla Reddy ("Reddy") at 51
Brooklyn, Westbury, New York 11590 or such other place of payment as Reddy may
specify from time to time in writing, in lawful money of the United States of
America, the principal amount of Two Million, Five Hundred Thousand and 00/100
Dollars ($2,500,000) together with interest at seven percent (7%) per annum from
the date of this Subordinated Promissory Note (the "Note") to maturity of each
installment on the principal hereof remaining from time to time unpaid, such
principal and interest to be paid in three installments, as follows:
(i) Principal of $1,000,000, plus interest, one year from the date of this Note,
(ii) principal of $1,000,000, plus interest, two years from the date of this
Note, and (iii) principal of $500,000, plus interest, three years from the date
of this Note.
Payments shall be applied first to accrued interest and then to unpaid
principal. Interest shall be computed on the basis of a year consisting of
twelve months of thirty days each. Prepayment may be made without penalty or
premium.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN CREDITOR AND
SUBORDINATION AGREEMENT BY AND AMONG NFLI, REDDY AND WITH GENERAL ELECTRIC
CAPITAL CORPORATION (THE "SENIOR LENDER") FOR THE BENEFIT OF SENIORLENDER. IN
THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE
CREDITOR AND SUBORDINATION AGREEMENT, THE TERMS OF THE CREDITOR AND
SUBORDINATION AGREEMENT SHALL CONTROL.
NFLI waives presentment and demand for payment, notice of dishonor, protest and
notice and protest and any other notice as permitted under the UCC or any
applicable law.
NUTRITION FOR LIFE INTERNATIONAL, INC.
9101 Jameel
Houston, Texas 77040
Signature: ________________________________________
Print Name: ________________________________________
Title: ________________________________________
<PAGE>
EXHIBIT 10.41
This Note has not been registered under the Securities Act of 1933, as amended
(the "Act"), and is not a "restricted security," as that term is defined in Rule
144 under the Act. This Note may not be offered for sale, sold, or otherwise
transferred except pursuant to an effective Registration Statement under the
Act, or pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the Borrower.
SUBORDINATED PROMISSORY NOTE
$650,000 Date: November 17, 1999
Due: April 15, 2000
FOR VALUE RECEIVED, Bactolac Pharmaceutical Inc., a New York corporation ("BPI")
hereby promises to pay to the order of Pailla Reddy ("Reddy") at 51 Brooklyn,
Westbury, New York 11590 or such other place of payment as Reddy may specify
from time to time in writing, in lawful money of the United States of America,
the principal amount of Six Hundred Fifty Thousand And 00/100 Dollars ($650,000)
together with interest at seven percent (7%) per annum from the date of this
Subordinated Promissory Note (the "Note") payable on April 15, 2000:
Payments shall be applied first to accrued interest and then to unpaid
principal. Interest shall be computed on the basis of a year consisting of
twelve months of thirty days each. Prepayment may be made without penalty or
premium.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN CREDITOR AND
SUBORDINATION AGREEMENT BY AND AMONG BPI, REDDY AND GENERAL ELECTRIC CAPITAL
CORPORATION (THE "SENIORLENDER") FOR THE BENEFIT OF SENIORLENDER. IN THE EVENT
OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE CREDITOR AND
SUBORDINATION AGREEMENT, THE TERMS OF THE CREDITOR AND SUBORDINATION AGREEMENT
SHALL CONTROL.
BPI waives presentment and demand for payment, notice of dishonor, protest and
notice and protest and any other notice as permitted under the UCC or any
applicable law.
BACTOLAC PHARMACEUTICAL INC.
51 Brooklyn
Westbury, New York 11590
Signature: _______________________________________
Print Name: _______________________________________
Title: _______________________________________
<PAGE>
EXHIBIT 10.42
This Note has not been registered under the Securities Act of 1933, as amended
(the "Act"), and is not a "restricted security," as that term is defined in Rule
144 under the Act. This Note may not be offered for sale, sold, or otherwise
transferred except pursuant to an effective Registration Statement under the
Act, or pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the Borrower.
SUBORDINATED PROMISSORY NOTE
$155,000 Date: December 1, 1999
Due: December 29, 2000
FOR VALUE RECEIVED, Nutrition For Life International, Inc., a Texas corporation
("NFLI") hereby promises to pay to the order of Neil Sirkin ("Sirkin") at 3600
25/th/ Avenue, Gulfport, Mississippi 39501 or such other place of payment as
Sirkin may specify from time to time in writing, in lawful money of the United
States of America, the principal amount of One Hundred Fifty Five Thousand and
00/100 Dollars ($155,000) together with interest at seven percent (7%) per annum
from the date of this Subordinated Promissory Note (the "Note"), such principal
and interest to be paid the earlier to occur of (i) the refinancing of the
Gulfport, Mississippi property loan in the principal amount of not less than
$2,500,000 by BankOne, Texas NA or another financial institution or (ii)
December 29, 2000.
Payments shall be applied first to accrued interest and then to unpaid
principal. Interest shall be computed on the basis of a year consisting of
twelve months of thirty days each. Prepayment may be made without penalty or
premium.
ALL INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO OTHER INDEBTEDNESS
PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE SUBJECT TO THE
TERMS OF, THE INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED NOVEMBER 30, 1999
(THE "SUBORDINATION AGREEMENT"), AS THE SAME MAY BE AMENDED, MODIFIED OR
OTHERWISE SUPPLEMENTED FROM TIME TO TIME, BY AND AMONG NUTRITION FOR LIFE
INTERNATIONAL, INC. AND CERTAIN OF ITS SUBSIDIARIES, AS BORROWERS, GENERAL
ELECTRIC CAPITAL CORPORATION, AS SENIOR LENDER, AND THE HOLDERS FROM TIME TO
TIME OF THE OBLIGATIONS ARISING UNDER THE SUBORDINATED DOCUMENTS REFERRED TO IN
THE SUBORDINATION AGREEMENT, INCLUDING, WITHOUT LIMITATION, THIS NOTE.
NFLI waives presentment and demand for payment, notice of dishonor, protest and
notice and protest and any other notice as permitted under the UCC or any
applicable law.
NUTRITION FOR LIFE INTERNATIONAL, INC.
9101 Jameel
Houston, Texas 77040
Signature: ____________________________________
Print Name: ____________________________________
Title: ____________________________________
<PAGE>
EXHIBIT 10.43
This Note has not been registered under the Securities Act of 1933, as amended
(the "Act"), and is not a "restricted security," as that term is defined in Rule
144 under the Act. This Note may not be offered for sale, sold, or otherwise
transferred except pursuant to an effective Registration Statement under the
Act, or pursuant to an exemption from registration under the Act, the
availability of which is to be established to the satisfaction of the Borrower.
SUBORDINATED PROMISSORY NOTE
$345,000 Date: December 1, 1999
Due: December 29, 2000
FOR VALUE RECEIVED, Nutrition For Life International, Inc., a Texas corporation
("NFLI") hereby promises to pay to the order of Allan I. Sirkin ("Sirkin") at
3600 25/th/ Avenue, Gulfport, Mississippi 39501 or such other place of payment
as Sirkin may specify from time to time in writing, in lawful money of the
United States of America, the principal amount of Three Hundred Forty Five
Thousand and 00/100 Dollars ($345,000) together with interest at seven percent
(7%) per annum from the date of this Subordinated Promissory Note (the "Note"),
such principal and interest to be paid the earlier to occur of (i) the
refinancing of the Gulfport, Mississippi property loan in the principal amount
of not less than $2,500,000 by BankOne, Texas NA or another financial
institution or (ii) December 29, 2000.
Payments shall be applied first to accrued interest and then to unpaid
principal. Interest shall be computed on the basis of a year consisting of
twelve months of thirty days each. Prepayment may be made without penalty or
premium.
ALL INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO OTHER INDEBTEDNESS
PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE SUBJECT TO THE
TERMS OF, THE INTERCREDITOR AND SUBORDINATION AGREEMENT, DATED NOVEMBER 30, 1999
(THE "SUBORDINATION AGREEMENT"), AS THE SAME MAY BE AMENDED, MODIFIED OR
OTHERWISE SUPPLEMENTED FROM TIME TO TIME, BY AND AMONG NUTRITION FOR LIFE
INTERNATIONAL, INC. AND CERTAIN OF ITS SUBSIDIARIES, AS BORROWERS, GENERAL
ELECTRIC CAPITAL CORPORATION, AS SENIOR LENDER, AND THE HOLDERS FROM TIME TO
TIME OF THE OBLIGATIONS ARISING UNDER THE SUBORDINATED DOCUMENTS REFERRED TO IN
THE SUBORDINATION AGREEMENT, INCLUDING, WITHOUT LIMITATION, THIS NOTE.
NFLI waives presentment and demand for payment, notice of dishonor, protest and
notice and protest and any other notice as permitted under the UCC or any
applicable law.
NUTRITION FOR LIFE INTERNATIONAL, INC.
9101 Jameel
Houston, Texas 77040
Signature: ___________________________________
Print Name: ___________________________________
Title: ___________________________________
<PAGE>
EXHIBIT 10.44
Nutrition For Life International, Inc.
9101 Jameel
Houston, Texas 77040
Dear Gentlemen and Ladies:
This letter agreement is being provided in connection with a merger transaction
in which I will be receiving shares of convertible preferred stock of Nutrition
For Life International, Inc. (the "Company"). I understand that a condition to
closing of the merger is the execution and delivery to the Company of this
lockup agreement.
For a period of one year from the date of closing of the merger, I will not,
directly or indirectly, sell, offer to sell, contract to sell (including without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to parents, siblings, spouses or lineal descendants or
a trust for any of the foregoing who agree to these restrictions) any of the
securities received by me from the Company in connection with the merger
(including any securities which are received upon conversion of the convertible
preferred stock).
I acknowledge and agree that (a) I will be benefited directly and indirectly by
an investment in the Company and by the merger and the Company's officers,
directors and shareholders may rely on the agreement set forth in this letter
and (b) this letter agreement may be specifically enforced because of the
irreparable harm that could result from any breaches of this letter agreement.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of Texas. In the event any one or more provisions of this
letter agreement should be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof.
Dated: December 1, 1999 ___________________________________
Signature
Allan I. Sirkin
-----------------------------------
Print Name
<PAGE>
EXHIBIT 10.45
Nutrition For Life International, Inc.
9101 Jameel
Houston, Texas 77040
Dear Gentlemen and Ladies:
This letter agreement is being provided in connection with a merger transaction
in which I will be receiving shares of convertible preferred stock of Nutrition
For Life International, Inc. (the "Company"). I understand that a condition to
closing of the merger is the execution and delivery to the Company of this
lockup agreement.
For a period of one year from the date of closing of the merger, I will not,
directly or indirectly, sell, offer to sell, contract to sell (including without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to parents, siblings, spouses or lineal descendants or
a trust for any of the foregoing who agree to these restrictions) any of the
securities received by me from the Company in connection with the merger
(including any securities which are received upon conversion of the convertible
preferred stock).
I acknowledge and agree that (a) I will be benefited directly and indirectly by
an investment in the Company and by the merger and the Company's officers,
directors and shareholders may rely on the agreement set forth in this letter
and (b) this letter agreement may be specifically enforced because of the
irreparable harm that could result from any breaches of this letter agreement.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of Texas. In the event any one or more provisions of this
letter agreement should be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof.
Dated: December 1, 1999 ___________________________________
Signature
Neil Sirkin
-----------------------------------
Print Name
<PAGE>
EXHIBIT 10.46
Nutrition For Life International, Inc.
9101 Jameel
Houston, Texas 77040
Dear Gentlemen and Ladies:
This letter agreement is being provided in connection with a merger transaction
in which I will be receiving shares of convertible preferred stock of Nutrition
For Life International, Inc. (the "Company"). I understand that a condition to
closing of the merger is the execution and delivery to the Company of this
lockup agreement.
For a period of one year from the date of closing of the merger, I will not,
directly or indirectly, sell, offer to sell, contract to sell (including without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to parents, siblings, spouses or lineal descendants or
a trust for any of the foregoing who agree to these restrictions) any of the
securities received by me from the Company in connection with the merger
(including any securities which are received upon conversion of the convertible
preferred stock).
I acknowledge and agree that (a) I will be benefited directly and indirectly by
an investment in the Company and by the merger and the Company's officers,
directors and shareholders may rely on the agreement set forth in this letter
and (b) this letter agreement may be specifically enforced because of the
irreparable harm that could result from any breaches of this letter agreement.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of Texas. In the event any one or more provisions of this
letter agreement should be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof.
Dated: November 17, 1999 ___________________________________
Signature
Gregory Pusey
-----------------------------------
Print Name
<PAGE>
EXHIBIT 10.47
Nutrition For Life International, Inc.
9101 Jameel
Houston, Texas 77040
Dear Gentlemen and Ladies:
This letter agreement is being provided in connection with a merger transaction
in which I will be receiving shares of convertible preferred stock of Nutrition
For Life International, Inc. (the "Company"). I understand that a condition to
closing of the merger is the execution and delivery to the Company of this
lockup agreement.
For a period of one year from the date of closing of the merger, I will not,
directly or indirectly, sell, offer to sell, contract to sell (including without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to parents, siblings, spouses or lineal descendants or
a trust for any of the foregoing who agree to these restrictions) any of the
securities received by me from the Company in connection with the merger
(including any securities which are received upon conversion of the convertible
preferred stock).
I acknowledge and agree that (a) I will be benefited directly and indirectly by
an investment in the Company and by the merger and the Company's officers,
directors and shareholders may rely on the agreement set forth in this letter
and (b) this letter agreement may be specifically enforced because of the
irreparable harm that could result from any breaches of this letter agreement.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of Texas. In the event any one or more provisions of this
letter agreement should be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof.
Dated: November 17, 1999 ______________________________
Signature
Barry C. Loder
------------------------------
Print Name
<PAGE>
EXHIBIT 10.48
Nutrition For Life International, Inc.
9101 Jameel
Houston, Texas 77040
Dear Gentlemen and Ladies:
This letter agreement is being provided in connection with a merger transaction
in which I will be receiving shares of convertible preferred stock of Nutrition
For Life International, Inc. (the "Company"). I understand that a condition to
closing of the merger is the execution and delivery to the Company of this
lockup agreement.
For a period of one year from the date of closing of the merger, I will not,
directly or indirectly, sell, offer to sell, contract to sell (including without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to parents, siblings, spouses or lineal descendants or
a trust for any of the foregoing who agree to these restrictions) any of the
securities received by me from the Company in connection with the merger
(including any securities which are received upon conversion of the convertible
preferred stock).
I acknowledge and agree that (a) I will be benefited directly and indirectly by
an investment in the Company and by the merger and the Company's officers,
directors and shareholders may rely on the agreement set forth in this letter
and (b) this letter agreement may be specifically enforced because of the
irreparable harm that could result from any breaches of this letter agreement.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of Texas. In the event any one or more provisions of this
letter agreement should be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof.
Dated: November 17, 1999 ___________________________________
Signature
Pailla Reddy
-----------------------------------
Print Name
<PAGE>
EXHIBIT 10.49
===============================================================================
LOAN AND SECURITY AGREEMENT
Dated as of November 15, 1999
Among
GENERAL ELECTRIC CAPITAL CORPORATION
As Lender
and
NUTRITION FOR LIFE INTERNATIONAL, INC.
AC ACQUISITION COMPANY
(to be known as ASH CORP.)
BPI ACQUISITION COMPANY
(to be known as BACTOLAC PHARMACEUTICAL INC.)
NL ACQUISITION COMPANY
as Borrowers
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Recitals................................................................................ 2
Agreement............................................................................... 2
1. Amount and Terms of Credit......................................................... 2
1.1 Loans....................................................................... 2
1.2 Term and Prepayment......................................................... 3
1.3 Use of Proceeds............................................................. 3
1.4 Single Loan................................................................. 3
1.5 Interest.................................................................... 3
1.6 Cash Management System...................................................... 4
1.7 Fees........................................................................ 4
1.8 Receipt of Payments......................................................... 4
1.9 Application and Allocation of Payments...................................... 4
1.10 Accounting.................................................................. 5
1.11 Indemnity................................................................... 5
1.12 Borrowing Base; Reserves.................................................... 5
2. Conditions Precedent............................................................... 6
2.1 Conditions to the Initial Loans............................................. 6
2.2 Further Conditions to the Loans............................................. 7
3. Representations, warranties and affirmative covenants.............................. 7
3.1 Corporate Existence; Compliance with Law.................................... 8
3.2 Executive Offices; Corporate or Other Names; Conduct of Business............ 8
3.3 Corporate Power; Authorization; Enforceable Obligations..................... 8
3.4 Financial Statements and Projections; Books and Records..................... 8
3.5 Material Adverse Change..................................................... 9
3.6 Real Estate; Property....................................................... 9
3.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness... 9
3.8 Government Regulation. ..................................................... 9
3.9 Margin Regulations.......................................................... 10
3.10 Taxes; Charges.............................................................. 10
3.11 Payment of Obligations...................................................... 10
3.12 ERISA....................................................................... 10
3.13 Litigation.................................................................. 10
3.14 Intellectual Property....................................................... 11
3.15 Full Disclosure............................................................. 11
3.16 Hazardous Materials......................................................... 11
3.17 Insurance................................................................... 11
3.18 Deposit and Disbursement Accounts; Commodity and Security Accounts.......... 12
3.19 Accounts and Inventory...................................................... 12
3.20 Conduct of Business; Maintenance of Existence............................... 12
3.21 Further Assurances.......................................................... 12
3.22 Year 2000 Covenants......................................................... 13
3.23 Solvency.................................................................... 13
3.24 Common Enterprise; Benefit Received......................................... 13
3.25 Aggregate Borrowing Availability............................................ 13
3.26 Perpetual Inventory System.................................................. 13
4. Financial Matters; Reports.......................................................... 14
4.1 Reports and Notices......................................................... 14
4.2 Financial Covenants......................................................... 14
4.3 Other Reports and Information............................................... 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5. Negative Covenants..................................................................... 15
6. Security Interest...................................................................... 17
6.1 Grant of Security Interest................................................... 17
6.2 Lender's Rights.............................................................. 18
6.3 Lender's Appointment as Attorney-in-Fact..................................... 19
6.4 Grant of License to Use Intellectual Property Collateral..................... 19
7. Events Of Default: Rights And Remedies................................................. 19
7.1 Events of Default............................................................ 19
7.2 Remedies..................................................................... 21
7.3 Waivers by Credit Parties.................................................... 22
7.4 Proceeds..................................................................... 22
8. Successors and Assigns................................................................. 23
9. Guarantor Waivers by Borrowers......................................................... 23
10. Miscellaneous......................................................................... 24
10.1 Complete Agreement; Modification of Agreement................................ 24
10.2 Expenses..................................................................... 24
10.3 No Waiver.................................................................... 24
10.4 Severability; Section Titles................................................. 25
10.5 Authorized Signature......................................................... 25
10.6 Notices...................................................................... 25
10.7 Counterparts................................................................. 25
10.8 Time of the Essence.......................................................... 25
10.9 GOVERNING LAW................................................................ 25
10.10 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL............................. 26
10.11 Press Releases............................................................... 26
10.12 Reinstatement................................................................ 26
11.1 Cross-Guaranty....................................................................... 27
11.1 Cross-Guaranty............................................................... 27
11.2 Waivers by Borrowers......................................................... 27
11.3 Benefit of Guaranty.......................................................... 27
11.4 Subordination of Subrogation, Etc............................................ 27
11.5 Election of Remedies......................................................... 28
11.6 Limitation................................................................... 28
11.7 Contribution with Respect to Guaranty Obligations............................ 28
11.8 Liability Cumulative......................................................... 29
11.9 Intercompany Subordination................................................... 29
</TABLE>
ii
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
-------------------------------
Schedule A - Definitions
Schedule B - Lender's and Borrowers' Addresses for Notices
Schedule C - Letters of Credit (Not Used)
Schedule D - Cash Management System
Schedule E - Fees and Expenses
Schedule F - Schedule of Documents
Schedule G - Financial Covenants
Disclosure Schedule (3.2) - Places of Business; Corporate Names
Disclosure Schedule (3.6) - Real Estate
Disclosure Schedule (3.7) - Stock; Affiliates
Disclosure Schedule (3.10) - Taxes
Disclosure Schedule (3.12) - ERISA
Disclosure Schedule (3.13) - Litigation
Disclosure Schedule (3.14) - Intellectual Property
Disclosure Schedule (3.16) - Environmental Matters
Disclosure Schedule (3.17) - Insurance
Disclosure Schedule (3.18) - Commodity and Security Accounts
Disclosure Schedule (3.19) - Contracts (Offset Risk)
Disclosure Schedule (5(b)) - Indebtedness
Disclosure Schedule (5(e)) - Liens
Disclosure Schedule (6.1) - Actions to Perfect Liens
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Other Reports and Information
Exhibit C - Form of Borrowing Base Certificate
Exhibit C-1 - Inventory Rollforward and Reconciliation
Exhibit D - Form of Accounts Payable Analysis
Exhibit E - Form of Accounts Receivable Rollforward Analysis
Exhibit F - Form of Revolving Credit Note
Exhibit G - Form of Term Note
Exhibit H - Form of Secretarial Certificate
Exhibit I - Form of Power of Attorney
Exhibit J - Form of Certificate of Compliance
Exhibit K - Form of Lockbox Agreement
Exhibit L - Form of Landlord's Waiver and Consent
Exhibit M - Form of Opinion of Counsel to Borrower
Exhibit N - Form of Intercreditor Agreement (unsecured junior debt)
Exhibit O - Form of U.C.C. Schedule
Exhibit P - Form of Payment of Proceeds Letter
Exhibit Q - Form of Standard Payoff Letter
iii
<PAGE>
GE Capital
TRANSACTION SUMMARY AS OF THE DATE OF THIS AGREEMENT
- --------------------------------------------------------------------------------
REVOLVING CREDIT LOAN
Maximum Amount: $12,000,000
--------------
Term: 3 years
----
Revolving Credit Rate: Index Rate plus .50%
----------------------
Letter of Credit Subfacility: n/a
----------------------------
Borrowing Base: 85% of the value (as determined by Lender) of
--------------
each Borrower's Eligible Accounts; provided,
that Lender shall reduce the foregoing
percentage by one percentage point for each
percentage point that the dilution of such
Borrower's Accounts (calculated by Lender as
the average dilution over the most recent
three months) exceeds 5%; plus the lesser of
----
(i) 60% of the value of each Borrower's (or
49% in the case of BPI) Eligible Inventory or
(ii) 85% of the orderly liquidation value as
determined by Lender of each Borrower's
Eligible Inventory.
TERM LOAN
Original Principal Amount: $2,360,000
-------------------------
Term: 3 years
----
Amortization: Equal monthly principal installments of
------------ $11,479.17 until the date the Ash Corp.
Acquisition is closed, at which time the
monthly principle installment shall
thereafter increase to $49,166.70, payable on
the first day of each month, with payment of
all remaining principle then outstanding due
on the Commitment Termination Date.
Term Loan Rate: Index Rate plus .50%
--------------
FEES
Closing Fee: $120,000
-----------
Collateral Monitoring Fee: $10,000 per annum.
-------------------------
Unused Line Fee: .25%
---------------
Letter of Credit Fee: n/a
--------------------
Prepayment Fee: 3% in year one; 2% in year two; and 1% in
year three.
The Loans described generally here are established and governed by the terms and
conditions set forth below in this Agreement and the other Loan Documents, and
if there is any conflict between this general description and the express terms
and conditions below or elsewhere in the Loan Documents, such other express
terms and conditions shall control.
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT, Page 1
<PAGE>
This LOAN AND SECURITY AGREEMENT is dated as of November 15, 1999, and
agreed to by and among NUTRITION FOR LIFE INTERNATIONAL, INC., a Texas
corporation ("Leading Borrower"), NL ACQUISITION COMPANY, a Delaware corporation
( "NLAC"), AC ACQUISITION COMPANY, a Delaware corporation (to be known after
the Ash Corp. Acquisition as Ash Corp. and herein "ASH"), BPI ACQUISITION
COMPANY, a Delaware corporation (to be known after the Closing Date as Bactolac
Pharmaceutical Inc. and herein "BPI" and Leading Borrower, ASH, NLAC, and BPI
being collectively referred to as "Borrowers" and each a "Borrower"), any other
Credit Party executing this Agreement, and GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation ("Lender").
Recitals
A. Borrowers desire to obtain the Loans and other financial accommodations
from Lender and Lender is willing to provide the Loans and accommodations all in
accordance with the terms of this Agreement.
B. Capitalized terms used herein shall have the meanings assigned to them
in Schedule A and, for purposes of this Agreement and the other Loan Documents,
----------
the rules of construction set forth in Schedule A shall govern. All Schedules,
----------
Attachments, Addenda and Exhibits (collectively, "Appendices") hereto, or
expressly identified to this Agreement, are incorporated herein by reference,
and taken together with this Agreement, constitute but a single agreement.
Agreement
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. Amount and Terms of Credit
1.1 Loans.
-----
(a) Subject to the terms and conditions of this Agreement, from the
Closing Date and until the Commitment Termination Date (i) Lender agrees (A) to
make available advances (each, a "Revolving Credit Advance") and (B) to incur
Letter of Credit Obligations (if the Lender determines in its discretion to do
so, it having no commitment to incur Letter of Credit Obligations) in an
aggregate outstanding amount for any Borrower not to exceed the Borrowing
Availability of such Borrower, and (ii) any Borrower may at the request of
Leading Borrower as agent for such Borrower from time to time borrow, repay and
reborrow, and may request Lender to incur Letter of Credit Obligations, under
this Section 1.1; provided, however, that ASH shall not be entitled to request
-------- -------
any advances under this Agreement until ASH has completed the Ash Corp.
Acquisition in a manner satisfactory to the Lender.
(b) Leading Borrower, as agent for each Borrower, shall request each
Revolving Credit Advance by written notice to Lender substantially in the form
of Exhibit A (each a "Notice of Revolving Credit Advance") given no later than
---------
12:00 P.M. (New York City time) on the Business Day of the proposed Revolving
Credit Advance. Lender shall be fully protected under this Agreement in relying
upon, and shall be entitled to rely upon, (i) any Notice of Revolving Credit
Advance believed by Lender to be genuine, and (ii) the assumption that the
Persons making electronic requests or executing and delivering a Notice of
Revolving Credit Advance were duly authorized, unless the responsible individual
acting thereon for Lender shall have actual knowledge to the contrary. As an
accommodation to Borrowers, Lender may permit telephonic or facsimile requests
for a Revolving Credit Advance and electronic or facsimile transmittal of
instructions, authorizations, agreements or reports to Lender by any Borrower.
Unless Borrowers specifically direct Lender in writing not to accept or act upon
telephonic, facsimile or electronic communications from any Borrower, Lender
shall have no liability to any Borrower for any loss or damage suffered by any
Borrower as a result of Lender's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance on any reports
communicated to it telephonically, by facsimile or electronically and purporting
to have been sent to Lender by any Borrower and Lender shall have no duty to
verify the origin of any such communication or the identity or authority of the
Person sending it. The Revolving Credit
LOAN AND SECURITY AGREEMENT, Page 2
<PAGE>
Loan shall be evidenced by, and be repayable in accordance with the terms of,
the Revolving Credit Note and this Agreement
(c) In making any Loan hereunder Lender shall be entitled to rely upon
the most recent Borrowing Base Certificate delivered to Lender by such Borrower
and other information available to Lender. Lender shall be under no obligation
to make any further Revolving Credit Advance to any Borrower or incur any other
Obligation if any Borrower shall have failed to deliver a Borrowing Base
Certificate to Lender by the time specified in Section 4.1(b).
(d) Term Loan. Subject to the terms and conditions of this Agreement,
---------
Lender agrees to make the Term Loan to Borrowers in two advances, one on the
Closing Date in the original principal amount equal to Five Hundred Fifty-One
Thousand Dollars ($551,000) and the other to be made on the date of the closing
of the Ash Corp. Acquisition in the original principle amount of One Million
Eight Hundred and Nine Thousand Dollars ($1,809,000), provided that the Ash
Corp. Acquisition is closed in compliance with the terms of this Agreement. The
Term Loan shall be evidenced by, and be repayable in accordance with the terms
of, the Term Note and this Agreement.
(e) Letters of Credit. Notwithstanding anything to the contrary
-----------------
contained in this Agreement, including Schedule C, Lender shall have no
----------
obligations to incur Letter of Credit Obligations for the account of any
Borrower.
1.2 Term and Prepayment.
-------------------
(a) Upon the Commitment Termination Date the obligation of Lender to
make Revolving Credit Advances and extend other credit hereunder shall
immediately terminate and Borrowers shall pay to Lender in full, in cash: (i)
all outstanding Revolving Credit Advances and all accrued but unpaid interest
thereon; (ii) an amount sufficient to enable Lender to hold cash collateral as
specified in Schedule C; (iii) all principal and accrued but unpaid interest on
----------
the Term Loan; and (iv) all other non-contingent Obligations due to or incurred
by Lender.
(b) If the Revolving Credit Loan attributable to any Borrower shall at
any time exceed such Borrower's Borrowing Availability, then such Borrower shall
immediately repay the Revolving Credit Loan in the amount of such excess.
(c) Each Borrower shall have the right, at any time upon 30 days prior
written notice to Lender to (i) terminate voluntarily Borrowers' right to
receive or benefit from, and Lender's obligation to make and to incur, Revolving
Credit Advances and Letter of Credit Obligations, (ii) prepay all or a portion
of the Term Loan, provided that any prepayment of less than all of the
outstanding balance of the Term Loan shall be applied to the remaining
installments of the Term Loan in the inverse order of their maturity, and (iii)
prepay all of the Obligations. The effective date of termination of the
Revolving Credit Loan and the Term Loan specified in such notice shall be the
Commitment Termination Date. If any Borrower exercises the right of termination
and prepayment, or if Lender's obligation to make Loans is terminated for any
reason prior to the Stated Expiry Date then in effect (including as a result of
the occurrence of a Default), Borrowers shall pay to Lender the applicable
Prepayment Fee.
1.3 Use of Proceeds. Borrowers shall use the proceeds of the Loans to
---------------
finance the cash consideration paid in connection with the Acquisitions and for
working capital and other general corporate purposes.
1.4 Single Loan. The Loans and all of the other Obligations of any
-----------
Borrower to Lender shall constitute one general obligation of such Borrower
secured by all of the Collateral.
1.5 Interest
--------
(a) Each Borrower shall pay interest to Lender on the aggregate
outstanding Revolving Credit Advances attributable to such Borrower at a
floating rate equal to the Index Rate plus fifty hundredths percent (.50%) per
annum (the "Revolving Credit Rate") and on the outstanding balance of the Term
Loan at a floating rate equal to the Index Rate plus fifty hundredths percent
(.50%) per annum (the "Term Loan Rate"). All computations
LOAN AND SECURITY AGREEMENT, Page 3
<PAGE>
of interest, and all calculations of the Letter of Credit Fee, shall be made by
Lender on the basis of a three hundred and sixty (360) day year, in each case
for the actual number of days occurring in the period for which such interest or
fee is payable. Each determination by Lender of an interest rate hereunder shall
be conclusive and binding for all purposes, absent manifest error. In no event
will Lender charge interest at a rate that exceeds the highest rate of interest
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable.
(b) Interest shall be payable on the outstanding Revolving Credit
Advances and balance of the Term Loan (i) in arrears for the preceding calendar
month on the first day of each calendar month, (ii) on the Commitment
Termination Date, and (iii) if any interest accrues or remains payable after
the Commitment Termination Date, upon demand by Lender.
(c) Effective upon the occurrence of any Event of Default and for so
long as any Event of Default shall be continuing, the Revolving Credit Rate, the
Term Loan Rate and the Letter of Credit Fee shall automatically be increased by
two percentage points (2%) per annum (such increased rate, the "Default Rate"),
and all outstanding Obligations, including unpaid interest and Letter of Credit
Fees, shall continue to accrue interest from the date of such Event of Default
at the Default Rate applicable to such Obligations.
(d) If any interest or other payment (including Unused Line Fees,
Letter of Credit Fees and Collateral Monitoring Fees) to Lender under this
Agreement becomes due and payable on a day other than a Business Day, such
payment date shall be extended to the next succeeding Business Day and interest
thereon shall be payable at the then applicable rate during such extension.
1.6 Cash Management System. On or prior to the Closing Date and until the
----------------------
Termination Date, each Borrower will establish and maintain the cash management
system described in Schedule D. All payments in respect of the Collateral shall
----------
be made to or deposited in the blocked or lockbox accounts described in Schedule
--------
D in accordance with the terms thereof.
- -
1.7 Fees. Each Borrower agrees to pay to Lender the Fees set forth in
----
Schedule E.
- ----------
1.8 Receipt of Payments. Each Borrower shall make each payment under this
-------------------
Agreement (not otherwise made pursuant to Section 1.9) without set-off,
counterclaim or deduction and free and clear of all Taxes not later than 11:00
A.M. (New York City time) on the day when due in lawful money of the United
States of America in immediately available funds to the Collection Account. If
any Borrower shall be required by law to deduct any Taxes from any payment to
Lender under any Loan Document, then the amount payable to Lender shall be
increased so that, after making all required deductions, Lender receives an
amount equal to that which it would have received had no such deductions been
made. For purposes of computing interest and Fees, all payments shall be deemed
received by Lender 1 Business Day following receipt of immediately available
funds in the Collection Account. For purposes of determining the Borrowing
Availability, payments shall be deemed received by Lender upon receipt of
immediately available funds in the Collection Account
1.9 Application and Allocation of Payments. Each Borrower irrevocably
--------------------------------------
agrees that Lender shall have the continuing and exclusive right to apply any
and all payments against the then due and payable Obligations in such order as
Lender may deem advisable. Lender is authorized to, and at its option may
(without prior notice or precondition and at any time or times), but shall not
be obligated to, make or cause to be made Revolving Credit Advances on behalf of
any Borrower for: (a) payment of all Fees, expenses, indemnities, charges,
costs, principal, interest, or other Obligations owing by such Borrower under
this Agreement or any of the other Loan Documents, (b) the payment, performance
or satisfaction of any of such Borrower's obligations with respect to
preservation of the Collateral or otherwise under this Agreement, or (c) any
premium in whole or in part required in respect of any of the policies of
insurance required by this Agreement, even if the making of any such Revolving
Credit Advance causes the outstanding balance of the Revolving Credit Loan
attributable to any Borrower to exceed such Borrower's Borrowing Availability,
and each Borrower agrees to repay immediately, in cash, any amount by which the
Revolving Credit Loan attributable to such Borrower exceeds its Borrowing
Availability.
1.10 Accounting. Lender is authorized to record on its books and records
----------
the date and amount of each Loan and each payment of principal thereof and such
recordation shall constitute prima facie evidence of the
LOAN AND SECURITY AGREEMENT, Page 4
<PAGE>
accuracy of the information so recorded. Lender shall provide Borrowers on a
monthly basis a statement and accounting of such recordations but any failure on
the part of the Lender to keep any such recordation (or any errors therein) or
to send a statement thereof to any Borrower shall not in any manner affect the
obligation of any Borrower to repay (with applicable interest) the Loans made to
such Borrower under this Agreement. Except to the extent that any Borrower
shall, within 30 days after such statement and accounting is sent, notify Lender
in writing of any objection such Borrower may have thereto (stating with
particularity the basis for such objection), such statement and accounting shall
be deemed final, binding and conclusive upon such Borrower, absent manifest
error.
1.11 Indemnity. Each Borrower and each other Credit Party executing this
---------
Agreement jointly and severally agree to indemnify and hold Lender and its
Affiliates, and their respective employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses of any kind or
nature whatsoever (including attorneys' fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) which may
be instituted or asserted against or incurred by any such Indemnified Person as
the result of credit having been extended, suspended or terminated under this
Agreement and the other Loan Documents or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement and the other Loan Documents or
any other documents or transactions contemplated by or referred to herein or
therein and any actions or failures to act with respect to any of the foregoing,
including any and all product liabilities, Environmental Liabilities, Taxes and
legal costs and expenses arising out of or incurred in connection with disputes
between or among any parties to any of the Loan Documents (collectively,
"Indemnified Liabilities"), INCLUDING, WITHOUT LIMITATION, INDEMNIFIED
LIABILITIES ARISING FROM THE SOLE OR CONTRIBUTORY ORDINARY NEGLIGENCE OF THE
INDEMNIFIED PERSON BUT EXCLUDING any such Indemnified Liability is finally
determined by a court of competent jurisdiction to have resulted solely from
such Indemnified Person's gross negligence or willful misconduct. NO INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY CREDIT PARTY, ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER
OF ATTORNEY FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY
BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED
UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER
TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
1.12 Borrowing Base; Reserves. The Borrowing Base of each Borrower shall
------------------------
be determined by Lender (including the eligibility of Accounts and Inventory)
based on the most recent Borrowing Base Certificate delivered to Lender in
accordance with Section 4.1(b) and such other information available to Lender.
Without limiting any other rights and remedies of Lender hereunder or under the
other Loan Documents, the Revolving Credit Loan shall be subject to Lender's
continuing right to withhold from any Borrower's Borrowing Availability
reserves, and to increase and decrease such reserves from time to time, if and
to the extent that in Lender's good faith credit judgment such reserves are
necessary, including to protect Lender's interest in the Collateral or to
protect Lender against possible non-payment of Accounts for any reason by
Account Debtors or possible diminution of the value of any Collateral or
possible non-payment of any of the Obligations or for any Taxes or in respect of
any state of facts which could constitute a Default. Lender may, at its option,
implement reserves by designating as ineligible a sufficient amount of Accounts
or Inventory which would otherwise be Eligible Accounts or Eligible Inventory,
as the case may be, so as to reduce any Borrower's Borrowing Base by the amount
of the intended reserves.
2. Conditions Precedent
2.1 Conditions to the Initial Loans. Lender shall not be obligated to
-------------------------------
make any of the Loans or to perform any other action hereunder, until the
following conditions have been satisfied in a manner satisfactory to Lender in
its sole discretion, or waived in writing by Lender all on or before November
30, 1999:
(a) the Loan Documents to be delivered on or before the Closing Date
shall have been duly executed and delivered by the appropriate parties, all as
set forth in the Schedule of Documents (Schedule F);
----------
LOAN AND SECURITY AGREEMENT, Page 5
<PAGE>
(b) Lender shall have received evidence satisfactory to it that all
Liens, other than Permitted Encumbrances, upon any of the property of any
Borrower or any other Credit Party shall have been or will be terminated
immediately on the date the first Loan is made hereunder;
(c) Lender shall have received evidence satisfactory to it that each
Credit Party has obtained all consents and acknowledgments of all Persons and
Governmental Authorities whose consents or acknowledgments may be required prior
to the execution and delivery of this Agreement, the other Loan Documents or the
Closing Date Acquisition Documents (or pursuant to the terms here or thereof)
and the consummation of the transactions contemplated hereby and thereby and
that such consents or acknowledgments remain in full force and effect;
(d) Lender shall have received evidence satisfactory to it that the
insurance policies provided for in Section 3.17 are in full force and effect,
together with appropriate evidence showing loss payable or additional insured
clauses or endorsements in favor of Lender as required under such Section;
(e) as of the Closing Date Net Borrowing Availability for all
Borrowers combined shall be not less than $1,500,000 after giving effect to the
initial Revolving Credit Advance and Letter of Credit Obligations (on a pro
forma basis, with trade payables being paid currently, and expenses and
liabilities being paid in the ordinary course of business and without
acceleration of sales);
(f) Lender shall have received an opinion of counsel to the Borrowers
with respect to the Transaction Documents (excluding the Ash Corp. Acquisition
Documents) addressing the matters set forth on Exhibit M in form and substance
satisfactory to Lender;
(g) Lender shall have received evidence satisfactory to it that the
purchase price payable in connection with the Closing Date Acquisitions plus the
amount of assumed liabilities and aggregate fees and closing costs (including
those payable to Lender) shall not exceed $3,500,000;
(h) the Closing Date Acquisitions and the transfer of title to the
assets being acquired thereby free and clear of all Liens and encumbrances in
connection therewith except for Permitted Encumbrances and the documentation
relating thereto (including the Acquisition Documents) shall in form and
substance satisfactory to Lender;
(i) Lender shall have been provided evidence satisfactory to Lender
that the transactions contemplated by the Closing Date Acquisition Documents
will be consummated on the Closing Date in accordance with the Closing Date
Acquisition Documents;
(j) Lender shall have received in form and substance satisfactory to
it a pro forma consolidated and consolidating balance sheets of the Borrowers
which balance sheets shall give effect to the Closing Date Acquisitions and the
incurrence of the Obligations to be incurred on the Closing Date;
(k) Lender shall have received executed copies of each of the Closing
Date Acquisition Documents (including all exhibits, schedules, disclosure letter
and opinions referred to therein or delivered pursuant thereto), and any
landlords and any stockholders' agreement, voting trust agreement, stock
redemption agreement or any other agreement with shareholders of the Leading
Borrower in each case and in effect on the Closing Date in form and substance
satisfactory to Lender, certified by an authorized officer of the Leading
Borrower as true, correct and complete copies thereof;
(l) Lender shall have received a certificate from the chief financial
officer of the Leading Borrower certifying that (i) upon payment of the purchase
price, each Closing Date Acquisition shall have been consummated in accordance
with the Closing Date Acquisition Documents, (ii) the representations and
warranties of any Borrower in the Closing Date Acquisition Documents are true,
complete and correct in all material respects on and as of the Closing Date (or,
if any such representation or warranty is expressly stated to have been made as
of a specific date, as of such specific date) and (iii) to the best knowledge of
the Borrowers, no Person or party to any Closing Date Acquisition Document is in
default in the performance or compliance with any of the material terms or
provisions of any Closing Date Acquisition Document; and
LOAN AND SECURITY AGREEMENT, Page 6
<PAGE>
(m) Lender shall have received evidence satisfactory to it that on or
prior to the Closing Date Leading Borrower has issued its series A preferred
stock $.001 par value on terms satisfactory to Lender.
2.2 Further Conditions to the Loans. Lender shall not be obligated to
-------------------------------
fund any Loan (including the initial Loans), if, as of the date thereof:
(a) any representation or warranty by any Credit Party contained
herein or in any of the other Loan Documents shall be untrue or incorrect as of
such date, except to the extent that any such representation or warranty is
expressly stated to relate to a specific earlier date, in which case, such
representation and warranty shall be true and correct as of such earlier date;
or
(b) any event or circumstance which has had or reasonably could be
expected to have a Material Adverse Effect shall have occurred since the Closing
Date; or
(c) any Default shall have occurred and be continuing or would result
after giving effect to such Loan; or
(d) after giving effect to such Loan the Revolving Credit Loan
attributable to any Borrower would exceed the Borrowing Availability of such
Borrower.
(e) any action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any Governmental
Authority to enjoin, restrain or prohibit, or to obtain damages in respect of,
or which is related to or arises out of, this Agreement, any other Loan Document
or any Acquisition Document or the consummation of any transaction contemplated
hereby or thereby and which, in Lender's sole judgment, would make it
inadvisable to consummate any transaction contemplated by this Agreement, any
other Loan Document or any Acquisition Document.
The request and acceptance by Leading Borrower, as agent for each Borrower, of
the proceeds of any Loan, and the request by Leading Borrower, as agent for each
Borrower, for the incurrence by Lender of any Letter of Credit Obligations, as
the case may be, shall be deemed to constitute, as of the date of such request
and the date of such acceptance, (i) a representation and warranty by each
Borrower that the conditions in Section 2.2 have been satisfied and (ii) a
restatement by each Borrower of each of the representations and warranties made
by such Borrower in any Loan Document and a reaffirmation by each Borrower of
the granting and continuance of Lender's Liens pursuant to the Loan Documents.
3. Representations, warranties and affirmative covenants
To induce Lender to enter into this Agreement and to make the Loans, each
Borrower and each other Credit Party executing this Agreement represent and
warrant to Lender (each of which representations and warranties shall survive
the execution and delivery of this Agreement), and promise to and agree with
Lender until the Termination Date and as of and after the Closing Date, after
giving effect to the Closing Date Acquisitions, and as of and after the date of
the closing of the Ash Corp. Acquisition, after giving effect to the Ash Corp.
Acquisition, as follows:
3.1 Corporate Existence; Compliance with Law. Each Corporate Credit
----------------------------------------
Party: (a) is, as of the Closing Date, and will continue to be (i) a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or formation, (ii) duly qualified to do
business and in good standing in each other jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification,
except where the failure to be so qualified could not reasonably be expected to
have a Material Adverse Effect, and (iii) in compliance with all Requirements of
Law and Contractual Obligations, except to the extent failure to comply
therewith could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect; and (b) has and will continue to have (i) the
requisite corporate power and authority and the legal right to execute, deliver
and perform its obligations under the Transaction Documents, and to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore or
proposed to be conducted, and (ii) all licenses, permits, franchises, rights,
LOAN AND SECURITY AGREEMENT, Page 7
<PAGE>
powers, consents or approvals from or by all Persons or Governmental Authorities
having jurisdiction over such Corporate Credit Party which are necessary or
appropriate for the conduct of its business.
3.2 Executive Offices; Corporate or Other Names; Conduct of Business.
----------------------------------------------------------------
The jurisdiction in which each Corporate Credit Party is organized is correctly
set forth in the introduction to this Agreement. The location of each Corporate
Credit Party's chief executive office, corporate offices, warehouses, other
locations of Collateral and locations where records with respect to Collateral
are kept (including in each case the county of such locations) are as set forth
in Disclosure Schedule (3.2) and, except as set forth in such Disclosure
-------------------------
Schedule, such locations have not changed during the preceding twelve months.
As of the Closing Date, during the prior five years, except as set forth in
Disclosure Schedule (3.2) and except for the names of the Predecessor Companies,
- -------------------------
no Corporate Credit Party has been known as or conducted business in any other
name (including trade names). No Corporate Credit Party shall change its (a)
name, (b) chief executive office, (c) corporate offices, (d) warehouses or other
Collateral locations, (e) location of its records concerning the Collateral, or
(f) jurisdiction of organization or acquire, lease or use any real estate after
the Closing Date without such Person, in each instance, giving thirty (30) days
prior written notice thereof to Lender and taking all actions deemed necessary
or appropriate by Lender to continuously protect and perfect Lender's Liens upon
the Collateral. No third party has possession or control of any Collateral
other than Inventory in transit and checks representing proceeds held by third
parties to facilitate collection.
3.3 Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by each Credit Party of the Transaction
Documents to which it is a party, and the creation of all Liens provided for
herein and therein: (a) are and will continue to be within such Credit Party's
power and authority; (b) have been and will continue to be duly authorized by
all necessary or proper action; (c) are not and will not be in violation of any
Requirement of Law or Contractual Obligation of such Credit Party; (d) do not
and will not result in the creation or imposition of any Lien (other than
Permitted Encumbrances) upon any of the Collateral; and (e) do not and will not
require the consent or approval of any Governmental Authority or any other
Person, except those referred to in Section 2.1(c) (all of which will have been
duly obtained, made or complied with on or before the Closing Date and shall be
in full force and effect on such date). As of the Closing Date, each
Transaction Document (excluding the Ash Corp. Acquisition Documents until the
closing of the Ash Corp. Acquisition) shall have been duly executed and
delivered on behalf of each Credit Party thereto, and each such Transaction
Document upon such execution and delivery shall be and will continue to be a
legal, valid and binding obligation of such Credit Party, enforceable against it
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally.
3.4 Financial Statements and Projections; Books and Records.
-------------------------------------------------------
(a) The Financial Statements delivered by each Borrower to Lender for
its and for each Predecessor Company's Fiscal Year and Fiscal Month most
recently ended prior to September 30, 1999, are true, correct and complete and
reflect fairly and accurately the financial condition of such Person as of the
date of each such Financial Statement in accordance with GAAP. The Projections
most recently delivered by each Borrower to Lender have been prepared in good
faith, with care and diligence and use assumptions that are reasonable under the
circumstances at the time such Projections were prepared and as of the date
delivered to Lender and all such assumptions are disclosed in the Projections.
The pro forma balance sheets delivered under the terms of Section 2.1(j) were
prepared by Leading Borrower based on the unaudited balance sheets of the
Leading Borrower, NLAC and the Predecessor Companies dated June 30, 1999 and
were prepared in accordance with GAAP, with only such adjustments thereto as
would be required in accordance with GAAP.
(b) Each Borrower and each other Corporate Credit Party shall keep
adequate Books and Records with respect to the Collateral and its business
activities in which proper entries, reflecting all consolidated and
consolidating financial transactions, and payments and credits received on, and
all other dealings with, the Collateral, will be made in accordance with GAAP
and all Requirements of Law and on a basis consistent with the Financial
Statements.
3.5 Material Adverse Change. Between the date of each Borrower's and each
-----------------------
Predecessor Company's most recently audited Financial Statements delivered to
Lender and the Closing Date: (a) no Corporate Credit Party has incurred any
obligations, contingent or non-contingent liabilities, or liabilities for
Charges, long-term leases or unusual forward or long-term commitments which are
not reflected in the Projections delivered on the Closing Date
LOAN AND SECURITY AGREEMENT, Page 8
<PAGE>
and which could, alone or in the aggregate, reasonably be expected to have a
Material Adverse Effect; (b) there has been no material deviation from such
Projections; and (c) no events have occurred which alone or in the aggregate has
had or could reasonably be expected to have a Material Adverse Effect. No
Requirement of Law or Contractual Obligation of any Credit Party has or have had
or could reasonably be expected to have a Material Adverse Effect and no Credit
Party is in default, and to such Credit Party's knowledge no third party is in
default, under or with respect to any of its Contractual Obligations, which
alone or in the aggregate has had or could reasonably be expected to have a
Material Adverse Effect.
3.6 Real Estate; Property. The real estate listed in Disclosure
--------------------- ----------
Schedule (3.6) constitutes all of the real property owned, leased, or used by
- --------------
each Corporate Credit Party in its business, and such Credit Party will not
execute any material agreement or contract in respect of such real estate after
the date of this Agreement without giving Lender prompt prior written notice
thereof. Each Corporate Credit Party holds and will continue to hold good and
marketable fee simple title to all of its owned real estate, and good and
marketable title to all of its other properties and assets, and valid and
insurable leasehold interests in all of its leases (both as lessor and lessee,
sublessee or assignee), and none of the properties and assets of any Corporate
Credit Party are or will be subject to any Liens, except Permitted Encumbrances.
With respect to each of the premises identified in Disclosure Schedule (3.2) on
-------------------------
or prior the Closing Date or the date required by Section 3.21, a bailee,
landlord or mortgagee agreement acceptable to Lender has been obtained.
3.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. Except as set forth in Disclosure Schedule (3.7), as of the
- ------------ ------------------------
Closing Date no Corporate Credit Party has any Subsidiaries, is engaged in any
joint venture or partnership with any other Person, or is an Affiliate of any
other Person. All of the issued and outstanding Stock of each Corporate Credit
Party (including all rights to purchase, options, warrants or similar rights or
agreements pursuant to which any Corporate Credit Party may be required to
issue, sell, repurchase or redeem any of its Stock) as of the Closing Date is
owned by each of the Stockholders (and in the amounts) set forth on Disclosure
----------
Schedule (3.7). As of the Closing Date, Disclosure Schedule (3.7) sets forth
- ------------- -------------------------
the authorized, issued, and outstanding capital stock, membership interests, or
other equity interests of each Borrower and each Subsidiary. All of the
outstanding capital stock of each Borrower and each Subsidiary has been validly
issued, is fully paid, and is nonassessable. Except as set forth in Disclosure
----------
Schedule (3.7), there are no outstanding subscriptions, options, warrants,
- -------------
calls, or rights (including preemptive rights) to acquire, and no outstanding
securities or instruments convertible into, capital stock, membership interests
or other equity interests of any Borrower or any Subsidiary. All outstanding
Indebtedness of each Corporate Credit Party as of the Closing Date is described
in Disclosure Schedule (5(b)).
------------------------
3.8 Government Regulation. No Credit Party is subject to or regulated
---------------------
under the Investment Company Act of 1940, the Public Utility Holding Company Act
of 1935, the Federal Power Act or any other Federal or state statute, rule or
regulation that restricts or limits such Person's ability to incur Indebtedness,
pledge its assets, or to perform its obligations under the Transaction
Documents. The making of the Loans, the application of the proceeds and
repayment thereof, and the consummation of the transactions contemplated by the
Transaction Documents do not and will not violate any provision of any such
statute or any rule, regulation or order issued by the Securities and Exchange
Commission.
3.9 Margin Regulations. No Corporate Credit Party is engaged, nor will it
------------------
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
security" as such terms are defined in Regulation U of the Federal Reserve Board
as now and from time to time hereafter in effect (such securities being referred
to herein as "Margin Stock"). No Corporate Credit Party owns any Margin Stock,
and none of the proceeds of the Loans or other extensions of credit under this
Agreement will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry any Margin Stock
or for any other purpose which might cause any of the Loans or other extensions
of credit under this Agreement to be considered a "purpose credit" within the
meaning of Regulation T, U or X of the Federal Reserve Board. No Corporate
Credit Party will take or permit to be taken any action which might cause any
Loan Document to violate any regulation of the Federal Reserve Board.
3.10 Taxes; Charges. Except as disclosed on Disclosure Schedule (3.10)
-------------- -------------------------
all tax returns, reports and statements required by any Governmental Authority
to be filed by Borrower or any other Credit Party have, as of the
LOAN AND SECURITY AGREEMENT, Page 9
<PAGE>
Closing Date, been filed and will, until the Termination Date, be filed with the
appropriate Governmental Authority and no tax Lien has been filed against any
Credit Party or any Credit Party's property. Except as disclosed on Disclosure
----------
Schedule (3.10), proper and accurate amounts have been and will be withheld by
- ---------------
Borrower and each other Credit Party from their respective employees for all
periods in complete compliance with all Requirements of Law and such
withholdings have and will be timely paid to the appropriate Governmental
Authorities. Disclosure Schedule (3.10) sets forth as of the Closing Date those
--------------------------
taxable years for which any Credit Party's tax returns are currently being
audited by the IRS or any other applicable Governmental Authority and any
assessments or threatened assessments in connection with such audit, or
otherwise currently outstanding. Except as described on Disclosure Schedule
-------------------
(3.10), no Credit Party has executed or filed with the IRS or any other
- ------
Governmental Authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Charges.
None of the Credit Parties and their respective predecessors are liable for any
Charges: (a) under any agreement (including any tax sharing agreements or
agreement extending the period of assessment of any Charges) or (b) to each
Credit Party's knowledge, as a transferee. As of the Closing Date, no Credit
Party has agreed or been requested to make any adjustment under IRC Section
481(a), by reason of a change in accounting method or otherwise, which could
reasonably be expected to have a Material Adverse Effect. The matters disclosed
on Disclosure Schedule (3.10) are not expected to have a Material Adverse
--------------------------
Effect.
3.11 Payment of Obligations. Each Credit Party will pay, discharge or
----------------------
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all of its Charges and other obligations of whatever nature, except
where the amount or validity thereof is currently being contested in good faith
by appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of such Credit Party and none of the
Collateral is or could reasonably be expected to become subject to any Lien or
forfeiture or loss as a result of such contest.
3.12 ERISA. No ERISA Event has occurred or is reasonably expected to
-----
occur that, when taken together with all other existing ERISA Events, could
reasonably be expected to result in a liability of any Credit Party of more than
the Minimum Actionable Amount. The present value of all accumulated benefit
obligations of the Credit Parties under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent Financial Statements reflecting such amounts,
exceed the fair market value of the assets of such Plan by more than the Minimum
Actionable Amount, and the present value of all accumulated benefit obligations
of all underfunded Plans (based on the assumptions used for purposes of
Statement of Financial Account Standards No. 87) did not, as of the date of the
most recent Financial Statements reflecting such amounts, exceed the fair market
value of the assets of such underfunded Plans by more than the Minimum
Actionable Amount. No Credit Party or ERISA Affiliate has incurred or
reasonably expects to incur any Withdrawal Liability in excess of the Minimum
Actionable Amount.
3.13 Litigation. No Litigation is pending or, to the knowledge of any
----------
Credit Party, threatened by or against any Credit Party or against any Credit
Party's properties or revenues (a) with respect to any of the Transaction
Documents or any of the transactions contemplated hereby or thereby, or (b)
which could reasonably be expected to have a Material Adverse Effect. Except as
set forth on Disclosure Schedule (3.13), as of the Closing Date there is no
-------------------------
Litigation pending or threatened against any Credit Party which seeks damages in
excess of $50,000 or injunctive relief or alleges criminal misconduct of any
Credit Party. Each Credit Party shall notify Lender promptly upon learning of
the existence, threat or commencement of any Litigation against any Credit
Party, any ERISA Affiliate or any Plan or any allegation of criminal misconduct
against any Credit Party. The matters disclosed on Disclosure Schedule (3.13)
--------------------------
are not expected to have a Material Adverse Effect.
3.14 Intellectual Property. As of the Closing Date, all material
---------------------
Intellectual Property owned or used by any Corporate Credit Party is listed,
together with application or registration numbers, where applicable, in
Disclosure Schedule (3.14). Each Corporate Credit Party owns, or is licensed to
- -------------------------
use, all Intellectual Property necessary to conduct its business as currently
conducted except for such Intellectual Property the failure of which to own or
license could not reasonably be expected to have a Material Adverse Effect.
Each Corporate Credit Party will maintain the patenting and registration of all
Intellectual Property with the United States Patent and Trademark Office, the
United States Copyright Office, or other appropriate Governmental Authority and
each Corporate Credit Party will promptly patent or register, as the case may
be, all new Intellectual Property and notify Lender in writing five (5) Business
Days prior to filing any such new patent or registration.
LOAN AND SECURITY AGREEMENT, Page 10
<PAGE>
3.15 Full Disclosure. No information contained in any Transaction
---------------
Document, the Financial Statements or any written statement furnished by or on
behalf of any Credit Party under any Transaction Document, or to induce Lender
to execute the Loan Documents, contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
3.16 Hazardous Materials. Except as set forth on Disclosure Schedule
------------------- -------------------
(3.16), as of the Closing Date, (a) each real property location owned, leased or
- -----
occupied by each Corporate Credit Party (the "Real Property") is maintained free
of contamination from any Hazardous Material, (b) no Corporate Credit Party is
subject to any Environmental Liabilities or, to any Credit Party's knowledge,
potential Environmental Liabilities, in excess of $50,000 in the aggregate, (c)
no notice has been received by any Corporate Credit Party identifying it as a
"potentially responsible party" or requesting information under CERCLA or
analogous state statutes, and to the knowledge of any Credit Party, there are no
facts, circumstances or conditions that may result in any Corporate Credit Party
being identified as a "potentially responsible party" under CERCLA or analogous
state statutes; and (d) each Corporate Credit Party has provided to Lender
copies of all existing environmental reports, reviews and audits and all written
information pertaining to actual or potential Environmental Liabilities, in each
case relating to any Corporate Credit Party. Each Corporate Credit Party: (i)
shall comply in all material respects with all applicable Environmental Laws and
Environmental Permits; (ii) shall notify Lender in writing within seven days if
and when it becomes aware of any Release, on, at, in, under, above, to, from or
about any of its Real Property; and (iii) shall promptly forward to Lender a
copy of any order, notice, permit, application, or any communication or report
received by it or any other Credit Party in connection with any such Release.
The matters disclosed on Disclosure Schedule (3.16) are not expected to have a
--------------------------
Material Adverse Effect.
3.17 Insurance. As of the Closing Date, Disclosure Schedule (3.17)
--------- -------------------------
lists all insurance of any nature maintained for current occurrences by
Borrowers and each other Corporate Credit Party, as well as a summary of the
terms of such insurance. Each Corporate Credit Party shall deliver to Lender
certified copies and endorsements to all of its and those of its Subsidiaries
(a) "All Risk" and business interruption insurance policies naming Lender loss
payee, and (b) general liability and other liability policies naming Lender as
an additional insured. All policies of insurance on real and personal property
will contain an endorsement, in form and substance acceptable to Lender, showing
loss payable to Lender (Form 438 BFU or equivalent) and extra expense and
business interruption endorsements. Such endorsement, or an independent
instrument furnished to Lender, will provide that the insurance companies will
give Lender at least 30 days prior written notice before any such policy or
policies of insurance shall be altered or canceled and that no act or default of
any Borrower or any other Person shall affect the right of Lender to recover
under such policy or policies of insurance in case of loss or damage. Each
Corporate Credit Party shall direct all present and future insurers under its
"All Risk" policies of insurance to pay all proceeds payable thereunder directly
to Lender. If any insurance proceeds are paid by check, draft or other
instrument payable to any Credit Party and Lender jointly, Lender may endorse
such Credit Party's name thereon and do such other things as Lender may deem
advisable to reduce the same to cash. Lender reserves the right at any time,
upon review of each Credit Party's risk profile, to require additional forms and
limits of insurance. Each Corporate Credit Party shall, on each anniversary of
the Closing Date and from time to time at Lender's request, deliver to Lender a
report by a reputable insurance broker, satisfactory to Lender, with respect to
such Person's insurance policies.
3.18 Deposit and Disbursement Accounts; Commodity and Security Accounts.
------------------------------------------------------------------
Attachment I to Schedule D lists all banks and other financial institutions at
----------
which any Borrower or any other Corporate Credit Party, maintains deposits
and/or other accounts, including the Disbursement Account, and such Attachment
correctly identifies the name, address and telephone number of each such
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number. No Corporate Credit Party will
establish any depository or other bank account of any kind with any financial
institution (other than the accounts set forth on Attachment 1 to Schedule D)
without Lender's prior written consent. Disclosure Schedule (3.18) correctly
--------------------------
identifies all commodity and securities accounts owned by any Corporate Credit
Party and the institutions holding such accounts. No Person has control over
any investment property of any Corporate Credit Party. No Corporate Credit
Party shall open any new commodity or security account without Lender's prior
written consent. Prior to the occurrence of a Default, a Corporate Credit Party
may make purchases and sales of investment property and financial assets in
accordance with the restrictions on investment set out in Section 5. After the
occurrence of a Default, no Corporate Credit Party shall be authorized to make
purchases and sales of the investment property or financial assets and each
Corporate Credit Party shall take such steps as Lender may reasonably request
LOAN AND SECURITY AGREEMENT, Page 11
<PAGE>
to give Lender control over all investment property and financial assets. No
Corporate Credit Party will give any party other than Lender control over any
investment property or financial assets.
3.19 Accounts and Inventory. As of the date of each Borrowing Base
----------------------
Certificate delivered to Lender, each Account listed thereon as an Eligible
Account shall be an Eligible Account and all Inventory listed thereon as
Eligible Inventory shall be Eligible Inventory. No Borrower has made, nor will
any Borrower make, any agreement with any Account Debtor for any extension of
time for the payment of any Account, any compromise or settlement for less than
the full amount thereof, any release of any Account Debtor from liability
therefor, or any deduction therefrom except a discount or allowance for prompt
or early payment allowed by Borrower in the ordinary course of its business
consistent with historical practice and as previously disclosed to Lender in
writing. Disclosure Schedule (3.19) sets forth each contract of any Borrower
--------------------------
with any Account Debtor which gives such Account Debtor the right (under such
contract, under common law or otherwise) to offset any Accounts for such
Borrower's failure to perform under such contract and such Borrower has obtained
an offset waiver for each such contract in form and substance satisfactory to
Lender. With respect to the Accounts pledged as collateral pursuant to any Loan
Document (a) the amounts shown on all invoices, statements and reports which may
be delivered to the Lender with respect thereto are actually and absolutely
owing to the relevant Credit Party as indicated thereon and are not in any way
contingent; (b) no payments have been or shall be made thereon except payments
immediately delivered to the applicable Lock Box Accounts or the Lender as
required hereunder; and (c) to each Borrower's knowledge all Account Debtors
have the capacity to contract. Each Borrower shall notify Lender promptly of any
event or circumstance which to such Borrower's knowledge would cause Lender to
consider any then existing Account or Inventory as no longer constituting an
Eligible Account or Eligible Inventory, as the case may be.
3.20 Conduct of Business; Maintenance of Existence. Each Corporate
---------------------------------------------
Credit Party (a) shall conduct its business substantially as now conducted or as
otherwise permitted hereunder and preserve all of its rights, privileges and
franchises necessary and desirable in connection therewith, and (b) shall at all
times maintain, preserve and protect all of the Collateral and such Credit
Party's other property, used or useful in the conduct of its business and keep
the same in good repair, working order and condition (taking into consideration
ordinary wear and tear) and from time to time make, or cause to be made, all
necessary or appropriate repairs, replacements and improvements thereto
consistent with industry practices.
3.21 Further Assurances; Post Closing Agreements. At any time and from
-------------------------------------------
time to time, upon the written request of Lender and at the sole expense of
Borrowers, Borrowers and each other Credit Party shall promptly and duly execute
and deliver any and all such further instruments and documents and take such
further action as Lender may reasonably deem desirable (a) to obtain the full
benefits of this Agreement and the other Transaction Documents, (b) to protect,
preserve and maintain Lender's rights in the Collateral, or any of it, and under
this Agreement, subject to Section 6.1(b), or (c) to enable Lender to exercise
--------------
all or any of the rights and powers herein granted. Additionally, Borrowers and
each other Credit Party agree that they shall cause to be delivered within 30
days of Closing Date: (s) any documentation that Lender may require from
Leading Borrower demonstrating that Leading Borrower's umbrella insurance policy
has been extended to provide coverage of at least Ten Million Dollars
($10,000,000) to BPI and NLAC individually, to the extent that such parties' own
coverage fails to meet that amount, or that such coverage has otherwise been
obtained; (t) the Stock of QBI Acquisition Company, and UNC Acquisition Company
and any documents that the Lender may require to show that QBI Acquisition
Company and UNC Acquisition Company, both subsidiaries of NLAC, are duly
organized, validly existing, and in good standing under the laws of their
respective jurisdictions of incorporation.; (u) any documents that Lender may
require from Leading Borrower that shows that it is a corporation authorized to
do business and in good standing under the laws of the State of Alaska, (v)
certified copies of all insurance policies required to be delivered under
Section 3.17 of this Agreement which have not been delivered as of the Closing
- ------------
Date, (w) any landlord agreements required to be delivered under Section 3.6 of
-----------
this Agreement which have not been delivered as of the Closing Date, (x) except
as otherwise provided for in this Agreement, any documents that Lender may
require from Leading Borrower proving that each of its Subsidiaries organized
under the laws of a jurisdiction outside the United States of America is a
Person duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or formation, (y) control agreements
relating to the Leading Borrower's Petty Cash and the Borrowers' Disbursement
Accounts disclosed on and as required by Schedule D and (z) the Stock of all
----------
Subsidiaries organized under the Laws of a jurisdiction outside the United
States of America, subject to the exclusions in Section 6.1(b).
--------------
LOAN AND SECURITY AGREEMENT, Page 12
<PAGE>
3.22 Year 2000 Covenants. Each Corporate Credit Party has eliminated all
-------------------
Year 2000 Problems, except where the failure to correct the same could not
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate.
3.23 Solvency. Each Borrower and each other Credit Party both
--------
individually and on a consolidated basis: (a) owns and will own assets the fair
saleable value of which are (i) greater than the total amount of its liabilities
(including contingent liabilities) and (ii) greater than the amount that will be
required to pay probable liabilities of then existing debts as they become
absolute and matured considering all financing alternatives and potential asset
sales reasonably available to it; (b) has capital that is not unreasonably small
in relation to its business as presently conducted; and (c) does not intend to
incur and does not believe that it will incur debts beyond its ability to pay
such debts as they become due.
3.24 Common Enterprise; Benefit Received. Each Borrower is a member of an
-----------------------------------
affiliated group and the Borrowers are collectively engaged in a common
enterprise with one another. Each Borrower will receive reasonably equivalent
value in exchange for the obligations incurred under the Loan Documents to which
each is a party. Each Borrower will derive substantial benefit from the credit
extended pursuant hereto in an amount at least equal to its obligations under
the Loan Documents to which it is a party.
3.25 Aggregate Borrowing Availability. The Borrowers agree to cause the
--------------------------------
aggregate amount of the Net Borrowing Availability of all Borrowers to be in an
amount not less than $500,000 at all times.
3.26 Perpetual Inventory System. The Borrowers agree to install a
--------------------------
perpetual inventory system at BPI as soon as possible after the Closing Date and
in any event on or before December 31, 1999.
4. Financial matters; Reports
4.1 Reports and Notices. Each Borrower represents, agrees and promises
-------------------
that from and after the Closing Date until the Termination Date, each Borrower
shall deliver to Lender:
(a) within 15 days following the end of each Fiscal Month, an aged
trial balance by Account Debtor and an Inventory Perpetual or Physical (as
requested by Lender) and as soon as available but in no event later than 30 days
following the end of each Fiscal Month, a reconciliation of the aged trial
balance and the Inventory Perpetual or Physical (as the case may be) to such
Borrower's general ledger and from the general ledger to the Financial
Statements for such Fiscal Month accompanied by supporting detail and
documentation as Lender may request;
(b) as frequently as Lender may request and in any event no later than
the second Business Day of each week, a Borrowing Base Certificate in the form
of Exhibit C as of the last day of the previous week detailing ineligible
---------
Accounts and Inventory for adjustment to the Borrowing Base, certified as true
and correct by the Chief Financial Officer of such Borrower or such other
officer as is acceptable to Lender;
(c) within 15 days following the end of each Fiscal Month, an Accounts
Payable Analysis in the Form of Exhibit D (together with an accounts payable
---------
aging) and an Accounts Receivable Roll Forward Analysis in the Form of
Exhibit E, each certified as true and correct by the Chief Financial Officer
- ---------
of such Borrower or such other officer as is acceptable to Lender;
(d) within 45 days following the end of each Fiscal Month, the
Financial Statements for such Fiscal Month, which shall provide comparisons to
budget and actual results for the corresponding period during the prior Fiscal
Year, both on a monthly and year-to-date basis, and accompanied by a
certification in the form of Exhibit J by the Chief Executive Officer or Chief
---------
Financial Officer of such Borrower that such Financial Statements are complete
and correct, that there was no Default (or specifying those Defaults of which he
or she was aware), and showing in reasonable detail the calculations used in
determining compliance with the financial covenants hereunder;
LOAN AND SECURITY AGREEMENT, Page 13
<PAGE>
(e) within 105 days following the close of each Fiscal Year, the
Financial Statements for such Fiscal Year certified without qualification by an
independent certified accounting firm acceptable to Lender, which shall provide
comparisons to the prior Fiscal Year, and shall be accompanied by (i) a
statement in reasonable detail showing the calculations used in determining
compliance with the financial covenants hereunder, (ii) a report from such
Borrower's accountants to the effect that in connection with their audit
examination nothing has come to their attention to cause them to believe that a
Default has occurred or specifying those Defaults of which they are aware, and
(iii) any management letter that may be issued;
(f) not less than 30 days prior to the close of each Fiscal Year, the
Projections, which will be prepared by such Borrower in good faith, with care
and diligence, and using assumptions which are reasonable under the
circumstances at the time such Projections are delivered to Lender and disclosed
therein when delivered; and
(g) all the reports and other information set forth on Exhibit B in
---------
the time frames set forth therein.
4.2 Financial Covenants. Each Borrower shall not breach any of the
-------------------
financial covenants set forth in Schedule G.
----------
4.3 Other Reports and Information. Each Borrower shall advise Lender
-----------------------------
promptly, in reasonable detail, of: (a) any Lien, other than Permitted
Encumbrances, attaching to or asserted against any of the Collateral or any
occurrence causing a material loss or decline in value of any Collateral and the
estimated (or actual, if available) amount of such loss or decline; (b) any
material change in the composition of the Collateral; and (c) the occurrence of
any Default or other event which has had or could reasonably be expected to have
a Material Adverse Effect. Each Borrower shall, upon request of Lender, furnish
to Lender such other reports and information in connection with the affairs,
business, financial condition, operations, prospects or management of such
Borrower or any other Credit Party or the Collateral as Lender may request, all
in reasonable detail.
5. Negative Covenants
Each Borrower and each Credit Party executing this Agreement covenants and
agrees (for itself and each other Credit Party) that, without Lender's prior
written consent, from the Closing Date until the Termination Date, neither any
Borrower nor any other Corporate Credit Party shall, directly or indirectly, by
operation of law or otherwise:
(a) merge with (except for the mergers contemplated by the Closing
Date Acquisition Documents), consolidate with, acquire all or substantially all
of the assets or capital stock of, or otherwise combine with or make any
investment in or, except as provided in clause 5(c) below, loan or advance to,
any Person or form any Subsidiary; provided, however, that:
-------- -------
(i) any time before May 31, 2000, Leading Borrower may merge with
a newly created corporation created to facilitate a holding company
structure under which a new corporation ("Holding Co.") will own 100%
of Leading Borrower and the existing shareholders of Leading Borrower
will become shareholders of Holding Co. (the "Holding Co.
Restructure") if: (A) no Default exists at the time of, or will result
from, such transaction, (B) Holding Co. directly owns one-hundred
percent (100%) of the stock of Leading Borrower following the Holding
Co. Restructure, (C) Holding Co. becomes a Credit Party hereunder
(pursuant to such documentation as the Lender may require), pledging,
among other Collateral, all Stock in Leading Borrower to the Lender,
simultaneous with the closing of the Holding Co. Restructure, (D)
Holding Co. guarantees all Obligations pursuant to a guaranty to be in
form and substance acceptable to Lender, simultaneous with the closing
of the Holding Co. Restructure; and (E) Leading Borrower will be the
surviving Person;
LOAN AND SECURITY AGREEMENT, Page 14
<PAGE>
(ii) Leading Borrower may create a Subsidiary organized under the
laws of Japan and may make an investment therein if: (A) no Default
exists at the time of, or will result from, such transaction, (B) the
aggregate amount of such investment in such Subsidiary shall not
exceed One Hundred Thousand Dollars ($100,000), and (C) Leading
Borrower delivers the Stock of such Subsidiary to the Lender as
collateral hereunder, simultaneous with the creation of such
Subsidiary (or 66% of such Stock if pledging 100% of such Stock would
impute a deemed dividend under Section 956 of the Internal Revenue
Code); and
(iii) A Borrower may make advances to another Borrower provided
that (A) the aggregate outstanding amount of such advances at any time
does not exceed Fifty Thousand Dollars ($50,000) in the aggregate for
all Borrowers, (B) no Default exists at the time such an advance is
made or would result therefrom (including, without limitation, any
Default arising as a result of the failure of the representations and
warranties in Section 3.23 relating to solvency not being true and
correct as of the date of and after giving effect to the advance), and
(C) any note executed to evidence such advances is delivered to the
Lender as Collateral hereunder on the date such note is executed;
(iv) Leading Borrower may acquire the assets of Nutrition for
Life International Philippines, Inc., a Philippines corporation, in
connection with the liquidation or dissolution of such Subsidiary; and
(v) ASH may acquire Ash Corp. through the merger of ASH with Ash
Corp., with ASH surviving and changing its name to Ash Corp., if: (A)
no Default exists at the time of, or will result from, such
transaction, (B) the Lender consents to the terms and provisions of
such transaction, and (C) all documentation that the Lender may
require related to such transaction has been delivered to Lender;
(b) cancel any debt owing to it or create, incur, assume or permit to
exist any Indebtedness, except: (i) the Obligations, (ii) Indebtedness existing
as of the Closing Date set forth on Disclosure Schedule 5(b) and any refinancing
------------------------
of such Indebtedness as long as the principal amount of such Indebtedness is not
increased and the maturity date of such Indebtedness is not accelerated, (iii)
deferred taxes, (iv) by endorsement of instruments or items of payment for
deposit to the general account of such Credit Party, (v) for Guaranteed
Indebtedness incurred for the benefit of a Borrower if the primary obligation is
permitted by this Agreement; and (vi) additional Indebtedness (including
Purchase Money Indebtedness) incurred after the Closing Date in an aggregate
outstanding amount for all such Corporate Credit Parties combined not exceeding
$50,000;
(c) enter into any lending, borrowing or other commercial transaction
with any of its employees, directors, Affiliates or any other Credit Party
(including upstreaming and downstreaming of cash and intercompany advances and
payments by a Credit Party on behalf of another Credit Party which are not
otherwise permitted hereunder) other than as permitted by Section 5(a) and other
than loans or advances to employees in the ordinary course of business in an
aggregate outstanding amount not exceeding $50,000;
(d) make any changes in any of its business objectives, purposes, or
operations which could reasonably be expected to adversely affect repayment of
the Obligations or could reasonably be expected to have a Material Adverse
Effect or engage in any business other than that presently engaged in or
proposed to be engaged in the Projections delivered to Lender on the Closing
Date or amend its charter or by-laws or other organizational documents;
(e) create or permit any Lien on any of its properties or assets,
except for Permitted Encumbrances;
(f) sell, transfer, issue, convey, assign or otherwise dispose of any
of its assets or properties, including its Accounts or any shares of its Stock
or engage in any sale-leaseback, synthetic lease or similar transaction;
provided, however, that (i) the foregoing shall not prohibit the sale of
- -------- -------
Inventory or obsolete or unnecessary Equipment in the ordinary course of its
business; (ii) if no Default under Section 2.1(k) exists at the time of or will
--------------
result from such
LOAN AND SECURITY AGREEMENT, Page 15
<PAGE>
issuance of Stock, Leading Borrower, prior to the Holding Co. Restructure, and
Holding Co., after the Holding Co. Restructure, may issue Stock: (A) as required
under the outstanding warrants and options disclosed on Disclosures Schedule
--------------------
(3.18), (B) to the Sellers as required by the terms of the earnout agreements
- ------
executed in connection with the Acquisitions; provided, however, that no such
-------- -------
stock may be issued under the earnout agreements related to the Ash Corp.
Acquisition until the closing of such acquisition in compliance with the
limitations thereon set forth in this Agreement, (C) pursuant to future grants
of stock options under shareholder approved stock option plans and (D) in
connection with the conversion of Leading Borrower's Series A Preferred Stock to
common stock; (iii) if no Default exists at the time of or will result from such
transaction, Leading Borrower may liquidate its subsidiary, Nutrition for Life
International Philippines, Inc., a Philippines corporation; and (iv) the
Borrowers (other than the Leading Borrower) may issue Stock in connection with
the investments permitted by Section 5(a)(iii).
(g) change its jurisdiction of organizations, its name, chief
executive office, corporate offices, warehouses or other Collateral locations,
or location of its records concerning the Collateral, or acquire, lease or use
any real estate after the Closing Date without such Person, in each instance,
giving thirty (30) days prior written notice thereof to Lender and taking all
actions deemed necessary or appropriate by Lender to continuously protect and
perfect Lender's Liens upon the Collateral;
(h) establish any depository or other bank account of any kind with
any financial institution (other than the accounts set forth on Attachment 1 to
Schedule D) or establish any commodity or security account (other than such
amounts set forth on Disclosures Schedule (3.18)), in each case without Lender's
---------------------------
prior written consent; or
(i) make or permit any Restricted Payment; provided that Leading
-------------
Borrower may (A) declare and pay regularly scheduled dividends on account of its
Series A Preferred Stock; (B) make regularly scheduled payments of principal
and interest under the terms of the subordinated indebtedness owed to Mr. Pailla
M. Reddy; and (C) may make payments to the Sellers as they become due under the
earnout agreements executed in connection with the Acquisitions; provided,
--------
however, that no such payment may be made pursuant to the earnout agreements
- -------
related to the Ash Corp. Acquisition until the closing of such acquisition in
compliance with the limitations thereon set forth in this Agreement (any of the
foregoing clauses (A) through (C), herein a "Permitted Payment"); provided
---------------------- ----------------- --------
further, Permitted Payments may only be made if, with respect to each Permitted
- -------
Payment, prior to and after giving pro forma effect thereto: (1) the Borrowers
shall be in compliance with the minimum Fixed Charge Coverage Ratio then
required under the terms of Section 4.2 and Schedule G but calculated (a) for
the Fiscal Quarter most recently ended as of the date of the Permitted Payment
and (b) by adding the Permitted Payment proposed to be made under the
permissions of this clause (i) to the amounts calculated under clause (b) of the
definition of Fixed Charge Coverage Ratio as if such payment had been made
during such period; (2) the average daily balances of the sum of Borrowers'
cash, cash equivalents and Net Borrowing Availability for the thirty (30) day
period prior to the date of the Permitted Payment and calculated as if the
Permitted Payment had occurred on the first (1st) day of such period, shall
equal or exceed $1,000,000; and (3) no Default exists.
6. Security Interest
6.1 Grant of Security Interest.
--------------------------
(a) As collateral security for the prompt and complete payment and
performance of the Obligations, each of the Borrowers and each other Credit
Party executing this Agreement hereby grants to the Lender a security interest
in and Lien upon all of its personal property, tangible or intangible, and
whether now owned or hereafter acquired, or in which it now has or at any time
in the future may acquire any right, title, or interest, including all of the
following property in which it now has or at any time in the future may acquire
any right, title or interest: all Accounts; all bank and deposit accounts and
all funds on deposit therein; all cash and cash equivalents; all Investment
Property and other financial assets; all Inventory and Equipment; all Goods; all
Chattel Paper, Documents and Instruments; all Books and Records; all General
Intangibles (including all Intellectual Property, Stock [including, without
limitation, the Stock described on Disclosure Schedule 6.1(a)], contract rights,
--------------------------
and choses in action); and to the extent not otherwise included, all Proceeds
and products of all and any of the foregoing and all collateral security and
guarantees given by any Person with respect to any of the foregoing, but
excluding in all events Hazardous Waste and 34% of the Stock of each Subsidiary
which is organized under the laws of a jurisdiction outside the United States of
America if pledging 100% of such Stock would impute a deemed dividend under
Section 956 of the Internal Revenue
LOAN AND SECURITY AGREEMENT, Page 16
<PAGE>
Code (all of the foregoing, together with any other collateral pledged to the
Lender pursuant to any other Loan Document, collectively, the "Collateral").
(b) Each Borrower, Lender and each other Credit Party executing this
Agreement agree that this Agreement creates, and is intended to create, valid
and continuing Liens upon the Collateral in favor of Lender. Each Borrower and
each other Credit Party executing this Agreement represents, warrants and
promises to Lender that: (i) each Borrower and each other Credit Party granting
a Lien in Collateral is the sole owner of each item of the Collateral upon which
it purports to grant a Lien pursuant to the Loan Documents, and has good and
marketable title thereto free and clear of any and all Liens or claims of
others, other than Permitted Encumbrances; (ii) the security interests granted
pursuant to this Agreement, upon completion of the filings and other actions
listed on Disclosure Schedule 6.1 (which, in the case of all filings and other
-----------------------
documents referred to in said Schedule, have been delivered to the Lender in
duly executed form) will constitute valid perfected security interests in all of
the Collateral in favor of the Lender as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all creditors of and purchasers from any Credit
Party (other than purchasers of Inventory in the ordinary course of business)
and such security interests are prior to all other Liens on the Collateral in
existence on the date hereof except for Permitted Encumbrances which have
priority by operation of law; and (iii) no effective security agreement,
financing statement, equivalent security or Lien instrument or continuation
statement covering all or any part of the Collateral is or will be on file or of
record in any public office, except those relating to Permitted Encumbrances.
Each Borrower and each other Credit Party executing this Agreement promise to
defend the right, title and interest of Lender in and to the Collateral against
the claims and demands of all Persons whomsoever, and each shall take such
actions, including (x) the prompt delivery of all original Instruments, Chattel
Paper and certificated Stock owned by such Borrower and each other Credit Party
granting a Lien on Collateral to Lender, (y) notification of Lender's interest
in Collateral at Lender's request; (provided, however, that Lender agrees that
-------- -------
(i) no delivery of the Stock of Nutrition for Life International Philippines,
Inc., a Philippines corporation, is required unless 60 days after the Closing
Date such Subsidiary had not been liquidated or dissolved at that time; (ii) no
delivery of the Stock of any other Subsidiary organized under the laws of a
jurisdiction outside the United States of America, of QBI Acquisition Company or
of UNC Acquisition Company is required until 30 days after the Closing Date;
(iii) unless a Default exists or the value of the Stock of Subsidiaries
organized under the laws of a jurisdiction outside the United States of America
increases and except as required by the foregoing clause (ii), Leading Borrower
shall not be required to cause the Lender's Lien on such foreign Subsidiary
Stock to be perfected in accordance with the local laws of the jurisdiction of
organization of such Subsidiaries but if a Default exists or such value
increases the Leading Borrower will take all action as the Lender may request to
ensure the proper perfection of such Liens under the local laws of such
jurisdiction, including without limitation, engaging local counsel in those
jurisdictions to advise on the proper methods of perfection), and (z) the
institution of litigation against third parties as shall be prudent in order to
protect and preserve each Credit Party's and Lender's respective and several
interests in the Collateral. Each Borrower (and any other Credit Party granting
a Lien in Collateral) shall mark its Books and Records pertaining to the
Collateral to evidence the Loan Documents and the Liens granted under the Loan
Documents. All Chattel Paper shall be marked with the following legend: "This
writing and the obligations evidenced or secured hereby are subject to the
security interest of General Electric Capital Corporation."
6.2 Lender's Rights.
---------------
(a) Lender may, (i) at any time in Lender's own name or in the name of
any Borrower, communicate with Account Debtors, parties to Contracts, and
obligors in respect of Instruments, Chattel Paper or other Collateral to verify
to Lender's satisfaction, the existence, amount and terms of any such Accounts,
Contracts, Instruments or Chattel Paper or other Collateral, and (ii) at any
time and without prior notice to any Borrower or any other Credit Party, notify
Account Debtors, parties to Contracts, and obligors in respect of Chattel Paper,
Instruments, or other Collateral that the Collateral has been assigned to Lender
and that payments shall be made directly to Lender. Upon the request of Lender,
each Borrower shall so notify such Account Debtors, parties to Contracts, and
obligors in respect of Instruments, Chattel Paper or other Collateral. Each
Borrower hereby constitutes Lender or Lender's designee as such Borrower's
attorney with power to endorse such Borrower's name upon any notes, acceptance
drafts, money orders or other evidences of payment or Collateral.
(b) It is expressly agreed by each Borrower that, notwithstanding
anything herein to the contrary, each Borrower shall remain liable under each
Contract, Instrument and License to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, and Lender shall have
no obligation or
LOAN AND SECURITY AGREEMENT, Page 17
<PAGE>
liability whatsoever to any Person under any Contract, Instrument or License
(between any Borrower or any other Credit Party and any Person other than
Lender) by reason of or arising out of the execution, delivery or performance of
this Agreement, and Lender shall not be required or obligated in any manner (i)
to perform or fulfill any of the obligations of any Borrower, (ii) to make any
payment or inquiry, or (iii) to take any action of any kind to collect,
compromise or enforce any performance or the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times
under or pursuant to any Contract, Instrument or License.
(c) Each Borrower and each other Credit Party shall, with respect to
each owned, leased, or controlled property or facility, during normal business
hours and upon reasonable advance notice (unless a Default shall have occurred
and be continuing, in which event no notice shall be required and Lender shall
have access at any and all times): (i) provide access to such facility or
property to Lender and any of its officers, employees and agents, as frequently
as Lender determines to be appropriate; (ii) permit Lender and any of its
officers, employees and agents to inspect, audit and make extracts and copies
(or take originals if reasonably necessary) from all of such Borrower's and such
Credit Party's Books and Records; and (iii) permit Lender to inspect, review,
evaluate and make physical verifications and appraisals of the Inventory and
other Collateral in any manner and through any medium that Lender considers
advisable, and each Borrower and such Credit Party agree to render to Lender, at
such Borrower's and such Credit Party's cost and expense, such clerical and
other assistance as may be reasonably requested with regard thereto.
(d) After the occurrence and during the continuance of a Default, each
Borrower at its own expense, shall cause the certified public accountant then
engaged by such Borrower to prepare and deliver to Lender at any time and from
time to time, promptly upon Lender's request, the following reports: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) test verifications of such Accounts as Lender may request.
Each Borrower, at its own expense, shall cause its certified independent public
accountants to deliver to Lender the results of any physical verifications of
all or any portion of the Inventory made or observed by such accountants when
and if such verification is conducted. Lender shall be permitted to observe and
consult with each Borrower's accountants in the performance of these tasks.
6.3 Lender's Appointment as Attorney-in-Fact. On the Closing Date, each
----------------------------------------
Borrower and each other Credit Party executing this Agreement shall execute and
deliver a Power of Attorney in the form attached as Exhibit I. THE POWER OF
---------
ATTORNEY GRANTED PURSUANT TO THE POWER OF ATTORNEY AND ALL POWERS GRANTED UNDER
ANY LOAN DOCUMENT ARE POWERS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE
UNTIL THE TERMINATION DATE. The powers conferred on Lender under the Power of
Attorney are solely to protect Lender's interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. Lender agrees and
promises that (a) it shall not exercise any power or authority granted under the
Power of Attorney unless an Event of Default has occurred and is continuing, (b)
Lender shall only exercise the powers granted under the Power of Attorney in
respect of Collateral, provided, except as otherwise required by applicable law,
Lender shall not have any duty as to any Collateral, and Lender shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers. NONE OF LENDER OR ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO BORROWER OR ANY OTHER CREDIT
PARTY FOR ANY ACT OR FAILURE TO ACT PURSUANT TO THE POWERS GRANTED UNDER THE
POWER OF ATTORNEY OR OTHERWISE, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL
DAMAGES. Each Borrower and each other Credit Party executing this Agreement
also hereby authorizes Lender to file any financing or continuation statement
without the signature of such Borrower or such Credit Party to the extent
permitted by applicable law.
6.4 Grant of License to Use Intellectual Property Collateral. Each
--------------------------------------------------------
Borrower and each other Credit Party executing this Agreement hereby grants to
Lender an irrevocable, non-exclusive license (exercisable upon the occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to any Borrower or such Credit Party) to use, transfer,
license or sublicense any Intellectual Property now owned, licensed to, or
hereafter acquired by such Borrower or such Credit Party, and wherever the same
may be located, and including in such license access to all media in which any
of the licensed items may be recorded or stored and to all computer and
automatic machinery software and programs used for the compilation or printout
thereof, and represents, promises and agrees that any such license or sublicense
is not and will not be in conflict with the
LOAN AND SECURITY AGREEMENT, Page 18
<PAGE>
contractual or commercial rights of any third Person; provided, that such
license will terminate on the Termination Date.
7. Events Of Default: Rights And Remedies
7.1 Events of Default. The occurrence of any one or more of the
-----------------
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder which shall be deemed to be continuing until waived in
writing by Lender in accordance with Section 10.3:
(a) any Borrower shall fail to make any payment in respect of any
Obligations when due and payable or declared due and payable; or
(b) (i) Borrower or any other Credit Party shall fail or neglect to
perform, keep or observe any of the covenants, promises, agreements,
requirements, conditions or other terms or provisions contained in Section 1,
Sections 3.1, 3.2, 3.17, 3.18, 3.19, 3.20, 4.2, 4.3 or Section 5 of this
Agreement; or (ii) Borrower or any other Credit Party shall fail or neglect to
perform, keep or observe any of the other covenants, promises, agreements,
requirements, conditions or other terms or provisions contained in this
Agreement (other than those set forth in the Sections referred to in clause (i)
immediately above) or any of the other Loan Documents, regardless of whether
such breach involves a covenant, promise, agreement, condition, requirement,
term or provision with respect to a Credit Party that has not signed this
Agreement, and such breach is not remediable or, if remediable, continues
unremedied for a period of five (5) Business Days after the earlier to occur of
(x) the date on which such breach is known or reasonably should have become
known to any officer of the Borrower or such Credit Party and (y) the date on
which Lender shall have notified the Borrower or such other Credit Party of such
breach; or
(c) an event of default shall occur under any Contractual Obligation
of any Borrower or any other Credit Party (other than this Agreement and the
other Loan Documents), and such event of default (i) involves the failure to
make any payment (whether or not such payment is blocked pursuant to the terms
of an intercreditor agreement or otherwise), whether of principal, interest or
otherwise, and whether due by scheduled maturity, required prepayment,
acceleration, demand or otherwise, in respect of any Indebtedness (other than
the Obligations) of such Person in an aggregate amount exceeding the Minimum
Actionable Amount, or (ii) causes (or permits any holder of such Indebtedness or
a trustee to cause) such Indebtedness, or a portion thereof, in an aggregate
amount exceeding the Minimum Actionable Amount to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment; or
(d) any representation or warranty in this Agreement or any other Loan
Document, or in any written statement pursuant hereto or thereto, or in any
report, financial statement or certificate made or delivered to Lender by any
Borrower or any other Credit Party shall be untrue or incorrect as of the date
when made or deemed made, regardless of whether such breach involves a
representation or warranty with respect to a Credit Party that has not signed
this Agreement; or
(e) there shall be commenced against any Borrower or any other Credit
Party any Litigation seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which remains
unstayed or undismissed for sixty (60) consecutive days; or any Borrower or any
other Credit Party shall have concealed, removed or permitted to be concealed or
removed, any part of its property with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
or the incurring of an obligation which may be fraudulent under any bankruptcy,
fraudulent transfer or other similar law; or
(f) case or proceeding shall have been commenced involuntarily against
any Borrower or any other Credit Party in a court having competent jurisdiction
seeking a decree or order: (i) under the United States Bankruptcy Code or any
other applicable Federal, state or foreign bankruptcy or other similar law, and
seeking either (x) the appointment of a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) for such Person or of
any substantial part of its properties, or (y) the reorganization or winding up
or liquidation of the affairs of any such Person, and such case or proceeding
shall remain undismissed or unstayed for sixty (60) consecutive days or such
court shall enter a decree or order granting the relief sought in such case or
proceeding; or (ii) invalidating or denying any Person's right, power, or
competence to enter into or perform any of its obligations
LOAN AND SECURITY AGREEMENT, Page 19
<PAGE>
under any Loan Document or invalidating or denying the validity or
enforceability of this Agreement or any other Loan Document or any action taken
hereunder or thereunder; or
(g) any Borrower or any other Credit Party shall (i) commence any
case, proceeding or other action under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, conservatorship or relief of debtors, seeking to have an order
for relief entered with respect to it or seeking appointment of a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official)
for it or any substantial part of its properties, (ii) make a general assignment
for the benefit of creditors, (iii) consent to or take any action in furtherance
of, or, indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in paragraphs (e) or (f) of this Section 7.1 or clauses (i) and
(ii) of this paragraph (g), or (iv) shall admit in writing its inability to, or
shall be generally unable to, pay its debts as such debts become due; or
(h) a final judgment or judgments for the payment of money in excess
of the Minimum Actionable Amount in the aggregate shall be rendered against any
Borrower or any other Credit Party, unless the same shall be (i) fully covered
by insurance and the issuer(s) of the applicable policies shall have
acknowledged full coverage in writing within thirty (30) days of judgment, or
(ii) vacated, stayed, bonded, paid or discharged within a period of thirty (30)
days from the date of such judgment; or
(i) any other event shall have occurred which has had or could
reasonably be expected to have a Material Adverse Effect and Lender shall have
given Leading Borrower notice thereof; or
(j) any provision of any Loan Document shall for any reason cease to
be valid, binding and enforceable in accordance with its terms, or any Lien
granted, or intended by the Loan Documents to be granted, to Lender shall cease
to be a valid and perfected Lien having the first priority (or a lesser priority
if expressly permitted in the Loan Documents) in any of the Collateral (or any
Credit Party shall so assert any of the foregoing); or
(k) a Change of Control shall have occurred with respect to any
Corporate Credit Party; provided, however, that it shall not be deemed a Change
-------- -------
of Control if at any time before March 31, 2000, Leading Borrower merges with a
newly created corporation created to facilitate a holding company structure
under which a new corporation ("Holding Co.") owns 100% of Leading Borrower and
the existing shareholders of Leading Borrower become shareholders of Holding Co.
(the "Holding Co. Restructure") and if: (i) no Event of Default exists at the
time of, or will result from, such transaction; (ii) Holding Co. directly owns
one-hundred percent (100%) of the stock of Leading Borrower following the
Holding Co. Restructure; (iii) Holding Co. pledges all stock in Leading Borrower
to the Lender pursuant to a pledge agreement in form and substance acceptable to
the Lender, simultaneous with the closing of the Holding Co. Restructure; (iv)
Holding Co. guarantees all Obligations pursuant to a guaranty to be in form and
substance acceptable to Lender, simultaneous with the closing of the Holding Co.
Restructure; and (v) Leading Borrower will be the surviving Person.; or
(l) an ERISA Event shall have occurred that, in the opinion of the
Lender, when taken together with all other ERISA Events that have occurred and
are then continuing, could reasonably be expected to result in liability of any
Credit Party in an aggregate amount exceeding the Minimum Actionable Amount.
7.2 Remedies.
--------
(a) If any Default shall have occurred and be continuing, then Lender
may terminate or suspend its obligation to make further Revolving Credit
Advances and to incur additional Letter of Credit Obligations. In addition, if
any Event of Default shall have occurred and be continuing, Lender may, without
notice, take any one or more of the following actions: (i) declare all or any
portion of the Obligations to be forthwith due and payable, including contingent
liabilities with respect to Letter of Credit Obligations, whereupon such
Obligations shall become and be due and payable; (ii) require that all Letter of
Credit Obligations be fully cash collateralized pursuant to Schedule C; or (iii)
----------
exercise any rights and remedies provided to Lender under the Loan Documents or
at law or equity, including all remedies provided under the Code; provided, that
--------
upon the occurrence of any Event of Default specified in Sections 7.1 (e), (f)
or (g), the Obligations shall become immediately due and payable (and any
obligation of Lender to make further Loans, if not previously terminated, shall
immediately be terminated) without declaration, notice or demand by Lender.
LOAN AND SECURITY AGREEMENT, Page 20
<PAGE>
(b) Without limiting the generality of the foregoing, each Borrower
and each other Credit Party executing this Agreement expressly agrees that upon
the occurrence of any Event of Default, Lender may collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, assign, give an option or options to purchase or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. Lender shall have the right
upon any such public sale or sales and, to the extent permitted by law, upon any
such private sale or sales, to purchase for the benefit of Lender the whole or
any part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption each Borrower and each other Credit Party executing
this Agreement hereby releases. Such sales may be adjourned, or continued from
time to time with or without notice. Lender shall have the right to conduct
such sales on any Credit Party's premises or elsewhere and shall have the right
to use any Credit Party's premises without rent or other charge for such sales
or other action with respect to the Collateral for such time or times as Lender
deems necessary or advisable.
(c) Each Borrower and each other Credit Party executing this Agreement
further agrees, upon the occurrence and during the continuance of an Event of
Default and at Lender's request, to assemble the Collateral and make it
available to Lender at places which Lender shall reasonably select, whether at
its premises or elsewhere. Until Lender is able to effect a sale, lease, or
other disposition of the Collateral, Lender shall have the right to complete,
assemble, use or operate the Collateral or any part thereof, to the extent that
Lender deems appropriate, for the purpose of preserving such Collateral or its
value or for any other purpose. Lender shall have no obligation to any Credit
Party to maintain or preserve the rights of such Credit Party as against third
parties with respect to any Collateral while such Collateral is in the
possession of Lender. Lender may, if it so elects, seek the appointment of a
receiver or keeper to take possession of any Collateral and to enforce any of
Lender's remedies with respect to such appointment without prior notice or
hearing. To the maximum extent permitted by applicable law, each Borrower and
each other Credit Party executing this Agreement waives all claims, damages, and
demands against Lender, its Affiliates, agents, and the officers and employees
of any of them arising out of the repossession, retention or sale of any
Collateral except such as are determined in a final judgment by a court of
competent jurisdiction to have arisen solely out of the gross negligence or
willful misconduct of such Person. Each Borrower and each other Credit Party
executing this Agreement agrees that ten (10) days prior notice by Lender to
such Credit Party of the time and place of any public sale or of the time after
which a private sale may take place is reasonable notification of such matters.
Each Borrower and each other Credit Party shall remain liable for any deficiency
if the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which Lender is entitled.
(d) Lender's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies which Lender may
have under any Loan Document or at law or in equity. Recourse to the Collateral
shall not be required. All provisions of this Agreement are intended to be
subject to all applicable mandatory provisions of law that may be controlling
and to be limited, to the extent necessary, so that they do not render this
Agreement invalid or unenforceable, in whole or in part.
7.3 Waivers by Credit Parties. Except as otherwise provided for in this
-------------------------
Agreement and to the fullest extent permitted by applicable law, each Borrower
and each other Credit Party executing this Agreement waives: (a) presentment,
demand and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all Loan Documents, the Notes or any
other notes, commercial paper, Accounts, Contracts, Documents, Instruments,
Chattel Paper and guaranties at any time held by Lender on which such Credit
Party may in any way be liable, and hereby ratifies and confirms whatever Lender
may do in this regard; (b) all rights to notice and a hearing prior to Lender's
taking possession or control of, or to Lender's replevy, attachment or levy
upon, any Collateral or any bond or security which might be required by any
court prior to allowing Lender to exercise any of its remedies; and (c) the
benefit of all valuation, appraisal and exemption laws. Each Borrower and each
other Credit Party executing this Agreement acknowledges that it has been
advised by counsel of its choices and decisions with respect to this Agreement,
the other Loan Documents and the transactions evidenced hereby and thereby.
7.4 Proceeds. The Proceeds of any sale, disposition or other realization
--------
upon any Collateral shall be applied by Lender upon receipt to the Obligations
in such order as Lender may deem advisable in its sole discretion (including the
cash collateralization of any Letter of Credit Obligations), and after the
indefeasible payment and satisfaction in full in cash of all of the Obligations,
and after the payment by Lender of any other amount required by
LOAN AND SECURITY AGREEMENT, Page 21
<PAGE>
any provision of law, including Section 9-504(1)(c) of the Code (but only after
Lender has received what Lender considers reasonable proof of a subordinate
party's security interest), the surplus, if any, shall be paid to Borrowers or
their representatives or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
8. Successors and Assigns
Each Loan Document shall be binding on and shall inure to the benefit of
each Borrower and each other Credit Party executing such Loan Document, Lender,
and their respective successors and assigns, except as otherwise provided herein
or therein. Neither any Borrower nor any other Credit Party may assign,
transfer, hypothecate, delegate or otherwise convey its rights, benefits,
obligations or duties under any Loan Document without the prior express written
consent of Lender. Any such purported conveyance by such Borrower or such
Credit Party without the prior express written consent of Lender shall be void.
There shall be no third party beneficiaries of any of the terms and provisions
of any of the Loan Documents. Lender reserves the right at any time to create
and sell participations in the Loans and the Loan Documents and to sell,
transfer or assign any or all of its rights in the Loans and under the Loan
Documents.
9. Guarantor Waivers by Borrowers
IF AND TO THE EXTENT THAT ANY OBLIGATION OF ANY BORROWER TO LENDER SHALL BE
CONSIDERED AN OBLIGATION OF GUARANTY OR SURETYSHIP, THEN THE FOLLOWING
PROVISIONS OF THIS SECTION 9 SHALL APPLY WITH RESPECT TO EACH SUCH BORROWER
SOLELY TO THE EXTENT THAT SUCH BORROWER IS DEEMED TO ACT IN THE CAPACITY OF A
GUARANTOR AND SHALL NOT EFFECT A WAIVER OF RIGHTS IN SUCH PERSON'S CAPACITY AS A
BORROWER:
(A) SUCH BORROWER EXPRESSLY WAIVES THE RIGHT TO REQUIRE LENDER FIRST
TO PURSUE ANY OTHER PERSON, THE COLLATERAL, OR ANY OTHER SECURITY OR GUARANTY
THAT MAY BE HELD FOR THE OBLIGATIONS, OR TO APPLY ANY SUCH SECURITY OR GUARANTY
TO THE OBLIGATIONS BEFORE SEEKING FROM SUCH BORROWER PAYMENT IN FULL OF ITS
LIABILITIES TO LENDER OR PROCEEDING AGAINST SUCH BORROWER FOR SAME.
(B) SUCH BORROWER ACKNOWLEDGES THAT IF LENDER MAY, UNDER APPLICABLE
LAW, PROCEED TO REALIZE ITS BENEFITS UNDER ANY OF THE LOAN DOCUMENTS GIVING
LENDER A LIEN UPON ANY COLLATERAL, WHETHER OWNED BY ANY BORROWER OR BY ANY OTHER
PERSON, EITHER BY JUDICIAL FORECLOSURE OR BY NON-JUDICIAL SALE OR ENFORCEMENT,
LENDER MAY, AT ITS SOLE OPTION, DETERMINE WHICH OF ITS REMEDIES OR RIGHTS IT MAY
PURSUE WITHOUT AFFECTING ANY OF ITS RIGHTS AND REMEDIES. IF, IN THE EXERCISE OF
ANY OF ITS RIGHTS AND REMEDIES, LENDER SHALL FORFEIT ANY OF ITS RIGHTS OR
REMEDIES, INCLUDING ITS RIGHT TO ENTER A DEFICIENCY JUDGMENT AGAINST ANY
BORROWER OR ANY OTHER PERSON, WHETHER BECAUSE OF ANY APPLICABLE LAWS PERTAINING
TO "ELECTION OF REMEDIES" OR THE LIKE, SUCH BORROWER HEREBY CONSENTS TO SUCH
ACTION BY LENDER AND WAIVES ANY CLAIM BASED UPON SUCH ACTION, EVEN IF SUCH
ACTION BY LENDER SHALL RESULT IN A FULL OR PARTIAL LOSS OF ANY RIGHTS OF
SUBROGATION WHICH SUCH BORROWER MIGHT OTHERWISE HAVE HAD BUT FOR SUCH ACTION BY
LENDER. ANY ELECTION OF REMEDIES WHICH RESULTS IN THE DENIAL OR IMPAIRMENT OF
THE RIGHT OF LENDER TO SEEK A DEFICIENCY JUDGMENT AGAINST ANY BORROWER SHALL NOT
IMPAIR ANY OTHER BORROWER'S OBLIGATION TO PAY THE FULL AMOUNT OF THE
OBLIGATIONS. IN THE EVENT LENDER SHALL BID AT ANY FORECLOSURE OR TRUSTEE'S SALE
OR AT ANY PRIVATE SALE PERMITTED BY LAW OR THE LOAN DOCUMENTS, LENDER MAY BID
ALL OR LESS THAN THE AMOUNT OF THE OBLIGATIONS AND THE AMOUNT OF SUCH BID NEED
NOT BE PAID BY LENDER BUT SHALL BE CREDITED AGAINST THE OBLIGATIONS. THE AMOUNT
OF THE SUCCESSFUL BID AT ANY SUCH SALE, WHETHER LENDER OR ANY OTHER PARTY IS THE
SUCCESSFUL BIDDER, SHALL BE CONCLUSIVELY DEEMED TO BE THE FAIR MARKET VALUE OF
THE COLLATERAL AND THE DIFFERENCE BETWEEN SUCH BID AMOUNT AND THE REMAINING
BALANCE OF THE OBLIGATIONS SHALL BE CONCLUSIVELY DEEMED TO BE THE AMOUNT OF THE
LOAN AND SECURITY AGREEMENT, Page 22
<PAGE>
OBLIGATIONS GUARANTEED BY SUCH BORROWER, NOTWITHSTANDING THAT ANY PRESENT OR
FUTURE LAW OR COURT DECISION OR RULING MAY HAVE THE EFFECT OF REDUCING THE
AMOUNT OF ANY DEFICIENCY CLAIM TO WHICH LENDER MIGHT OTHERWISE BE ENTITLED BUT
FOR SUCH BIDDING AT ANY SUCH SALE.
(C) SUCH BORROWER AGREES THAT LENDER SHALL BE UNDER NO OBLIGATION TO
(I) MARSHAL ANY ASSETS IN FAVOR OF SUCH BORROWER, (II) PROCEED FIRST AGAINST ANY
OTHER BORROWER OR PERSON OR ANY PROPERTY OF ANY OTHER BORROWER OR PERSON OR
AGAINST ANY COLLATERAL, (III) ENFORCE FIRST ANY OTHER GUARANTY OBLIGATIONS WITH
RESPECT TO, OR SECURITY FOR, THE OBLIGATIONS, OR (IV) PURSUE ANY OTHER REMEDY IN
LENDER'S POWER THAT SUCH BORROWER MAY NOT BE ABLE TO PURSUE ITSELF AND THAT MAY
LIGHTEN SUCH BORROWER'S BURDEN, ANY RIGHT TO WHICH SUCH BORROWER HEREBY
EXPRESSLY WAIVES.
(D) EACH BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A
MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH SUCH BORROWER.
EACH BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS
WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY MADE THE WAIVED
DESCRIBED ABOVE FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
10. Miscellaneous
10.1 Complete Agreement; Modification of Agreement. This Agreement and
---------------------------------------------
the other Loan Documents constitute the complete agreement between the parties
with respect to the subject matter hereof and thereof, supersede all prior
agreements, commitments, understandings or inducements (oral or written,
expressed or implied), and no Loan Document may be modified, altered or amended
except by a written agreement signed by Lender, and each other Credit Party a
party to such Loan Document. Each Borrower and each other Credit Party executing
this Agreement or any other Loan Document shall have all duties and obligations
under this Agreement and such other Loan Document from the date of its execution
and delivery, regardless of whether the initial Loan has been funded at that
time.
10.2 Expenses. Borrower agrees to pay or reimburse Lender for all costs
--------
and expenses (including the fees and expenses of all special counsel, advisors,
consultants (including environmental and management consultants) and auditors
retained in connection therewith), incurred in connection with: (a) the
preparation, negotiation, execution, delivery, performance and enforcement of
the Loan Documents and the preservation of any rights thereunder; (b)
collection, including deficiency collections; (c) the forwarding to Borrower or
any other Person on behalf of Borrower by Lender of the proceeds of any Loan
(including a wire transfer fee of $20 per wire transfer); (d) any amendment,
extension, modification or waiver of, or consent with respect to any Loan
Document or advice in connection with the administration of the Loans or the
rights thereunder; (e) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by or between any combination of Lender, Borrower or
any other Person or Persons), and an appeal or review thereof, in any way
relating to the Collateral, any Transaction Document, or any action taken or any
other agreements to be executed or delivered in connection therewith, whether as
a party, witness or otherwise; and (f) any effort (i) to monitor the Loans, (ii)
to evaluate, observe or assess any Borrower or any other Credit Party or the
affairs of such Person, and (iii) to verify, protect, evaluate, assess,
appraise, collect, sell, liquidate or otherwise dispose of the Collateral.
10.3 No Waiver. Neither Lender's failure, at any time or times, to
---------
require strict performance by any Borrower or any other Credit Party of any
provision of any Loan Document, nor Lender's failure to exercise, nor any delay
in exercising, any right, power or privilege hereunder, (a) shall waive, affect
or diminish any right of Lender thereafter to demand strict compliance and
performance therewith, or (b) shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or future exercise thereof or the exercise of any other right, power or
privilege. Any suspension or waiver of a Default under or other provision of the
Loan Documents shall not suspend, waive or affect any other Default or other
provision under any Loan Document, whether the same is prior or subsequent
thereto and whether of the same or of a different type, and shall not be
construed as a bar to any right or remedy which Lender would otherwise have had
on any future occasion. None of the undertakings, indemnities, agreements,
warranties, covenants and representations of any Borrower or
LOAN AND SECURITY AGREEMENT, Page 23
<PAGE>
any other Credit Party to Lender contained in any Loan Document and no Default
by any Borrower or any other Credit Party under any Loan Document shall be
deemed to have been suspended or waived by Lender, unless such waiver or
suspension is by an instrument in writing signed by an officer or other
authorized employee of Lender and directed to such Borrower specifying such
suspension or waiver (and then such waiver shall be effective only to the extent
therein expressly set forth), and Lender shall not, by any act (other than
execution of a formal written waiver), delay, omission or otherwise, be deemed
to have waived any of its rights or remedies hereunder.
10.4 Severability; Section Titles. Wherever possible, each provision of
----------------------------
the Loan Documents shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of any Loan Document shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of such
Loan Document. Except as otherwise expressly provided for in the Loan
Documents, no termination or cancellation (regardless of cause or procedure) of
any financing arrangement under the Loan Documents shall in any way affect or
impair the Obligations, duties, covenants, representations and warranties,
indemnities, and liabilities of any Borrower or any other Credit Party or the
rights of Lender relating to any unpaid Obligation (due or not due, liquidated,
contingent or unliquidated), or any transaction or event occurring prior to such
termination, or any transaction or event, the performance of which is not
required until after the Commitment Termination Date, all of which shall not
terminate or expire, but rather shall survive such termination or cancellation
and shall continue in full force and effect until the Termination Date;
provided, that all indemnity obligations of the Credit Parties under the Loan
Documents shall survive the Termination Date. The Section titles contained in
any Loan Document are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
10.5 Authorized Signature. Until Lender shall be notified in writing by
--------------------
any Borrower or any other Credit Party to the contrary, the signature upon any
document or instrument delivered pursuant hereto and believed by Lender or any
of Lender's officers, agents, or employees to be that of an officer of such
Borrower or such other Credit Party listed in the Secretarial Certificate in the
form of Exhibit H shall bind such Borrower and such other Credit Party and be
---------
deemed to be the act of such Borrower or such other Credit Party affixed
pursuant to and in accordance with resolutions duly adopted by such Borrower's
or such other Credit Party's Board of Directors, and Lender shall be entitled to
assume the authority of each signature and authority of the person whose
signature it is or appears to be unless the person acting in reliance of such
signature shall have actual knowledge of the fact that such signature is false
or the person whose signature or purported signature is presented is without
authority.
10.6 Notices. Except as otherwise provided herein, whenever any notice,
-------
demand, request or other communication shall or may be given to or served upon
any party by any other party, or whenever any party desires to give or serve
upon any other party any communication with respect to this Agreement, each such
notice, demand, request or other communication shall be in writing and shall be
deemed to have been validly served, given or delivered (a) upon the earlier of
actual receipt and three (3) days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
Section 10.6), (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when hand-delivered, all of which shall
be addressed to the party to be notified and sent to the address or facsimile
number indicated in Schedule B or to such other address (or facsimile number) as
----------
may be substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any notice, demand,
request or other communication to any Person (other than any Borrower or Lender)
designated in Schedule B to receive copies shall in no way adversely affect the
----------
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
10.7 Counterparts. Any Loan Document may be executed in any number of
------------
separate counterparts by one or more of the parties thereto, and all of said
counterparts taken together shall constitute one and the same instrument.
10.8 Time of the Essence. Time is of the essence for performance of the
-------------------
Obligations under the Loan Documents.
LOAN AND SECURITY AGREEMENT, Page 24
<PAGE>
10.9 GOVERNING LAW. THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING
-------------
UNDER THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING
CONFLICTS OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
10.10 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
------------------------------------------------
(A) EACH BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS
AGREEMENT HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN
NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN SUCH BORROWER AND SUCH CREDIT PARTY AND LENDER PERTAINING TO
THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION
DOCUMENTS; PROVIDED, THAT LENDER, EACH BORROWER AND EACH OTHER CREDIT PARTY
-------
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS
--- ------- --------
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS,
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. EACH BORROWER AND
EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT EXPRESSLY SUBMIT AND CONSENT IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND EACH BORROWER AND EACH OTHER CREDIT PARTY HEREBY WAIVE ANY OBJECTION WHICH
IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
-----
NON CONVENIENS. EACH BORROWER AND EACH OTHER CREDIT PARTY EXECUTING THIS
- --- ----------
AGREEMENT HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREE THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO THE LEADING BORROWER AT THE ADDRESS SET FORTH IN SCHEDULE B OF THIS
----------
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
THE LEADING BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN
THE U.S. MAILS, PROPER POSTAGE PREPAID.
(B) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LENDER, ANY
BORROWER AND ANY OTHER CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE
TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
10.11 Press Releases. Each Credit Party executing this Agreement agrees
--------------
that neither it nor its Affiliates will in the future issue any press release or
other public disclosure using the name of General Electric Capital Corporation
or its affiliates or referring to this Agreement or the other Loan Documents
without at least two (2) Business Days' prior notice to Lender and without the
prior written consent of Lender unless (and only to the extent that) such Credit
Party or Affiliate is required to do so under law and then, in any event, such
Credit Party or Affiliate will consult with Lender before issuing such press
release or other public disclosure. Each Credit Party consents to the
publication by Lender of a tombstone or similar advertising material relating to
the financing transactions contemplated by this Agreement.
10.12 Reinstatement. This Agreement shall continue to be effective, or be
-------------
reinstated, as the case may be, if at any time payment of all or any part of the
Obligations is rescinded or must otherwise be returned or restored by the Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
any Borrower or any other Credit Party, or otherwise, all as though such
payments had not been made.
LOAN AND SECURITY AGREEMENT, Page 25
<PAGE>
11. Cross-Guaranty
11.1 Cross-Guaranty. Each Borrower hereby absolutely and unconditionally
--------------
guarantees to Lender and its successors and assigns the full and prompt payment
(whether at stated maturity, by acceleration or otherwise) and performance of
all Obligations owed or hereafter owing to Lender by each other Borrower,
including that portion of the Revolving Credit Loan attributable to each other
Borrower. Each Borrower agrees that its guaranty obligation hereunder is a
continuing guaranty of payment and performance and not of collection, and that
its obligations under this Section 11 shall be absolute and unconditional,
irrespective of, and unaffected by:
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, this Agreement, any other Loan Document or
any other agreement, document or instrument to which any Borrower is or may
become a party;
(b) the absence of any action to enforce this Agreement (including
this Section 11) or any other Loan Document or the waiver or consent by Lender
with respect to any of the provisions hereof or thereof;
(c) the existence, value or condition of, or failure to perfect
its Lien against, any security for the Obligations or any action, or the absence
of any action, by Lender in respect thereof (including the release of any such
security);
(d) the insolvency of any Credit Party; or
(e) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being agreed by each Borrower that its obligations under this Section 11
shall not be discharged until the payment and performance, in full, of the
Obligations has occurred. Each Borrower shall be regarded, and shall be in the
same position, as principal debtor with respect to the Obligations guaranteed
hereunder.
11.2 Waivers by Borrowers. Each Borrower expressly waives all rights it
--------------------
may have now or in the future under any statute, or at common law, or at law or
in equity, or otherwise, to compel Lender to marshall assets or to proceed in
respect of the Obligations guaranteed hereunder against any other Credit Party,
any other party or against any security for the payment and performance of the
Obligations before proceeding against, or as a condition to proceeding against,
such Borrower. It is agreed among each Borrower and Lender that the foregoing
waivers are of the essence of the transactions contemplated by this Agreement
and the other Loan Documents and that, but for the provisions of this Section 11
and such waivers, Lender would decline to enter into this Agreement.
11.3 Benefit of Guaranty. Each Borrower agrees that the provisions of this
-------------------
Section 11 are for the benefit of Lender and its successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between any
other Borrower and Lender, the obligations of such other Borrower under the Loan
Documents.
11.4 Subordination of Subrogation, Etc. Notwithstanding anything to the
---------------------------------
contrary in this Agreement or in any other Loan Document, and except as set
forth in Section 11.7, each Borrower hereby expressly and irrevocably
subordinates to the payment of the Obligations any and all rights at law or in
equity to subrogation, reimbursement, exoneration, contribution, indemnification
or set off and any and all defenses available to a surety, guarantor or
accommodation co-obligor until the Obligations are indefeasibly paid in full in
cash. Each Borrower acknowledges and agrees that this waiver is intended to
benefit Lender and shall not limit or otherwise affect such Borrower's liability
hereunder or the enforceability of this Section 11, and that Lender and its
successors and assigns are intended third party beneficiaries of the waivers and
agreements set forth in this Section 11.4.
11.5 Election of Remedies. If Lender may, under applicable law, proceed
--------------------
to realize its benefits under any of the Loan Documents giving Lender a Lien
upon any Collateral, whether owned by any Borrower or by any other Person,
either by judicial foreclosure or by non-judicial sale or enforcement, Lender
may, at its sole option, determine which of its remedies or rights it may pursue
without affecting any of its rights and remedies under this Section 11. If, in
the exercise of any of its rights and remedies, Lender shall forfeit any of its
rights or remedies, including its right to enter a deficiency judgment against
any Borrower or any other Person, whether because of any applicable laws
pertaining to "election of remedies" or the like, each Borrower hereby consents
to such action by
LOAN AND SECURITY AGREEMENT, Page 26
<PAGE>
Lender and waives any claim based upon such action, even if such action by
Lender shall result in a full or partial loss of any rights of subrogation which
such Borrower might otherwise have had but for such action by Lender. Any
election of remedies which results in the denial or impairment of the right of
Lender to seek a deficiency judgment against any Borrower shall not impair any
other Borrower's obligation to pay the full amount of the Obligations. In the
event Lender shall bid at any foreclosure or trustee's sale or at any private
sale permitted by law or the Loan Documents, Lender may bid all or less than the
amount of the Obligations and the amount of such bid need not be paid by Lender
but may be credited against the Obligations. The amount of the successful bid at
any such sale, whether Lender or any other party is the successful bidder, shall
be conclusively deemed to be the fair market value of the Collateral and the
difference between such bid amount and the remaining balance of the Obligations
shall be conclusively deemed to be the amount of the Obligations guaranteed
under this Section 11, notwithstanding that any present or future law or court
decision or ruling may have the effect of reducing the amount of any deficiency
claim to which Lender might otherwise be entitled but for such bidding at any
such sale.
11.6 Limitation. Notwithstanding any provision herein contained to the
----------
contrary, each Borrower's liability under this Section 11 (which liability is in
any event in addition to amounts for which such Borrower is primarily liable
under Section 1) shall be limited to an amount not to exceed as of any date of
determination the greater of:
(a) the net amount of all Loans advanced to any other Borrower
under this Agreement and then re-loaned or otherwise transferred to, or for the
benefit of, such Borrower; and
(b) the amount which could be claimed by Lender from such Borrower
under this Section 11 without rendering such claim voidable or avoidable under
Section 548 of Chapter 11 of the United States Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law after taking into account, among other
things, such Borrower's right of contribution and indemnification from each
other Borrower under Section 11.7.
11.7 Contribution with Respect to Guaranty Obligations.
-------------------------------------------------
(a) To the extent that any Borrower shall make a payment under
this Section 11 of all or any of the Obligations (other than Loans made to that
Borrower for which it is primarily liable) (a "Guarantor Payment") which, taking
into account all other Guarantor Payments then previously or concurrently made
by any other Borrower, exceeds the amount which such Borrower would otherwise
have paid if each Borrower had paid the aggregate Obligations satisfied by such
Guarantor Payment in the same proportion that such Borrower's "Allocable Amount"
(as defined below) (as determined immediately prior to such Guarantor Payment)
bore to the aggregate Allocable Amounts of each of the Borrowers as determined
immediately prior to the making of such Guarantor Payment, then, following
indefeasible payment in full in cash of the Obligations and termination of the
Commitments, such Borrower shall be entitled to receive contribution and
indemnification payments from, and be reimbursed by, each other Borrower for the
amount of such excess, pro rata based upon their respective Allocable Amounts in
effect immediately prior to such Guarantor Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Borrower shall be equal to the maximum amount of the claim which could then be
recovered from such Borrower under this Section 11 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the United States
Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act,
Uniform Fraudulent Conveyance Act or similar statute or common law.
(c) This Section 11.7 is intended only to define the relative
rights of Borrowers and nothing set forth in this Section 11.7 is intended to or
shall impair the obligations of each Borrower to pay any amounts as and when the
same shall become due and payable in accordance with the terms of this
Agreement, including Section 11.1. Nothing contained in this Section 1.7 shall
limit the liability of any Borrower to pay the Loans made directly or indirectly
to that Borrower and accrued interest, Fees and expenses with respect thereto
for which such Borrower shall be primarily liable.
(d) The parties hereto acknowledge that the rights of contribution
and indemnification hereunder shall constitute assets of Borrower to which such
contribution and indemnification is owing.
LOAN AND SECURITY AGREEMENT, Page 27
<PAGE>
(e) The rights of the indemnifying Borrowers against other Credit
Parties under this Section 11.7 shall be exercisable upon the full and
indefeasible payment of the Obligations and the termination of Lender's
obligation to extend any credit under this Agreement.
11.8 Liability Cumulative. The liability of Borrowers under this Section
--------------------
11 is in addition to and shall be cumulative with all liabilities of each
Borrower to Lender under this Agreement and the other Loan Documents to which
such Borrower is a party or in respect of any Obligations or obligation of the
other Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
11.9 Intercompany Subordination. In furtherance, and not in limitation, of
--------------------------
Sections 6.1 and 11.4, each Borrower agrees, for itself and each future holder
of the Subordinated Obligations (as defined below), that the Subordinated
Obligations are expressly "subordinate and junior in right of payment" (as that
phrase is defined below) to all Obligations.
(a) "Subordinated Obligations": the collective reference to all
------------------------
obligations and liabilities of any Borrower to any other Borrower (including,
without limitation, interest accruing at the then applicable rate, if any,
provided after the maturity and interest accruing at the then applicable rate
provided after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to any Borrower,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, in each case whether on
account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel).
(b) "Subordinate and junior in right of payment" means that (1) no
------------------------------------------
part of the Subordinated Obligation shall have any claim to the assets of any
Borrower on a parity with or prior to the claim of the Obligations; and (2)
unless and until the Obligations have been paid in full and the obligation of
the Lender to extend credit to the Borrowers under the Loan Documents shall have
been irrevocably terminated, without the express prior written consent of the
Lender (A) no Borrower will take, demand or receive from any other Borrower, and
no Borrower will make, give or permit, directly or indirectly, by set-off,
redemption, purchase or in any other manner, any payment of (of whatever kind or
nature, whether in cash, property, securities or otherwise) or security for the
whole or any part of the Subordinated Obligation, including, without limitation,
any letter of credit or similar credit support facility to support payment of
the Subordinated Obligation; provided, however, that at any time when no Default
-------- -------
has occurred and is continuing or would result therefrom, a Borrower may make,
and the other Borrower may receive, regularly scheduled payments on account of
the Subordinated Obligations in accordance with the terms thereof determined on
a pre-default non-accelerated basis, and (B) no Borrower will accelerate for any
reason the scheduled maturities of any amount owing under the Subordinated
Obligations.
(c) The expressions "prior payment in full," "payment in full,"
"paid in full" and any other similar terms or phrases when used herein with
respect to the Obligations shall mean the payment in full, in immediately
available funds, of all of the Obligations.
(d) The Borrowers agree that upon the occurrence of any Insolvency
Event (as defined in the Intercreditor Agreement attached hereto as Exhibit N):
(1) all Obligations shall be paid in full before any payment
or distribution of whatever kind or nature is made with respect to the
Subordinated Obligation; and
(2) any payment or distribution of assets of any Borrower,
whether in cash, property or securities, to which any other Borrower would be
entitled except for the provisions hereof, shall be paid or delivered by any
Borrower, or any receiver, trustee in bankruptcy, liquidating trustee,
disbursing agent or other Person making such payment or distribution, directly
to the Lender, to the extent necessary to pay in full all Obligations, before
any payment or distribution of any kind or nature shall be made to any Borrower.
(e) Upon the occurrence of any Insolvency Event:
LOAN AND SECURITY AGREEMENT, Page 28
<PAGE>
(1) each Borrower irrevocably authorizes and empowers the
Lender (A) to demand, sue for, collect and receive every payment or distribution
on account of the Subordinated Obligation payable or deliverable in connection
with such event or proceeding and give acquittance therefor, and (B) to file
claims and proofs of claim in any statutory or non-statutory proceeding and take
such other actions, in its own name as Lender, or in the name of the Borrower or
otherwise, as the Lender may deem necessary or advisable for the enforcement of
the provisions of this Section 11.9; provided, however, that the foregoing
-------- -------
authorization and empowerment imposes no obligation on the Lender to take any
such action;
(2) each Borrower shall take such action, duly and promptly,
as the Lender may request from time to time (A) to collect the Subordinated
Obligation for the account of the Lender and (B) to file appropriate proofs of
claim in respect of the Subordinated Obligation; and
(3) each Borrower shall execute and deliver such powers of
attorney, assignments or proofs of claim or other instruments as the Lender may
request to enable the Lender to enforce any and all claims in respect of the
Subordinated Obligation and to collect and receive any and all payments and
distributions which may be payable or deliverable at any time upon or in respect
of the Subordinated Obligation.
(f) If any payment or distribution, whether consisting of money,
property or securities, shall be collected or received by any Borrower in
respect of the Subordinated Obligation, except payments permitted to be made at
the time of payment as provided in paragraph (b) above, such Borrower forthwith
shall deliver the same to the Lender, in the form received, duly indorsed to the
Lender, if required, to be applied to the payment or prepayment of the
Obligations until the Obligations are paid in full. Until so delivered, such
payment or distribution shall be held in trust by such Borrower as the property
of the Lender, segregated from other funds and property held by such Borrower.
(g) In the event that any Borrower has or at any time acquires any
lien upon or security interest in the assets securing the Obligations, or any
part thereof, such Borrower hereby waives any right that such Borrower may have
whether such right arises under Sections 9-504 or 9-505 of the Uniform
Commercial Code or other applicable law, to receive notice of the Lender's
intended disposition of such assets (or a portion thereof) or of the Lender's
proposed retention of such assets in satisfaction of the Obligations (or a
portion thereof). Each Borrower further agrees that in the event any Borrower
consents or fails to object to a proposed retention of such assets (or a portion
thereof) by the Lender in satisfaction of the Obligations (or a portion
thereof), such Borrower hereby consents to such proposed retention regardless of
whether such Subordinated Creditor is provided with notice of such proposed
retention.
LOAN AND SECURITY AGREEMENT, Page 29
<PAGE>
(h) So long as any of the Obligations shall remain outstanding or the
obligation of Lender to extend credit to the Borrowers remains in effect, no
Borrower shall, without the prior written consent of the Lender:
(1) permit to exist any security interest, lien, charge or
other encumbrance on any property or assets of any Borrower to secure or provide
for payment or performance of the Subordinated Obligation or exercise any right
of set off or counterclaim which the Subordinated Creditor may have with respect
to any amounts payable or to be paid by the Subordinated Creditor to any Credit
Party;
(2) commence, or join with any creditors other than the
Lender in commencing any case or proceeding referred to in the definition of
Insolvency Event (as such term is defined in the intercreditor agreement
attached hereto as Exhibit N);
(3) assert, collect, or enforce all or any part of the
Subordinated Obligation or any claims in respect thereof, except as specifically
provided for herein; or
(4) take any action to foreclose upon, take possession of,
liquidate or proceed against any property or assets, or otherwise institute any
action or proceeding, to serve or provide for payment of the Subordinated
Obligation or otherwise exercise any rights or remedies under or with respect to
the Subordinated Obligation or hinder or delay the Lender in the exercise of any
rights and remedies under or in respect of the Obligations.
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed
as of the date first written above.
NUTRITION FOR LIFE INTERNATIONAL, INC.
By: ----------------------------------------------
David Bertrand
President
NL ACQUISITION COMPANY
AC ACQUISITION COMPANY
(to be known as Ash Corp.)
BPI ACQUISITION COMPANY
(to be known as Bactolac Pharmaceutical Inc.)
By: ----------------------------------------------
John R. Brown, Jr., Secretary of each company
GENERAL ELECTRIC CAPITAL CORPORATION
By: ----------------------------------------------
Peter Cooney
Duly Authorized Signatory
LOAN AND SECURITY AGREEMENT, Page 30
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
-------------------------------
Schedule A - Definitions
Schedule B - Lender's and Borrowers' Addresses for Notices
Schedule C - Letters of Credit (Not Used)
Schedule D - Cash Management System
Schedule E - Fees and Expenses
Schedule F - Schedule of Documents
Schedule G - Financial Covenants
Disclosure Schedule (3.2) - Places of Business; Corporate Names
Disclosure Schedule (3.6) - Real Estate
Disclosure Schedule (3.7) - Stock; Affiliates
Disclosure Schedule (3.10) - Taxes
Disclosure Schedule (3.12) - ERISA
Disclosure Schedule (3.13) - Litigation
Disclosure Schedule (3.14) - Intellectual Property
Disclosure Schedule (3.16) - Environmental Matters
Disclosure Schedule (3.17) - Insurance
Disclosure Schedule (3.18) - Commodity and Security Accounts
Disclosure Schedule (3.19) - Contracts (Offset Risk)
Disclosure Schedule (5(b)) - Indebtedness
Disclosure Schedule (5(e)) - Liens
Disclosure Schedule (6.1) - Actions to Perfect Liens
Exhibit A - Form of Notice of Revolving Credit Advance
Exhibit B - Other Reports and Information
Exhibit C - Form of Borrowing Base Certificate
Exhibit C-1 - Inventory Rollforward and Reconciliation
Exhibit D - Form of Accounts Payable Analysis
Exhibit E - Form of Accounts Receivable Rollforward Analysis
Exhibit F - Form of Revolving Credit Note
Exhibit G - Form of Term Note
Exhibit H - Form of Secretarial Certificate
Exhibit I - Form of Power of Attorney
Exhibit J - Form of Certificate of Compliance
Exhibit K - Form of Lockbox Agreement
Exhibit L - Form of Landlord's Waiver and Consent
Exhibit M - Form of Opinion of Counsel to Borrower
Exhibit N - Form of Intercreditor Agreement (unsecured junior debt)
Exhibit O - Form of U.C.C. Schedule
Exhibit P - Form of Payment of Proceeds Letter
Exhibit Q - Form of Standard Payoff Letter
i
<PAGE>
Schedule A - Definitions
Capitalized terms used in this Agreement and the other Loan Documents shall
have (unless otherwise provided elsewhere in this Agreement or in the other Loan
Documents) the following respective meanings:
"Account Debtor" shall mean any Person who is or may become obligated with
respect to, or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the Code,
now owned or hereafter acquired by any Person, including or in addition: (i) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments), whether arising out of goods sold or services
rendered or from any other transaction (including any such obligations which may
be characterized as an account or contract right under the Code); (ii) all of
such Person's rights in, to and under all purchase orders or receipts for goods
or services; (iii) all of such Person's rights to any goods represented by any
of the foregoing (including unpaid sellers' rights of rescission, replevin,
reclamation and stoppage in transit and rights to returned, reclaimed or
repossessed goods); (iv) all moneys due or to become due to such Person under
all purchase orders and contracts for the sale of goods or the performance of
services or both by such Person or in connection with any other transaction
(whether or not yet earned by performance on the part of such Person), including
the right to receive the proceeds of said purchase orders and contracts; and (v)
all collateral security and guarantees of any kind given by any other Person
with respect to any of the foregoing.
"Accounts Payable Analysis" shall mean a certificate in the form of Exhibit
D.
"Accounts Receivable Roll Forward Analysis" shall mean a certificate in the
form of Exhibit E.
"Acquisitions" shall mean the following transactions:
(a) the merger of NL Acquisition Company with Advanced Nutraceuticals,
Inc., with NL Acquisition Company as the surviving corporation;
(b) the merger of AC Acquisition Company with Ash Corp., with AC
Acquisition Company as the surviving corporation and thereafter
changing its name to Ash Corp.; and
(c) the merger of BPI Acquisition Company with Bactolac Pharmaceutical
Inc., with BPI Acquisition Company surviving and changing its name to
Bactolac Pharmaceutical Inc.
"Acquisition Documents" shall mean each of the following agreements and any
and all other documentation entered into pursuant to the terms of or otherwise
in connection with the following agreements or the Acquisitions (other than the
Loan Documents), as all the same may be amended or otherwise modified from time
to time:
(d) Agreement and Plan of Merger dated October 20, 1999 among Leading
Borrower, Advanced Nutraceuticals, Inc., and NL Acquisition Company,
Gregory Pusey, and Barry C. Loder;
(a) Agreement and Plan of Merger dated as of October 25, 1999 between
Leading Borrower, Advanced Nutraceuticals, Inc., Ash Corp., a
Mississippi corporation, Allan I. Sirkin and Neil Sirkin; an d
(b) Agreement and Plan of Merger dated November 5, 1999 among Leading
Borrower, Advanced Nutraceuticals, Inc., BPI Acquisition Company,
Bactolac Pharmaceutical Inc., a New York corporation and Pailla M.
Reddy.
"Affiliate" shall mean, with respect to any Person: (i) each other Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, five percent (5%) or more of the Stock
having ordinary voting power for the election of directors of such Person; (ii)
each other Person that controls, is controlled by or is under common control
with such Person or any Affiliate of such Person; or (iii) each of such Person's
officers, directors, joint venturers and partners. For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
Schedule A - Definitions - Page 1 of 15
<PAGE>
"Agreement" shall mean this Agreement including all Appendices attached or
otherwise identified thereto, restatements and modifications and supplements
thereto, and any appendices, exhibits or schedules to any of the foregoing, and
shall refer to this Agreement as the same may be in effect at the time such
reference becomes operative; provided, that except as specifically set forth in
this Agreement, any reference to the Disclosure Schedules to this Agreement
shall be deemed a reference to the Disclosure Schedules as in effect on the
Closing Date or in a written amendment thereto executed by Borrower and Lender.
"ANI" shall mean Advanced Nutraceuticals, Inc., a Delaware Corporation.
"Appendices" shall have the meaning assigned to it in the Recitals of this
Agreement.
"ASH" shall have the meaning assigned in the preamble of this Agreement.
"Ash Corp." shall mean Ash Corp., a Mississippi corporation, when referring
to that certain company to be acquired by ASH.
"Ash Corp. Acquisition" shall mean the merger of AC Acquisition Company
with Ash Corp., with AC Acquisition Company as the surviving corporation and
thereafter changing its name to Ash Corp.
"Ash Corp. Acquisition Documents" shall mean each of the Agreement and Plan
of Merger dated as of October 25, 1999 between Leading Borrower, Advanced
Nutraceuticals, Inc., Ash Corp., a Mississippi corporation, Allan I. Sirkin and
Neil Sirkin and any and all other documentation entered into pursuant to the
terms of or otherwise in connection with such agreement or the Ash Corp.
Acquisition (other than the Loan Documents), as all the same may be amended or
otherwise modified from time to time:
"Books and Records" shall mean all books, records, board minutes,
contracts, licenses, insurance policies, environmental audits, business plans,
files, computer files, computer discs and other data and software storage and
media devices, accounting books and records, financial statements (actual and
pro forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral.
"Borrower" and "Borrowers" shall have the meanings assigned to them in the
preamble of this Agreement.
"Borrowing Availability" shall mean, at any time with respect to any
Borrower, the lesser of (i) such Borrower's Maximum Amount or (ii) such
Borrower's Borrowing Base, in each case less reserves established by Lender from
time to time.
"Borrowing Base" shall mean at any time with respect to any Borrower, an
amount equal to the sum at such time of:
(a) eighty five percent (85%) of the value (as determined by Lender) of
such Borrower's Eligible Accounts; provided that Lender shall reduce
the foregoing percentage by one percentage point for each percentage
point that the dilution of such Borrower's Accounts (calculated by
Lender as the average dilution over the most recent 3 months) exceeds
5%; plus
(b) the lesser of (i) sixty percent (60%) (or, if such Borrower is BPI,
forty-nine percent (49%)) of the value of such Borrower's Eligible
Inventory, or (ii) eighty-five percent (85%) of the orderly
liquidation value of such Borrower's Eligible Inventory, in each case
as determined by Lender, valued on a first-in, first-out basis (at
the lower of cost or market).
"Borrowing Base Certificate" shall mean a certificate in the form of
Exhibit C.
"BPI" shall have the meaning assigned in the preamble of this Agreement.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
Schedule A - Definitions - Page 2 of 15
<PAGE>
"Capital Expenditures" shall mean all payments or accruals (including
Capital Lease Obligations) for any fixed assets or improvements or for
replacements, substitutions or additions thereto, that have a useful life of
more than one year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise would be
disclosed as such in a note to such balance sheet, other than, in the case of
any Borrower, any such lease under which such Borrower is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease,
the amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of such Capital
Lease or otherwise be disclosed in a note to such balance sheet.
"Cash Collateral Account" shall have the meaning assigned to it in Schedule
C.
"Change of Control" shall mean, with respect to any Person on or after the
Closing Date, that any change in the composition of such Person's stockholders
as of the Closing Date shall occur which would result in any stockholder or
group acquiring 49.9% or more of any class of Stock of such Person, or that any
Person (or group of Persons acting in concert) shall otherwise acquire, directly
or indirectly (including through Affiliates), the power to elect a majority of
the Board of Directors of such Person or otherwise direct the management or
affairs of such Person by obtaining proxies, entering into voting agreements or
trusts, acquiring securities or otherwise.
"Charges" shall mean all Federal, state, county, city, municipal, local,
foreign or other governmental taxes (including taxes owed to PBGC at the time
due and payable), levies, customs or other duties, assessments, charges, liens,
and all additional charges, interest, penalties, expenses, claims or
encumbrances upon or relating to (i) the Collateral, (ii) the Obligations, (iii)
the employees, payroll, income or gross receipts of any Credit Party, (iv) the
ownership or use of any assets by any Credit Party, or (v) any other aspect of
any Credit Party's business.
"Chattel Paper" shall mean all "chattel paper," as such term is defined in
the Code, now owned or hereafter acquired by any Person, wherever located.
"Closing Date" shall mean the Business Day on which the conditions
precedent set forth in Section 2 have been satisfied or specifically waived in
writing by Lender, and the initial Loan has been made.
"Closing Date Acquisitions" shall mean the following transactions:
(a) the merger of NL Acquisition Company with Advanced Nutraceuticals,
Inc., with NL Acquisition Company as the surviving corporation; and
(b) the merger of BPI Acquisition Company with Bactolac Pharmaceutical
Inc., with BPI Acquisition Company surviving and changing its name to
Bactolac Pharmaceutical Inc.
"Closing Date Acquisition Documents" shall mean each of the following
agreements and any and all other documentation entered into pursuant to the
terms of or otherwise in connection with the following agreements or the
Acquisitions (other than the Loan Documents), as all the same may be amended or
otherwise modified from time to time:
(a) Agreement and Plan of Merger dated October 20, 1999 among Leading
Borrower, Advanced Nutraceuticals, Inc., NL Acquisition Company,
Gregory Pusey, and Barry C. Loder; and
(b) Agreement and Plan of Merger dated November 5, 1999 among Leading
Borrower, Advanced Nutraceuticals, Inc., BPI Acquisition Company,
Bactolac Pharmaceutical Inc., a New York corporation and Pailla M.
Reddy.
"Closing Fee" shall have the meaning assigned to it in Schedule E.
Schedule A - Definitions - Page 3 of 15
<PAGE>
"Code" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection or priority and for
purposes of definitions related to such provisions.
"Collateral" shall have the meaning assigned to it in Section 6.1.
"Collateral Monitoring Fee" shall have the meaning assigned to it in
Schedule E.
"Collection Account" shall mean that certain account of Lender, account
number 50-232-854 in the name of GECC-CAF Depository at Bankers Trust Company, 1
Bankers Trust Plaza, New York, New York, ABA number 021-001-033.
"Commitment Termination Date" shall mean the earliest of (i) the Stated
Expiry Date, (ii) the date Lender's obligation to advance funds is terminated
pursuant to Section 7.2, and (iii) the date of indefeasible prepayment in full
by Borrowers of the Obligations in accordance with the provisions of Section
1.2(c).
"Contracts" shall mean all the contracts, undertakings, or agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments) in or
under which any Person may now or hereafter have any right, title or interest,
including, without limitation, any agreement relating to the terms of payment or
the terms of performance of any Account, the Acquisition Documents and that
certain Purchase and Supply Agreement between Ash Corp. and Bayer Corporation.
"Contractual Obligation" shall mean as to any Person, any provision of any
security issued by such Person or of any agreement, instrument, or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Copyright License" shall mean rights under any written agreement now owned
or hereafter acquired by any Person granting the right to use any Copyright or
Copyright registration.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Person: (i) all copyrights in any original work of authorship
fixed in any tangible medium of expression, now known or later developed, all
registrations and applications for registration of any such copyrights in the
United States or any other country, including registrations, recordings and
applications, and supplemental registrations, recordings, and applications in
the United States Copyright Office; and (ii) all Proceeds of the foregoing,
including license royalties and proceeds of infringement suits, the right to sue
for past, present and future infringements, all rights corresponding thereto
throughout the world and all renewals and extensions thereof.
"Corporate Credit Party" shall mean any Credit Party that is a corporation,
partnership or limited liability company.
"Credit Party" shall mean each Borrower, and each other Person (other than
Lender) that is or may become a party to this Agreement or any other Loan
Document.
"Default" shall mean any Event of Default or any event which, with the
passage of time or notice or both, would, unless cured or waived, become an
Event of Default.
"Default Rate" shall have the meaning assigned to it in Section 1.5(c).
"Documents" shall mean all "documents," as such term is defined in the
Code, now owned or hereafter acquired by any Person, wherever located, including
all bills of lading, dock warrants, dock receipts, warehouse receipts, and other
documents of title, whether negotiable or non-negotiable.
Schedule A - Definitions - Page 4 of 15
<PAGE>
"Eligible Accounts" shall mean as at the date of determination with respect
to any Borrower, all Accounts of such Borrower except any Account:
(a) that does not arise from the sale of goods or the performance of
services by such Borrower in the ordinary course of such Borrower's
business;
(b) upon which (i) such Borrower's right to receive payment is not
absolute or is contingent upon the fulfillment of any condition
whatsoever or (ii) such Borrower is not able to bring suit or
otherwise enforce its remedies against the Account Debtor through
judicial process;
(c) against which any defense, counterclaim or setoff, whether well-
founded or otherwise, is asserted or which is a "contra" Account;
(d) that is not a true and correct statement of a bona fide indebtedness
incurred in the amount of the Account for merchandise sold or
services performed and accepted by the Account Debtor obligated upon
such Account;
(e) with respect to which an invoice, acceptable to Lender in form and
substance, has not been sent;
(f) that is not owned by such Borrower or is subject to any right, claim,
or interest of another Person, other than the Lien in favor of
Lender;
(g) that arises from a sale to or performance of services for an
employee, Affiliate, Subsidiary or any Stockholder owning in excess
of 2% or more of any Borrower or any other Credit Party, or an entity
which has common officers or directors with any Borrower or any other
Credit Party;
(h) that is the obligation of an Account Debtor that is the Federal (or
local) government or a political subdivision thereof, unless Lender
has agreed to the contrary in writing and such Borrower has complied
with the Federal Assignment of Claims Act of 1940 (or the state
equivalent thereof, if any) with respect to such obligation;
(i) that is the obligation of an Account Debtor located in a foreign
country unless such Account is supported by a letter of credit in
which Lender has a first priority perfected security interest or
credit insurance acceptable to Lender (and naming Lender as loss
payee);
(j) that is the obligation of an Account Debtor to whom any Borrower is
or may become liable for goods sold or services rendered by the
Account Debtor to any Borrower, to the extent of any Borrower's
liability to such Account Debtor;
(k) that arises with respect to goods which are delivered on a cash-on-
delivery basis or placed on consignment, guaranteed sale or other
terms by reason of which the payment by the Account Debtor may be
conditional;
(l) that is an obligation for which the total unpaid Accounts of the
Account Debtor exceed 20% of the aggregate of all Accounts, to the
extent of such excess;
(m) that is not paid within 60 days from its due date or 90 days from its
invoice date or that are Accounts of an Account Debtor if 50% or more
of the Accounts owing from such Account Debtor remain unpaid within
such time periods;
(n) is an obligation of an Account Debtor that has suspended business,
made a general assignment for the benefit of creditors, is unable to
pay its debts as they become due or as to which a petition has been
filed (voluntary or involuntary) under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors;
(o) that arises from any bill-and-hold or other sale of goods which
remain in any Borrower's possession or under any Borrower's control;
(p) as to which Lender's interest therein is not a first priority
perfected security interest;
(q) to the extent that such Account exceeds any credit limit established
by Lender in Lender's sole discretion;
(r) as to which any of such Borrower's representations or warranties
pertaining to Accounts are untrue;
(s) that represents interest payments, late or finance charges, or
service charges owing to such Borrower; or
(t) that is not otherwise acceptable in the good faith discretion of
Lender, provided, that Lender shall have the right to create and
adjust eligibility standards and related reserves from time to time
in its good faith credit judgment.
"Eligible Inventory" shall mean as at the date of determination as to any
Borrower, all Inventory of such Borrower, except any Inventory that:
Schedule A - Definitions - Page 5 of 15
<PAGE>
(a) is not subject to a first priority perfected security interest of
Lender or is not owned by such Borrower free and clear of all Liens
and rights of others (except the Liens in favor of Lender);
(b) is not located on premises owned or operated by such Borrower and
referenced in Disclosure Schedule (3.2),
(c) is not located on premises where the aggregate amount of all Inventory
(valued at cost) of such Borrower located thereon is greater than
$100,000;
(d) is located on premises with respect to which Lender has not received a
landlord or mortgagee letter acceptable in form and substance to
Lender;
(e) is in transit;
(f) is covered by a negotiable document of title, unless such document and
evidence of acceptable insurance covering such Inventory has been
delivered to Lender,
(g) in Lender's good faith credit judgment, is obsolete, unsalable (as a
result of third party contractual restrictions or otherwise),
shopworn, damaged, unfit for further processing, is of substandard
quality or is not of good and merchantable quality, free from any
defects;
(h) consists of (i) discontinued items, (ii) slow-moving or excess items
held in inventory, or (iii) used items held for resale;
(i) does not consist of raw materials or finished goods;
(j) does not meet all standards imposed by any Governmental Authority,
including with respect to its production, acquisition or importation
(as the case may be);
(k) is placed by such Borrower on consignment or held by such Borrower on
consignment from another Person;
(l) is held for rental or lease by or on behalf of such Borrower;
(m) is produced in violation of the Fair Labor Standards Act and subject
to the "hot goods" provisions contained in 29 U.S.C. S 215 or any
successor statute or section;
(n) in any way fails to meet or violates any warranty, representation or
covenant contained in this Agreement, any other Loan Document or any
agreement providing for the manufacture or sale thereof;
(o) is subject to any licensing, patent, royalty, trademark, trade name or
copyright agreement with any third parties;
(p) requires the consent of any Person for the completion of manufacture,
sale or other disposition of such Inventory by Lender following an
Event of Default and such completion, manufacture or sale constitutes
a breach or default under any contract or agreement to which such
Borrower is a party or to which such Inventory is or may become
subject;
(q) is literature or other promotional items; or
(r) is not otherwise acceptable in the good faith discretion of Lender,
provided, that Lender shall have the right to create and adjust
eligibility standards and related reserves from time to time in its
good faith credit judgment.
"Environmental Laws" shall mean all Federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any applicable judicial
or administrative interpretation thereof relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation).
"Environmental Liabilities" shall mean all liabilities, obligations,
responsibilities, remedial actions, removal costs, losses, damages of whatever
nature, costs and expenses (including all reasonable fees, disbursements and
expenses of counsel, experts and consultants and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim, suit, action or demand of whatever nature by any Person and
which relate to any health or safety condition regulated under any Environmental
Law, environmental permits or in connection with any Release, threatened
Release, or the presence of a Hazardous Material.
"Equipment" shall mean all "equipment" as such term is defined in the Code,
now owned or hereafter acquired by any Person, wherever located, including or in
addition any and all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal property (other than
Inventory) of every kind and description which may be now or hereafter used in
such Person's operations or which are owned by such Person
Schedule A - Definitions - Page 6 of 15
<PAGE>
or in which such Person may have an interest, and all parts, accessories and
accessions thereto and substitutions and replacements therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with any Credit Party, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the IRC, or, solely for the
purposes of Section 302 of ERISA and Section 412 of the IRC, is treated as a
single employer under Section 414 of the IRC.
"ERISA Event" shall mean (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the IRC or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(b) of the IRC or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by any Credit Party or any ERISA Affiliate of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by any Credit Party or any ERISA Affiliate from the PBGC or a
plan administrator of any notice relating to an intention to terminate any Plan
or to appoint a trustee to administer any Plan; (f) the incurrence by any Credit
Party or any ERISA Affiliate of any liability with respect to any withdrawal or
partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by
any Credit Party or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from any Credit Party or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Event of Default" shall have the meaning assigned to it in Section 7.1.
"Fees" shall mean the fees due to Lender as set forth in Schedule E.
"Financial Statements" shall mean the consolidated and consolidating income
statement, balance sheet and statement of cash flows of each Borrower and its
Subsidiaries, internally prepared for each Fiscal Month, and consolidating and
audited consolidated statements for each Fiscal Year, prepared in accordance
with GAAP.
"Fiscal Month" shall mean any of the monthly accounting periods of
Borrowers.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of
Borrowers.
"Fiscal Year" shall mean the 12 month period of Borrowers ending September
30 of each year. Subsequent changes of the fiscal year of Borrowers shall not
change the term "Fiscal Year" unless Lender shall consent in writing to such
change.
"Fixed Charge Coverage Ratio" shall have the meaning specified on Schedule
G.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time, consistently applied.
"General Intangibles" shall mean all "general intangibles," as such term is
defined in the Code, now owned or hereafter acquired by any Person, including or
in addition all right, title and interest which such Person may now or hereafter
have in or under any Contract, Intellectual Property, interests in partnerships,
joint ventures and other business associations, permits, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
materials, Books and Records, Goodwill (including the Goodwill associated with
any Intellectual Property), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss, and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key-person, and business interruption insurance, and all
unearned premiums),
Schedule A - Definitions - Page 7 of 15
<PAGE>
uncertificated securities, choses in action, deposit accounts, rights to receive
tax refunds and other payments and rights of indemnification.
"Goods" shall mean all "goods," as such term is defined in the Code, now
owned or hereafter acquired by any Person, wherever located, including movables,
fixtures, equipment, inventory, or other tangible personal property.
"Goodwill" shall mean all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae, quality
control standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without limitation, or in
addition, the United States Food and Drug Administration and the Federal Trade
Commission.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of
such Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such guaranteeing Person
(whether or not contingent): (i) to purchase or repurchase any such primary
obligation; (ii) to advance or supply funds (a) for the purchase or payment of
any such primary obligation or (b) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor; (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation; or (iv) to indemnify the owner of such primary
obligation against loss in respect thereof.
"Guarantor" shall mean each Person which executes a guaranty or a support,
put or other similar agreement in favor of Lender in connection with the
transactions contemplated by this Agreement.
"Guaranty" shall mean any agreement to perform all or any portion of the
Obligations on behalf of Borrower or any other Credit Party, in favor of, and in
form and substance satisfactory to, Lender, together with all amendments,
modifications and supplements thereto, and shall refer to such Guaranty as the
same may be in effect at the time such reference becomes operative.
"Hazardous Material" shall mean any substance, material or waste which is
regulated by or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance which is (a) defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Laws, (b) petroleum or any
fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or
any radioactive substance.
"Hazardous Waste" shall have the meaning ascribed to such term in the
Resource Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et. seq.).
"Holding Co." shall have the meaning ascribed to such term in Section
5(a).
"Holding Co. Restructure" shall have the meaning ascribed to such term in
Section 5(a).
"Indebtedness" of any Person shall mean: (i) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (including reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured, but not including obligations to trade creditors incurred in the
ordinary course of business and not more than 45 days past due); (ii) all
obligations evidenced by notes, bonds, debentures or similar instruments; (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property); (iv)
all Capital Lease Obligations; (v) all Guaranteed Indebtedness; (vi) all
Schedule A - Definitions - Page 8 of 15
<PAGE>
Indebtedness referred to in clauses (i), (ii), (iii), (iv) or (v) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness;
(vii) the Obligations; and (viii) all liabilities under Title IV of ERISA.
"Indemnified Liabilities" and "Indemnified Person" shall have the meaning
assigned to such terms in Section 1.11.
"Index Rate" shall mean the latest "Prime Rate", which normally is
published in the "Money Rates" section of The Wall Street Journal (or if such
rate ceases to be so published, as quoted from such other generally available
and recognizable source as Lender may select). The Index Rate shall be
determined (i) on the first Business Day immediately prior to the Closing Date
and (ii) thereafter, on the last Business Day of each calendar month for
calculation of interest for the following month.
"Instruments" shall mean all "instruments," as such term is defined in the
Code, now owned or hereafter acquired by any Person, wherever located, including
all certificated securities and all notes and other evidences of indebtedness,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents,
Copyrights, Trademarks, trade secrets and customer lists.
"Inventory" shall mean all "inventory," as such term is defined in the
Code, now or hereafter owned or acquired by any Person, wherever located,
including or in addition all inventory, merchandise, goods and other personal
property which are held by or on behalf of such Person for sale or lease or are
furnished or are to be furnished under a contract of service or which constitute
raw materials, work in process or materials used or consumed or to be used or
consumed in such Person's business or in the processing, production, packaging,
promotion, delivery or shipping of the same, including other supplies.
"Investment Property" shall mean all "investment property," as such term is
defined in the Code, now or hereafter acquired by an Person, wherever located.
"IRC" and "IRS" shall mean respectively, the Internal Revenue Code of 1986
and the Internal Revenue Service, and any successor thereto.
"Leading Borrower" shall have the meaning as defined in the preamble of
this Agreement.
"Lender" shall mean General Electric Capital Corporation and, if at any
time Lender shall decide to assign or syndicate all or any of the Obligations,
such term shall include such assignee or such other members of the syndicate.
"Letters of Credit" shall mean any and all commercial or standby letters of
credit issued at the request and for the account of any Borrower for which
Lender has incurred Letter of Credit Obligations.
"Letter of Credit Fee" shall have the meaning assigned to it in Schedule E.
"Letter of Credit Obligations" shall mean all outstanding obligations
(including all duty, freight, taxes, costs, insurance and any other charges and
expenses) incurred by Lender, whether direct or indirect, contingent or
otherwise, due or not due, in connection with the issuance or guarantee, by
Lender or another, of Letters of Credit, all as further set forth in Schedule C.
"License" shall mean any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by any Person.
Schedule A - Definitions - Page 9 of 15
<PAGE>
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"Litigation" shall mean any claim, lawsuit, litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority.
"Loan Documents" shall mean this Agreement, the Notes, the Financial
Statements, each Guaranty, the Power of Attorney, the Lock Box Account
Agreements, and the other documents and instruments listed in Schedule F, and
all security agreements, mortgages and all other documents, instruments,
certificates, and notices at any time delivered by any Person (other than
Lender) in connection with any of the foregoing.
"Loans" shall mean the Revolving Credit Loan including the Letter of Credit
Obligations, and the Term Loan.
"Lock Box Account" and "Lock Box Account Agreement" shall have the meanings
assigned to such terms in Schedule D.
"Material Adverse Effect" shall mean: a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of any
Borrower or any other Credit Party or the industry within which such Borrower or
any other Credit Party operates, (b) any Borrower's or any other Credit Party's
ability to pay or perform the Obligations under the Loan Documents to which such
Credit Party is a party in accordance with the terms thereof, (c) the Collateral
or Lender's Liens on the Collateral or the priority of any such Lien, or (d)
Lender's rights and remedies under this Agreement and the other Loan Documents.
"Maximum Amount" shall mean with respect to any Borrower, the sum of
$12,000,000 minus all Revolving Credit Loans outstanding in favor of all the
other Borrowers.
"Minimum Actionable Amount" shall mean $50,000.
"Multiemployer Plan" shall mean a "multiemployer plan," as defined in
Section 4001(a) (3) of ERISA, to which Borrower, any other Credit Party or any
ERISA Affiliate is making, is obligated to make, has made or been obligated to
make, contributions on behalf of participants who are or were employed by any of
them.
"Net Borrowing Availability" shall mean at any time with respect to any
Borrower, such Borrower's Borrowing Availability less the Revolving Credit Loan
attributable to such Borrower.
"Net Income (Loss)" shall have the meaning specified on Schedule G.
"NLAC" shall have the meaning assigned in the preamble of this Agreement.
"Notes" shall mean the Revolving Credit Notes and the Term Note.
"Notice of Revolving Credit Advance" shall have the meaning assigned to it
in Section 1.1(b).
"Obligations" shall mean all loans, advances, debts, expense reimbursement,
fees, liabilities, and obligations for the performance of covenants, tasks or
duties or for payment of monetary amounts (whether or not such performance is
then required or contingent, or amounts are liquidated or determinable) owing by
any Borrower and any other Credit Party to Lender, of any kind or nature,
present or future, whether or not evidenced by any note, agreement or other
instrument, whether arising under any of the Loan Documents or under any other
agreement between such Borrower, such Credit Party and Lender, and all covenants
and duties regarding such amounts. This term includes all principal, interest
(including interest accruing at the then applicable rate provided in this
Agreement after the maturity of the Loans and interest accruing at the then
applicable rate provided in this Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or
Schedule A - Definitions - Page 10 of 15
<PAGE>
like proceeding, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), Fees, Charges, expenses, attorneys'
fees and any other sum chargeable to any Borrower under any of the Loan
Documents, and all principal and interest due in respect of the Loans and all
obligations and liabilities of any Guarantor under any Guaranty.
"Patent License" shall mean rights under any written agreement now owned or
hereafter acquired by any Person granting any right with respect to any
invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Person now holds or
hereafter acquires any interest: (i) all letters patent of the United States or
any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or Territory thereof, or any other country; and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Encumbrances" shall mean the following encumbrances: (i) Liens
for taxes or assessments or other governmental Charges or levies, either not yet
due and payable or to the extent that nonpayment thereof is permitted by the
terms of Section 3.11; (ii) pledges or deposits securing obligations under
worker's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which any Credit Party is a party as lessee made in the ordinary course of
business; (iv) deposits securing public or statutory obligations of any Credit
Party; (v) inchoate and unperfected workers', landlord's, mechanics', or similar
liens arising in the ordinary course of business so long as such Liens attach
only to Equipment, fixtures or real estate; (vi) carriers', warehouseman's',
suppliers' or other similar possessory liens arising in the ordinary course of
business and securing indebtedness not yet due and payable in an outstanding
aggregate amount not in excess of $25,000 at any time so long as such Liens
attach only to Inventory; (vii) deposits of money securing, or in lieu of,
surety, appeal or customs bonds in proceedings to which any Credit Party is a
party; (viii) zoning restrictions, easements, licenses, or other restrictions
on the use of real property or other minor irregularities in title (including
leasehold title) thereto, so long as the same do not materially impair the use,
value, or marketability of such real estate; (ix) Purchase Money Liens securing
Purchase Money Indebtedness (or rent) to the extent permitted under Section
5(b)(vi); (x) Liens in existence on the Closing Date as disclosed on Disclosure
----------
Schedule 5(e) provided that no such Lien is spread to cover additional property
- -------------
after the Closing Date and the amount of Indebtedness secured thereby is not
increased; (xi) Liens in favor of Lender securing the Obligations; (xii) upon
the closing of the Ash Corp. Acquisition in compliance with the limitations
thereon contained in this Agreement, liens in favor of Hancock Bank encumbering
the real property known as 3600 25th Avenue, Gulfport, Harrison County,
Mississippi (the "Mississippi Property"); as long as such Liens do not encumber
any Collateral and Hancock Bank shall have executed and delivered to Lender a
Mortgagee Subordination Agreement in form and substance acceptable to Lender;
and (xiii) after the closing of the Ash Corp. Acquisition, Liens granted in
connection with the refinancing of the Indebtedness owed to Hancock Bank
encumbering the Mississippi Property as long as such Liens do not encumber any
Collateral, the holders of such Liens shall have executed and delivered to
Lender a Mortgagee Subordination Agreement in form and substance acceptable to
the Lender and the amount of Indebtedness secured by such Liens is not in excess
of an amount equal to 80% of the appraised value of the Mississippi Property.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether Federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the IRC or Section 302 of ERISA, and in respect of which any Credit Party
or any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
Schedule A - Definitions - Page 11 of 15
<PAGE>
"Predecessor Company" shall mean each Person acquired pursuant to the
Acquisitions.
"Prepayment Fee" shall mean the prepayment fee specified in Schedule E.
"Proceeds" shall mean "proceeds," as such term is defined in the Code and,
in any event, shall include: (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Borrower or any other Credit
Party from time to time with respect to any Collateral; (ii) any and all
payments (in any form whatsoever) made or due and payable to any Borrower or any
other Credit Party from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, authority, bureau or agency (or any person acting under color
of governmental authority); (iii) any claim of any Borrower or any other Credit
Party against third parties (a) for past, present or future infringement of any
Intellectual Property or (b) for past, present or future infringement or
dilution of any Trademark or Trademark License or for injury to the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark License; (iv) any recoveries by any Borrower or any other
Credit Party against third parties with respect to any litigation or dispute
concerning any Collateral; and (v) any and all other amounts from time to time
paid or payable under or in connection with any Collateral, upon disposition or
otherwise.
"Projections" shall mean as of any date the consolidated and consolidating
balance sheet, statements of income and cash flow for each Borrower and its
Subsidiaries (including forecasted Capital Expenditures and Net Borrowing
Availability) (i) by month for the next Fiscal Year, and (ii) by year for the
following three Fiscal Years, in each case prepared in a manner consistent with
GAAP and accompanied by senior management's discussion and analysis of such
plan.
"Purchase Money Indebtedness" shall mean (i) any Indebtedness incurred for
the payment of all or any part of the purchase price of any fixed asset, (ii)
any Indebtedness incurred for the sole purpose of financing or refinancing all
or any part of the purchase price of any fixed asset, and (iii) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).
"Purchase Money Lien" shall mean any Lien upon any fixed assets which
secures the Purchase Money Indebtedness related thereto but only if such Lien
shall at all times be confined solely to the asset the purchase price of which
was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such
Purchase Money Indebtedness.
"Real Property" shall have the meaning assigned to it in Section 3.16.
"Release" shall mean, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials in the indoor or outdoor
environment by such Person, including the movement of Hazardous Materials
through or in the air, soil, surface water, ground water or property.
"Requirement of Law" shall mean as to any Person, the Certificate or
Articles of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case binding upon such Person or any of its property or to which such
Person or any of its property is subject, including, without limitation, all
laws, rules and regulations of, or enforced or administered by, the Food and
Drug Administration and the Federal Trade Commission, including, without
limitation, the Good Manufacturing Practices required by the Food, Drug and
Cosmetic Act.
"Restricted Payment" shall mean: (i) the declaration or payment of any
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets on or in respect of any
Borrower's or any other Credit Party's Stock; (ii) any payment or distribution
made in respect of any subordinated Indebtedness of any Borrower or any other
Credit Party; (iii) any payment on account of the purchase, redemption,
defeasance or other retirement of any Borrower's or any other Credit Party's
Stock or Indebtedness or any other payment or distribution made in respect of
any thereof, either directly or indirectly; other than (a) that arising under
this Agreement or (b) interest and principal, when due without acceleration or
modification of the amortization as in effect on the Closing Date, under
Indebtedness (not including subordinated Indebtedness, payments of which shall
Schedule A - Definitions - Page 12 of 15
<PAGE>
be permitted only in accordance with the terms hereof) described in Disclosure
----------
Schedule (5(b)) or otherwise permitted under Section 5(b)(vi); or (iv) any
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payment, loan, contribution, or other transfer of funds or other property to any
Stockholder of such Person which is not expressly and specifically permitted in
this Agreement; provided, that no payment to Lender shall constitute a
Restricted Payment.
"Revolving Credit Advance" shall have the meaning assigned to it in Section
1.1(a).
"Revolving Credit Loan" shall mean at any time the sum of (i) the aggregate
amount of Revolving Credit Advances then outstanding, plus (ii) the total Letter
of Credit Obligations incurred by Lender and outstanding at such time, plus
(iii) the amount of accrued but unpaid interest thereon and Letter of Credit
Fees with respect thereto.
"Revolving Credit Note" shall mean each promissory note dated the Closing
Date, executed by a Borrower substantially in the form of Exhibit F.
"Revolving Credit Rate" shall have the meaning assigned to it in Section
1.5(a).
"Sellers" means each shareholder of the Predecessor Companies.
"Stated Expiry Date" shall mean November 15, 2002.
"Stock" shall mean all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934).
"Stockholder" shall mean each holder of Stock of any Borrower or any other
Credit Party.
"Subsidiary" shall mean, with respect to any Person, (i) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (ii) any partnership or limited liability
company in which such Person or one or more Subsidiaries of such Person has an
equity interest (whether in the form of voting or participation in profits or
capital contribution) of more than 50% or of which any such Person is a general
partner or manager or may exercise the powers of a general partner or manager.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Lender.
"Term Loan" shall mean the loan in the amount specified in and evidenced by
the Term Note, and made to Borrowers under the terms of the Agreement, and any
renewals, extensions, revisions, modifications or replacements therefor or
thereof.
"Term Loan Rate" shall have the meaning assigned to it in Section 1.5(a).
"Term Note" shall mean the promissory note of Borrowers dated the Closing
Date, substantially in the form of Exhibit G.
---------
"Termination Date" shall mean the date on which all Obligations under this
Agreement are indefeasibly paid in full, in cash (other than amounts in respect
of Letter of Credit Obligations if any, then outstanding, provided that
Borrowers shall have funded such amounts in cash in full into the Cash
Collateral Account), and Borrowers
Schedule A - Definitions - Page 13 of 15
<PAGE>
shall have no further right to borrow any moneys or obtain other credit
extensions or financial accommodations under this Agreement.
"Third Party Interactives" shall mean all Persons with whom any Corporate
Credit Party exchanges data electronically in the ordinary course of business,
including, without limitation, customers, suppliers, third-party vendors,
subcontractors, processors-converters, shippers and warehousemen.
"Trademark License" shall mean rights under any written agreement now owned
or hereafter acquired by any Person granting any right to use any Trademark or
Trademark registration.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Person: (i) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including all registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State or Territory thereof,
or any other country or any political subdivision thereof, and (ii) all
reissues, extensions or renewals thereof.
"Transaction Documents" shall mean the Loan Documents and the Acquisition
Documents.
"Transaction Summary" shall mean the Transaction Summary set forth in the
Recitals to this Agreement.
"Unused Line Fee" shall have the meaning assigned to it in Schedule E.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Year 2000 Date-Sensitive System/Component" shall mean, as to any Person,
any system software, network software, applications software, data base,
computer file, embedded microchip, firmware or hardware that accepts, creates,
manipulates, sorts, sequences, calculates, compares or outputs calendar-related
data accurately; including mainframe computers, file server/client systems,
computer workstations, routers, hubs, other network-related hardware, and other
computer-related software, firmware or hardware and information processing and
delivery systems of any kind and telecommunications systems and other
communications processors, security systems, alarms, elevators and HVAC systems.
"Year 2000 Problems" shall mean, with respect to each Corporate Credit
Party, limitations on the capacity or readiness of any such Corporate Credit
Party's Year 2000 Date-Sensitive Systems/Components to accurately accept,
create, manipulate, sort, sequence, calculate, compare or output calendar date
information with respect to calendar year 1999 or any subsequent calendar year
beginning on or after January 1, 2000 (including leap year computations),
including, without limitation, exchanges of information among Year 2000 Date-
Sensitive Systems/Components of the Corporate Credit Parties and exchanges of
information among the Corporate Credit Parties and Year 2000 Date-Sensitive
Systems/Components of Third Party Interactives and functionality of peripheral
interfaces, firmware and embedded microchips.
Any accounting term used in this Agreement or the other Loan Documents
shall have, unless otherwise specifically provided therein, the meaning
customarily given such term in accordance with GAAP, and all financial
computations thereunder shall be computed, unless otherwise specifically
provided therein, in accordance with GAAP consistently applied; provided, that
all financial covenants and calculations in the Loan Documents shall be made in
accordance with GAAP as in effect on the Closing Date unless Borrower and Lender
shall otherwise specifically agree in writing. That certain items or
computations are explicitly modified by the phrase "in accordance with GAAP"
shall in no way be construed to limit the foregoing. All other undefined terms
contained in this Agreement or the other Loan Documents shall, unless the
context indicates otherwise, have the meanings provided for by the Code. The
words "herein," "hereof" and "hereunder" or other words of similar import refer
to this Agreement as a whole, including the exhibits and schedules thereto, as
the same may from time to time be amended, modified or supplemented, and not to
any particular section, subsection or clause contained in this Agreement.
Schedule A - Definitions - Page 14 of 15
<PAGE>
For purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply, unless specifically indicated to
the contrary: (a) wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter; (b) the term "or" is not
exclusive; (c) the term "including" (or any form thereof) shall not be limiting
or exclusive; (d) all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations; (e)
all references in this Agreement or in the Schedules to this Agreement to
sections, schedules, disclosure schedules, exhibits, and attachments shall refer
to the corresponding sections, schedules, disclosure schedules, exhibits, and
attachments of or to this Agreement; and (f) all references to any instruments
or agreements, including references to any of the Loan Documents, shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.
Schedule A - Definitions - Page 15 of 15
<PAGE>
EXHIBIT 10.50
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of November 30, 1999, is among NUTRITION FOR LIFE INTERNATIONAL, INC.,
a Texas corporation ("Leading Borrower"), NL ACQUISITION COMPANY, a Delaware
corporation ("NLAC"), AC ACQUISITION COMPANY, a Delaware corporation ("ASH"),
BACTOLAC PHARMACEUTICAL INC., a Delaware corporation (formerly known as BPI
Acquisition Company and herein "BPI" and Leading Borrower, ASH, NLAC, and BPI
being collectively referred to as "Borrowers" and each a "Borrower"), and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender").
RECITALS:
A. Borrowers and Lender have entered into that certain Loan and Security
Agreement dated as of November 15, 1999 (as the same has been or hereafter may
be amended or otherwise modified, the "Agreement").
B. The Agreement contemplated that ASH would merge into Ash Corp., a
Mississippi corporation and thereafter change its name to ASH Corp. However,
the Acquisition Documents relating to such merger have been modified to provide
that Ash Corp., a Mississippi corporation will merge with and into BPI with BPI
as the surviving corporation doing business in Mississippi under the name ASH
Corp.
C. As a result of the foregoing, Borrowers and Lender now desire to amend
the Agreement as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows effective as of the date
hereof unless otherwise indicated:
ARTICLE 1
Definitions
-----------
Section 1.01 Definitions. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE 2
Amendments
----------
Section 2.01 Amendment to Refer to AC Acquisition Company. The phrases
"to be known after the Ash Corp. Acquisition as Ash Corp." or "to be known as
Ash Corp." in the Agreement or any other Loan Document when referring to AC
Acquisition Company are hereby deleted from each place they each separately
appear in the Loan Documents.
Section 2.02 Amendment to subclause(ii) of clause (B) of Section 1.1(a).
Subclause (ii) of clause (B) of Section 1.1(a) is amended in its entirety to
read as follows:
(ii) any Borrower may at the request of Leading Borrower as agent for
such Borrower from time to time borrow, repay and reborrow, and may request
Lender to incur Letter of Credit Obligations, under this Section 1.1;
provided, however, that ASH shall not be entitled to request any advances
under this Agreement.
Section 2.03 Amendment to the Definition of "Ash Corp." The definition of
"Ash Corp." in Schedule A of the Agreement is amended in its entirety to read as
follows:
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT-Page 1 of 6
<PAGE>
"Ash Corp." shall mean Ash Corp., a Mississippi corporation, when referring
to that certain company to be acquired by BPI.
Section 2.04 Amendment to subclause(v) of clause(a) of Section 5.
Subclause (v) of clause (a) of Section 5 is amended in its entirety to read as
follows:
(v) Bactolac Pharmaceutical Inc. (formerly known as BPI
Acquisition Company) may acquire Ash Corp. through the merger of Bactolac
Pharmaceutical Inc. with Ash Corp., with Bactolac Pharmaceutical Inc.
surviving, if: (A) no Default exists at the time of, or will result from,
such transaction, (B) the Lender consents to the terms and provisions of
such transaction, and (C) all documentation that the Lender may require
related to such transaction has been delivered to Lender;
Section 2.05 Amendment to Section 3.3. The phrase "Closing Date" is
hereby deleted from each place that it separately appears in Section 3.3 of the
Agreement and replaced with the phrase "closing date of the Ash Corp.
Acquisition".
Section 2.06 Amendment to Section 10.2. Section 10.2 of the Agreement is
amended in its entirety to read as follows:
10.2 Expenses. Each Borrower agrees to pay or reimburse Lender
for all costs and expenses (including the fees and expenses of all special
counsel, advisors, consultants (including environmental and management
consultants) and auditors retained in connection therewith), incurred in
connection with: (a) the preparation, negotiation, execution, delivery,
performance and enforcement of the Loan Documents and the preservation of
any rights thereunder; (b) collection, including deficiency collections;
(c) the forwarding to any Borrower or any other Person on behalf of any
Borrower by Lender of the proceeds of any Loan (including a wire transfer
fee of $20 per wire transfer); (d) any amendment, extension, modification
or waiver of, or consent with respect to any Loan Document or advice in
connection with the administration of the Loans or the rights thereunder;
(e) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by or between any combination of Lender, any Borrower or any
other Person or Persons), and an appeal or review thereof, in any way
relating to the Collateral, any Transaction Document, or any action taken
or any other agreements to be executed or delivered in connection
therewith, whether as a party, witness or otherwise; and (f) any effort (i)
to monitor the Loans, (ii) to evaluate, observe or assess any Borrower or
any other Credit Party or the affairs of such Person, and (iii) to verify,
protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise
dispose of the Collateral.
Section 2.07 Amendment to clause (b) of the Definition of "Acquisitions".
Clause (b) of the definition of "Acquisitions" in Schedule A of the Agreement is
amended in its entirety to read as follows:
(b) the merger of Bactolac Pharmaceutical Inc. (formerly known
as BPI Acquisition Company) with Ash Corp., with Bactolac
Pharmaceutical Inc. as the surviving corporation; and
Section 2.08 Amendment to the Definition of "Acquisition Documents". The
definition of "Acquisition Documents" in Schedule A of the Agreement is amended
in its entirety to read as follows:
"Acquisition Documents" shall mean each of the following agreements
and any and all other documentation entered into pursuant to the terms of
or otherwise in connection with the following agreements or the
Acquisitions (other than the Loan Documents), as all the same may be
amended or otherwise modified from time to time:
(a) Agreement and Plan of Merger dated October 20, 1999 among
Leading Borrower, Advanced Nutraceuticals, Inc., and NL
Acquisition Company, Gregory Pusey, and Barry C. Loder;
(b) Agreement and Plan of Merger dated as of October 25, 1999
between Leading Borrower, Advanced Nutraceuticals, Inc.
(succeeded in interest by merger by NL Acquisition Company),
Ash Corp., a Mississippi corporation, Allan I. Sirkin and
Neil Sirkin, as
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT-Page 2 of 6
<PAGE>
amended by an Amendment to Agreement and Plan of Merger
dated November 24, 1999 to add Bactolac Pharmaceuticals Inc.
(formerly known as BPI Acquisition Company) to such
agreement and to provide for the merger of Ash Corp. with
and into Bactolac Pharmaceuticals Inc.; and
(c) Agreement and Plan of Merger dated November 5, 1999 among
Leading Borrower, Advanced Nutraceuticals, Inc., BPI
Acquisition Company, Bactolac Pharmaceutical Inc., a New
York corporation and Pailla M. Reddy.
Section 2.09 Amendment to the Definition of "Ash Corp. Acquisition". The
definition of "Ash Corp. Acquisition" in Schedule A of the Agreement is amended
in its entirety to read as follows:
"Ash Corp. Acquisition" shall mean the merger of Bactolac
Pharmaceutical Inc. (formerly known as BPI Acquisition Company) with Ash
Corp., with Bactolac Pharmaceutical Inc. as the surviving corporation.
Section 2.10 Amendment to the Definition of "Ash Corp. Acquisition
Documents". The definition of "Ash Corp. Acquisition Documents" in Schedule A of
the Agreement is amended and restated in its entirety to read as follows:
"Ash Corp. Acquisition Documents" shall mean each of the Agreement and
Plan of Merger dated as of October 25, 1999 between Leading Borrower,
Advanced Nutraceutical, Inc., Ash Corp., a Mississippi corporation, Allan
I. Sirkin and Neil Sirkin, as amended by an Amendment to Agreement and Plan
of Merger dated November 24, 1999 to add Bactolac Pharmaceuticals Inc.
(formerly known as BPI Acquisition Company) to such agreement and to
provide for the merger of Ash Corp. with and into Bactolac Pharmaceuticals
Inc., and any and all other documentation entered into pursuant to the
terms of or otherwise in connection with such agreement or the Ash Corp.
Acquisition (other than the Loan Documents), as all the same may be further
amended or otherwise modified from time to time.
Section 2.11 Amendments to Section 3.21. Section 3.21 of the Agreement is
amended by adding the following sentence to the end of Section 3.21:
Further, Borrowers and each other Credit Party agree that they shall
cause to be delivered, before December 31, 1999, the following: (m) all tax
returns due under federal, state, local or other applicable law for the
year 1998 for BPI; (n) releases acceptable to the Lender of (i) the
judgment filed May 25, 1999 by International Flavors and Fragrances, Inc.
in Harrison County, Mississippi in the original amount of $8,464 (Index
Number 109859) and (ii) the judgment filed June 24, 1999 by Kelly Temporary
Services, Inc. in Harrison County, Mississippi in the original amount of
$18,902.87 (Index Number 110065); and (o) any documents that Lender may
require to show that BPI is validly existing and in good standing under the
laws of the State of Mississippi.
Section 2.12 Amendment to clause (l) of the Definition of "Eligible
Account". Clause (l) of the definition of "Eligible Accounts" in Schedule A of
the Agreement is amended in its entirety to read as follows:
(l) that is an obligation for which the total unpaid Accounts of
the Account Debtor exceed 20% of the aggregate of all
Accounts, to the extent of such excess; provided, that in
calculating the Eligible Accounts of BPI, the unpaid
Accounts of Bayer Corporation to BPI's Ash Corp. Division
shall not be included in calculating compliance with this
clause;
Section 2.13 Amendment to Attachment I of Schedule D. Attachment I of
Schedule D of the Agreement is amended in its entirety to read as set forth in
Attachment I of Schedule D attached hereto.
Section 2.14 Amendments to Disclosure Schedules. The following Disclosure
Schedules to the Agreement are each amended in their respective entirety to read
as set forth on the corresponding disclosures schedules attached hereto:
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT-Page 3 of 6
<PAGE>
Disclosure Schedule (3.2)
Disclosure Schedule (3.6)
Disclosure Schedule (3.10)
Disclosure Schedule (3.12)
Disclosure Schedule (3.13)
Disclosure Schedule (3.16)
Disclosure Schedule (5(b))
Disclosure Schedule (5(e))
Disclosure Schedule (6.1).
ARTICLE 3
Ratifications, Representations and Warranties
---------------------------------------------
Section 3.01 Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Agreement and the other Loan
Documents are ratified and confirmed and shall continue in full force and
effect. Each Borrower and Lender agree that the Agreement as amended hereby and
the other Loan Documents shall continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
Section 3.02 Representations and Warranties. Each Borrower hereby
represents and warrants to Lender as follows: (a) after giving effect to this
Amendment, no Default has occurred and is continuing; (b) after giving effect to
this Amendment, the representations and warranties set forth in the Loan
Documents are true and correct in all material respects on and as of the date
hereof with the same effect as though made on and as of such date except with
respect to any representations and warranties limited by their terms to a
specific date; (c) the execution, delivery and performance of this Amendment has
been duly authorized by all necessary action on the part of each Borrower and
does not and will not: (1) violate any provision of law applicable to any
Borrower, the certificate of incorporation, bylaws, partnership agreement,
membership agreement, or other applicable governing document of any Borrower or
any order, judgment, or decree of any court or agency of government binding upon
any Borrower; (2) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation of any Borrower; (3) result in or require the creation or imposition
of any material lien upon any of the assets of any Borrower; or (4) require any
approval or consent of any Person under any material contractual obligation of
any Borrower; (d) the articles of incorporation, bylaws, partnership agreement,
certificate of limited partnership, membership agreement, articles of
organization or other applicable governing document of each Borrower and the
resolutions of each Borrower attached as an exhibit to the respective
Certificate of Secretary of each Borrower dated November 17, 1999 have not been
modified or rescinded and remain in full force and effect as of the date of this
Amendment; (e) following the Ash Corp. Acquisition, BPI will no longer rely on
Bayer Corporation to finance any materials used by BPI's Ash Corp. Division in
the production of inventory.
IN ADDITION, TO INDUCE THE LENDER TO AGREE TO THE TERMS OF THIS AMENDMENT,
EACH BORROWER (BY IT EXECUTION BELOW) REPRESENTS AND WARRANTS THAT AS OF THE
DATE OF ITS EXECUTION OF THIS AMENDMENT THERE ARE NO CLAIMS OR OFFSETS AGAINST
OR DEFENSES OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS AND IN
ACCORDANCE THEREWITH IT:
(a) WAIVER. WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS, DEFENSES OR
COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE OF
ITS EXECUTION OF THIS AMENDMENT AND
(b) RELEASE. RELEASES AND DISCHARGES LENDER, AND ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS, AFFILIATES AND ATTORNEYS
(COLLECTIVELY THE "RELEASED PARTIES") FROM ANY AND ALL OBLIGATIONS,
INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS, CAUSES OF ACTION
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT-Page 4 of 6
<PAGE>
OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR
UNSUSPECTED, IN LAW OR EQUITY, WHICH ANY BORROWER EVER HAD, NOW HAS,
CLAIMS TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO
THE DATE HEREOF AND FROM OR IN CONNECTION WITH THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREBY.
ARTICLE 4
Miscellaneous
-------------
Section 4.01 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan Document
including any Loan Document furnished in connection with this Amendment shall
survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
Section 4.02 Reference to Agreement. Each of the Loan Documents,
including the Agreement and any and all other agreements, documents, or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Agreement as amended hereby, are hereby amended
so that any reference in such Loan Documents to the Agreement shall mean a
reference to the Agreement as amended hereby.
Section 4.03 Expenses of Lender. As provided in the Agreement, each
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and the other Loan Documents executed pursuant hereto, including without
limitation, the costs and fees of Lender's legal counsel.
Section 4.04 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 4.05 Applicable Law. This Amendment and all other Loan Documents
executed pursuant hereto shall be governed by and construed in accordance with
the laws of the State of New York and the applicable laws of the United States
of America.
Section 4.06 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Lender and each Borrower and their respective
successors and assigns, except no Borrower may assign or transfer any of its
rights or obligations hereunder without the prior written consent of Lender.
Section 4.07 Counterparts. This Amendment may be executed in one or more
counterparts and on telecopy counterparts, each of which when so executed shall
be deemed to be an original, but all of which when taken together shall
constitute one and the same agreement.
Section 4.08 Effect of Waiver. No consent or waiver, express or implied,
by Lender to or for any breach of or deviation from any covenant, condition or
duty by any Borrower shall be deemed a consent or waiver to or of any other
breach of the same or any other covenant, condition or duty.
Section 4.09 Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 4.10 Complete Amendment; Modification of Amendment. This
Amendment and the other Loan Documents constitute the complete agreement between
the parties with respect to the subject matter hereof and thereof, supersede all
prior agreements, commitments, understandings or inducements (oral or written,
expressed or implied), and no Loan Document may be modified, altered or amended
except by a written agreement signed by Lender, and each other Credit Party a
party to such Loan Document.
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT-Page 5 of 6
<PAGE>
Executed as of the date first written above.
BORROWERS:
---------
Nutrition for Life International, Inc.
By:
------------------------------------------------
David Bertrand
President
NL ACQUISITION COMPANY
AC ACQUISITION COMPANY
BACTOLAC PHARMACEUTICAL INC.
(formerly known as BPI Acquisition Company)
By:
------------------------------------------------
John R. Brown, Jr., Secretary of each company
LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------------------
Peter Cooney
Duly Authorized Signatory
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT-Page 6 of 6
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Name Jurisdiction
- ---- ------------
Nutrition For Life International (UK) Ltd. England
Nutrition For Life International Philippines, Inc. Philippines
Nutrition For Life International (Norway) AS Norway
Nutrition For Life International (Netherlands) B.V. Netherlands
Nutrition For Life International (Finland) SY Finland
Nutrition For Life International (Japan) Ltd. Japan
Bactolac Pharmaceutical Inc. Delaware
NL Acquisition Company Delaware
AC Acquisition Company Delaware
<PAGE>
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Nutrition For Life International, Inc.
Houston, Texas
We hereby consent to the incorporation by reference in the Registration
Statement of Nutrition for Life International, Inc. on Form S-8 (File No. 33-
99366) of our report dated December 29, 1998 relating to the consolidated
financial statements of Nutrition For Life International, Inc. appearing in the
Company's Annual Report on Form 10-K for the year ended September 30, 1999.
BDO SEIDMAN, LLP
Houston, Texas
January 11, 2000
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT'S
----------------------------------------------------
We have issued our report dated January 3, 2000, accompanying the
consolidated financial statements included in the Annual Report of Nutrition
for Life International, Inc. on Form 10-K for the year ended September 30, 1999.
We hereby consent to the incorporation by reference of said report in the
Registration Statement for Nutrition for Life International, Inc. on Form S-8
(File No. 33-99366, effective December 5, 1995).
GRANT THORNTON LLP
Houston, Texas
January 3, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 1,395,310 4,404,388
<SECURITIES> 996,942 968,196
<RECEIVABLES> 362,315 568,931
<ALLOWANCES> 0 0
<INVENTORY> 8,434,220 9,697,495
<CURRENT-ASSETS> 14,484,166 18,774,171
<PP&E> 9,679,672 10,134,505
<DEPRECIATION> 3,635,486 2,827,855
<TOTAL-ASSETS> 22,240,820 27,858,149
<CURRENT-LIABILITIES> 6,634,899 11,755,033
<BONDS> 479,719 1,278,257
0 0
0 0
<COMMON> 58,875 58,875
<OTHER-SE> 14,947,561 15,032,801
<TOTAL-LIABILITY-AND-EQUITY> 22,240,820 27,858,149
<SALES> 0 0
<TOTAL-REVENUES> 66,569,875 69,658,095
<CGS> 0 0
<TOTAL-COSTS> 44,742,050 47,939,482
<OTHER-EXPENSES> 22,329,914 21,021,056
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 128,860 130,632
<INCOME-PRETAX> (291,352) (77,406)
<INCOME-TAX> 557,000 790,050
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (848,352) (867,456)
<EPS-BASIC> (.15) (.15)
<EPS-DILUTED> (.15) (.15)
</TABLE>
