U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
|X| Annual Report under Section 13 or 15 (d) of the Securities Exchange Act of
1934 For the fiscal year ended: July 31, 1998
|_| Transition report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the transition period from ___________ to ___________
Commission file number 0-23624
IVC INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-1567481
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 Halls Mill Road, Freehold, New Jersey 07728
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (732) 308-3000
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
Redeemable Common Stock Purchase Warrants
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers in response 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. |_|
As of October 12, 1998, the aggregate market value of the Common Stock of the
registrant held by non-affiliates of the registrant was $6,113,694.
The number of shares of Common Stock ($.01 par value) outstanding as of October
12, 1998 was 17,211,540.
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IVC INDUSTRIES, INC.
TABLE OF CONTENTS
Annual Report on Form 10-K
For the Fiscal Year ended July 31, 1998
Page No.
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PART I
Item 1 Description of Business............................................ 1
Item 2 Description of Property............................................ 11
Item 3 Legal Proceedings.................................................. 12
Item 4 Submission of Matters to a Vote of Security Holders................ 12
PART II
Item 5 Market For Common Equity and Related Shareholder Matters........... 13
Item 6 Selected Financial Data............................................ 14
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 15
Item 8 Financial Statements and Supplementary Data........................ 21
Item 9 Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure .............................................. 21
PART III
Item 10 Directors and Executive Officers of the Registrant................ 22
Item 11 Executive Compensation............................................ 25
Item 12 Security Ownership of Certain Beneficial Owners and Management.... 30
Item 13 Certain Relationships and Related Transactions.................... 32
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K... 33
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PART I
Item 1 Description of Business
The Company
IVC Industries, Inc. (the "Company" or "IVC") was incorporated in the
state of Delaware in 1971. The Company is engaged in the manufacturing,
packaging and sale and distribution of branded and store brand (private label)
vitamins and nutritional supplements. The Company's Fields of Nature(R),
LiquaFil(TM), Rybutol(R) and Nature's Wonder(R) brands, as well as the
Company-manufactured store brands, are sold in national and regional drug store,
supermarket and mass merchandising chains. The Company's Synergy Plus(R) brand
is sold primarily in health food stores, its Nature's Wonder brand is also sold
through independent drug stores, and its Vitamin Specialties(R) brand is sold in
the Company-owned Vitamin Specialties health food stores and mail order
catalogues. The Company's products are also marketed internationally under its
own brands and private brands, as well as in bulk form.
IVC markets over 600 different products, which are packaged under various
labels and bottle counts. They are sold in single vitamin and in multivitamin
combinations, with varying potency levels in tablets (including chewable and
time released tablets), powders, two-piece hard shell capsules, as well as soft
gelatin encapsulated capsules ("soft gels"). The Company has traditionally
manufactured virtually all of its products except for soft gels, which it had
until recently purchased from others. With the completion of its soft gel
encapsulation facility, the Company is self-sufficient relative to its own soft
gel needs and has begun to generate revenues from third-party sales of soft gel
products. (See "Soft Gel Encapsulation Facility"). The Company considers its
operations to be a single business segment.
On March 15, 1996, the Company changed its name from International Vitamin
Corporation to IVC Industries, Inc.
On April 30, 1996, the Company acquired Hall Laboratories, Inc. ("Hall")
in a transaction accounted for as a pooling of interests. Hall, located in
Portland, Oregon, was founded in 1953, and was engaged in the manufacturing,
packaging, and sale and distribution of vitamins, nutritional supplements and
over-the-counter pharmaceutical products primarily through chain drug stores,
supermarkets, mass merchandisers and warehouse clubs. Hall's products had been
distributed throughout the United States (with a significant concentration on
the West Coast) and in Canada. The majority of Hall's products were marketed
under the private labels of its retail chain customers.
On June 13, 1997, the Company acquired the Vitamin Specialties brand and
related distribution operations of HealthRite, Inc. for $2.8 million (including
inventory). Vitamin Specialties products are distributed through a chain of 16
retail health food/vitamin stores located in Eastern Pennsylvania and Southern
New Jersey, as well as through a mail order catalogue operation.
1
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Products and Product Development
The Company offers a comprehensive assortment of vitamin, mineral and
nutritional supplement products, which include vitamins C and E, beta carotene,
magnesium, folic acid, calcium and potassium, as well as various herbs such as
Echinacea, St. John's Wort and Saw Palmetto and various multivitamin
combinations. IVC has the capacity to produce millions of tablets per day using
technologically advanced high-speed manufacturing equipment. Its fully automated
packaging lines are capable of packaging in excess of 200,000 bottles per shift,
per day. Intergel, the Company's soft gel encapsulation division, has the
capacity to produce in excess of 2 billion capsules annually and could approach
4 billion capsules annually in its existing facility with the installation of
certain additional equipment.
IVC's products are marketed under its customers' store brands (private
label) as well as under the Company's own brands. Store brand products are
positioned as high quality, lower priced alternatives to nationally advertised
brands. Branded products, including IVC's flagship brand, Fields of Nature, are
targeted at consumers who desire high quality, recognizable brand names at
moderate prices.
The Company introduces new products and reformulates existing products on
an ongoing basis in response to consumer trends and emerging scientific
evidence. Product concepts are generally developed by the Company's management,
key employees and consultants. The Company also develops and formulates new
products based on customers' requests and responds to changes in existing
national brands by reformulating existing products and redesigning packaging.
The Company's products sold under the Synergy Plus brand are free of sugar, salt
and starch, and most are hypoallergenic. IVC has also obtained kosher
certification for a substantial portion of the Synergy Plus line. The Company
believes that its kosher certification can help it to achieve increased market
share both domestically and on an international basis.
Manufacturing and Packaging
IVC owns and leases facilities located in Freehold, New Jersey, and leases
facilities in Portland, Oregon. These facilities are equipped with large-volume
blending, tableting and coating equipment, high-speed packaging equipment,
including "cartoning", "stretch carding" and "blister carding" equipment, and
testing and quality control laboratories. The Company has an additional leased
facility located in British Columbia, Canada, which is presently utilized for
warehousing and distribution activities relative to its Canadian operations. The
Company's soft gel operations are located in a leased facility in Irvington, New
Jersey. IVC presently manufactures substantially all of its products, and the
Company believes that the capacity of its facilities is sufficient to meet its
current business needs.
Soft Gel Encapsulation Facility
In recent years, an ever-increasing number of vitamins, herbs,
over-the-counter and cosmetic products have been introduced in, or converted to,
soft gels. Factors contributing to the popularity of soft gels over tablets
include the fact that soft gels are more aesthetically pleasing, odor-free, and
easier to swallow than tablets or hard capsules, and in certain cases provide
superior absorption and stability, content uniformity and more precise dosage,
and generally have longer shelf lives.
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Intergel, the Company's soft gel encapsulation division, completed
construction of its facility and the installation and start-up of the initial
production lines during the first quarter of fiscal 1996. Production levels
increased in each ensuing quarter until the first half of fiscal 1997, at which
time all lines reached full-scale levels of operation.
Intergel produces soft gels in various shapes and sizes. Among the vitamin
and nutritional supplement products generally sold in soft gel form are vitamin
E, beta-carotene, cod liver oil, garlic oil and lecithin. With the plant at full
scale levels of production, IVC is now able to internally manufacture all its
own soft gel requirements, and to supply soft gels to a variety of customers, as
well as to custom formulate unique soft gel products targeted towards
nutritional and cosmetic applications.
The Intergel facility, which can produce in excess of 2 billion capsules
annually, can accommodate additional production lines which could be installed
as the demand for Intergel's products increases. The Company believes that with
these additional lines, its existing facility can reach production levels
approaching 4 billion capsules per year. The Company's strategic business
decision to manufacture soft gel products will allow it to better control its
own supply, quality and cost of such products while it pursues the opportunities
of marketing soft gel products to third parties.
Intergel has been granted a license from the Food and Drug Administration
("FDA") for the production of over-the-counter (non-drug) pharmaceutical
products ("OTCs"). During the past year, Intergel entered into a new
multi-product development agreement with Block Drug Company, Inc., a major
multinational pharmaceutical company, to jointly develop soft gel encapsulated
OTC products, which are being manufactured by Intergel for this company. The
first product has been approved and shipments began in the first quarter of
1998.
Intergel also has developed a nutritional product line, which has been
introduced under the Company's Fields of Nature brand. The line is being
marketed under the Company's new "LiquaFil" product line, and is comprised of a
wide spectrum of vitamin, nutritional and herbal products, all of which are in
soft gel form. The Company began initial shipments of the LiquaFil line to
existing customers in the first quarter of fiscal 1998. In addition, through the
LiquaFil line, the Company has been able to secure additional distribution
through such customers as Eckerd Drug, American Stores, Kerr Drug and Kmart
Corp. As additional soft gel products have been added to the LiquaFil line
during the course of fiscal 1998, the Company began introducing these products
as line extensions to both its existing and new customers who will be carrying
this unique line of soft gel nutritional and herbal products.
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Marketing and Distribution Strategies
Retail Chains
In contrast with nationally advertised brand manufacturers, which focus
primarily on the consumer, IVC's strategy is to build relationships with
national and regional drug store, supermarket and mass merchandising retail
chain customers. Generally, IVC enters into supply agreements with these
customers and its marketing efforts are directed at developing customized
marketing programs with them. As part of these programs, IVC provides its retail
customers with comprehensive sales and marketing support. Since the cost to a
retailer of IVC's branded products and the retailer's private label products are
generally lower than that of advertised national brand products, retail chains
are usually able to commit funds to promote IVC's and their own private label
products through the use of money saving coupons, individualized promotions and
advertising (such as store circulars and newspaper inserts), while still
realizing a higher profit margin than on advertised national brand products.
Often, the product itself is retailed at a lower price than the national brands
thereby delivering "better value" to consumers and providing the retailer with
an important marketing tool in today's competitive retailing environment.
The Company uses the Efficient Consumer Response (ECR) recommended
processes for evaluating consumer needs and applying them to the various retail
trade avenues of distribution. IVC employs its own direct sales force which
regularly calls on customers to obtain an understanding of each customer's
competitive environment. Then, working in tandem with its sales force, IVC's
marketing department and creative arts group develops customized marketing
programs for customers, including new product introductions, promotional
planning support, market research and packaging design.
Health Food and Independent Drug Stores
Historically, the Company has focused its health food and independent drug
store marketing and promotional activities on its Synergy Plus and Nature's
Wonder branded products. IVC has been successful in expanding its markets to
geographic areas in proximity to those where these brand names are well known.
The Company believes that this strategy of expanding its geographical
penetration is an effective method to enter new markets. The Company utilizes
both its own internal sales force as well as distributors to market these
brands.
Direct-to-Consumer Sales
The acquisition of the Vitamin Specialties retail stores and mail order
operations marked the first step in the Company's pursuit of direct-to-consumer
distribution channels, which the Company has earmarked as an important element
of its growth strategy. The Company believes that the integration of the Vitamin
Specialties operations into its core business will allow it to capitalize on its
ability to internally manufacture its products, bringing them directly to their
ultimate consumers.
4
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Export Sales
The Company has begun to capitalize on the global opportunities created by
the increasing worldwide recognition of the benefits of vitamins and nutritional
supplements and the perception that "American made" pharmaceutical products are
the safest and highest quality products available. During the past few years,
the Company has successfully developed various export markets and established
relationships with distributors in North and South America, Europe, Asia and the
Middle East.
Other Channels of Distribution
The Company supplies certain customers who sell products similar to IVC's,
but do not manufacture these products or directly compete with IVC or its
customers. The Company has also begun to manufacture and package products for
certain customers who need to supplement their own capacities either on an
emergency basis during peak season demands or those customers who "outsource" a
portion of their needs on an ongoing basis. These strategies represent
additional opportunities for IVC to increase its plant utilization rates and
profitability without any significant additional capital outlays.
Industry Overview
Based on industry sources, including trade publications, the Company
believes that the retail market for vitamins and nutritional supplements in the
United States presently exceeds $7 billion annually, representing a compounded
annual increase of 14% from the $4.4 billion in 1993. Approximately 45% of
adults in the United States take some form of vitamin or nutritional supplement,
up from 36% in 1993.
IVC believes that this market will continue to expand due to increasing
consumer awareness of the health benefits of vitamins and nutritional
supplements and the widely publicized reports of medical research findings
indicating a correlation between the consumption of micro-nutrients, such as
vitamin C and vitamin E (antioxidants) and reduced incidence of diseases such as
heart disease, cancer and stroke. However, there have been studies relating to
certain antioxidants with results, which have been contrary to certain of the
favorable indications of other prior and subsequent studies. Also, as scientific
research to date is preliminary, there can be no assurance of future favorable
scientific results and media attention, or the absence of unfavorable or
inconsistent findings.
The Company believes that the market for vitamins and other nutritional
supplements will continue to grow as the nation's demographics continue to shift
towards a more senior-aged population, who have a greater tendency to use
vitamins on a regular basis. Industry sources indicate that approximately 55% of
Americans aged 50 and over are regular vitamin users. It is anticipated that the
50 and over age group will be the fastest growing segment of the United States
population as the baby boom generation continues to mature.
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Private Label Industry
A major part of IVC's sales consists of store brand (private label)
products. Sales of private label vitamins have grown significantly in chain drug
stores and have become a key ingredient in the success of retailers. From the
consumer's standpoint, store brand products offer lower-priced and equal if not
better quality alternatives to nationally advertised brand name products. From
the retailer's standpoint, such products allow for lower retail pricing than
national brands and yet provide retailers with higher profit margins. Industry
analysts predict that private label's share of the overall market should grow
significantly over the next 10 years. IVC believes that it is well positioned to
participate in this growth.
Source and Availability of Raw Materials
The principal raw materials used in the manufacturing process are natural
and synthetic vitamins, purchased from manufacturers primarily in the United
States, with certain materials imported from Japan and Europe. IVC purchases its
raw materials from numerous sources. Although one of the Company's suppliers
individually accounted for approximately 26% of total purchases in 1998 and 44%
in 1997, the Company believes that the materials purchased from this supplier
are readily available from numerous sources and that the loss of this supplier
would not adversely affect its operations. No other supplier accounts for more
than 10 percent of IVC's raw material purchases.
Major Customers
IVC's active customer base approaches 2,000 customers. The Company's ten
largest customers accounted for 73% of sales during fiscal 1998, with one
individual customer, PriceCostco, accounting for approximately 36% of sales.
During 1997, the Company's ten largest customers accounted for approximately 69%
of sales, with one customer, PriceCostco, accounting for 23% of sales. No other
customers accounted for more than 10% of net sales. If any of IVC's major
customers substantially reduce their volume of purchases from IVC, results of
operations could be materially adversely affected.
6
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Quality Control
IVC's manufacturing operations include modern quality control laboratories
and testing facilities. All raw materials used in production are initially held
in quarantine during which time IVC's laboratory employees assay the product
against the manufacturer's certificate of analysis. Once cleared, a lot number
is assigned, samples are retained and the material is processed by formulating,
mixing and blending, encapsulating or compressing and where required, by coating
operations. Throughout the manufacturing process, the Quality Control Group
conducts "in process" testing procedures. After tablets or capsules are
manufactured, laboratory employees test for weight, purity, potency, dissolution
and stability. When products are ready for bottling, IVC's automated equipment
counts the tablets or capsules, inserts them into bottles, applies a cap
(closure) which includes a tamper-resistant inner seal, affixes a label and adds
a tamper-resistant outer safety seal. All products, including soft gels that are
produced by Intergel, are subject to the Company's quality control procedures.
Competition
The market for vitamins and other nutritional supplements is highly
competitive in all of the Company's channels of distribution. For sales to drug
store, supermarket and mass merchandising chains, IVC's Fields of Nature,
LiquaFil, Rybutol and Nature's Wonder brands compete with numerous brands of
larger vitamin distributors and manufacturers such as Your Life(R), Nature
Made(R), Sundown(R) and Nature's Bounty(R), which are brands of Leiner Health
Products Group, Inc., Pharmavite Corp., Rexall Sundown, Inc. and NBTY, Inc.,
respectively. These companies are also IVC's competitors for private label
business. In addition, IVC competes with the more heavily advertised national
brands, which are manufactured by large pharmaceutical companies. The
marketplace for private label business is extremely price sensitive with service
levels, quality, innovative packaging, marketing and promotional programs and
uniqueness of products being the key factors influencing competitiveness.
The Company believes that there are also numerous companies competing for
health food and independent drug store customers in its geographical markets. As
most companies are privately held, the Company is unable to precisely assess the
size of its competitors or where it stands with respect to sales volume in
comparison to its competitors. The Company's Synergy Plus brand competes with
brands such as Twin Labs(R), Solgar(R), Schiff(R), and Country Life(R) in health
food stores while Nature's Wonder competes with brands such as Windmill(R) and
Hudson(R) in independent drug stores. Although certain of these competitors are
substantially larger than the Company and have greater financial resources, the
Company believes that it competes favorably with the vitamin and nutritional
supplement companies serving these markets because of its competitive pricing,
marketing strategies, quality of products, kosher certification, special
formulation of products, sales support and its full line of products. IVC also
derives a competitive advantage from being one of the few vertically integrated
tablet and soft gel manufacturers, thereby having the ability to manufacture and
package all of its vitamin and nutritional supplement products. This affords IVC
the flexibility to respond rapidly to the shifting demands of the marketplace
and, consequently, enjoy the manufacturing and operating efficiencies resulting
from longer production runs.
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Government Regulation
The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the FDA, the Federal Trade Commission, the Consumer Product Safety
Commission, the United States Department of Agriculture and the United States
Environmental Protection Agency. These activities are also regulated by various
agencies of the states, localities, and countries in which IVC's products are
sold. In addition, the Company manufactures and markets certain of its products
in compliance with the guidelines promulgated by the United States Pharmacopoeia
Convention, Inc. ("USP") and other voluntary standard organizations.
The Dietary Supplemental Health and Education Act ("DSHEA") recognizes the
importance of good nutrition and the availability of safe dietary supplements in
preventive health care. DSHEA amends the Federal Food, Drug and Cosmetic Act by
defining dietary supplements, which include vitamins, minerals, nutritional
supplements and herbs, as a new category of food, separate from conventional
food. Under DSHEA, the FDA is generally prohibited from regulating such dietary
supplements as food additives or drugs. It requires the FDA to regulate dietary
supplements so as to guarantee consumer access to beneficial dietary
supplements, allowing truthful and proven claims. Generally, dietary ingredients
that were on the market before October 15, 1994 may be sold without FDA
pre-approval and without notifying the FDA. However, new dietary ingredients
(those not used in dietary supplements marketed before October 15, 1994) require
premarket submission to the FDA of evidence of a history of their safe use, or
other evidence establishing that they are reasonably expected to be safe. There
can be no assurance that the FDA will accept the evidence of safety for any new
dietary ingredient that the Company may decide to use, and the FDA's refusal to
accept such evidence could result in regulation of such dietary ingredients as
food additives, requiring the FDA pre-approval based on newly conducted, costly
safety testing. Also, while DSHEA authorizes the use of statements of
nutritional support in the labeling of dietary supplements, the FDA is required
to be notified of such statements, and there can be no assurance that the FDA
will not consider particular labeling statements used by the Company to be drug
claims rather than acceptable statements of nutritional support, necessitating
approval of a costly new drug application, or relabeling to delete such
statements.
DSHEA also authorizes the FDA to promulgate good manufacturing practice
regulations ("GMP") for dietary supplements, which would require special quality
controls for the manufacture, packaging, storage and distribution of
supplements. Although the final version of the GMP rules has not yet been
issued, the Company has already commenced significant facility renovations that
should allow the Company to comply with the new regulations, once they are
enacted. DSHEA further authorizes the FDA to promulgate regulations governing
the labeling of dietary supplements, including claims for supplements pursuant
to recommendations made by the Presidential Commission on Dietary Supplement
Labels. Such rules, which were issued on September 23, 1997, entail specific
requirements relative to the labeling of the Company's dietary supplements. The
rules, which are to take effect by March 1999, also require additional record
keeping and claim substantiation, reformulation, or discontinuance of certain
products, which could have a material expense to the Company.
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The Company's products which are sold in Canada are further subject to
Canadian government regulation under that country's Food and Drug Act and the
regulations thereunder (the "Canadian Act"), which includes regulatory approvals
of applicable products through a drug identification number ("DIN") and general
proprietary number ("GP") by Health Canada. The loss of a particular DIN or GP
would adversely affect the Company's ability to continue to sell the particular
product to which the DIN or GP was assigned. Material non-compliance with the
provisions of the Canadian Act may result in the loss of a DIN or GP or the
seizure and forfeiture of the particular products which are sold in
non-compliance with the Canadian Act.
In addition, the Company cannot predict whether new legislation or
regulations governing the Company's activities will be enacted by legislative
bodies or promulgated by agencies regulating the Company's activities, or what
the effect of any such legislation or regulations on the Company's business
would be.
Trademarks
IVC owns trademarks registered with the United States Patent and Trademark
Office and with agencies in certain other major jurisdictions of the world for
its Fields of Nature, Rybutol, Nature's Wonder, Vitamin Specialties, Pine
Bros.(TM) and LiquaFil brands. Federally registered trademarks have a perpetual
life, as long as they are renewed on a timely basis and used properly as
trademarks, subject to the rights of third parties to seek cancellation of the
marks. IVC believes that its registered and unregistered trademarks and other
proprietary rights are valuable assets and believes they have significant value
in the marketing of its products. IVC vigorously protects its trademarks against
infringement.
Research and Development
IVC does not conduct primary research for the development of new
ingredients. Instead, IVC's research efforts are focused on developing new
products in response to market trends and consumer demands. IVC's staff also
continually reformulates existing IVC products in response to changes in
nationally advertised brand formulas in order to maintain product comparability.
IVC believes that flexibility and innovation with respect to new products
are crucial factors in competing for market share in the field of nutritional
supplements. By monitoring market trends and by avoiding short-lived "fad"
items, the Company's marketing department is able to anticipate significant
consumer demand for certain types of products. The Company's tablet formulation
department and its new soft gel formulation department develop high-quality new
products on an ongoing basis, capitalizing on the emerging science relative to
nutritional products, as well as shifts in consumer demand. Thus, while the
introduction of new products does not entail the expenditure of significant
funds by the Company for scientific research and for the development of
ingredients, considerable time and effort are devoted to market research
activities, product formulation and packaging.
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Employees
IVC employs 691 employees, of which 26 are in sales and marketing, 68 are
in retail sales, 375 are in manufacturing and packaging, 76 are in quality
control and regulatory compliance departments, 59 are in warehousing and 87 are
in executive and administrative positions. IVC believes that it has a
satisfactory relationship with its employees. IVC and its employees are not
currently parties to any collective bargaining agreement.
Product Liability
The Company, like other manufacturers and distributors of products that
are ingested, faces an inherent risk of exposure to product liability claims.
Accordingly, the Company maintains product liability insurance coverage and
requires each of its suppliers to carry product liability insurance covering the
Company. While management believes that its insurance coverage is adequate,
there can be no assurance that any judgment against the Company will not exceed
liability coverage. A judgment significantly in excess of the amount of
insurance coverage would have a material adverse effect on the Company.
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Item 2 Description of Property
The following table sets forth the Company's properties:
Approximate Leased or
Location Type of Facility Square Feet Owned
- -------- ---------------- ----------- -----
Freehold, NJ Manufacturing, Packaging, 160,000(1) Owned
Warehousing, Distribution and
Corporate Offices
Freehold, NJ Warehousing and Distribution 130,000(2) Leased
Portland, OR Manufacturing and Administration 39,000 Leased
Portland, OR Packaging and Warehousing 50,000 Leased
Irvington, NJ Manufacturing and Administration 35,000 Leased
Irvington, NJ Warehousing and Distribution 43,000(3) Leased
New Jersey
and Pennsylvania 16 Retail Stores 21,000 Leased
Surrey, British Warehousing, Distribution and
Columbia, Canada Administration 8,000 Leased
The Company believes that its properties will satisfy its foreseeable
needs for office, manufacturing and warehouse space.
(1) The Company leases approximately 8,000 square feet of this facility to a
third party.
(2) The Company subleases approximately 30,000 square feet of this facility to
a third party.
(3) The Company subleases approximately 21,500 square feet of this facility to
a third party.
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Item 3 Legal Proceedings
L-tryptophan
In November 1989, the Company halted sales and distribution and initiated
a voluntary recall of one of its products, L-tryptophan. In December 1989, the
FDA determined that there may be an unequivocal epidemiological link between the
ingestion of L-tryptophan and a blood disorder known as eosinophilia myalgia
syndrome and ordered a nationwide recall. The FDA has been unable to determine
the exact cause of the illness and it appears it may be some time before the
causative factor and the pathogenesis of the disease can be determined. To date,
38 cases have been filed against IVC, all of which have been settled, with all
costs covered by the raw material supplier. The Company believes that its
product liability insurance should cover any potential additional L-tryptophan
related claims, subject to applicable policy limits.
Trade Dress Claims
IVC designs the packaging of certain of its branded products and its
customers' private label products to communicate to consumers which national
brand product is comparable to the product manufactured by the Company. Although
IVC designs its packaging to avoid infringing any proprietary rights of national
brand marketers, it has from time to time been subject to certain legal actions
regarding infringement. The Company and its legal counsel do not believe the
outcome of these matters will have a material adverse effect on its financial
position or operations.
Other Actions
The Company is engaged from time to time in various other legal actions
and governmental claims incident to its business. The Company believes the
amount of liability, if any, from these proceedings will not have a material
adverse impact on IVC's financial position or operations.
Item 4 Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended July 31, 1998.
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PART II
Item 5 Market For Common Equity and Related Shareholder Matters
IVC Common Stock trades on The Nasdaq SmallCap Market System under the
symbol "IVCO". The table below presents the quarterly high and low sales prices
for the Company's Common Stock and Warrants as reported by The Nasdaq SmallCap
Market System.
Common Stock Warrants
------------ --------
High Low High Low
---- --- ---- ---
Fiscal Year 1997
First Quarter 2.88 1.69 .34 .19
Second Quarter 2.25 1.28 .50 .19
Third Quarter 2.13 1.13 .47 .19
Fourth Quarter 2.06 1.56 .44 .19
Fiscal Year 1998
First Quarter 2.47 1.56 .19 .06
Second Quarter 2.44 1.50 .13 .03
Third Quarter 2.63 1.88 .09 .03
Fourth Quarter 2.31 1.50 .09 .03
IVC has not declared and does not have any plans to pay any cash dividends
on its Common Stock in the foreseeable future. The Board of Directors intends to
retain future earnings to finance the growth of IVC. The payment of future cash
dividends will depend on such factors as earnings levels, dividend restrictions
required by lenders, anticipated capital requirements, the operating and
financial conditions of IVC and other factors deemed relevant by the Board of
Directors.
On April 14, 1997, the Board of Directors authorized the Company to
initiate a repurchase program for up to 250,000 shares of the Company's Common
Stock. As of July 31, 1998, 32,000 shares had been repurchased pursuant to this
program.
As of October 12, 1998, there were approximately 118 holders of record of
IVC's Common Stock and 18 holders of record of IVC's Warrants. The Company
believes that there were in excess of 1,100 beneficial holders of Common Stock
as of such date.
13
<PAGE>
Item 6 Selected Financial Data
The following table sets forth income statement data and balance sheet
data of the Company, in thousands of dollars (except per share information), for
the periods indicated.
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------
1998 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $119,775 $108,531 $104,159 $ 89,097
Income from operations 3,484 4,423 1,540 260
Net income $ 1,147 $ 1,346 $ 296 $ 593
Net income per share - Basic $ .07 $ .08 $ .02 $ .03
Net income per share - Diluted $ .07 $ .08 $ .02 $ .03
<CAPTION>
1998 1997 1996 1995
-------- -------- -------- --------
FINANCIAL POSITION
<S> <C> <C> <C> <C>
Total assets 81,254 68,210 68,675 51,141
Long term obligations - less current portion 7,271 31,430 28,656 20,193
Shareholders' equity 17,760 16,417 15,041 12,428
</TABLE>
14
<PAGE>
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained in this report.
Results of Operations
The following table sets forth income statement data of the Company, as a
percentage of net sales, for the fiscal years indicated.
Years Ended July 31,
--------------------
1998 1997 1996
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 76.2 74.1 74.0
------ ------ ------
Gross profit 23.8 25.9 26.0
Selling, general and administrative
expenses 20.9 21.8 21.5
Merger and integration costs -- -- 3.0
------ ------ ------
Income from operations 2.9 4.1 1.5
Other expenses-net 1.3 1.5 .8
------ ------ ------
Income (loss) before income taxes 1.6 2.6 .7
Income taxes provision (benefit) .6 1.4 .4
------ ------ ------
Net income 1.0% 1.2% .3%
====== ====== ======
15
<PAGE>
Year Ended July 31, 1998 Compared to the Year Ended July 31, 1997
Net Sales. Net sales for the year ended July 31, 1998 were $119.8 million,
an increase of $11.3 million, or 10.4% over $108.5 million for the year ended
July 31, 1997. This increase was principally attributable to the higher sales
levels recorded at Intergel, the Company's soft gel encapsulation division, the
inclusion of the Company's Vitamin Specialties health food store and mail order
operations, which were acquired in June of 1997, the introduction of the
Company's LiquaFil soft gel encapsulated vitamin and supplement product line,
and increased private brand sales levels at the Company's west coast and
Canadian operations. Partially offsetting these factors was the reduction in
sales of a line of products to a significant customer, reflecting the
termination of the supply agreement relative to the customer's store brand,
during the second quarter of fiscal 1997, and the discontinuance of the Revlon
product line. The Company's core business products are distributed through
leading chain drug, supermarket and mass merchandising retailers. The current
consolidation trend among these retailers poses opportunities, as well as
challenges, for the future. The Company believes that, based on its
relationships with its retail customers, it is well positioned to participate in
the industry's future growth. There can be no assurance, however, that the
Company's current growth rates will continue, nor what effect, if any, continued
consolidation amongst the Company's retail customers will have on the Company.
Cost and Expenses. Cost of sales for the year ended July 31, 1998 was
$91.3 million, an increase of $10.8 million, or 13.4% over $80.5 million for the
year ended July 31, 1997. Cost of sales increased 2.1% as a percentage of net
sales. These increases are attributable to the shift in sales mix toward private
brand products, resulting from increased promotional activities carried out by
certain of the Company's private brand customers, and the higher level of
nutritional sales by the Intergel division, which have lower profit margins than
the Company's core business segments. The fourth quarter 1998 gross profit was
detrimentally impacted by excess manufacturing labor caused by the unexpected
volume decrease in the fourth quarter, as compared to the third quarter. At July
31, 1998, the Company took a physical count of all inventories and adjusted to
these counts and valuations.
The above factors were partially offset by the inclusion of the Vitamin
Specialties operations for the full year, and the increase in the gross profit
margins at the Portland facility attributable to new higher margin products
which have been added to the line during the year.
Selling, general and administrative expenses for the year ended July 31,
1998 were $25.0 million, an increase of $1.4 million or 5.9% over $23.6 million
for the year ended July 31, 1997. This increase was primarily attributable to:
(i) achieving proper professional staff levels, mainly in accounting and
finance, (ii) the inclusion of the Vitamin Specialties operations for the full
year, (iii) increased consulting costs, primarily related to the implementation
of new computer systems, and (iv) increased professional fees. In addition,
distribution costs were higher as a result of the higher overall level of
shipments. These were partially offset by the overall lower level of spending in
selling and marketing, primarily related to the discontinuance of the Revlon
product line.
16
<PAGE>
Other Expenses - Net. Other expenses - net decreased by $67 for the year
ended July 31, 1998. This principally represents interest expense of $2,555,
offset by interest income of $209 and rental income of $220, and the gain of
$683 recognized for the sale of land. Net interest expense for the year ended
July 31, 1998 increased from the prior year due to higher average amounts of
borrowing outstanding.
Income Taxes. See "Income Taxes" note to Consolidated Financial Statements
for a reconciliation of the amount of tax computed under the statutory rates to
the income tax provision.
Year Ended July 31, 1997 Compared to the Year Ended July 31, 1996
Net Sales. Net sales for the year ended July 31, 1997 were $108.5 million,
an increase of $4.3 million, or 4.1% over $104.2 million for the year ended July
31, 1996. This increase was principally attributable to growth in unit sales of
most of the Company's vitamin products to its core customers, the increased
level of sales relative to Intergel, whose operations commenced in January 1996,
new product introductions, such as the Company's new line of herbal products,
continued growth in the international division and the initial sales
contribution from the Vitamin Specialties operations acquired in June of 1997.
Offsetting these factors was the impact of the discontinuation of the Company's
Revlon line of licensed products and the reduced sales to Revco during the
second half of 1997 as a result of the termination of the supply agreement
during the second quarter of 1997. The Company's core business products are
distributed through leading chain drug, supermarket and mass merchandising
retailers. The current consolidation trend amongst these retailers poses
additional opportunities, as well as challenges in the future. The Company
believes that, based on its relationships with its retail customers, it is well
positioned to participate in the industry's future growth. However, there can be
no assurance that the Company's current growth rates will continue, nor what
effect, if any, continued consolidation amongst the Company's retail customers
will have on the Company.
Cost and Expenses. Cost of sales for the year ended July 31, 1997 was
$80.5 million, an increase of $3.4 million, or 4.4% over $77.1 million for the
year ended July 31, 1996. Cost of sales increased 0.1% as a percentage of net
sales. The increase in cost of sales was limited as a result of the improvement
in the overall sales mix towards higher margin products such as the Company's
Fields of Nature brand and the new herbal product line, coupled with lower
acquisition costs of certain raw materials attributable in part to the increased
purchasing power of the Company as a result of the merger with Hall in April
1996. In addition, certain of the Company's new product introductions, such as
Glucosamine and St. John's Wort, entail higher gross profit margins than the
Company's overall profit margins.
The above factors were offset by the lower sales levels experienced by the
Revlon line of licensed products which had significantly higher margins than the
Company's overall profit margins, coupled with the changes recorded in the
fourth quarter relative to the discontinuation of the Revlon line. In addition,
the higher level of sales contributed by the Intergel division, which entailed
lower profit margins than the Company's core business segments, also contributed
to the increase in overall cost of sales during 1997. In addition, the cost of
sales was impacted by the increased amortization expense attributable to the
increased costs associated with securing longer term customer supply agreements.
These agreements, for the most part,
17
<PAGE>
extend over two or three-year periods, and the related costs are amortized over
the expected lives of the agreements.
Selling, general and administrative expenses for the year ended July 31,
1997 were $23.6 million, an increase of $1.2 million or 5.4% over $22.4 million
for the year ended July 31, 1996. This increase was primarily attributable to:
(i) increased advertising and promotional activities, (ii) increases in sales
commissions, broker fees and other selling expenses attributable to the sales
growth in the Company's core operations, (iii) increased minimum royalty
payments associated with the Revlon line of vitamins, (iv) increased
distribution expenses attributable to higher levels of shipments associated with
the Company's core operations and Intergel's sales activities, and (v) expenses
relating to the initial operations of the Intergel division. The overall
increase was partially offset by the savings resulting from the coordination of
certain sales, marketing, distribution and general and administrative functions
between the East coast and West coast operations subsequent to the Hall merger
in April 1996, the reduced levels of advertising and promotion costs associated
with the Revlon product line compared to 1996, during which time significant
expenditures were incurred associated with the launch of the line.
Merger Costs. Merger costs decreased by $3.2 million for the year ended
July 31, 1997, as there were no merger costs incurred during the year ended July
31, 1997.
Other Expenses - Net. Other expenses - net increased by $821 for the year
ended July 31, 1997. This principally represents interest expense of $2,386
offset by interest income of $190 and rental income of $332. Net interest
expense for the year ended July 31, 1997 increased from the prior year due to
higher average amounts of borrowing outstanding.
Income Taxes. See "Income Taxes" note to Consolidated Financial Statements
for a reconciliation of the amount of tax computed under the statutory rates to
the income tax provision.
Liquidity and Capital Resources
The Company had working capital of $4.5 million at July 31, 1998, compared
with $24.4 million at July 31, 1997, a decrease of $19.9 million. The agreement
with the bank requires the Company to maintain certain financial ratios and
minimum working capital. At July 31, 1998, the Company was in violation of
certain of these covenants, which have been waived by the bank. The Company
classified the entire balance due to the bank as a current liability. The
Company's working capital needs, primarily related to inventory, increased
levels of production of the Intergel division, introduction of a new product
line, increased capital expenditures, costs associated with securing long-term
sales contracts, as well as the acquisition of the Vitamin Specialties
operations have been satisfied by cash flow generated from operations and bank
borrowings.
Inventories increased by $6.2 million for the year ended July 31, 1998.
This increase is mainly attributable to the higher level sales activities
expected from existing customers, new product introductions and better customer
service. Higher inventory levels were maintained until the implementation of the
new computerized management inventory system. The Company has placed greater
emphasis on reducing inventory levels to more acceptable levels. In addition,
The Company also increased its inventories to support the recently acquired
Vitamin Specialties retail stores and mail order catalogue operations.
18
<PAGE>
The Company presently has a revolving line of credit and a term loan with
its bank in the amounts of $21.5 million and $2.2 million, respectively. These
agreements expire on March 31, 1999, but can be extended under certain
circumstances to August 31, 1999. The notes are collateralized by substantially
all of the Company's assets. In addition, the Company has a lease financing
agreement with the same bank for up to $1 million for acquisitions of computer
and manufacturing equipment. At July 31, 1998, $225 was available for additions.
In August of 1998, the Company entered into an additional lease financing
agreement with a bank for up to $2 million for acquisitions of machinery and
equipment.
The Company believes that its existing cash balance, internally generated
funds from operations and available financing will provide the liquidity
required to satisfy the Company's working capital needs and anticipated capital
expenditures for the next fiscal year.
Year 2000 Compliance Program
The Company is in the process of addressing "Year 2000" or "Y2K" issues.
These issues stem from the use by many computer systems and applications of
two-digit date fields to designate a year, which may render them unable to
distinguish years beginning with 20 from years beginning with 19. As a result,
in the year 2000, these systems may not accurately process certain critical
financial and operational information. IVC, like many other companies, is
expected to incur expenses over the next few years to address this issue.
In the past year, the Company began to implement a compliance program to
deal with the Y2K issue. At the same time, the Company invested in a complete
replacement of its internal management information systems and is replacing its
information technologies infrastructure with new enterprise servers, personal
computers, local area networks and wide area networks. Y2K-compliant systems
have been utilized in half of the Company's facilities since the beginning of
January 1998, with the remaining facilities scheduled to be integrated by the
first quarter of calendar 1999. The Company's goal is to commence the second
quarter of calendar 1999 with Y2K-compliant computer systems throughout the
company. The Company also is assessing whether its other systems that are not
directly related to data processing contain embedded technology that may not be
Y2K-compliant.
In addition to evaluating its own systems, the Company is in the process
of contacting its vendors and major suppliers to seek assurance that they will
be Y2K-compliant prior to the arrival of the new millennium.
The total costs associated with the Company's compliance program are not
expected to be material to the Company's financial position. (The Company's new
Y2K-compliant management information systems would have been installed
regardless of the Y2K issue). However, satisfactory remediation of Y2K issues is
dependent upon many factors, some of which are not completely within the
Company's control. The Company's current estimates of the impact of the Y2K
issue on its financial position do not include costs that may result from other
companies' failure to become Y2K-compliant. Should the Company's internal
systems or the internal systems of one or more significant vendors fail to
achieve Y2K-compliance, the Company's business and its operations could be
materially adversely affected.
19
<PAGE>
If, based on the responses to its inquiries, the Company determines that
any of its suppliers or vendors are not Y2K-compliant, the Company plans to
arrange for alternative sources of supply. The Company believes that the
products and services it purchases from its vendors and suppliers are available
form numerous sources and that the loss of particular supplier would not
adversely affect its operations. However, if the Company is unable to locate
suppliers that are Y2K-compliant, there could be a material adverse affect on
its operations.
Forward Looking Statements
This report, including the Description of Business and Management's
Discussion and Analysis, contains certain "forward-looking statements", within
the meaning of Section 27A of the Securities Act of 1933, which represent the
Company's expectations or beliefs, including, but not limited to, statements
concerning industry performance, the Company's operations, performance,
financial condition, growth and acquisition strategies, margins and growth in
sales of the Company's products. For this purpose, any statements contained in
this Report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", "believe", "anticipate", "intend",
"could", "estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may differ
materially depending on a variety of important factors, including beneficial or
adverse trends in the domestic market for vitamins and nutritional supplements,
the gain or loss of significant customers for the Company's products, the
competitive environment in the vitamin and nutritional supplement industry, and
the enactment or promulgation of new government legislation or regulation, as
well as other risks and uncertainties that may be detailed from time to time in
the Company's reports filed with the Securities and Exchange Commission.
20
<PAGE>
Item 8 Financial Statements and Supplementary Data
Index to Financial Statements
Independent Auditors' Reports........................................F-1
Consolidated Balance Sheets
As of July 31, 1998 and 1997.....................................F-2
Consolidated Statements of Operations for the Years Ended
July 31, 1998, 1997 and 1996.....................................F-3
Consolidated Statements of Cash Flows for the Years Ended
July 31, 1998, 1997 and 1996.....................................F-4 to F-5
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended July 31, 1998, 1997 and 1996..........F-6
Notes to Consolidated Financial Statements...........................F-7 to F-29
Item 9 Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
None.
21
<PAGE>
PART III
Item 10 Directors and Executive Officers of the Registrant
The Company's directors and executive officers, are as follows:
Name Age Position
---- --- --------
E. Joseph Edell 71 Chief Executive Officer and
Chairman of the Board of Directors
Andrew M. Pinkowski 64 Vice Chairman of the Board of Directors
I. Alan Hirschfeld 47 Executive Vice President,
Chief Financial Officer and Director
Duane Baxter 58 President, Hall Laboratories Division
Domenic N. Golato 43 Chief Accounting Officer and
*Acting Chief Financial Officer
Mac Allen Culver III 56 Director
Arthur S. Edell 65 Director
Marc Z. Edell 47 Director
Dr. Mark S. Gold 49 Director
Dennis E. Groat 57 Director
David Popofsky 64 Director
* As of September 30, 1998, I. Alan Hirschfeld took a medical leave of
absence. During his absence, Domenic Golato is assuming Mr. Hirschfeld's
responsibilities as Chief Financial Officer.
Biographical Information
E. Joseph Edell has been Chairman of the Board of Directors and Chief
Executive Officer of IVC since the Company's merger with American. Prior to that
merger, E. Joseph Edell had been president of American since 1955. Mr. Edell is
the brother of Arthur S. Edell.
Andrew M. Pinkowski has been Vice Chairman of the Board of Directors of
IVC since the merger with Hall. He had previously been president and Chief
Executive Officer of Hall since 1970. He joined Hall in 1969 as manager of
marketing. Prior to joining Hall, he held various marketing positions with Boise
Cascade, Sterling Drug and Universal Oil Products.
22
<PAGE>
I. Alan Hirschfeld, Executive Vice President and Chief Financial Officer,
has been on IVC's Board of Directors since the Company's merger with American.
At the time of the merger, he had been Chief Operating Officer of American. He
joined American in 1987 as Chief Financial Officer. Prior to 1987, he was a
partner in Grossman, Brown, Weinberg & Lawson, Certified Public Accountants,
where he was employed since 1979. Prior to that time, Mr. Hirschfeld held
various positions at Coopers & Lybrand, a national public accounting and
consulting firm, where he was employed for six years. Mr. Hirschfeld's wife is
the daughter of E. Joseph Edell. Mr. Hirschfeld currently serves on the Board of
Directors of Room Plus, Inc.
Duane Baxter has been President of the Company's Hall Division since the
merger with Hall in 1996. He had previously been Vice President of Marketing and
Sales for Hall from 1985 through 1996. Mr. Baxter joined Hall in 1979 as
Director of Materials, left the Company in 1983 to start his own company, and
returned to Hall in 1985.
Domenic N. Golato, Chief Accounting Officer, joined the Company in 1998 as
Vice President Finance, Corporate Controller. From 1993 to 1998, Mr. Golato was
Vice President and Chief Financial Officer of RF Power Products, Inc., a
publicly traded international company in the semiconductor industry.
Mac Allen Culver III has been on IVC's Board of Directors since 1997. He
had been President and Chief Operating Officer of St. Ives Laboratories, Inc., a
hair and skin care company, since 1987. Prior to 1987, he was Chairman and Chief
Executive Officer of Pay `N Save, Inc., President and Chief Executive Officer of
Gray Drug Fair and a Senior Vice President of Payless Drugstores NW, Inc., all
retail drug store chains.
Arthur S. Edell has been on IVC's Board of Directors since 1989. He was
President of IVC from 1989 to 1998. The brother of E. Joseph Edell, he has over
40 years of experience in the vitamin, pharmaceutical and health food industries
in all facets of production, distribution and marketing. Since 1979, Mr. Edell
has owned Healthfair Vitamin Centers, Inc., a company, which operates two health
food stores in New Jersey. Mr. Edell was a 50% owner of Hitex Investments, Inc.,
a vitamin manufacturing company, from 1974 to 1979, and was a 50% owner of
American from 1955 to 1975. In March 1995, Mr. Edell was involved in a fatal
automobile accident. In connection with the accident, Mr. Edell pleaded guilty
to a single count of vehicular homicide and received a five year suspended
sentence.
Marc Z. Edell has been on IVC's Board of Directors since 1996. He is an
attorney who has been practicing law in New York and New Jersey for the past
twenty years. He has been Managing Partner of Edell and Associates, a
Morristown, NJ law firm, since 1995. From 1985 through 1995, Mr. Edell was a
Partner with Budd Larner Gross in Short Hills, NJ. Mr. Edell is the son of E.
Joseph Edell.
Dr. Mark S. Gold has been on IVC's Board of Directors since 1996. He is a
Professor at the University of Florida Brain Institute. Dr. Gold is a medical
researcher, author and inventor. He was previously a Resident, Chief Resident
and Faculty Member at the Yale University School of Medicine, and has written
over 500 scientific publications and numerous professional texts. Dr. Gold
currently serves on the Board of Directors of Somerset Valley Bank.
23
<PAGE>
Dennis E. Groat has been on IVC's Board of Directors since 1996. He is
also a Principal of Groat and Associates, a consulting firm. He was President of
Dentalogic, a dental technology business, from 1993 to 1996. From 1989 to 1993
he was President of Denar Corporation, a business specializing in precision
dental instrumentation. Mr. Groat was Chief Operating Officer of Hall from 1984
to 1988. Prior to joining Hall, he held executive positions with Scherer
Healthcare, Inc., R.P. Scherer Corporation and Mead Johnson Laboratories.
David Popofsky has been on IVC's Board of Directors since 1996. He is
currently President of Popofsky Advertising in New York City. He has been the
creative/marketing strategist responsible for the consumer launch of various
leading over-the-counter products. Mr. Popofsky is also the founder of The
Retail Drug Institute at Arnold Marie College of Pharmacy, served as visiting
professor for ten years in their graduate school and on the Board of Overseers
for many years. In addition, he served on the Graduate School faculty of
Columbia University Pharmacy School.
Directors hold their offices until each annual meeting of the stockholders
and thereafter until their successors have been duly elected and qualified.
Executive officers are elected by the Board of Directors on an annual basis and
serve at the discretion of the Board or pursuant to employment agreements.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and Directors to file reports of ownership with
the Securities and Exchange Commission ("SEC") and with NASDAQ. The Company
believes that its executive officers and Directors have complied with all
applicable Section 16(a) filing requirements, except that the following persons
filed, or will be filing, late: I. Alan Hirschfeld, two reports for four sale
transactions; Marc Z. Edell, one report for four sale transactions; Andrew M.
Pinkowski, one report for one gift; and each of the non-employee directors, one
report for their receipt of stock options. This conclusion is based solely on a
review of such forms furnished to the Company in accordance with SEC regulations
and on representations from its executive officers and directors.
24
<PAGE>
Item 11 Executive Compensation
The following table sets forth all compensation paid or distributed during
the years ended July 31, 1998, 1997 and 1996 by the Company for services
rendered by (i) the Chief Executive Officer of IVC and (ii) the four most highly
compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
------------------------
Annual Compensation Awards
------------------------------
Securities All
Underlying Other
Name and Salary Bonus Options Compensation
Principal Position Year ($) ($) (Shares) ($)(1)
- --------------------------------------------------------------------------------
E. Joseph Edell 1998 442,307 -- -- --
Chairman and 1997 500,000 -- -- --
Chief Executive Officer 1996 500,000 -- -- --
Arthur S. Edell 1998 150,384 -- -- 8,378
President 1997 170,000 -- -- 9,190
1996 170,000 -- -- 3,640
I. Alan Hirschfeld 1998 221,153 -- 1,528
Executive Vice President 1997 250,000 -- 50,000 1,528
and Chief Financial Officer 1996 250,000 50,000 -- 1,028
Andrew M. Pinkowski 1998 159,230 -- -- 500
Vice Chairman 1997 180,000 -- -- 500
1996 120,308 90,000 -- --
Duane J. Baxter 1998 144,630 78,100 12,000 1,100
President/Hall Division 1997 120,000 81,000 10,000 1,100
1996 100,000 10,873 50,036 --
(1) Represents term life insurance premiums and the value of shares granted
under the 401(k) Savings Plan.
No other annual compensation, stock appreciation rights, long-term
restricted stock awards, or long-term incentive plan payouts were awarded to,
earned by, or paid to the named executive officers during any of the Company's
last three fiscal years.
Directors
On September 10, 1996 and November 24, 1997, each of IVC's non-employee
directors was granted, subject to approval of IVC's shareholders, an option to
purchase 10,000 shares of IVC Common Stock as compensation for the services to
the Company. IVC's shareholders approved these grants at the Annual
Shareholder's Meeting held on April 16, 1998. The options granted on September
10, 1996 have an exercise price of $1.75 per share, and the options granted on
November 24, 1997 have an exercise price of $2.34 per share. In addition, the
Company's new Non-Employee Directors' Stock Option Plan provides for the grant
as of September 1 of each year of an option to purchase 10,000 shares of IVC
Common Stock to each of IVC's non-employee directors. The exercise price of such
option is the fair market value of IVC Common Stock at the time the option is
granted.
25
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of
Number of Total Potential Realizable Value
Securities Options at Assumed Annual Rates of
Underlying Granted to Stock Price Appreciation
Options Employees in Exercise Expiration for Option Term
Name Granted (#) Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
---- ----------- ----------- ------------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Duane J. Baxter 2,000 1% $1.969 08/01/07 $ 2,500 $ 6,300
10,000 6% $2.188 04/30/08 $13,800 $34,900
</TABLE>
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options At Fiscal Year-End Options at Fiscal Year-End(1)
-------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Arthur S. Edell 400,000 -- $ 82,000 --
I. Alan Hirschfeld 50,000 -- -- --
Duane J. Baxter 72,036 10,000 $ 4,700 --
(1) The fair market value of the Company's Common Stock on July 31, 1998
($1.91 per share) minus the exercise price.
None of the named executive officers exercised options during the fiscal
year ended July 31, 1998.
Employment Agreements
The Company entered into amendments to its employment agreements with E.
Joseph Edell and I. Alan Hirschfeld as of February 1, 1998. Mr. Edell's
agreement now provides for a base salary of $312,500 for the period of February
1, 1998 through January 31, 1999 and $343,750 for the period of February 1, 1999
through January 31, 2000. Mr. Hirschfeld's agreement now provides for a base
salary of $156,250 for the period beginning on February 1, 1998 through January
31, 1999 and $171,875 for the period beginning on February 1, 1999 through
January 31, 2000. Each agreement also now provides that on each January 31
during the executive's term of employment, he shall be entitled to
performance-based bonus compensation in an amount equal to the sum of (i) the
executive's base salary on such January 31 multiplied by (ii) the percentage
increase, if any, in the income before income taxes of the Company for the
12-month period ended on such January 31 over the income before income taxes of
the Company for the 12-month period ended the prior January 31. In addition,
each agreement now provides that the Company may, in its discretion, grant the
executive options to purchase shares of IVC Common Stock pursuant to the
Company's 1995 Stock Option Plan. The term of each agreement ends on January 31,
2000 and is automatically extended for successive one-year periods unless
26
<PAGE>
the Company or executive gives three months' notice that they elect that the
term of employment shall not be further extended. In the event notice is given
in accordance with the terms of the agreement, executive shall receive a
severance payment equal to his base annual salary, provided that no severance
payment shall be required in the event that the executive retires. The Board of
Directors, at its discretion, may increase the executive's base annual salary if
the term is extended. In the event the Company terminates without cause the
employment of either of the executives, such executives shall receive a
severance payment equal to the remaining salary due under the unexpired term of
his agreement, plus one year's base salary. The agreements each contain
confidentiality and non-disclosure provisions.
The Company also entered into an amendment to its employment agreement
with Andrew M. Pinkowski as of February 1, 1998. Mr. Pinkowski's agreement now
provides for a base salary of $112,500 for the period of February 1, 1998
through April 30, 1999. The agreement also now provides that on January 31,
1999, Mr. Pinkowski shall be entitled to performance-based bonus compensation in
an amount equal to the sum of (i) his base salary on such January 31 multiplied
by (ii) the percentage increase, if any, in the income before income taxes of
the Company for the 12-month period ended on such January 31 over the income
before income taxes of the Company for the 12-month period ended the prior
January 31. In addition, the agreement now provides that the Company may, in its
discretion, grant Mr. Pinkowski options to purchase shares of IVC Common Stock
pursuant to the Company's 1995 Stock Option Plan. The term of the agreement ends
on April 30, 1999. In the event the Company terminates his employment without
cause, the Company is obligated to pay his base salary throughout the remainder
of his term of employment. The agreement contains confidentiality and
non-disclosure provisions. In addition, upon expiration of his term of
employment, the agreement provides that he remain a consultant to the Company
for a term of five years at $80,000 per annum.
The Company entered into a severance agreement with Arthur S. Edell,
effective as of June 1, 1998, in which the Company and Mr. Edell agreed that his
employment with IVC, including his tenure as President, terminated as a result
of his resignation. Pursuant to the agreement, Mr. Edell's resignation is
considered a "retirement" under IVC's stock option plans. The agreement provides
for a severance payment of $85,000 per annum for a period of three years, which
have been accrued as of July 31, 1998. The agreement provides for certain
medical benefits and for the reimbursement of certain expenses, and contains
mutual releases and confidentiality and non-disclosure provisions.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee for the fiscal year ended July
31, 1998 were Dr. Mark S. Gold, Dennis E. Groat (Chairman) and David Popofsky.
There were no interlocks or insider participation as defined in the Securities
and Exchange Commission's Regulation S-K.
Compensation Committee Report on Executive Compensation
The responsibilities of the Compensation Committee include administering
the Company's 1995 Stock Option Plan and fixing the compensation, including
salaries and bonuses, of all officers of the Company.
27
<PAGE>
Overall Policy
The Compensation Committee believes that the Company's officers are
largely responsible for the Company's success. Based on this belief, the
Compensation Committee revised its compensation program for the Company's
executive officers to reduce each executive's base salary and provide for bonus
compensation based on the Company's performance and for the granting of stock
options in order to link a portion of executive compensation to appreciation of
the Company's stock price (see "Employment Agreements"). The objectives of this
strategy are to attract and retain effective and highly qualified executives, to
motivate executives to achieve the goals inherent in the Company's business
strategy and to link executive and shareholder interest through stock options.
Base Salaries
Annual base salaries for the officers are determined by evaluating the
performance of the individuals and their contributions to the performance of the
Company and are based on the recommendation of E. Joseph Edell as Chief
Executive Officer. Financial results, as well as non-financial measures such as
the magnitude of responsibility of the position, individual experience, and the
Compensation Committee's knowledge of compensation practices for comparable
positions at other companies are considered.
In establishing E. Joseph Edell's annual base salary under the amendment
to his employment agreement, and the new performance based bonus compensation,
the Compensation Committee took into account the Company's achievements in
fiscal 1996 and 1997, its assessment of Mr. Edell's individual performance, as
well as base salaries and bonuses for chief executive officers at companies of
comparable size and complexity, both public and private, known to members of the
Compensation Committee. The Compensation Committee also took into account Mr.
Edell's contribution to the Company's growth and diversity and his future
anticipated contributions to the Company.
Long-Term Incentives
Under the 1995 Stock Option Plan, stock options may be granted to
executives of the Company. Stock options are designed to focus the executives'
attention on stock values and to align the interests of executives with those of
the shareholders. Stock options are generally granted at prices equal to the
fair market value at the date of grant, or 110% of such value with respect to
grants to executives who own more than 10% of the Common Stock of the Company,
and are not exercisable until six months after the date of the grant. The
options generally remain exercisable during employment until the tenth
anniversary of the date of the grant or five years with respect to grants to
executives who own more than 10% of the Common Stock. This approach provides an
incentive to executives to increase shareholder value over the long term since
the full benefit of the options cannot be realized unless stock price
appreciation occurs over a number of years.
Compensation Committee
Dr. Mark S. Gold
Dennis E. Groat (Chairman)
David Popofsky
28
<PAGE>
PERFORMANCE GRAPH
The following performance graph is a line graph comparing the yearly
change in the cumulative total shareholder return on the Company's Common Stock
against the cumulative return of the Nasdaq Composite Index and the S&P Health
Care - Drugs Index for each of the fiscal years ended July 31, 1994 through
1998. The Company's Common Stock was initially registered under Section 12 of
the Exchange Act in February 1994.
[The following table was represented as a line graph in the printed material.]
<TABLE>
<CAPTION>
Value of $100 investment
Date IVC Industries, Inc. Nasdaq Composite Index S&P Healthcare-Drugs Index
---- -------------------- ---------------------- --------------------------
<S> <C> <C> <C>
31-Mar-94 100 100 100
31-Jul-94 85 97 107
31-Jul-95 64 135 174
31-Jul-96 69 145 228
31-Jul-97 48 214 380
31-Jul-98 46 252 540
</TABLE>
29
<PAGE>
Item 12 Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding shares of IVC
Common Stock beneficially owned by (i) each person or group, known to the
Company, who beneficially owns more than 5% of IVC Common Stock, (ii) each of
the Company's directors, (iii) each executive officer named in the summary
compensation table in Item 11 hereto, and (iv) all officers and directors as a
group as of October 12, 1998.
Name and Address of Number of Percentage
Title of Class Beneficial Owner Shares of Class
- -------------- ---------------- ------ --------
Common E. Joseph Edell (1) 5,357,430 31.13%
c/o IVC Industries, Inc.
500 Halls Mill Road
Freehold, NJ 07728
Common Andrew M. Pinkowski (2) 2,654,062 15.42%
c/o IVC Industries, Inc.
3580 N.E. Broadway
Portland, OR 97232
Common I. Alan Hirschfeld (3) 2,228,689 12.95%
c/o IVC Industries, Inc.
500 Halls Mill Road
Freehold, NJ 07728
Common Arthur S. Edell (4) 2,036,488 11.83%
c/o IVC Industries, Inc.
500 Halls Mill Road
Freehold, NJ 07728
Common Duane J. Baxter (5) 234,904 1.36%
c/o IVC Industries, Inc.
3580 N.E. Broadway
Portland, OR 97232
Common Marc Z. Edell (6) 96,800 .56%
c/o Edell & Associates
1776 On the Green
Morristown, NJ 07962
Common Dr. Mark S. Gold (6) 30,000 .17%
c/o 2002 San Marco Boulevard
Jacksonville, FL 32207
Common Dennis E. Groat (6) 30,000 .17%
c/o IVC Industries, Inc.
3580 N.E. Broadway
Portland, OR 97232
30
<PAGE>
Name and Address of Number of Percentage
Title of Class Beneficial Owner Shares of Class
- -------------- ---------------- ------ --------
Common David Popofsky (6) 30,000 .17%
c/o Popofsky Advertising
60 Madison Avenue
New York, NY 10010
Common Mac Allen Culver III(7) 20,000 .12%
27 Pebble Beach Drive
Rancho Mirage, CA 92270
Common All Executive Officers and 12,718,373 73.89%
Directors as a group (10
persons)(8)
(1) Includes 1,000 shares of IVC Common Stock issuable upon exercise of
warrants and 601,410 shares of IVC Common Stock owned by Beverlee Edell,
the wife of E. Joseph Edell. Mr. Edell disclaims beneficial ownership of
the shares owned by his wife.
(2) Includes 943,845 shares owned by his wife. Mr. Pinkowski disclaims
beneficial ownership of the shares owned by his wife.
(3) Includes 50,000 shares of IVC Common Stock issuable upon exercise of stock
options, 179,868 shares of IVC Common Stock owned by Susan H. Hirschfeld,
the wife of I. Alan Hirschfeld, 31,194 shares of IVC Common Stock owned by
Mr. Hirschfeld's minor children, and 120,000 shares owned by Two Seas
Ventures, a family partnership. Mr. Hirschfeld disclaims beneficial
ownership of the shares owned by his wife and children.
(4) Includes 410,000 shares of IVC Common Stock issuable upon exercise of
stock options and 1,500,000 shares owned by the two Edell Family
Partnerships (750,000 each).
(5) Includes 72,036 shares of IVC Common Stock issuable upon exercise of stock
options.
(6) Includes 30,000 shares of IVC Common Stock issuable upon exercise of stock
options.
(7) Includes 20,000 shares of IVC Common Stock issuable upon exercise of stock
options.
(8) Includes 673,036 shares of IVC Common Stock issuable upon the exercise of
stock options and warrants held by all executive officers and directors.
31
<PAGE>
Item 13 Certain Relationships and Related Transactions
Loans, Guarantees and Advances
Prior to fiscal 1994, Arthur S. Edell loaned the Company $250,000. The
current loan balance is $80,000. This loan has no stated terms of repayment and
bears interest at 6% for the fiscal years ended July 31, 1998 and 1997. The
above loan was obtained on terms no less favorable to the Company than could be
obtained from non-related parties.
From time to time the Company has made advances to E. Joseph Edell and I.
Alan Hirschfeld. Such advances bear interest at 5% per annum. At July 31, 1998,
the aggregate net advances to E. Joseph Edell and I. Alan Hirschfeld were
$347,000 and $173,000, respectively. The balances due the Company at July 31,
1998 are payable by July 31, 2000.
Other Matters
The Company routinely sells its products on arm's-length terms to
Healthfair Vitamin Centers, Inc., a company wholly owned by Arthur S. Edell and
Ethel Edell. The Company's sales to Healthfair Vitamin Centers for the years
ended July 31, 1998, 1997 and 1996 were $104,000, $169,000 and $154,000,
respectively.
The Company periodically sells its products on arm's-length terms to
D.N.R. Inc., a company located in Israel. A principal shareholder of D.N.R. Inc.
is the brother-in-law of the President of the Company's International Division.
The Company's sales to D.N.R. Inc. for the years ended July 31, 1998, 1997 and
1996 were approximately $491,000, $313,000 and $389,000, respectively.
The Company holds a contract receivable, due in January 2012, from Agora
Holding Company ("Agora"), a partnership consisting of Andrew M. Pinkowski and
certain previous shareholders of Hall in the amount of $850,000 and $878,000, as
at July 31, 1998 and 1997, respectively. Interest income earned by the Company
on this contract was $78,000, $80,000 and $85,000 for the years ended July 31,
1998, 1997 and 1996, respectively. The Company leases its manufacturing and
administration facility in Portland, Oregon from Agora. Rent expense incurred by
the Company for this property was $169,000, $163,000 and $161,000 for the years
ended July 31, 1998, 1997 and 1996, respectively. The above sales and rentals
were made on terms no less favorable to the Company than could be obtained from
non-related parties.
32
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(A) Documents Included as Part of This Report
(1) Financial Statements
See "Item 8. Financial Statements and Supplementary Data"
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts (Page S-1)
All other schedules have been omitted because they are not
required, are inapplicable, or the information is otherwise set
forth in the Financial Statements or Notes thereto.
(3) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Amended Certificate of Incorporation of IVC Industries,
Inc. (2)
3.2 Amended and Restated By-laws of IVC Industries, Inc. (2)
4.1 Common Stock Specimen (3)
4.2 Warrant Specimen (3)
4.3 Warrant Agreement (3)
4.4 Credit Agreement, dated as of April 30, 1996, among IVC
Industries, Inc., the Bank's party thereto and The Chase
Manhattan Bank (National Association), as Agent (2)
4.5 Guaranty, dated as of April 30, 1996, by the Guarantor
(2)
4.6 Guaranty Reimbursement Agreement, dated as of April 30,
1996, by IVC Industries, Inc., International Vitamin
Overseas Sales Corp. and Hall Laboratories, Ltd., in
favor of the Guarantor (2)
4.7 Letter of Credit Reimbursement Agreement, dated as of
April 30, 1996, by and between IVC Industries, Inc.,
International Vitamin Overseas Sales Corp. and The Chase
Manhattan Bank (National Association) (2)
4.8 Subordination and Intercreditor Agreement, dated as of
April 30, 1996, by the Guarantor, The Chase Manhattan
Bank (National Association), IVC Industries, Inc.,
International Vitamin Overseas Sales Corp. and Hall
Laboratories, Ltd. (2)
33
<PAGE>
4.9 Security Agreement, dated as of April 30, 1996, by IVC
Industries, Inc., in favor of the Guarantor (2)
4.10 Security Agreement, dated as of April 30, 1996, by
International Vitamin Overseas Sales Corp., in favor of
the Guarantor (2)
4.11 Security Agreement, dated as of April 30, 1996, by Hall
Laboratories, Ltd., in favor of the Guarantor (2)
4.12 Trademark Collateral Assignment Agreement, dated as of
April 30, 1996, by IVC Industries, Inc. (2)
4.13 Guaranty and Security Agreement, dated as of May 10,
1996, by IVC Industries, Inc., in favor of the Guarantor
(5)
4.14 Guaranty and Security Agreement, dated as of May 10,
1996, by International Vitamin Overseas Sales Corp., in
favor of the Guarantor (5)
4.15 Guaranty and Security Agreement, dated as of May 10,
1996, by Hall Laboratories, Ltd., in favor of the
Guarantor (5)
4.16 Trademark Collateral Assignment Agreement, dated as of
May 10, 1996, by IVC Industries, Inc. (5)
4.17 Term Loan Agreement, dated as of May 1, 1998, among IVC
Industries, Inc., the Banks party thereto, and The Chase
Manhattan Bank, as Agent
4.18 Term Guaranty, dated as of May 1, 1998, by the
Guarantor*
4.19 Term Guaranty, dated as of May 1, 1998, by Vitamin
Specialties Corp., as Guarantor
4.20 Term Security Agreement, dated as of May 1, 1998, by
Vitamin Specialties Corp., in favor of The Chase
Manhattan Bank as Agent
4.21 Term Guaranty, dated as of May 1, 1998, by International
Vitamin Overseas Sales Corp., as Guarantor
4.22 Term Security Agreement, dated as of May 1, 1998, by IVC
Industries, Inc., International Vitamin Overseas Sales
Corp., and Hall Laboratories, Ltd., in favor of The
Chase Manhattan Bank as Agent
4.23 Stock Pledge Agreement, dated as of May 1, 1998, by IVC
Industries, Inc. to The Chase Manhattan Bank as Pledgee
34
<PAGE>
4.24 Collateral Assignment of Store Leases, dated as of May
1, 1998, by IVC Industries, Inc., in favor of The Chase
Manhattan Bank as Agent
4.25 Collateral Assignment of Store Leases, dated as of May
1, 1998, by Vitamin Specialties Corp., in favor of The
Chase Manhattan Bank as Agent
4.26 Term Trademark Collateral Assignment, dated as of May 1,
1998, by IVC Industries, Inc. and Vitamin Specialties
Corp., to the Chase Manhattan Bank as Agent
4.27 Assignment of Leases and Rents, dated as of May 1, 1998,
by IVC Industries, Inc. to The Chase Manhattan Bank as
Agent
4.28 Term Intercreditor Agreement, dated as of May 1, 1998,
by and between the Guarantor, the Chase Manhattan Bank
as Agent, IVC Industries, Inc., International Vitamin
Overseas Sales Corp., Hall Laboratories Ltd., and
Vitamin Specialties Corp.*
4.29 Amendment Agreement, dated as of May 1, 1998, among IVC
Industries Inc., International Vitamin Overseas Sales
Corp., Hall Laboratories, Ltd., Vitamin Specialties
Corp., the Banks party to the Revolving Credit
Agreement, The Chase Manhattan Bank as Agent, and the
Guarantor *
4.30 Revolver Guaranty, dated as of May 1, 1998, by Vitamin
Specialties Corp. as Guarantor
4.31 VSC Revolver Security Agreement, dated as of May 1,
1998, by Vitamin Specialties Corp., in favor of The
Chase Manhattan Bank as Agent
4.32 Security Agreement, dated as of May 1, 1998, by Vitamin
Specialties Corp., in favor of the Guarantor *
4.33 Stock Purchase Warrant, dated as of May 1, 1998, by IVC
Industries, Inc. *
4.34 Registration Rights Agreement, dated as of May 1, 1998,
by and between IVC Industries, Inc. and the Guarantor *
10.1 Registration Rights Agreement (4)
10.2 Registration Rights Agreement, dated April 30, 1996,
among IVC Industries, Inc., Andrew M. Pinkowski, Rita
Pinkowski, Vicki Welsh Jones, The Amelia Welsh Jones
Trust, under a Trust Agreement dated June 4, 1993,
Lawrence A. Newman, Duane
35
<PAGE>
Baxter, Peter W. Schreiber, John H. Dettra, Jr. And
Larry Corbridge (2)
10.3 Agreement, dated as of June 2, 1998, by and between IVC
Industries, Inc. and The Navesink Group
10.4 Lease Agreement between The Navesink Group and IVC
Industries, Inc.
10.5 International Vitamin Corporation 1993 Stock Option Plan
(3)
10.6 International Vitamin Corporation 1995 Stock Option Plan
(1)
10.7 Non-Employee Directors' Stock Option Plan (6)
10.8 Amendment to Employment Agreement with E. Joseph Edell
10.9 Amendment to Employment Agreement with I. Alan
Hirschfeld
10.10 Amendment to Employment Agreement with Andrew M.
Pinkowski
10.11 Employment Agreement with E. Joseph Edell (4)
10.12 Employment Agreement with Arthur S. Edell (3)
10.13 Employment Agreement with Andrew M. Pinkowski (2)
10.14 Employment Agreement with I. Alan Hirschfeld (4)
10.15 Loan and Security Agreement with NatWest Bank, N.A. (4)
10.16 Severance Agreement with Arthur S. Edell
11 Earnings Per Share Computation (Page E-1)
(1) Incorporated herein by reference from the Company's Proxy Statement
and Annual Report to Shareholders, dated March 5, 1996.
(2) Incorporated herein by reference from the Form 8-K filed on May 14,
1996.
(3) Incorporated herein by reference from the Registration Statement
number 33-73406 filed by the Company on Form SB-2.
(4) Incorporated herein by reference from Form 10-QSB filed by the
Company for the quarterly period ended April 30, 1995.
36
<PAGE>
(5) Incorporated herein by reference from Amendment 2 to the Form 8-K
filed on May 14, 1996, which was filed on August 9, 1996.
(6) Incorporated herein by reference from the Company's Proxy Statement
for Annual Meeting of Shareholders, filed on March 26, 1998.
* Confidential Information indicated by X's has been omitted and filed
separately with the Securities and Exchange Commission.
(B) Reports on Form 8-K
None.
37
<PAGE>
SIGNATURES
In accordance with Sections 13 and 15 (d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
IVC INDUSTRIES, INC.
Date: October 29, 1998 By: /s/ E. Joseph Edell
---------------------------
E. Joseph Edell
Chairman of the Board 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.
Signature Title Date
--------- ----- ----
/s/ E. Joseph Edell Chairman of the Board of
- -------------------------- Directors and Chief -----------
E. Joseph Edell Executive Officer
/s/ Andrew M. Pinkowski Vice Chairman and Director
- -------------------------- -----------
Andrew M. Pinkowski
/s/ I. Alan Hirschfeld Executive Vice President,
- -------------------------- Chief Financial Officer -----------
I. Alan Hirschfeld and Director
/s/ Domenic N. Golato Chief Accounting Officer and
- -------------------------- Acting Chief Financial Officer -----------
Domenic N. Golato
/s/ Arthur S. Edell Director
- -------------------------- -----------
Arthur S. Edell
/s/ Dennis E. Groat Director
- -------------------------- -----------
Dennis E. Groat
38
<PAGE>
/s/ David Popofsky Director
- -------------------------- -----------
David Popofsky
/s/ Dr. Mark S. Gold Director
- -------------------------- -----------
Dr. Mark S. Gold
/s/ Marc Z. Edell Director
- -------------------------- -----------
Marc Z. Edell
/s/ Mac Allen Culver III Director
- -------------------------- -----------
Mac Allen Culver III
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
IVC Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of IVC Industries,
Inc. and Subsidiaries as of July 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years ended July 31, 1998, 1997 and 1996. 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 included
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 the opinion expressed
below.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of IVC Industries, Inc. and
subsidiaries at July 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended July 31, 1998
in conformity with generally accepted accounting principles.
In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 14. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, present fairly, in all material respects, the information
stated therein.
As discussed in Note 17 of the financial statements, the Company was in default
of certain financial covenants with respect to its loan agreements with a bank.
Therefore, all debt associated with these loan agreements are classified on the
balance sheet as current.
AMPER POLITZINER & MATTIA P.A.
October 28, 1998
Edison, New Jersey
F-1
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT JULY 31, 1998 AND 1997
(Dollars in Thousands, Except as Noted or Per Share Information)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,604 $ 179
Accounts receivable 11,725 8,280
Inventories 37,389 31,185
Due from related parties 95 132
Deferred taxes 2,238 2,353
Prepaid expenses 2,006 1,320
Other current assets 979 1,001
-------- --------
Total Current Assets 56,036 44,450
Property, Plant and Equipment - Net 20,766 17,999
Due from related parties 1,876 1,895
Goodwill - Net 1,773 1,867
Other Assets 803 1,999
-------- --------
Total Assets $ 81,254 $ 68,210
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Notes 6 and 17) $ 22,749 $ 1,434
Current portion of capital lease payable 134 --
Current portion of deferred gain on building 97 --
Accounts payable 25,504 15,012
Accrued expenses 3,003 3,648
-------- --------
Total Current Liabilities 51,487 20,094
Long-Term Debt - Less current portion (Notes 6 and 17) 7,271 31,430
Capital lease obligation 3,317 --
Deferred gain on building sale 1,109 --
Deferred taxes 211 170
Other Liabilities 99 99
-------- --------
Total Liabilities 63,494 51,793
-------- --------
Shareholders' Equity:
Preferred stock, no par, 2,000,000 shares authorized -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 17,211,540 and 17,127,392 issued,
respectively 172 171
Additional paid-in capital 11,673 11,446
Foreign currency translation adjustment
(202) (116)
Retained earnings 6,117 4,970
Less: Common stock in treasury at cost: 0 and 32,000
shares at July 31, 1998 and 1997, respectively -- (54)
-------- --------
Total Shareholders' Equity 17,760 16,417
-------- --------
Total Liabilities and Shareholders' Equity $ 81,254 $ 68,210
======== ========
</TABLE>
See notes to consolidated financial statemets.
F-2
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996
(Dollars in Thousands, Except as Noted or Per Share Information)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 119,775 $ 108,531 $ 104,159
Cost of sales 91,256 80,480 77,086
----------- ----------- -----------
Gross profit 28,519 28,051 27,073
Selling, general and administrative expenses 25,035 23,628 22,350
Merger and integration costs -- -- 3,183
----------- ----------- -----------
Income from operations 3,484 4,423 1,540
Other expenses, net 1,572 1,639 818
----------- ----------- -----------
Income before income taxes 1,912 2,784 722
Income tax provision 765 1,438 426
----------- ----------- -----------
Net income $ 1,147 $ 1,346 $ 296
=========== =========== ===========
Net income per share - Basic $ .07 $ .08 $ .02
=========== =========== ===========
Net income per share - Diluted $ .07 $ .08 $ .02
=========== =========== ===========
Weighted average shares - Basic 17,145,530 17,091,159 17,084,726
Weighted average shares - Diluted 17,234,920 17,130,777 17,218,389
</TABLE>
See notes to consolidated financial statemets.
F-3
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996
(Dollars in Thousands, Except as Noted or Per Share Information)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,147 $ 1,346 $ 296
-------- -------- --------
Adjustments to reconcile net income to net cash (used
in) operating activities:
Depreciation 2,464 2,105 1,617
Amortization 130 21 167
Deferred income taxes (benefit) 156 (321) (642)
Stock distributed to Employee Savings Plan 226 63 --
Stock option issued to non-employee directors 55 38 --
Conversion of stock appreciation rights to common stock -- -- 2,243
(Gain) loss on sale of assets (683) (138) 41
Changes in assets - (increase) decrease:
Accounts receivable (3,445) 7,940 (8,112)
Inventories (6,204) (5,140) (7,142)
Prepaid expenses and other current assets (664) (506) 249
Other assets 1,196 (398) (632)
Changes in liabilities - increase (decrease):
Accounts payable and accrued expenses 9,847 (3,968) 9,031
-------- -------- --------
Total adjustments 3,078 (304) (3,180)
-------- -------- --------
Net Cash Provided (Used) By Operating Activities 4,225 1,042 (2,884)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for notes receivable 56 (568) --
Additions to property, plant and equipment (3,715) (1,120) (3,547)
Proceeds from sale of assets 3,874 138 244
Purchase of Vitamin Specialties assets (86) (2,800) --
-------- -------- --------
Net Cash (Used) By Investment Activities 129 (4,350) (3,303)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt - net (6,343) (33,936) (43,528)
Proceeds from long-term debt 3,500 37,074 52,350
Acquisition of treasury shares -- (54) --
Proceeds from notes payable - banks -- -- 31,230
Principal payments on notes payable - banks -- -- (34,048)
Proceeds from exercise of stock options -- -- 24
-------- -------- --------
Net Cash Provided By Financing Activities (2,843) 3,084 6,028
-------- -------- --------
Foreign currency translation adjustment (86) (17) 50
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 1,425 (241) (109)
CASH AND CASH EQUIVALENTS - BEGINNING 179 420 529
-------- -------- --------
CASH AND CASH EQUIVALENTS - ENDING $ 1,604 $ 179 $ 420
======== ======== ========
</TABLE>
See notes to consolidated financial statemets.
F-4
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,210 $ 2,075 $ 1,325
======== ======== ========
Taxes $ 1,436 $ 811 $ 752
======== ======== ========
</TABLE>
Non Cash Financing Activities
During the year ended July 31, 1998, the Company entered into a capital lease
obligation for building in the amount of $3,451.
See notes to consolidated financial statemets.
F-5
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended July 31, 1998, 1997 and 1996
(Dollars in Thousands, Except as Noted or Per Share Information)
<TABLE>
<CAPTION>
Foreign
Common Treasury Additional Currency
Stock Stock Common Treasury Paid-In Retained Translation
(Shares) (Shares) Stock Stock Capital Earnings Adjustment Total
-------- -------- ----- ----- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - July 31, 1995 1,078,742 -- $ 171 $ -- $ 9,078 $ 3,328 $ (149) $ 12,428
Conversion of Stock
Appreciation Rights -- -- -- -- 2,243 -- -- 2,243
Exercise of stock options 16,000 -- -- -- 24 -- -- 24
Net income -- -- -- -- -- 296 -- 296
Foreign currency
translation Adjustment -- -- -- -- -- -- 50 50
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance - July 31, 1996 17,094,742 -- 171 -- 11,345 3,624 (99) 15,041
Purchase of treasury
shares -- (32,000) -- (54) -- -- -- (54)
Issuance of shares to
employee benefit plan 32,650 -- -- -- 63 -- -- 63
Issuance of options to
non-employee Directors -- -- -- -- 38 -- -- 38
Net income -- -- -- -- -- 1,346 -- 1,346
Foreign currency
translation adjustment -- -- -- -- -- -- (17) (17)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance - July 31, 1997 17,127,392 (32,000) 171 (54) 11,446 4,970 (116) 16,417
Issuance of treasury
shares to employee benefit
plan -- 32,000 -- 54 -- -- -- 54
Issuance of shares to
employee benefit plan 84,148 -- 1 -- 172 -- -- 173
Issuance of options to
non-employee Directors -- -- -- -- 55 -- -- 55
Net income -- -- -- -- -- 1,147 -- 1,147
Foreign currency
translation adjustment -- -- -- -- -- -- (86) (86)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance - July 31, 1998 7,211,540 -- $ 172 $ -- $ 11,673 $ 6,117 $ (202) $ 17,760
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statemets.
F-6
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 1 - Summary of Significant Accounting Policies:
Organization
IVC Industries, Inc. ("the Company") is engaged in a single business
segment - manufacturing, packaging and worldwide sales and distribution of
vitamins and nutritional supplements through drug stores, supermarkets and
mass merchandising chains, health food and independent drug stores, as
well as sales through its own retail stores and mail order operation. Its
products are distributed under the Fields of Nature, LiquaFil, Rybutol,
Nature's Wonder, American Vitamin(R), Synergy Plus, Nature's Blend, Pine
Bros. and Vitamin Specialties brands, as well as under the private labels
of its retail chain store customers. Domestic sales approximate 96% of
total sales.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries, Hall Laboratories Ltd. and Vitamin
Specialties Corp. Financial data for all periods presented reflect the
retroactive effects of the business combinations with Hall Laboratories,
Inc. ("Hall") on April 30, 1996 accounted for as pooling of interests. The
financial data also reflects the operations of Vitamin Specialties since
the date of acquisition, June 13, 1997, accounted for as a purchase (see
"Business Combinations"). All material intercompany transactions and
balances have been eliminated.
Foreign Currency Translation
Assets and liabilities of the subsidiary operating in Canada are
translated into U.S. dollars using the exchange rates in effect at the
balance sheet date. Results of operations are translated using the average
exchange rates prevailing throughout the period. The effects of exchange
rate fluctuations on translating foreign currency assets and liabilities
into U.S. dollars are included in stockholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents includes restricted cash of $461 and $471 in 1998 and 1997,
respectively, representing deposits held by trustees in connection with
payments for the current portion and interest on long-term debt.
F-7
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 1 - Summary of Significant Accounting Policies - (continued):
Accounts Receivable
Accounts receivable are stated at their net values. Included in net
accounts receivable is an allowance for doubtful accounts. At July 31,
1998 and 1997 the allowance for doubtful accounts was $1,108 and $831,
respectively.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, accounts receivable, accounts
payable, short-term borrowings and the current portion of long-term debt
approximate cost due to the short period of time to maturity. Fair values
of long-term debt, which have been determined based on borrowing rates
currently available to the Company for loans with similar terms or
maturity, approximate the carrying amounts in the consolidated financial
statements.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
material component of inventories is determined on the LIFO (last-in,
first-out) method, which is equal to the FIFO (first-in, first-out)
method. The labor and overhead components of inventories are determined on
the FIFO method.
Property, Plant and Equipment
Property, Plant and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided on accelerated and straight-line
methods over the estimated useful lives of the respective assets.
Maintenance and repairs are charged to expense as incurred; major renewals
and betterments are capitalized. When property and equipment is sold or
retired, the related cost and accumulated depreciation are removed from
the accounts and any gain or loss is included in the results of
operations.
Goodwill
Goodwill represents the excess of purchase price over the fair value of
identifiable net assets acquired. Goodwill was amortized on a
straight-line basis over 15 years. Commencing August 1, 1998 the remaining
goodwill will be amortized over 10 years on a straight-line basis.
F-8
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 1 - Summary of Significant Accounting Policies - (continued):
Other Assets
Other assets include trademarks, security deposits, a covenant not to
compete and deferred financing costs. The covenant not to compete is being
amortized over the period of expected benefit, and the deferred financing
costs are being amortized over the life of the related financing
agreements. Also included in other assets are the costs associated with
acquiring long-term sales agreements with certain customers, which are
being charged to operations over the terms of the individual agreements.
Impairment
Certain long-term assets of the Company including goodwill are reviewed at
least annually as to whether their carrying value has become impaired,
pursuant to guidance established in Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of." Management considers
assets to be impaired if the carrying value exceeds the future projected
cash flows from related operations (undiscounted and without interest
charges). If impairment is deemed to exist, the assets will be written
down to fair value or projected discounted cash flows from related
operations. Management also re-evaluates the periods of amortization to
determine whether subsequent events and circumstances warrant revised
estimates of useful lives. As of July 31, 1998, management expects these
assets to be fully recoverable.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment,
which is recorded net of estimated sales returns, discounts and
allowances.
Stock-Based Compensation
FASB Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", establishes a fair value based method of accounting for
stock-based compensation plans and requires additional disclosures for
those companies who elect not to adopt the new method of accounting, as
permitted by SFAS 123. The Company will continue to account for employee
purchase rights and stock options under APB Option No. 25, "Accounting for
Stock Issued to Employees". SFAS No. 123 disclosures are effective in the
accompanying financial statements.
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) and related interpretations provides for
compensation costs to be measured as the amount by which the market price
of the underlying stock exceeds the exercise price of the stock option at
the date at which both the number of options granted and the exercise
price are known.
F-9
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 1 - Summary of Significant Accounting Policies - (continued):
Income Taxes
The Company uses the liability method of accounting for income taxes. The
liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences
between the tax bases of assets and liabilities and their reported amounts
in the financial statements. The resulting deferred tax asset or liability
is adjusted to reflect changes in tax laws as they occur.
Net Income Per Share
The Company retroactively adopted SFAS No. 128, "Earnings Per Share",
during the fiscal year ended July 31, 1998. SFAS No. 128 changed the
computation, presentation and disclosure requirements for earnings per
share. SFAS requires presentation of "basic" and "diluted" earnings per
share. The adoption of SFAS No. 128 did not have a material impact on the
Company's net income per share.
Net income per share on common stock is computed on the basis of the
weighted average number of common and common equivalent shares outstanding
during each year. It is assumed that all dilutive stock options are
exercised at the beginning of each year (or at the time of issuance, if
later) and that the proceeds are used to purchase shares of the Company's
common stock at the average market price during the year.
Concentration of Cash Balances
Periodically, the Company maintains cash balances in excess of the $100
insured by the Federal Deposit Insurance Corporation (FDIC).
Impact of Recently Issued Accounting Standards
In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure." Statement 129 continues the existing
requirements to disclose the pertinent rights and privileges of all
securities other than ordinary common stock but expands the number of
companies subject to portions of its requirements. Specifically, the
Statement requires all entities to provide the capital structure
disclosures previously required by Accounting Principles Board Option 15.
Companies that were exempt from the provisions of Opinion 15 will now need
to make those disclosures. The Company has adopted SFAS 129 for the year
ending July 31, 1998.
F-10
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 1 - Summary of Significant Accounting Policies - (continued):
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distribution to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
In July 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", which
establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic
areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance.
The above new standards, SFAS Nos. 130 and 131, are effective for
financial statements for periods beginning after December 15, 1997 and
require comparative information for earlier years to be restated. Due to
the recent issuance of these standards, management has been unable to
fully evaluate the impact, if any, they may have on future financial
statement disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures
about Pensions and Other Postretirement Benefits". Statement No. 132
modifies the disclosure requirements for pensions and other postretirement
benefits, but does not change the measurement or recognition of those
plans. The Company will adopt SFAS 132 for the year ended July 31, 1999.
Adoption of this statement is not anticipated to have a material effect on
the Company's financial position or results of operations.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use".
SOP No. 98-1 establishes standards for recording the costs of software for
internal use. SOP No. 98-1 indicates that certain costs incurred in the
development of software designated for internal use should be capitalized.
All other associated costs should be expensed. The Company will adopt SOP
98-1 in the fiscal year ending July 31, 1999. Adoption of this statement
is not anticipated to have a material effect on the Company's financial
position or results of operations.
F-11
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 1 - Summary of Significant Accounting Policies - (continued):
In April 1998, The AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities". SOP 98-5 requires the costs of start-up activities
and organization costs to be expensed as incurred. It defines start-up
activities as one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer, indicating a
new process in an existing facility, or commencing a new operation. The
Company will adopt SOP 98-5 in the fiscal year ending July 31, 1999.
Adoption of this statement is not anticipated to have a material effect on
the Company's financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133 establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities and measure them at fair value. Under
certain circumstances, the gains or losses from derivatives may be offset
against those from the items the derivatives hedge against. The Company
will adopt SFAS No. 133 in the fiscal year ending July 31, 1999.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
Advertising Costs
Advertising costs are expensed as incurred. Such expense for the years
ended July 31, 1998, 1997 and 1996 were $4.8, $5.6 and $5.2 million,
respectively.
F-12
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 2 - Business Combinations:
Vitamin Specialties
On June 13, 1997, the Company acquired the assets of the Vitamin
Specialties operations of HealthRite, Inc. for $2.8 million. Vitamin
Specialties is engaged, among other things, in the retail sales through 16
health food/vitamin stores and by mail order of vitamins and nutritional
supplements. The acquisition was accounted for as a purchase and
accordingly, goodwill of $1.9 million was recorded on the books of the
Company. The operations of Vitamin Specialties are included in the
financial statements since the date of acquisition.
Operating results of the Vitamin Specialties operations since the date of
acquisition are not considered material with regard to the fiscal year
ended July 31, 1997.
Hall Laboratories, Inc.
On April 30, 1996, Hall, an Oregon corporation engaged in the
manufacturing, packaging, sales and distribution of vitamins and
nutritional supplements primarily on West Coast, was merged into the
Company. Pursuant to the merger agreement executed in connection
therewith, all of the outstanding equity shares of Hall, including Hall's
Stock Appreciation Rights (SAR), were exchanged for 3,821,363 shares of
the Company Common Stock. The accompanying consolidated financial
statements for the periods prior to this transaction have been restated to
present the combined financial position and operating results of the
Company and Hall. Prior to the Hall merger, Hall had a fiscal year end of
January 31 for financial reporting purposes. In the accompanying
consolidated financial statements, information as it relates to Hall has
been recast to conform to the Company's historical reporting periods.
Operating results of the separate entities for the periods presented below
are as follows:
Nine Months Ended
April 30, 1996
--------------
(unaudited)
Net revenues:
IVC Industries, Inc. $ 42,252
Hall Laboratories, Inc. 34,628
------------
Combined $ 76,880
============
Net income (loss):
IVC Industries, Inc. $ (141)
Hall Laboratories, Inc. 205
------------
Combined $ 64
============
In connection with the Hall merger, the Company recognized merger and
integration costs representing transaction expenses, compensation paid to
certain Hall employees who held SARs and projected costs of integrating
the business operations of the Companies.
F-13
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 3 - Inventories:
July 31,
--------
1998 1997
---- ----
Finished goods $15,129 $16,697
Bulk and Work in Process 14,180 9,155
Raw materials and Packaging Components 8,080 5,333
------- -------
Total inventory $37,389 $31,185
======= =======
The LIFO reserves at July 31, 1998 and 1997, were $0.
Note 4 - Property, Plant and Equipment:
July 31,
--------
1998 1997
---- ----
Land $ 1,451 $ 1,644
Buildings and improvements 6,951 7,451
Capital lease building 3,451 --
Machinery and equipment 19,262 17,717
Leasehold improvements 721 630
Furniture and fixtures 2,813 2,310
------- -------
34,649 29,752
Accumulated depreciation and amortization 13,883 11,753
------- -------
Net property, plant and equipment $20,766 $17,999
======= =======
In July 1998, the Company entered into a sales-leaseback transaction at
its 569 Halls Mill Road, Freehold, NJ location. The Company realized a
total gain of approximately $1,900. In the transaction, the Company sold a
warehouse/distribution center and undeveloped land, and subsequently, the
Company entered into a ten-year lease agreement for the
warehouse/distribution center (see Note 13), which was recorded as a
capitalized lease. A deferred gain of approximately $1,200 was attributed
to the warehouse/distribution center and will be recognized ratably over
the life of the lease agreement. The gain of $683, attributable to the
undeveloped land, was recognized and is reflected in other expenses, net.
F-14
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 5 - Accrued Expenses:
July 31,
------------------
1998 1997
---- ----
Accrued payroll and related $ 725 $ 870
Accrued interest 462 238
Income taxes payable 205 821
Accrued merger costs -- 450
Accrued brokerage 214 230
Accrued advertising 207 207
Other 1,190 832
------- -------
Accrued Expenses $ 3,003 $ 3,648
======= =======
Note 6 - Long-Term Debt:
Long-term debt consists of the following:
July 31,
-----------------
1998 1997
---- ----
Notes payable to bank, under a $21.5 million
revolving line of credit, due March 31, 1999
(can be extended to August 31, 1999) (See Note 17) $18,950 $21,475
Term loan payable to bank, due March 31, 1999 (can
be extended to August 31, 1999) (See Note 17) 2,250 --
Bonds payable, New Jersey Economic Development
Authority, interest at the floating tax-free rate
(3.45% at July 31, 1998), due May 1, 2003 3,560 4,280
Bonds payable, New Jersey Economic Development
Authority, interest at 6.9%, due June 30, 2007 4,250 4,625
Term note payable to bank. Paid in Full -- 1,450
Equipment financing agreement, due June 30, 2002,
interest at 8.25% - 8.50% 775 869
Other 235 165
------- -------
Total 30,020 32,864
Less current portion 22,749 1,434
------- -------
Long-Term Debt - Less current portion $ 7,271 $31,430
======= =======
F-15
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 6 - Long-Term Debt - (Continued):
Notes Payable to Bank
On April 30, 1996, the Company entered into a credit agreement with a
bank, which expires on March 31, 1999. The agreement can be extended under
certain circumstances through August 31, 1999. The Company is allowed to
borrow up to $15.0 million under borrowing Facility A, and $6.5 million
under borrowing Facility B, subject to certain borrowing base limitations,
as defined. Borrowings under Facility A bear interest at either the bank's
prime rate plus .50%, or at money market rates or applicable LIBOR rates
plus 2.25% (7.92% at July 31, 1998, based on 90 day LIBOR), at the
Company's option. Borrowings under Facility B bear interest at the bank's
prime rate, or at money market rates or applicable LIBOR rates plus .50%
(6.13% at July 31, 1998, based on 120 day LIBOR) at the Company's option.
The agreement includes a commitment fee of .375% of the average daily
unused portion of the overall borrowing commitment amount relative to
Facility A, and .25% relative to Facility B. The amount of borrowings
allowable under Facility B are subject to semi-annual adjustments based
upon purchases from a vendor during the preceding twelve months. The notes
are collateralized by substantially all of the Company's assets. The
agreement with the bank requires the Company to maintain certain financial
ratios, minimum working capital and contains various restrictions
customary in such a financial arrangement, including limitations on
capital expenditures and payment of cash dividends as of July 31, 1998.
(See Note 17).
Term Loan Payable to Bank
On May 1, 1998, the Company entered into a term loan agreement with a
bank, which expires on March 31, 1999. The agreement can be extended under
certain circumstances through August 31, 1999. The Company borrowed $3.5
million under this agreement. The borrowings under this facility bear
interest at the bank's prime rate, or at money market rates, or applicable
LIBOR rates plus .50% (6.19% at July 31, 1998, based on 90 day LIBOR), at
the Company's option. The loan is collateralized by substantially all of
the Company's assets. The agreement with the bank requires prepayments of
$500 on the 15th day of the last month of each calendar quarter. The
Company is required to maintain certain financial ratios and tangible net
worth, and the agreement contains various restrictions customary in such a
financial agreement, including limitations on capital expenditures as of
July 31, 1998. (See Note 17).
F-16
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 6 - Long-Term Debt - (Continued):
Bonds Payable
On October 5, 1995 the Company retired its $5.0 million term loan with a
bank by utilizing the proceeds of a New Jersey Economic Development
Authority tax exempt bond issue of the same amount. Interest on these
bonds is payable based upon the weekly tax-free floating rate. The bonds
called for interest only through May 1996. Thereafter, the bonds require
aggregate annual principal payments of $720, (payable monthly), through
May 2002, and a final payment of $680 in May 2003. In connection with this
bond issue, the Company is required to maintain a letter of credit from a
bank in an amount equal to the outstanding principal balance. The fee for
this letter of credit is 1% per annum.
The bonds payable to the New Jersey Economic Development Authority of
$4,250 are collateralized by the Company's real property in Freehold, New
Jersey. Interest is paid semi-annually on June 1 and December 1 of each
year. Annual principal payments are due December 1 of each year and vary
from $100 to $525 during the term of the mortgage through June 30, 2007.
The Company is required to make monthly escrow payments to a trustee for
principal and interest. The Company maintains a letter of credit in an
amount equal to the outstanding mortgage principal. The fee on this letter
of credit is .75% per annum of the outstanding principal balance. The
mortgage agreement contains certain restrictions including limitation of
dividends based upon a formula.
Term Note Payable to Bank
The term note payable to bank was secured by a mortgage on the Company's
warehousing and distribution facility. This loan was paid in full in July
1998 when the Company completed a sale/leaseback transaction for the
warehouse and distribution facility.
Equipment Financing Agreement
The equipment financing agreement with a bank provides for up to $1.0
million for acquisitions of computer and manufacturing equipment. This
agreement calls for monthly payments of principal and interest at prime
rate over a five-year period. At July 31, 1998, the Company had $225
available for future equipment purchases.
F-17
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 6 - Long-Term Debt - (Continued):
Other
On April 9, 1998, the Company established an operating line of credit with
a Canadian bank for its Canadian subsidiary in the amount of CDN $800. The
Company agreed to guaranty payment to the bank, limited to US $500 plus
interest and expenses. Borrowings under the facility bear interest at the
Canadian Prime Rate plus .75% per year (7.25% at July 31, 1998). The debt
is collateralized by the personal property of the Canadian business. The
Canadian company is required to maintain certain financial ratios, and
there is a limitation on capital expenditures. As of July 31, 1998, the
outstanding balance was $155.
The aggregate amount of long-term debt maturing in each of the five years
subsequent to July 31, 1998 and thereafter is as follows:
1999 $ 22,749
2000 1,356
2001 1,399
2002 1,335
2003 1,207
Thereafter 1,974
--------
Total $ 30,020
========
F-18
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 7 - Income Taxes:
The income tax provision (benefit) consisted of the following for the
periods ended:
July 31,
------------------------------
1998 1997 1996
---- ---- ----
Current tax expense:
Federal $ 356 $ 1,273 $ 839
State 63 359 134
Foreign 191 127 131
------- ------- -------
610 1,759 1,104
------- ------- -------
Deferred tax expense
(benefit):
Federal 3 (287) (483)
State 152 (34) (159)
Foreign -- -- --
------- ------- -------
155 (321) (642)
------- ------- -------
Other -- -- (36)
------- ------- -------
Income Tax Provision $ 765 $ 1,438 $ 426
======= ======= =======
The differences between the provision for income taxes and income taxes
computed using the federal income tax rate were as follows for the periods
ended:
July 31,
------------------------
1998 1997 1996
---- ---- ----
Amount computed using statutory rate $ 650 $ 975 $ 244
State taxes provision, net of federal benefit 42 250 88
Effect of foreign income not subject to federal
income tax 28 -- --
Nondeductible costs 45 213 94
------ ------ ------
Income Tax Provision $ 765 $1,438 $ 426
====== ====== ======
F-19
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 7 - Income Taxes - (continued):
Deferred tax attributes resulting from differences between financial
accounting amounts and tax basis of assets and liabilities at July 31,
1998 and 1997 are as follows:
July 31,
------------------
1998 1997
---- ----
Current assets and liabilities
Allowance for doubtful accounts $ 535 $ 804
Inventory valuation (IRC 263A) 671 390
Accrued expenses 204 147
Accrued merger costs -- 239
Net operating loss carryforward 17 22
Inventory valuation allowance 811 751
------- -------
2,238 2,353
Valuation allowance -- --
------- -------
Net current deferred tax asset $ 2,238 $ 2,353
======= =======
Non-current assets and liabilities
Deferred gain on sale of land $ 468 $ --
Installment contract (222) (232)
Property and equipment (538) (42)
Other 81 87
Net operating loss carryforward -- 17
------- -------
(211) (170)
Valuation allowance -- --
------- -------
Net non-current deferred tax (liability) $ (211) $ (170)
======= =======
F-20
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 8 - Other Expenses, Net:
July 31,
--------------------------------
1998 1997 1996
---- ---- ----
Interest expense $ 2,555 $ 2,386 $ 1,579
Rental income (220) (332) (203)
Interest income (209) (190) (227)
Gain on sale of land (683) -- --
Gain on sale of contract
manufacturing division -- -- (225)
Other 129 (225) (106)
------- ------- -------
Other expenses, net $ 1,572 $ 1,639 $ 818
======= ======= =======
Interest expense for the years ended July 31, 1998 and 1996, excludes
capitalized interest of approximately $75 relating to the renovation
program at the Freehold facility and approximately $231 relating to the
construction of the soft gel encapsulation facility, respectively.
Note 9 - Shareholders' Equity:
In July 1995, the Board of Directors adopted the 1995 Stock Option Plan
(the "1995 Option Plan") pursuant to which 1,000,000 shares of IVC common
stock were reserved for issuance to key employees of the Company. The
Company's shareholders approved the 1995 Option Plan at the Annual meeting
on March 15, 1996. Its terms are substantially the same as those of the
1993 Stock Option Plan. In April 1998, the stockholders approved an
increase in the number of shares subject to the plan to 2,000,000 shares.
In April 1998, the shareholders approved the Non-Employee Directors' Stock
Option Plan, pursuant to which 500,000 shares of IVC common stock were
reserved for issuance. The plan provides for grants, as of September 1 of
each year, of options to purchase 10,000 shares of IVC common stock, to
each of IVC's non-employee directors. The plan terminates on March 16,
2008.
F-21
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 10 - Stock Option Plans:
The Company has options outstanding under three plans. Under the "1993
Option Plan", the "1995 Option Plan", and the "Non-Employee Directors'
Stock Option Plan", options may be granted for 500,000, 2,000,000 and
500,000 shares, respectively. The term of each option may not exceed ten
years from the date of the grant (five years for options granted to
employees owning more than 10% of the Company's voting stock).
A summary of the Company's stock option activity and related information
for the years ended July 31, follows:
<TABLE>
<CAPTION>
1993 1995 Non-Employee Other Option Price
Option Plan Option Plan Director Plan Options Range
----------- ----------- ------------- ------- -----
<S> <C> <C> <C> <C> <C>
Outstanding at July 31, 1995 460,000 100,000 -- 100,000 $ --
Granted -- 161,984 -- -- 3.31
Canceled -- -- -- -- --
Exercised (16,000) -- -- -- 1.50
-------- ---------- ------- --------
Outstanding at July 31, 1996 444,000 261,984 -- 100,000
Granted -- 120,000 40,000 -- 1.44 - 1.93
Canceled (13,000) -- -- -- 1.50 - 2.38
Exercised -- -- -- --
-------- ---------- ------- --------
Outstanding at July 31, 1997 431,000 381,984 40,000 100,000
Granted -- 129,000 50,000 -- 1.97 - 2.34
Canceled -- (50,000) -- (100,000) 1.50 - 4.50
Exercised -- -- -- --
-------- ---------- ------- --------
Outstanding at July 31, 1998 431,000 460,984 90,000 --
======== ========== ======= ========
Options currently exercisable 431,000 400,707 90,000 --
======== ========== ======= ========
Options available for grant at
July 31, 1998 53,000 1,539,016 410,000
======== ========== =======
</TABLE>
The weighted average fair value of options granted at fair market value
was $1.12, $.91 and $1.52 where the exercise price equals stock price
during the fiscal years ended July 31, 1998, 1997 and 1996, respectively,
and $1.05 where the exercise price exceeded the stock price during fiscal
year ended July 31, 1997.
F-22
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 10 - Stock Option Plans - (Continued):
The table below summarizes information relating to options outstanding and
exercisable at July 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Average Weighted-Average
Exercise Options Exercise Remaining Estimated Options Exercise
Prices Outstanding Price Life (Years) Exercisable Price
------- ----------- ------ ------------ ----------- ------
<S> <C> <C> <C> <C> <C>
$ 1.44 40,000 $ 1.44 8.8 40,000 $ 1.44
1.50 281,000 1.50 .4 281,000 1.50
1.75 40,000 1.75 8.1 40,000 1.75
1.88 30,000 1.88 8.8 30,000 1.88
1.93 50,000 1.93 3.1 50,000 1.93
1.97 89,000 1.97 9.0 89,000 1.97
2.19 40,000 2.19 9.8 -- --
2.34 50,000 2.34 9.3 50,000 2.34
2.61 200,000 2.61 2.0 200,000 2.61
3.31 161,984 3.31 7.8 141,707 3.31
</TABLE>
The fair value of options granted in the years ended July 31, 1998, 1997
and 1996 is estimated on the date the options are granted based on the
Black-Scholes option-pricing model. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
The following weighted-average assumptions were used:
Year Ended
July 31,
--------
1998 1997 1996
---- ---- ----
Risk-free interest rate 6.3% 6.6% 6.3%
Expected volatility 52.4% 54.6% 42.1%
Dividend yield 0% 0% 0%
Expected life 5 years 5 years 5 years
F-23
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 10 - Stock Option Plans - (Continued):
The Company accounts for the costs of stock-based compensation in
accordance with Accounting Principle Board Opinion No. 25, "Accounting for
Stock Issued to Employees", rather than the fair value-based method in
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation". No compensation cost has been
recognized for the Company's stock option plans. Had compensation cost
been determined based on the fair values of the stock options at the date
of grant in accordance with SFAS 123, the Company would have recognized
additional compensation expense, net of taxes, of $121, $83 and $121 for
the years ended July 31, 1998, 1997 and 1996, respectively. The Company's
pro-forma net income and pro-forma net income per share for the years
ended July 31, 1998, 1997 and 1996 would have been as follows:
Year Ended
July 31,
--------
1998 1997 1996
---- ---- ----
Net income:
-------------------------------------------------------------------
As reported $ 1,147 $ 1,346 $ 296
Pro-forma 1,026 1,263 175
Net income per share - Diluted:
-------------------------------------------------------------------
As reported $ 0.07 $ 0.08 $ 0.02
Pro-forma 0.06 0.08 0.01
Since compensation expense associated with option grants is recognized
over the vesting period, the initial impact of applying SFAS No. 123 on
pro-forma disclosure is not representative of the potential impact on net
income for future years, when the effect of the recognition of a portion
of compensation expense from vesting of prior awards would be reflected.
Note 11 - Employee Benefit Plan:
Effective April 1, 1997, the Company adopted a Defined Contribution
Savings Plan ("the Plan") which qualifies under Section 401 (k) of the
Internal Revenue Code. Under the Plan, the Company matches the employee's
contributions up to a maximum of $.5 per year. For the fiscal year ended
July 31, 1998, the Company contributed $173 to the plan. For the fiscal
year ended July 31, 1997, the Company contributed $117 to the plan,
including fifty shares of its common stock to each employee at the Plan's
inception.
F-24
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 12 - Related Party Transactions:
The Company has advanced funds to certain shareholders. Interest charged
is 5% per annum. The amounts due at July 31, 1998 and July 31, 1997 of
$520 and $475, respectively, is payable by July 2000. Interest income
earned on receivables from shareholders was approximately $42 and $29 for
the years ended July 31, 1998 and 1997, respectively.
The Company has advanced funds to certain employees. Interest charged is
8%. The amounts due at July 31, 1998 and 1997 were $531 and $568,
respectively. The amounts are payable by January 2000, and are
collateralized by holdings in the Company. If the Company share price is
below a stated amount the loan will be extended to April 2002.
Interest on a loan payable to a shareholder aggregated approximately $7
and $11 for the years ended July 31, 1998 and 1997, respectively.
The Company advanced funds and sells products to Healthfair Vitamin
Centers, Inc., a company wholly owned by Arthur and Ethel Edell. Sales to
this affiliate were $104, $169 and $154 for the years ended July 31, 1998,
1997 and 1996, respectively. The amount due from this affiliate including
accounts receivable and advances, was $4, $4 and $6 at July 31, 1998, 1997
and 1996, respectively.
The Company sells products to D.N.R. Inc., an Israeli company of which one
of its principal shareholders is the brother-in-law of the President of
the Company's International Division. These sales aggregated $491, $313
and $389 for the years ended July 31, 1998, 1997 and 1996, respectively.
Accounts receivable from these related parties aggregated $37, $102 and
$274 at July 31, 1998, 1997 and 1996, respectively.
The Company holds a contract receivable from Agora Holding Company
("Agora"), a partnership consisting of Andrew M. Pinkowski and certain
previous shareholders of Hall. The amount due from Agora was $850 and $878
at July 31, 1998 and 1997, respectively. The contract receivable requires
a monthly payment of $9, which includes interest and principal through its
maturity in January 2012. Interest income earned by the Company on this
contract was $78, $80 and $85 for the years ended July 31, 1998, 1997 and
1996, respectively. The Company leases its manufacturing and
administration facility in Portland, Oregon from Agora. Rent expense
incurred by the Company for this property was $169, $163 and $161 for the
years ended July 31, 1998, 1997 and 1996, respectively.
F-25
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 13 - Commitments and Contingencies:
Operating Leases
The Company leases certain production and warehouse facilities, and
conducts retail operations under long-term operating leases expiring in
fiscal years through 2003. The leases provide that in addition to rent,
the Company pay taxes, maintenance, insurance and other related expenses.
Rent expense aggregated $1,305, $760 and $640 for the years ended July 31,
1998, 1997 and 1996 , respectively. Future minimum lease payments due
under these leases at July 31, 1998 are as follows:
Year Ending
July 31,
--------
1999 $ 1,038
2000 693
2001 608
2002 378
2003 125
--------
Total $ 2,842
========
Capital Leases
In connection with the sale/leaseback transaction, the Company has entered
into a capital lease for its warehouse and distribution facility, expiring
in July 2008, with aggregate monthly payments of $5,265. The following is
a schedule by years of future minimum lease payments under the capital
lease, together with the present value of the net minimum lease payments
as of July 31, 1998:
Year Ending
July 31,
--------
1999 $ 422
2000 455
2001 488
2002 520
2003 520
Thereafter 2,860
--------
Total minimum lease payments $ 5,265
Less amount representing interest (1,814)
--------
Present value of net minimum lease payments 3,451
Less current maturities (134)
--------
Long-term maturities $ 3,317
========
F-26
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 13 - Commitments and Contingencies - (Continued):
Employment Agreements:
The Company has entered into employment agreements with certain of the
Company's officers. The employment agreements provide for salaries
aggregating $720 and $257 in fiscal 1999 and 2000, respectively.
Some of the agreements with certain of the Company's officers are for one
year and are automatically extended for successive one-year periods unless
the Company or these executives give three month's notice that they elect
that the term of employment shall not be further extended. In the event
notice is given in accordance with the terms of the agreements, each of
these executives is entitled to receive a severance payment equal to their
annual salary.
Litigation:
In November 1989, the Company halted sales and distribution and initiated
a voluntary recall of one of its products, L-tryptophan. In December 1989,
the Food and Drug Administration (FDA) determined that there may be an
unequivocal epidemiological link between the ingestion of L-tryptophan and
a blood disorder known as eosinophilia myalgia syndrome and ordered a
nationwide recall. The FDA has been unable to determine the exact cause of
the illness and it appears it will be some time before the causative
factor and the pathogenesis of the disease can be determined. To date, 38
cases have been filed against the Company, all of which have been settled,
with all costs being covered by the raw material supplier. Any possible
additional costs cannot be reasonably estimated. However, it is probable
that the raw material supplier will continue to cover future L-tryptophan
settlements. In the event that the supplier does not cover future
settlements, the raw material distributor's insurance coverage, coupled
with the indemnification fund established by the raw material supplier and
the Company's product liability insurance should satisfy any claims,
subject to applicable policy limits.
Standby Letter of Credit:
The Company has two standby letters of credit aggregating $8.7 million
related to the New Jersey Economic Development Authority borrowings.
F-27
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 14 - Major Customers:
The Company sells its products to geographically diverse base of
customers, primarily national and regional drug stores, mass merchandiser
and supermarket chains. One customer accounted for 36% of net sales in the
fiscal year ended July 31, 1998. One customer also accounted for 23% of
net sales for the fiscal year ended July 31, 1997.
Note 15 - Unaudited Quarterly Financial Data:
<TABLE>
<CAPTION>
First Second Third Fourth Full
Year Ended: Quarter Quarter Quarter Quarter Year
- ----------- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
July 31, 1998
Net sales $27,709 $29,253 $34,980 $ 27,833 $119,775
Gross profit 6,801 8,038 8,423 5,257 28,519
Income from operations 1,022 1,401 1,648 (587) 3,484
Net income 332 536 702 (423) 1,147
Net income per share - Basic 0.02 0.03 0.04 (0.02) 0.07
Net income per share - Diluted 0.02 0.03 0.04 (0.02) 0.07
July 31, 1997
Net sales $31,563 $27,267 $25,381 $ 24,320 $108,531
Gross profit 8,095 6,302 6,989 6,665 28,051
Income (loss)from operations 1,883 729 1,091 720 4,423
Net income (loss) 872 391 337 (254) 1,346
Net income (loss) per share - Basic 0.05 0.02 0.02 (0.01) 0.08
Net income (loss) per share - Diluted 0.05 0.02 0.02 (0.01) 0.08
</TABLE>
The fourth quarter 1998 gross profit was detrimentally impacted by excess
manufacturing labor caused by the unexpected volume decrease in the fourth
quarter, as compared to the third quarter. At the balance sheet date, the
Company took a physical count of all inventories and adjusted to these
counts and valuations.
F-28
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except as Noted or Per Share Information)
Note 16 - Year 2000
In the past year, IVC Industries, Inc. invested in a complete replacement
of its internal management information systems. The Company replaced its
information technologies infrastructure with new enterprise servers,
personal computers, local area networks and wide area networks.
The Company's "Year 2000" (Y2K) compliant systems have been utilized in
half of its facilities since the beginning of January 1998, with the
remaining facilities scheduled to be integrated during the first quarter
of calendar 1999. The Company's goal is to commence the second calendar
quarter of 1999 with fully compliant systems enterprise-wide.
As part of its Year 2000 - Compliance Program, the Company is contacting
its vendors for assurance that they will be Y2K compliant.
Satisfactorily addressing the Year 2000 issue is dependent upon many
factors, some of which are not within the Company's control. Should the
Company's internal systems or the internal systems of one or more
significant vendor or supplier fail to achieve Year 2000 compliance, the
Company's business and its results of operations could be adversely
affected.
Note 17 - Bank Debt
The agreement with the bank requires the Company to maintain certain
financial ratios and minimum working capital. At July 31, 1998, the
Company was in violation of certain of these covenants, which have been
waived by the bank. The Company classified the balance due to the bank as
a current liability.
F-29
<PAGE>
SCHEDULE II
IVC INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1998 AND 1997
(Dollars in Thousands, Except as Noted or Per Share Information)
<TABLE>
<CAPTION>
For the Year Balance at Added Charged to Charged
Ended Beginning During Cost and to Other Balance at
July 31, Description of Year the Year Expenses Accounts Deductions End of Year
-------- ----------- ------- -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Goodwill - Net of
1998 Accumulated Amortization $ 1,867 $ 36 $ 130 - - $ 1,773
======== ======== ======== ======== ======== ========
Goodwill - Net of
1997 Accumulated Amortization - $ 1,888 $ 21 - - $ 1,867
======== ======== ======== ======== ======== ========
1998 Allowance for Doubtful Accounts $ 831 - $ 277 - - $ 1,108
======== ======== ======== ======== ======== ========
1997 Allowance for Doubtful Accounts $ 607 - $ 224 - - $ 831
======== ======== ======== ======== ======== ========
</TABLE>
S-1
TERM LOAN AGREEMENT
dated as of May 1, 1998
among
IVC INDUSTRIES, INC.,
the Banks party hereto
and
THE CHASE MANHATTAN BANK,
as Agent
<PAGE>
TABLE OF CONTENTS
PAGE(S)
-------
ARTICLE 1. DEFINITIONS: ACCOUNTING TERMS ................................ -1-
Section 1.01. Definitions ....................................... -1-
Section 1.02. Accounting Terms .................................. -l2-
ARTICLE 2. THE LOANS .................................................... -12-
Section 2.01. The Loans ......................................... -12-
Section 2.02. Purpose ........................................... -13-
Section 2.03. Borrowing Procedures .............................. -13-
Section 2.04. Optional Prepayments and Conversions .............. -13-
Section 2.05. Interest Periods: Renewals ........................ -14-
Section 2.06. Certain Notices ................................... -14-
Section 2.07. Minimum Amounts ................................... -14-
Section 2.08. Interest .......................................... -15-
Section 2.09. Mandatory Prepayments ............................. -15-
Section 2.10. Other Mandatory Prepayment ........................ -16-
Section 2.11. Payments Generally ................................ -16-
Section 2.12. Single Loan ....................................... -17-
ARTICLE 3. [RESERVED] ................................................... -17-
ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC. ........................... -17-
Section 4.01. Additional Costs .................................. -17-
Section 4.02. Limitation on Types of Loans ...................... -19-
Section 4.03. Illegality ........................................ -19-
Section 4.04. Certain Conversions pursuant to Sections
4.01 and 4.03 ..................................... -19-
Section 4.05. Certain Compensation .............................. -20-
ARTICLE 5. CONDITIONS PRECEDENT ......................................... -21-
Section 5.01. Documentary Conditions Precedent .................. -21-
ARTICLE 6. REPRESENTATIONS AND WARRANTIES ............................... -23-
Section 6.01. Incorporation, Good Standing and Due
Qualification ..................................... -23-
Section 6.02. Corporate Power and Authority: No Conflicts ....... -24-
Section 6.03. Legally Enforceable Agreements .................... -24-
Section 6.04. Litigation ........................................ -24-
Section 6.05. Financial Statements .............................. -24-
Section 6.06. Ownership and Liens ............................... -25-
Section 6.07. Taxes ............................................. -25-
Section 6.08. ERISA ............................................. -25-
Section 6.09. Subsidiaries and Ownership of Stock ............... -25-
Section 6.10. Credit Arrangements ............................... -26-
Section 6.11. Operation of Business ............................. -26-
Section 6.12. Hazardous Materials ............................... -26-
<PAGE>
Section 6.13. No Default on Outstanding Judgments or Orders ..... -28-
Section 6.14. No Defaults on Other Agreements ................... -28-
Section 6.15. Labor Disputes and Acts of God .................... -28-
Section 6.16. Governmental Regulation ........................... -28-
Section 6.17. Partnerships ...................................... -28-
Section 6.18. No Forfeiture Proceeding .......................... -28-
Section 6.19. Solvency .......................................... -29-
Section 6.20. As to Collateral .................................. -29-
ARTICLE 7. AFFIRMATIVE COVENANTS ........................................ -30-
Section 7.01. Maintenance of Existence .......................... -30-
Section 7.02. Conduct of Business ............................... -30-
Section 7.03. Maintenance of Properties ......................... -30-
Section 7.04. Maintenance of Records ............................ -30-
Section 7.05. Maintenance of Insurance .......................... -30-
Section 7.06. Compliance with Laws .............................. -31-
Section 7.07. Right of Inspection ............................... -31-
Section 7.08. Reporting Requirements ............................ -31-
Section 7.09. Registered Trademarks ............................. -34-
Section 7.10. Store Leases ...................................... -34-
Section 7.11. Subordination and Nondisturbance Agreement ........ -35-
ARTICLE 8. NEGATIVE COVENANTS ........................................... -35-
Section 8.01. Debt .............................................. -35-
Section 8.02. Guaranties, Etc ................................... -35-
Section 8.03. Liens ............................................. -36-
Section 8.04. Leases ............................................ -37-
Section 8.05. Investments ....................................... -38-
Section 8.06. Dividends ......................................... -38-
Section 8.07. Sale of Assets .................................... -38-
Section 8.08. Stock of Subsidiaries, Etc ........................ -39-
Section 8.09. Transactions with Affiliates ...................... -39-
Section 8.10. Mergers, Acquisitions, Etc ........................ -39-
Section 8.11. As to Collateral .................................. -40-
Section 8.12. As to Vitamin Specialties Business in Particular .. -40-
Section 8.13. Employment Agreements ............................. -40-
ARTICLE 9. FINANCIAL COVENANTS .......................................... -40-
Section 9.01. EBITDA ............................................ -41-
Section 9.02. Cash Flow Leverage Ratio .......................... -41-
Section 9.03. Tangible Net Worth ................................ -41-
Section 9.04. Current Ratio ..................................... -41-
Section 9.05. Interest Coverage ................................. -41-
Section 9.06. Capital Expenditures .............................. -42-
Section 9.07. No Quarterly Loss ................................. -42-
Section 9.08. EBITDA of VSC ..................................... -42-
-ii-
<PAGE>
ARTICLE 10. EVENTS OF DEFAULT ........................................... -42-
Section 10.01. Events of Default ................................. -42-
Section 10.02. Remedies .......................................... -46-
Section 10.03. Rescission ........................................ -46-
ARTICLE 11. THE AGENT: RELATIONS AMONG BANKS AND BORROWER ............... -46-
Section 11.01. Appointment, Powers and Immunities of Agent ....... -46-
Section 11.02. Reliance by Agent ................................. -47-
Section 11.03. Defaults .......................................... -47-
Section 11.04. Rights of Agent as a Bank ......................... -47-
Section 11.05. Indemnification of Agent .......................... -48-
Section 11.06. Documents ......................................... -48-
Section 11.07. Non-Reliance on Agent and Other Banks ............. -48-
Section 11.08. Failure of Agent to Act ........................... -48-
Section 11.09. Resignation or Removal of Agent ................... -49-
Section 11.10. Amendments Concerning Agency Function ............. -49-
Section 11.11. Liability of Agent ................................ -49-
Section 11.12. Transfer of Agency Function ....................... -49-
Section 11.13. Non-Receipt of Funds by the Agent ................. -49-
Section 11.14. Withholding Taxes ................................. -50-
Section 11.15. Several Obligations and Rights of Banks ........... -50-
Section 11.16. Pro Rata Treatment of Loans, Etc .................. -50-
Section 11.17. Sharing of Payments Among Banks ................... -50-
Section 11.18. Successor Agent ................................... -51-
Section 11.19. Term lntercreditor Agreement ...................... -51-
ARTICLE 12. MISCELLANEOUS ............................................... -51-
Section 12.01. Amendments and Waivers ............................. -51-
Section 12.02. Usury .............................................. -52-
Section 12.03. Expenses ........................................... -52-
Section 12.04. Survival ........................................... -52-
Section 12.05. Assignment: Participations ......................... -52-
Section 12.06. Notices ............................................ -53-
Section 12.07. Setoff ............................................. -53-
SECTION 12.08. JURISDICTION; IMMUNITIES ........................... -53-
Section 12.09. Table of Contents: Headings ........................ -54-
Section 12.10. Severability ....................................... -54-
Section 12.11. Counterparts ....................................... -54-
Section 12.12. Integration ........................................ -54-
SECTION 12.13. GOVERNING LAW ...................................... -54-
Section 12.14. Confidentiality .................................... -54-
Section 12.15. Treatment of Certain Information ................... -55-
-iii-
<PAGE>
EXHIBITS
Exhibit A Promissory Note
Exhibit B Authorization Letter
Exhibit C-1 VSC Term Guaranty
Exhibit C-2 IVOSC/Hall (Canada) Term Guaranty
Exhibit D-1 VSC Term Security Agreement
Exhibit D-2 Borrower/IVOSC/Hall (Canada) Term Security Agreement
Exhibit E Opinion of Counsel for Borrower and Subsidiaries
Exhibit F Collateral Assignment of Store Leases
Exhibit G Confidentiality Agreement
Exhibit H Stock Pledge Agreement
Exhibit I Mortgage
Exhibit J Assignment of Leases and Rents
Exhibit K Edell Term Subordination Agreement
Exhibit L Term Trademark Assignment
Exhibit M Subordination. Nondisturbance and Attornment Agreement
SCHEDULES
Schedule 6.04 Litigation
Schedule 6.09 Subsidiaries of Borrower
Schedule 6.10 Credit Arrangements
Schedule 6.12 Hazardous Materials
Schedule 6.20(b) Locations as to Borrower and Subsidiaries
Schedule 6.20(e) Landlords
Schedule 8.05 Loans and Advances to Employees
-iv-
<PAGE>
TERM LOAN AGREEMENT
TERM LOAN AGREEMENT dated as of May ____, 1998 among IVC INDUSTRIES INC.,
a corporation organized under the laws of Delaware (the "Borrower"), each of the
banks which is a party hereto (individually a "Bank" and collectively the
"Banks") and THE CHASE MANHATTAN BANK, a New York banking corporation, as agent
for the Banks (in such capacity, together with its successors in such capacity,
the "Agent").
RECITALS:
The Borrower desires that the Banks (subject to Section 2.11 hereof)
extend one or more term loans in the aggregate principal amount of $3,500,000 as
provided herein and the Banks are prepared to do so. Accordingly, the Borrower,
the Banks and the Agent agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.01. Definitions. As used in this Agreement, the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"Account" has the meaning given to such term in Article 9 of the New York
Uniform Commercial Code as in effect on the date hereof.
"Additional Costs" is defined in Section 4.01.
"Affiliate" means any Person: (a) which directly or indirectly controls,
or is controlled by, or is under common control with, the Borrower or any of its
Subsidiaries; (b) which directly or indirectly beneficially owns or holds 5% or
more of any class of voting stock of the Borrower or any such Subsidiary; (c) 5%
or more of the voting stock of which is directly or indirectly beneficially
owned or held by the Borrower or such Subsidiary; or (d) which is a partnership
in which the Borrower or any of its Subsidiaries is a general partner. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Loan Agreement, as amended or supplemented from
time to time. References to Articles, Sections, Exhibits, Schedules and the like
refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
"Amortization Date" means the 15th day of each March, June, September and
December of each year, commencing June 15, 1998; provided however that if any
such day is not a Banking Day, the Amortization Date shall be the next
succeeding Banking Day.
<PAGE>
"Assignment of Leases and Rents" means the Assignment of Leases and Rents
from the Borrower to the Agent in respect of the New Freehold/Howell Real Estate
in the form of Exhibit J attached hereto.
"Authority" means the New Jersey Economic Development Authority.
"Authorization Letter" means the letter agreement executed by the Borrower
in the form of Exhibit B.
"Bank Percentage" of a Bank means the ratio (expressed as a percentage) of
(a) the outstanding principal balance of the Loan of such Bank, to (b) the
aggregate outstanding principal balance of the Loans of all the Banks.
"Banking Day" means any day on which commercial banks are not authorized
or required to close in New York City and whenever such day relates to a Fixed
Rate Loan or notice with respect to any Fixed Rate Loan, a day on which dealings
in Dollar deposits are also carried out in the London interbank market.
"Borrower/IVOSC/Hall (Canada) Term Security Agreement" means the
Borrower/IVOSC/Hall (Canada) Term Security Agreement in the form of Exhibit D-2
to be delivered by the Borrower, IVOSC and Hall (Canada) under the terms of this
Agreement.
"Capital Expenditures" of a Person means, for any period, the Dollar
amount of gross expenditures (including obligations under Capital Leases) made
by such Person for fixed assets, real property, plant and equipment, and all
renewals, improvements and replacements thereof incurred during such period.
"Capital Lease" means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.
"Closing Date" means the date this Agreement has been executed and
delivered by the Borrower, the Bank(s) initially party hereto and the Agent.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral Assignment of Store Leases" means the Collateral Assignment of
Store Leases in the form of Exhibit F hereto to be delivered by the Borrower and
VSC to the Agent under the terms of this Agreement.
"Commitment" of a Bank means (subject to Section 2.11) the obligation of
such Bank to make a Loan under Section 2.01(a) of this Agreement on the Closing
Date in the principal amount set forth below opposite the name of such Bank. The
"Funding Percentage" of a Bank means (subject to Section 2.11) the percentage
set forth opposite the name of such Bank, which represents the ratio (expressed
as a percentage) of such Bank's Commitment to the Commitments of all the Banks:
Bank Commitment Funding Percentage:
---- ---------- -------------------
The Chase Manhattan Bank $3,500,000 100%
<PAGE>
---------- ---
Total of all Banks $3,500,000 100%
"Consolidated Capital Expenditures" means for any period the capital
expenditures of the Borrower and its Consolidated Subsidiaries for such period,
as determined on a consolidated basis in accordance with GAAP.
"Consolidated Current Assets" means Current Assets of the Borrower and its
Consolidated Subsidiaries, as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Current Liabilities" means Current Liabilities of the
Borrower and its Consolidated Subsidiaries, as determined on a consolidated
basis in accordance with GAAP.
"Consolidated EBITDA" with respect to any period means the EBITDA of the
Borrower and its Consolidated Subsidiaries for such period, as determined on a
consolidated basis in accordance with GAAP, excluding however (a) any
nonrecurring extraordinary charge related to the termination of the Borrower's
contract with Revlon or to the integration of the Portland manufacturing
facility with the Freehold manufacturing facility, (b) any nonrecurring
extraordinary non-cash charge, and (c) any non-cash charge (which may be
recurring) for stock of the Borrower or options in respect thereof granted to
employees of the Borrower as compensation, which (in the case of all of (a), (b)
and (c)) would otherwise be included in computing the consolidated earnings of
the Borrower.
"Consolidated Funded Debt" means, as of any day of determination, Funded
Debt of the Borrower and its Consolidated Subsidiaries as of such day, as
determined on a consolidated basis in accordance with GAAP, less (for so long
any Term Note is held by The Chase Manhattan Bank) the amount of cash of the
Borrower held on such day in the ordinary demand deposit account(s) of the
Borrower with The Chase Manhattan Bank (excluding any payroll account, trust
account or other special purpose account).
"Consolidated Net Income" with respect to any period means the Net Income
of the Borrower and its Consolidated Subsidiaries for such period, as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means any Subsidiary of the Borrower whose
accounts are or are required to be consolidated with the accounts of the
Borrower in accordance with GAAP.
"Consolidated Tangible Net Worth" means the Tangible Net Worth of the
Borrower and its Consolidated Subsidiaries, as determined on a consolidated
basis in accordance with GAAP.
"Current Assets" of a Person means all assets of such Person treated as
current assets in accordance with GAAP.
<PAGE>
"Current Liabilities" of a Person means all liabilities of such Person
treated as current liabilities in accordance with GAAP, including without
limitation and without duplication (a) all obligations payable on demand or
within one year after the date in which the determination is made and (b)
installment and sinking fund payments required to be made within one year after
the date on which determination is made, but excluding all such liabilities or
obligations which are renewable or extendible at the option of such Person to a
date more than one year from the date of determination; but excluding all
amounts outstanding under Facility A and Facility B prior to one year before the
Facility A Expiration Date and the Facility B Expiration Date (as such terms are
defined in the Revolving Credit Agreement) and excluding the portion of the
principal of the Loans that is due and payable on the Maturity Date.
"Debt" means, with respect to any Person: (a) indebtedness of such Person
for borrowed money; (b) indebtedness of such Person for the deferred purchase
price of property or services (except trade payables in the ordinary course of
business); (c) Unfunded Benefit Liabilities of such Person (if such Person is
not the Borrower, determined in a manner analogous to that of determining
Unfunded Benefit Liabilities of the Borrower); (d) the face amount of any
outstanding letters of credit issued for the account of such Person; (e)
obligations of such Person arising under acceptance facilities; (f) guaranties,
endorsements (other than for collection in the ordinary course of business) and
other contingent obligations of such Person to purchase, to provide funds for
payment, to supply funds to invest in any Person, or otherwise to assure a
creditor against loss; (g) obligations secured by any Lien on property of such
Person; and (h) obligations of such Person as lessee under Capital Leases.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means, with respect to the principal of any Loan and, to
the extent permitted by law, any other amount payable by the Borrower under this
Agreement or any Term Note that is not paid when due (whether at stated
maturity, by acceleration or otherwise), a rate per annum during the period from
and including the due date, to, but excluding the date on which such amount is
paid in full, equal to 2% above the Variable Rate as in effect from time to time
plus the Margin (if any) (provided that, if the amount so in default is
principal of a Fixed Rate Loan and the due date thereof is a day other than the
last day of the Interest Period therefor, the "Default Rate" for such principal
shall be, for the period from and including the due date and to but excluding
the last day of the Interest Period therefor, 2% above the interest rate for
such Loan as provided in Section 2.08 hereof and, thereafter, the rate provided
for above in this definition).
"Designated Party" means the Person identified as the Designated Party in
the Designated Party Identification Agreement dated the date hereof among such
Person, the Agent and the Borrower.
"Designated Party Term Guaranty" means the Guaranty of the Loans from the
Designated Party in favor of the Agent and the Banks dated the date hereof (as
the same may hereafter be amended or supplemented from time to time).
<PAGE>
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"EBITDA" of a Person with respect to any period means such Person's
earnings before interest, taxes, depreciation and amortization for such period,
as determined in accordance with GAAP.
"Edell Term Subordination Agreement" means the subordination agreement
from Arthur Edell and the Borrower in favor of the Agent and the Banks in the
form of Exhibit K.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which the Borrower is a member, or (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Borrower is a member.
"Eurodollar Loan" means a Loan when and to the extent the interest rate
therefor is determined on the basis of clause (a) of the definition of "Fixed
Base Rate".
"Event of Default" has the meaning given such term in Section 10.01.
"Excluded VSC Assets" means (i) any and all cash (including, without
limitation, deposit accounts and investments that are cash equivalents) of VSC
existing on the day on which the Agent assigns to the Designated Party the Lien
of the Agent in the Vitamin Specialties Assets, other than cash "in the till" at
the Stores on the day on which the Agent assigns such Lien to the Designated
Party; provided, however, that all cash that is received by VSC after such day
shall not constitute Excluded VSC Assets; and (ii) any and all inventory of VSC
that is not located at a Store, except for any such inventory that shall have
already been paid for by VSC. The Excluded VSC Assets are intended to be
excluded from any assignment by the Agent to the Designated Party of the Lien of
the Agent in the Vitamin Specialties Assets; but the Excluded VSC Assets will
remain subject to a Lien securing all obligations under Revolving Credit
Agreement.
<PAGE>
"Facility A Commitments" and "Facility A Loans" have the meanings given
such terms in the Revolving Credit Agreement.
"Facility B Commitments" and "Facility B Loans" have the meanings given
such terms in the Revolving Credit Agreement.
"Federal Funds Rate" means, for any day, the rate per annum equal to the
weighted average of the rates on overnight federal funds transactions as
published by the Federal Reserve Bank of New York for such day (or for any day
that is not a Banking Day, for the immediately preceding Banking Day).
"Fixed Base Rate" means with respect to an Interest Period for a Fixed
Rate Loan:
(a) for a Eurodollar Loan. the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) quoted at approximately
11:00 a.m. London time by the principal London branch of the Reference
Bank two Banking Days prior to the first day of such Interest Period for
the offering to leading banks in the London interbank market of Dollar
deposits in immediately available funds, for a period, and in an amount,
comparable to the Interest Period and principal amount of the Eurodollar
Loan which shall be made by the Reference Bank and outstanding during such
Interest Period; and
(b) for a Money Market Rate Loan, the rate per annum offered
(if any) by the Reference Bank to the Borrower on the first day of the
Interest Period with respect thereto.
"Fixed Rate" means, with respect to an Interest Period for a Fixed Rate
Loan, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) determined by the Agent to be equal to the quotient of (i) the Fixed Base
Rate for such Loan for such Interest Period, divided by (ii) one minus the
Reserve Requirement for such Loan for such Interest Period.
"Fixed Rate Loan" means a Eurodollar Loan or Money Market Rate Loan.
"Forfeiture Proceeding" means any action, proceeding or investigation
pending against the Borrower or any of its Subsidiaries or Affiliates before any
court, governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or the receipt of notice by any such party
that any of them is a suspect in or a target of any governmental inquiry or
investigation, which may result in an indictment of any of them or the seizure
or forfeiture of any of their property.
"Funded Debt" means, with respect to any Person, all Debt of such Person
(irrespective of whether the maturity thereof is more than one year or less than
one year), other than Debt of the character described in clause (c) in the
definition of the term "Debt".
<PAGE>
"Funding Percentage" has the meaning ascribed to it in the paragraph that
defines the term "Commitment" in this Section 1.01.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the date hereof, applied on a basis consistent with
those used in the preparation of the financial statements referred to in Section
6.05 (except for changes concurred in by the Borrower's independent public
accountants).
"Hall (Canada)" means Hall Laboratories, Ltd. a corporation organized
under the laws of British Columbia.
"Hazardous Material" is defined in Section 6.12.
"HealthRite Purchase Agreement" means the Asset Purchase Agreement dated
as of May 29, 1997 between the Borrower and HealthRite, Inc.
"Interest Period" means, with respect to any Fixed Rate Loan, the period
commencing on the date such Loan is made, converted from another type of Loan or
renewed, as the case may be, and ending, as the Borrower may select pursuant to
Section 2.06: (a) in the case of a Eurodollar Loan, on the numerically
corresponding day in the first, second, third, or sixth or (as available) ninth
or twelfth calendar month thereafter, provided that each such Interest Period
which commences on the last Banking Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Banking Day of the appropriate calendar
month; and (b) in the case of a Money Market Rate Loan, on a day not later than
thirty days thereafter.
"IVOSC" means International Vitamin Overseas Sales Corp., a New Jersey
corporation.
"Lending Office" means, for each Bank and for each type of Loan, the
lending office of such Bank (or of an affiliate of such Bank) designated as such
for such type of Loan on its signature page hereof or such other office of such
Bank (or of an affiliate of such Bank) as such Bank may from time to time
specify to the Agent and the Borrower as the office by which its Loans of such
type are to be made and maintained.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loans" shall have the meaning given in Section 2.01 (subject to Section
2.11).
"Margin" means initially (i) in the case of a Fixed Rate Loan, 50 basis
points; and (ii) in the case of a Variable Rate Loan, zero; provided, however,
that the Margin shall be subject to change as hereinafter provided. Where the
quotient of (i) Consolidated Funded Debt on the last day of any fiscal quarter,
divided by (ii) Consolidated EBITDA for such fiscal quarter and the three
preceding fiscal quarters (on a combined basis for such four quarters) is within
one of the ranges set forth
<PAGE>
below, the applicable Margin shall be the amount of basis points set forth
opposite such range:
For a For a
Fixed Variable
Range Rate Loan Rate Loan
- ----- --------- ---------
(A) Equal to or
greater than 2.0 50 0
(B) Less than 2.0: 37.5 0
provided, however, that if an Event of Default exists, the Margin shall be the
amount set forth in line (A) above. Notwithstanding the immediately preceding
sentence, with respect to the determination of such quotient as of the fiscal
quarter ending April 30, 1998 only, the divisor of such quotient (clause (ii)
above) shall not be Consolidated EBITDA for such fiscal quarter and the three
preceding fiscal quarters; instead such divisor shall be the product of
Consolidated EBITDA for such fiscal quarter and the two preceding fiscal
quarters (on a combined basis for such three quarters), multiplied by 1.333.
Each change in the Margin following the end of a fiscal quarter shall become
effective on the earlier to occur of (x) the first day of the calendar month
following the delivery by the Borrower to the Agent of the financial statements
for such fiscal quarter required by Section 7.08(a) or (b) of this Agreement, or
(y) the day on which the Borrower delivers to the Agent a certificate executed
by the chief financial officer or chief operating officer of the Borrower
stating the amount of such quotient (and the elements thereof) as of the last
day of such fiscal quarter. No change in the Margin shall be retroactive, except
that if such certificate of such officer proves (upon such delivery of such
financial statements with respect to such quarter) to have been inaccurate and
such inaccuracy shall have resulted in an understatement of the Margin, then
such understatement or overstatement shall be corrected retroactively to such
date on which such certificate of the chief financial officer was delivered.
"Maturity Date" means March 31, 1999; provided, however, that the Borrower
may extend the Maturity Date to August 31, 1999 provided that (a) the Borrower
gives written notice to the Agent and the Banks of its election to extend the
same not later than February 15, 1999, and (b) no unwaived Default or Event of
Default exists on the day such notice is given or on March 31, 1999; and
provided, further, that if March 31, 1999 or August 31, 1999 (as applicable) is
not a Banking Day, then the Maturity Date shall be the immediately preceding
Banking Day.
"Money Market Rate Loan" means a Loan when and to the extent the interest
rate therefor is determined on the basis of clause (b) of the definition of
"Fixed Base Rate".
"Mortgage" means the Mortgage by Borrower in favor of the Agent, in the
form attached hereto as Exhibit I, covering the New Freehold/Howell Real Estate.
<PAGE>
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"Net Income" of a Person means, with respect to any period, the net income
of such Person for such period computed in accordance with GAAP.
"Net Refinancing Proceeds" is defined in Section 2.09.
"New Freehold/Howell Real Estate" means the land, together with the
improvements thereon, consisting of approximately 48.15 acres located in
Freehold Township and Howell Township, N.J., known as Lots 2.01, 3 and 3Q in
Block 79 in Freehold Township, and Lot 18.01 in Block 164 in Howell Township.
"Option Rights" means options, warrants and other securities and rights
entitling the holder to purchase from the Borrower shares of capital stock of
the Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
"Plan" means any employee benefit or other plan established or maintained,
or to which contributions have been made, by the Borrower or any ERISA Affiliate
and which is covered by Title IV of ERISA, other than a Multiemployer Plan.
"Prime Rate" means that rate of interest from time to time announced by
the Reference Bank at its principal office as its prime commercial lending rate.
"Principal" means each of (i), (ii), (iii) and (iv) below:
(i) E. Joseph Edell;
(ii) Arthur S. Edell;
(iii) I. Alan Hirschfeld;
(iv) Andrew M. Pinkowski.
"Principal Office" means the principal office of the Agent, presently
located at 270 Park Avenue, New York, New York 10017.
"Reference Bank" means The Chase Manhattan Bank, including any corporate
successor thereto.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
<PAGE>
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means, with respect to any Bank, any change after the
date of this Agreement in United States federal, state, municipal or foreign
laws or regulations (including without limitation Regulation D) or the adoption
or making after such date of any interpretations, directives or requests
applying to a class of banks including such Bank of or under any United States,
federal, state, municipal or foreign laws or regulations (whether or not having
the force of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof.
"Release" is defined in Section 6.12.
"Required Banks" means Banks whose aggregate Bank Percentages are at least
50%.
"Required Payment" is defined in Section 11.13.
"Reserve Requirement" means, for any Fixed Rate Loan for any Interest
Period, the average maximum rate at which reserves (including any marginal.
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
in New York City with deposits exceeding $1,000,000,000 against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting the effect
of the foregoing, the Reserve Requirement shall reflect any other reserves
required to be maintained by such member banks by reason of any Regulatory
Change against (i) any category of liabilities which includes deposits by
reference to which the Fixed Base Rate is to be determined as provided in the
definition of "Fixed Base Rate" in this Section 1.01 or (ii) any category of
extensions of credit or other assets which include Fixed Rate Loans.
"Revolving Credit Agreement" means the Credit Agreement among the
Borrower, the banks party thereto, and The Chase Manhattan Bank (National
Association) as agent dated as of April 30, 1996 (as the same has been or may
hereafter be amended or supplemented from time to time).
"Stock Pledge Agreement" means the Stock Pledge Agreement as to the
outstanding capital stock of VSC, in the form of Exhibit H, to be delivered by
the Borrower concurrently herewith under the terms of this Agreement.
"Stores" means the 16 retail stores at the locations identified on
Schedule 6.20(b) at which the Vitamin Specialties Business is conducted, and any
other bona fide retail stores hereafter opened by VSC primarily to conduct the
Vitamin Specialties Business.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or
<PAGE>
indirectly by such Person. Unless otherwise specified, references herein to a
Subsidiary means a Subsidiary of the Borrower.
"Tangible Net Worth" of a Person means, at any date of determination
thereof, the excess of total assets of such Person over total liabilities of
such Person, excluding however from the determination of total assets: (i) all
assets which would be classified as intangible assets under GAAP, including
without limitation, goodwill (whether representing the excess of cost over book
value of assets acquired or otherwise), patents, trademarks, trade names,
copyrights, franchises, and deferred charges (including, without limitation,
unamortized debt discount and expense organization cost, and research and
development costs); and (ii) any write-up in the book value of any asset since
July 31, 1997; provided, however, that notwithstanding their classification as
intangible assets, deferred promotional allowances of the Borrower and its
Consolidated Subsidiaries shall be included in (and not excluded from) the
determination of total assets of the Borrower and its Consolidated Subsidiaries,
but not to any extent greater than $2,500,000 in the aggregate as to the
Borrower and its Consolidated Subsidiaries.
"Term Intercreditor Agreement" means the Term Intercreditor Agreement
among the Designated Party, the Agent, the Banks, the Borrower, IVOSC, Hall
(Canada) and VSC dated the date hereof (as the same may hereafter be amended or
supplemented from time to time).
"Term Loan Documents" means this Agreement, the Term Notes, the Designated
Party Term Guaranty, the Mortgage, the Assignment of Leases and Rents, the Stock
Pledge Agreement, the VSC Term Guaranty, the VSC Term Security Agreement, the
Collateral Assignment of Store Leases, the IVOSC/Hall (Canada) Term Guaranty,
the Borrower/IVOSC/Hall (Canada) Term Security Agreement, the Term Intercreditor
Agreement, the Edell Term Subordination Agreement, the Term Trademark
Assignment, the Authorization Letter, and the Designated Party Identification
Agreement.
"Term Note" means (subject to Section 2.11) a promissory note of the
Borrower to a Bank in the form of Exhibit A hereto evidencing the Loan made by
such Bank hereunder.
"Term Trademark Assignment" means the Trademark Assignment from the
Borrower and VSC to the Agent in the form of Exhibit L to this Agreement.
"Unfunded Benefit Liabilities" means, with respect to any Plan, the amount
(if any) by which the present value of all benefit liabilities (within the
meaning of Section 4001 (a)( 16) of ERISA) under the Plan exceeds the fair
market value of all Plan assets allocable to such benefit liabilities, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential liability of the Borrower
or any ERISA Affiliate under Title IV of ERISA.
"Variable Rate" means, for any day, the higher of (a) the Federal Funds
Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such day; provided,
however, that from and after any assignment by the Banks to the Designated Party
of the
<PAGE>
Loans, the term "Variable Rate" shall mean, for any day, only the Prime Rate for
such day.
"Variable Rate Loan" means any Loan when and to the extent the interest
rate for such Loan is determined in relation to the Variable Rate.
"Vitamin Specialties Assets" means all personal property and fixtures of
VSC, whether now or hereafter existing or now owned or hereafter acquired and
wherever located, of every kind and description, tangible or intangible,
including, but not limited to, all money, goods (including equipment, farm
products and inventory), instruments, securities, documents, chattel paper,
accounts, contract rights, general intangibles, credits, claims, demands,
precious metals and any other property, rights and interests of VSC, and shall
include the proceeds, products and accessions of and to any thereof. The Vitamin
Specialties Assets include (without limitation) the following assets of VSC:
(a) all inventories;
(b) all tangible personal property, computer equipment, brochures,
store signage, store fixtures and leasehold improvements, including
tangible personal property referred to on Schedule 1.03 of the HealthRite
Purchase Agreement;
(c) all cash actually present "in the till" at any of the Stores;
(d) all accounts receivable;
(e) all rights in leases of the Stores;
(f) all rights in purchase orders, sales orders, order books,
mailing lists, customer accounts and customer lists and records;
(g) all rights in intellectual property, including the names
"Vitamin Specialties" and "Herbal Specialties", proprietary information,
computer software, customer lists, mailing lists, trade secrets, patents,
patent applications, copyrights, copyright applications, trademarks,
service marks, trademark or service mark registration applications, art
work, boards, plates, films and related art work (such as in catalogs),
tradenames, licenses of any such property or rights, goodwill and permits;
(h) all necessary permits and certificates issued or granted;
(i) all books and records, including, without limitation, quality
control records and computer software and data bases; and
(j) all goodwill.
The term "Vitamin Specialties Assets" also means and includes any rights of the
Borrower in leases of the Stores and trademarks of the Vitamin Specialties
Business that were assigned (or intended to be assigned) by HealthRite Inc. to
the Borrower
<PAGE>
pursuant to the HealthRite Purchase Agreement, and further assigned to VSC,
subject to (in the case of such leases) landlord's consent or (in the case of
such trademarks) registration of such assignment.
"Vitamin Specialties Business" means the line of business acquired by the
Borrower from HealthRite, Inc. pursuant to the HealthRite Purchase Agreement.
"VSC" means Vitamin Specialties Corp., a Pennsylvania corporation.
"VSC Term Guaranty" means the VSC Term Guaranty in the form of Exhibit
C-1, to be delivered by VSC under the terms of this Agreement.
"VSC Term Security Agreement" means the VSC Term Security Agreement in the
form of Exhibit D-1, to be delivered by VSC under the terms of this Agreement.
Section 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP.
ARTICLE 2. THE LOANS.
Section 2.01. The Loans. (a) Subject to the terms and conditions of this
Agreement (including, without limitation, Section 2.11), each of the Banks
severally agrees to make a term loan to the Borrower (collectively, the "Loans")
on the Closing Date in a principal amount equal to the product of $3,500,000
multiplied by the Funding Percentage of such Bank.
(b) The Loans may be outstanding as Variable Rate Loans or
Eurodollar Loans or Money Market Rate Loans (each a "type" of Loans). Each type
of Loans of each Bank shall be made and maintained at such Bank's Lending Office
for such type of Loans. If at any time all the Loans are assigned by the Banks
to the Designated Party, all Loans will convert to Variable Rate Loans and
remain as such.
(c) The Loans shall be due and payable in installments of principal
of $500,000 each in the aggregate of all the Loans, payable on each Amortization
Date, subject to earlier payment as provided in this Agreement. The outstanding
principal balance of the Loans, and all accrued and unpaid interest thereon,
shall be due and payable in full on the Maturity Date.
(d) The Loans of each Bank shall be evidenced by a Term Note dated
the date of this Agreement in favor of such Bank, duly completed and executed by
the Borrower.
Section 2.02. Purpose. The Borrower shall use the proceeds of the Loans,
first, to pay and satisfy trade credit extended by the Designated Party to the
Borrower and presently due and owing on the Closing Date; then (if any balance
remains) for working capital. Such proceeds shall not be used for the purpose,
whether immediate, incidental or ultimate, of buying or carrying "margin stock"
within the meaning of Regulation U.
<PAGE>
Section 2.03. Borrowing Procedures. Not later than 2:00 p.m. New York City
time on the Closing Date, each Bank shall, through its Lending Office and
subject to the conditions of this Agreement, make the amount of its Loan
available to the Agent at the Principal Office and in immediately available
funds for the account of the Borrower. The amount so received by the Agent
shall, subject to the conditions of this Agreement, be made available to the
Borrower, in immediately available funds, by the Agent crediting an account of
the Borrower designated by the Borrower and maintained with the Agent at the
Principal Office. The Loans shall be outstanding initially as Variable Rate
Loans, until (if ever) the Loans are converted to a different type of Loans as
hereinafter provided.
Section 2.04. Optional Prepayments and Conversions. (a) The Borrower shall
have the right to make prepayments of principal, or, subject to Section 2.01(b),
to convert one type of Loans into another type of Loans, at any time or from
time to time; provided that: (i) the Borrower shall give the Agent notice of
each such prepayment or conversion as provided in Section 2.06; and (ii) Fixed
Rate Loans may be prepaid or converted only on the last day of an Interest
Period for such Loans; provided, however, that if the Borrower pays the amount
required to be paid under Section 4.05 with respect thereto, the Borrower may
prepay or convert Fixed Rate Loans prior to the last day of an Interest Period
for such Loans. All such prepayments of the Loans shall be applied to the Loans
in the inverse order of amortization. Any amount prepaid may not be reborrowed.
(b) The Borrower shall not make any prepayment of the Facility A
Loans that accompanies a request by the Borrower for a reduction in the Facility
A Commitments, and the Borrower shall not make any prepayment of the Facility B
Loans that accompanies a request by the Borrower for a reduction in the Facility
B Commitments, unless and until the Loans under this Agreement and all interest
thereon have been paid in full; provided, however, that this subsection (b)
shall not apply in the case of prepayments of the Facility A Loans or the
Facility B Loans that are not made in connection with a reduction in the
Facility A Commitments or the Facility B Commitments (respectively); and
provided, further, that this subsection (b) shall not in any way whatsoever
apply to a reduction consisting of a termination of such Commitments by reason
of the expiration thereof or by reason of the occurrence of an event of default
under the Revolving Credit Agreement.
Section 2.05. Interest Periods; Renewals. (a) In the case of each Fixed
Rate Loan, the Borrower shall select an Interest Period of any duration in
accordance with the definition of Interest Period in Section 1.01, subject to
the following limitations: (i) no Interest Period may extend beyond the Maturity
Date; (ii) notwithstanding clause (i) above, no Interest Period for a Eurodollar
Loan shall have a duration of less than one month, and if any such proposed
Interest Period would otherwise be for a shorter period, such Interest Period
shall not be available; (iii) no Interest Period may extend beyond an
Amortization Date unless the aggregate principal amount of Loans having Interest
Periods which end after such Amortization Date are equal to or less than the
aggregate amount of Loans (after giving effect to the payment required to be
made on such Amortization Date) to be outstanding after such Amortization Date;
(iv) if an Interest Period would end on a day which is not a Banking Day, such
Interest Period shall be extended to the next Banking Day,
<PAGE>
unless (in the case of a Eurodollar Loan) such Banking Day would fall in the
next calendar month in which event such Interest Period shall end on the
immediately preceding Banking Day; and (v) no more than three Interest Periods
of each Bank may be outstanding at any one time.
(b) Upon notice to the Agent as provided in Section 2.06, the
Borrower may renew any Fixed Rate Loan on the last day of the Interest Period
therefor as the same type of Loans with an Interest Period of the same or
different duration in accordance with the limitations provided above. If the
Borrower shall fail to give notice to the Agent of such a renewal, such Fixed
Rate Loan shall automatically become a Variable Rate Loan on the last day of the
current Interest Period.
Section 2.06. Certain Notices. Notices by the Borrower to the Agent of
each prepayment or conversion pursuant to Section 2.04 and each renewal pursuant
to Section 2.05(b), shall be irrevocable and shall be effective only if received
by the Agent not later than 1:00 p.m., New York City time, in the case of
prepayments of, conversions into and renewals of (i) Variable Rate Loans and
Money Market Rate Loans, on the day thereof, and (ii) Fixed Rate Loans, four
Banking Days prior thereto. Each such notice shall specify the Loans to be
prepaid, converted or renewed and the amount (subject to Section 2.07) and type
of the Loans to be converted, or prepaid or renewed (and, in the case of a
conversion, the type of Loans to result from such conversion and, in the case of
a Fixed Rate Loan, the Interest Period therefor) and the date of the prepayment,
or conversion or renewal. The Agent shall promptly notify the Banks of the
contents of each such notice.
Section 2.07. Minimum Amounts. Except for (a) prepayments or conversions
which result in the prepayment or conversion of all Loans of a particular type,
or (b) prepayments pursuant to Section 2.09, or (c) conversions made pursuant to
Section 4.04, each prepayment, conversion and renewal of principal of Loans
shall be in an amount not less than $200,000, and in increments of $25,000, in
the aggregate for all Banks (prepayments, conversions or renewals of or into
Loans of different types or, in the case of Fixed Rate Loans, having different
Interest Periods at the same time hereunder to be deemed separate prepayments,
conversions and renewals for the purposes of the foregoing, one for each type or
Interest Period).
Section 2.08. Interest. (a) Interest shall accrue on the outstanding and
unpaid principal amount of each Loan for the period from and including the date
of such Loan to but excluding the date such Loan is due at the following rates
per annum: (i) for a Variable Rate Loan, at a variable rate per annum equal to
the Variable Rate plus the applicable Margin and (ii) for a Fixed Rate Loan, at
a fixed rate equal to the Fixed Rate plus the applicable Margin. If the
principal amount of any Loan and any other amount payable by the Borrower
hereunder or under a Term Note shall not be paid when due (on an Amortization
Date, at stated maturity, by acceleration or otherwise), interest shall accrue
on such amount to the fullest extent permitted by law from and including such
due date to but excluding the date such amount is paid in full at the Default
Rate.
(b) The interest rate on each Variable Rate Loan shall change when
the Variable Rate changes and interest on each such Loan shall be calculated on
<PAGE>
the basis of a year of 360 days for the actual number of days elapsed. Interest
on each Fixed Rate Loan shall be calculated on the basis of a year of 360 days
for the actual number of days elapsed. Promptly after the determination of any
interest rate provided for herein or any change therein, the Agent shall notify
the Borrower and the Banks.
(c) Accrued interest shall be due and payable in arrears upon any
payment of principal or conversion and (i) for each Variable Rate Loan, on the
last day of each calendar month, commencing the first such date after such Loan;
and (ii) for each Fixed Rate Loan, on the last day of the Interest Period with
respect thereto and, in the case of an Interest Period greater than three
months, at three-month intervals after the first day of such Interest Period;
provided that interest accruing at the Default Rate shall be due and payable
from time to time on demand of the Agent.
Section 2.09. Mandatory Prepayments. (a) The Borrower shall use reasonable
efforts to obtain (without unreasonable delay after the Closing Date) a mortgage
refinancing or sale/leaseback arrangement in respect of the New Freehold/Howell
Real Estate in an amount sufficient to yield net refinancing or sale proceeds
(after the payment of the existing mortgage held by Corestates-New Jersey
National Bank and all appraisal, attorney, title insurance and other fees
required by the refinancing lender or purchaser/lessor to be paid by the
Borrower) ("Net Refinancing Proceeds") in an amount not less than $1,500,000 (in
the case of a sale/leaseback) or $1,000,000 (in the case of a mortgage
refinancing). The Borrower shall apply the Net Refinancing Proceeds as follows:
(i) $750,000 (in the case of a sale/leaseback) or $500,000 (in
the case of a mortgage refinancing) to the prepayment of the
principal of the Loans; then
(ii) $750,000 (in the case of a sale/leaseback) or $500,000
(in the case of a mortgage refinancing) to the prepayment of the
principal of the Facility A Loans; then
(iii) any remaining balance of the Net Refinancing Proceeds
shall be applied to the prepayment of the principal of the Facility
A Loans.
The Agent shall have no obligation to discharge the lien of the Mortgage unless
(aa) no Default or Event of Default exists; and (bb) the Borrower provides to
the Agent a written certification of the calculation of the amount of the Net
Refinancing Proceeds, together with such supporting information as the Agent may
reasonably request; and (cc) the amount of the Net Refinancing Proceeds is not
less than $1,500,000 (in the case of a sale/leaseback) or $1,000,000 (in the
case of a mortgage refinancing); and (dd) in the case of a sale/leaseback
arrangement, the sale price is not less than $3,500,000 (net of ordinary closing
costs), and the rental payment (net of real estate taxes and operating expenses)
is not greater than $4 per square foot per year (as may be increased each year
after the first year commensurate with percentage increases in the Consumer
Price Index), and no other payment in any material amount is required to be paid
by the Borrower to the purchaser/lessor in connection therewith, and the
Borrower shall have provided the
<PAGE>
Agent with satisfactory evidence of such economic terms; and (ee) in the case of
a sale/leaseback arrangement, not less than 48 hours shall have elapsed after
the Borrower shall have advised the Agent that the Borrower has notified the
Designated Party of the sale price and economic terms of the lease back; and
(ff) simultaneously with such discharge, the Net Refinancing Proceeds are
applied as provided above in this subsection.
(b) All such prepayments of the Loans shall be applied to the Loans
in the inverse order of maturity. Such prepayments shall be subject to Section
4.05 but shall otherwise be without premium or penalty.
Section 2.10. Other Mandatory Prepayment. If the Designated Party notifies
the Agent in writing prior to December 15, 1998 (which notice states that the
Designated Party has given such notice simultaneously to the Borrower) that the
aggregate amount of the purchases by the Borrower, IVOSC, Hall (Canada) and VSC
from the Designated Party of goods and products of every kind whatsoever for the
12-month period ending November 30, 1998 was less than $27,000,000, the Borrower
shall make a mandatory prepayment of the Loans in the aggregate amount of
$500,000 on December 15,1998 (which prepayment shall be in addition to the
regularly scheduled installment of $500,000 due on December 15, 1998 pursuant to
Section 2.01(c)). The Agent shall not have any duty to inquire into or verify
the accuracy of any such notice it receives from the Designated Party,
notwithstanding any dispute thereof by the Borrower. Such prepayment shall be
applied to the Loans in the inverse order of maturity. Such prepayment shall be
subject to Section 4.05 but shall otherwise be without premium or penalty.
Section 2.11. Payments Generally. All payments under this Agreement or the
Term Notes or any other Term Loan Document shall be made to the Agent, for (as
the case may be) its own account or the account of the Banks, in Dollars in
immediately available funds not later than 1:00 p.m. New York City time on the
relevant dates specified above (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Banking Day). The
Agent, or any Bank for whose account any such payment is to be made, may (but
shall not be obligated to) debit the amount of any such payment which is not
made by such time to any ordinary deposit account of the Borrower with the Agent
or such Bank, as the case may be, and any Bank so doing shall promptly notify
the Agent. The Borrower shall, at the time of making each payment under this
Agreement or the Term Notes or any other Term Loan Document, specify to the
Agent the principal or other amount payable by the Borrower under this Agreement
or the Term Notes or any other Term Loan Document to which such payment is to be
applied (and in the event that it fails to so specify, or if a Default or Event
of Default has occurred and is continuing, the Agent may apply such payment as
it may elect in its sole discretion (subject to Section 11.16)). If the due date
of any payment under this Agreement or the Term Notes or any other Term Loan
Document would otherwise fall on a day which is not a Banking Day, such date
shall be extended to the next succeeding Banking Day and interest shall be
payable for any principal so extended for the period of such extension. Each
payment received by the Agent hereunder or under any Term Note or any other Term
Loan Document for the account of a Bank shall be paid promptly to such Bank, in
immediately available funds, for the account of such Bank's Lending Office.
<PAGE>
Section 2.12. Single Loan. Notwithstanding anything to the contrary
contained in this Agreement or any of the other Term Loan Documents, unless and
until the same shall be assigned to the Designated Party pursuant to the terms
of the Designated Party Term Guaranty, The Chase Manhattan Bank shall be the
sole Bank hereunder, its Funding Percentage shall at all times be 100% of the
Commitment, the entire Commitment shall be advanced as a single term loan on the
date of the initial borrowing hereunder and shall be repaid, prepaid and/or
converted as provided for hereunder only as a single term loan; provided,
however, that nothing in this Section shall preclude or restrict The Chase
Manhattan Bank from assigning its Loan in whole or in part (or granting
participation interests therein) to (a) any affiliate of, or any corporate
successor to, The Chase Manhattan Bank, or (b) following an Event of Default and
a default by the Designated Party under the Designated Party Term Guaranty, any
other Person.
ARTICLE 3. [RESERVED].
ARTICLE 4. YIELD PROTECTION; ILLEGALITY; ETC.
Section 4.01. Additional Costs. (a) The Borrower shall pay directly to
each Bank and the Agent from time to time within ten days after demand therefor
such amounts as such Bank or the Agent may determine to be necessary to
compensate it for any costs which such Bank or the Agent determines are
attributable to its making or maintaining any Fixed Rate Loans under this
Agreement or its Note, or any reduction in any amount receivable by such Bank
hereunder in respect of any such Loans (such increases in costs and reductions
in amounts receivable being herein called "Additional Costs"), resulting from
any Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to such Bank or the Agent under this Agreement or its Term Note in
respect of any of such Loans (other than taxes imposed on the overall net income
of such Bank or the Agent or of its Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or such Lending
Office); or (ii) imposes or modifies any reserve, special deposit, deposit
insurance or assessment, minimum capital, capital ratio or similar requirements
relating to any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Bank or the Agent (including any of such Loans or any
deposits referred to in the definition of "Fixed Base Rate" in Section 1.01); or
(iii) imposes any other condition affecting this Agreement or its Term Note (or
any of such extensions of credit or liabilities). Each Bank or the Agent will
notify the Borrower of any event occurring after the date of this Agreement
which will entitle such Bank or the Agent (as the case may be) to compensation
pursuant to this Section 4.01(a) as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation. If any Bank
requests compensation from the Borrower under this Section 4.01(a), or under
Section 4.01(c), the Borrower may, by notice to such Bank (with a copy to the
Agent), require that such Bank's Loans of the type with respect to which such
compensation is requested be converted in accordance with Section 4.04.
<PAGE>
(b) Without limiting the effect of the foregoing provisions of this
Section 4.01, in the event that, by reason of any Regulatory Change, any Bank
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the interest rate on
Fixed Rate Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes Fixed Rate
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Bank so elects by
notice to the Borrower (with a copy to the Agent), the obligation of such Bank
to renew, and to convert Loans of any other type into, Loans of such type
hereunder shall be suspended until the date such Regulatory Change ceases to be
in effect (and all Loans of such type held by such Bank then outstanding shall
be converted in accordance with Section 4.04).
(c) Without limiting the effect of the foregoing provisions of this
Section 4.01 (but without duplication), the Borrower shall pay directly to each
Bank from time to time within ten days after request therefor such amounts as
such Bank may determine to be necessary to compensate such Bank for any costs
which it determines are attributable to the maintenance by it or any of its
affiliates pursuant to any law or regulation of any jurisdiction or any
interpretation, directive or request (whether or not having the force of law and
whether in effect on the date of this Agreement or thereafter) of any court or
governmental or monetary authority of capital in respect of its Loans hereunder
(such compensation to include, without limitation, an amount equal to any
reduction in return on assets or equity of such Bank to a level below that which
it could have achieved but for such law, regulation, interpretation, directive
or request). Each Bank will notify the Borrower if it is entitled to
compensation pursuant to this Section 4.01(c) as promptly as practicable after
it makes a determination to request such compensation.
(d) Determinations and allocations by a Bank for purposes of this
Section 4.01 of the effect of any Regulatory Change pursuant to subsections (a)
or (b), or of the effect of capital maintained pursuant to subsection (c), on
its costs of making or maintaining Loans, or on amounts receivable by, or the
rate of return to, it in respect of Loans, and of the additional amounts
required to compensate such Bank under this Section 4.01, shall be conclusive,
provided that such determinations and allocations are made on a reasonable basis
and are set forth in reasonable detail and provided to the Borrower together
with the request for payment thereof.
(e) Any Bank claiming any additional amount under this Section 4.01
agrees to use reasonable efforts (consistent with legal and regulatory
restrictions) to designate a different Lending Office if the making of such
designation would avoid the need for, or reduce the amount of, any such
additional amounts.
(f) In the event that any Bank requests compensation pursuant to
this Section 4.01, the Borrower shall be entitled to require such Bank (on at
least 30 days' prior written notice to such Bank and the Agent) to assign its
rights and obligations under this Agreement (including the Loans owing to it) to
a new lender obtained by the Borrower (provided that such lender is reasonably
acceptable to the
<PAGE>
Agent), which assignment shall be effected in accordance with and subject to all
the terms and conditions of Section 12.05.
Section 4.02. Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if:
(a) the Agent determines (which determination shall be conclusive)
that quotations of interest rates for the relevant deposits referred to in the
definition of "Fixed Base Rate" in Section 1.01 are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining the
rate of interest for Fixed Rate Loans as provided in this Agreement; or
(b) the Required Banks determine (which determination shall be
conclusive) and notify the Agent that the relevant rates of interest referred to
in the definition of "Fixed Base Rate" in Section 1.01 upon the basis of which
the rate of interest for Fixed Rate Loans is to be determined do not adequately
cover the cost to the Banks of making or maintaining such Loans;
then the Agent shall give the Borrower and each Bank prompt notice thereof, and
so long as such condition remains in effect, the Banks shall be under no
obligation to make or renew Loans of such type or to convert Loans of any other
type into Loans of such type and the Borrower shall, on the last day(s) of the
then current Interest Period(s) for the outstanding Loans of the affected type,
either prepay such Loans or convert such Loans into another type of Loans in
accordance with Section 2.05.
Section 4.03. Illegality. Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for any Bank or its Lending
Office to (a) honor its obligation to renew Fixed Rate Loans hereunder or
convert Loans of any type into Loans of such type, or (b) maintain Fixed Rate
Loans hereunder, then such Bank shall promptly notify the Borrower thereof (with
a copy to the Agent) and such Bank's obligation to make or renew Fixed Rate
Loans and to convert other types of Loans into Loans of such type hereunder
shall be suspended until such time as such Bank may again make, renew, or
convert and maintain such affected Loans and such Bank's outstanding Fixed Rate
Loans, as the case may be, shall be converted in accordance with Section 4.04.
Section 4.04. Certain Conversions pursuant to Sections 4.01 and 4.03. If
the Loans of any Bank of a particular type (Loans of such type being herein
called "Affected Loans" and such type being herein called the "Affected Type")
are to be converted pursuant to Section 4.01 or 4.03, such Bank's Affected Loans
shall be automatically converted into Variable Rate Loans on the last day(s) of
the then current Interest Period(s) for the Affected Loans (or, in the case of a
conversion required by Section 4.01(b) or 4.03, on such earlier date as such
Bank may specify to the Borrower with a copy to the Agent) and, unless and until
such Bank gives notice as provided below that the circumstances specified in
Section 4.01 or 4.03 which gave rise to such conversion no longer exist:
(a) to the extent that such Bank's Affected Loans have been so
converted, all payments and prepayments of principal which would otherwise be
<PAGE>
applied to such Bank's Affected Loans shall be applied instead to its Variable
Rate Loans; and
(b) all Loans which would otherwise be made or renewed by such Bank
as Loans of the Affected Type shall be made instead as Variable Rate Loans and
all Loans of such Bank which would otherwise be converted into Loans of the
Affected Type shall be converted instead into (or shall remain as) Variable Rate
Loans; and
(c) if Loans of other Banks of the Affected Type are subsequently
converted into Loans of another type (other than Variable Rate Loans), such
Bank's Variable Rate Loans shall be automatically converted on the conversion
date into Loans of such other type to the extent necessary so that, after giving
effect thereto, all Loans held by such Bank and the Banks whose Loans are so
converted are held pro rata (as to principal amounts, types and Interest
Periods) in accordance with their respective Bank Percentages.
If such Bank gives notice to the Borrower (with a copy to the Agent) that
the circumstances specified in Section 4.01 or 4.03 which gave rise to the
conversion of such Bank's Affected Loans pursuant to this Section 4.04 no longer
exist (which such Bank agrees to do promptly upon such circumstances ceasing to
exist) at a time when Loans of the Affected Type are outstanding, such Bank's
Variable Rate Loans shall be automatically converted, on the first day(s) of the
next succeeding Interest Period(s) for such outstanding Loans of the Affected
Type to the extent necessary so that, after giving effect thereto, all Loans
held by the Banks holding Loans of the Affected Type under each Facility and by
such Bank are held pro rata (as to principal amounts, types and Interest
Periods) in accordance with their respective Bank Percentages.
Section 4.05. Certain Compensation. The Borrower shall pay to the Agent
for the account of each Bank, within ten days after the request of such Bank
through the Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost or expense
which such Bank determines is attributable to:
(a) any payment, prepayment, conversion or renewal of a Fixed Rate
Loan made by such Bank on a date other than the last day of an Interest Period
for such Loan (whether by reason of acceleration or otherwise); or
(b) any failure by the Borrower to borrow, convert into or renew a
Fixed Rate Loan to be made, converted into or renewed by such Bank on the date
specified therefor in the relevant notice under Section 2.04, 2.05 or 2.06, as
the case may be.
Without limiting the foregoing, such compensation shall include an amount
equal to the excess, if any, of: (i) the amount of interest which otherwise
would have accrued on the principal amount so paid, prepaid, converted or
renewed or not borrowed, converted or renewed for the period from and including
the date of such payment, prepayment or conversion or failure to borrow, convert
or renew to but excluding the last day of the then current Interest Period for
such Loan (or, in the
<PAGE>
case of a failure to borrow, convert or renew, to but excluding the last day of
the Interest Period for such Loan which would have commenced on the date
specified therefor in the relevant notice) at the applicable rate of interest
for such Loan provided for herein; over (ii) the amount of interest (as
reasonably determined by such Bank) such Bank would have bid in the London
interbank market for Dollar deposits for amounts comparable to such principal
amount and maturities comparable to such period. A determination of any Bank as
to the amounts payable pursuant to this Section 4.05 shall be conclusive absent
manifest error and shall be set forth in reasonable detail and provided to the
Borrower together with the request for payment thereof.
ARTICLE 5. CONDITIONS PRECEDENT.
Section 5.01. Documentary Conditions Precedent. The obligations of the
Banks to make the Loans are subject to the condition precedent that the Agent
shall have received on or before the date of such Loans each of the following,
in form and substance satisfactory to the Agent and its counsel:
(a) the Term Note for each Bank duly executed by the Borrower;
(b) the other Term Loan Documents to which the Borrower is a party,
duly executed by the Borrower;
(c) the Designated Party Term Guaranty, the Term Intercreditor
Agreement, and the Designated Party Identification Agreement, all duly executed
by the Designated Party;
(d) the Term Loan Documents to which any Subsidiary of the Borrower
is a party, duly executed by such Subsidiary;
(e) (x) financing statements (UCC-1) duly executed by the Borrower
and the Subsidiaries (respectively) in form suitable for filing under the
Uniform Commercial Code of all jurisdictions necessary or, in the opinion of the
Agent or any Bank, desirable to perfect the security interest created by the VSC
Term Security Agreement and the Borrower/IVOSC/Hall (Canada) Term Security
Agreement; and (y) certified copies of requests for information identifying all
of the financing statements on file with respect to the Borrower, each
Subsidiary and the entity that sold to the Borrower the Vitamin Specialties
Business, in all jurisdictions referred to under (x), indicating that no party
claims an interest in any of the Security (as defined in any such Security
Agreement);
(f) amendments to the Revolving Credit Agreement and documents
executed and delivered in connection therewith to (among other things) adjust
the subordination with respect to the Vitamin Specialties Assets, and provide
for a guaranty by VSC of the obligations of the Borrower under the Revolving
Credit Agreement and a junior lien on the assets of VSC to secure such guaranty,
duly executed by (as appropriate) the Borrower, the Subsidiary and the
Designated Party;
<PAGE>
(g) a certificate of the Secretary or Assistant Secretary of the
Borrower dated the Closing Date (x) attesting to all corporate action taken by
the Borrower, including resolutions of its Board of Directors authorizing the
execution, delivery and performance of the Term Loan Documents to which it is a
party and each other document to be delivered pursuant to this Agreement; and
(y) certifying the names and true signatures of the officers of the Borrower
authorized to sign the Term Loan Documents to which it is a party and the other
documents to be delivered by the Borrower under this Agreement;
(h) a certificate of a duly authorized officer of the Borrower,
dated the Closing Date, stating that the representations and warranties in
Article 6 are true and correct in all material respects on such date as though
made on and as of such date and that no event has occurred and is continuing
which constitutes a Default or Event of Default;
(i) a certificate of the Secretary or Assistant Secretary of each of
the Subsidiaries dated the Closing Date (x) attesting to all corporate action
taken by such Subsidiary, including resolutions of its Board of Directors,
authorizing the execution, delivery and performance of the Term Loan Documents
to which it is a party; and (y) certifying the names and true signatures of the
officers of each such Subsidiary authorized to sign the Term Loan Documents to
which it is a party;
(j) a favorable opinion of counsel for the Borrower and the
Subsidiaries, dated the Closing Date, in substantially the form of Exhibit E and
as to such other matters as the Agent or any Bank may reasonably request;
(k) a certificate of the Secretary or Assistant Secretary of the
Designated Party dated the Closing Date (x) attesting to all corporate action
taken by the Designated Party, including resolutions of its Board of Directors,
authorizing the execution, delivery and performance of the Designated Party Term
Guaranty and (y) certifying the names and true signatures of the officers of the
Designated Party authorized to sign the Term Loan Documents to which the
Designated Party is a party;
(l) a favorable opinion of counsel for the Designated Party dated
the Closing Date as to such matters as the Agent or any Bank may reasonably
request;
(m) the written consent of Corestates - New Jersey National Bank
with respect to the borrowing of the Loans and granting by the Borrower to the
Agent of the Mortgage on the New Freehold/Howell Real Estate;
(n) a policy of title insurance (or a commitment therefor marked up
by the title insurance company) in the amount of $2,500,000 insuring the
Mortgage as a second-priority Lien on the New Freehold/Howell Real Estate
(subject only to a mortgage in favor of Corestates - New Jersey National Bank,
which shall have an outstanding balance not in excess of $1,450,000; and subject
to no other Liens or encumbrances that are objectionable to the Agent);
(o) an as-built survey of the New Freehold/Howell Real Estate dated
not more than 24 months prior to the Closing Date, together with a survey
affidavit of no change executed by the Borrower;
<PAGE>
(p) a certificate stating whether or not the New Freehold/Howell
Real Estate is in a federally-designated flood hazard area, and (if so) evidence
that flood insurance is in effect as required by law;
(q) a certificate of insurance (on form ACCORD 27) evidencing the
effectiveness of "all-risk" property insurance with respect to the improvements
comprising the New Freehold/Howell Real Estate and with respect to the inventory
and equipment of the Borrower, which names the Agent under a standard mortgagee
and lender-loss payable endorsement;
(r) a letter of nonapplicability under the New Jersey Industrial
Site Recovery Act issued by the New Jersey Department of Environmental
Protection as to the acquisition by the Borrower of the New Freehold/Howell Real
Estate;
(s) consent letters from the Authority and from the Banque Nationale
de Paris consenting to the borrowing of the Loans and to the grant by the
Borrower of the collateral therefor (including the Mortgage and the
Borrower/IVOSC/Hall (Canada) Term Security Agreement);
(t) the consolidated financial statements of the Borrower and its
Consolidated Subsidiaries as of and for the fiscal quarter ending January 31,
1998 that are referred to in Section 6.05;
(u) advice from the Designated Party that the Borrower has an open
credit line of not less than $3,950,000 (subject to revision in accordance with
normal commercial practices) with the Designated Party, and that such amount
will increase by $750,000 (subject to revision in accordance with normal
commercial practices) when the Borrower prepays the Loans as provided in Section
2.09;
(v) the Edell Term Subordination Agreement, duly executed by Arthur
Edell;
(w) employment agreements with the Principals (respectively), duly
executed by the Borrower and the Principals;
(x) current financial statements of VSC; and
(y) such other approvals, consents, opinions and documents as the
Agent may reasonably request.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants that:
Section 6.01. Incorporation, Good Standing and Due Qualification. Each of
the Borrower and its Subsidiaries is duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its assets and to transact the business in
which it is now
<PAGE>
engaged or proposed to be engaged, and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required, except where the failure to so qualify
would not have a material adverse effect on the financial condition, operations,
properties or business of the Borrower or any of its Subsidiaries.
Section 6.02. Corporate Power and Authority: No Conflicts. The execution,
delivery and performance by the Borrower and by each Subsidiary of the Borrower
of the Term Loan Documents to which it is a party have been duly authorized by
all necessary corporate action and do not and will not: (a) require any consent
or approval of its stockholders; (b) contravene its charter or by-laws; (c)
violate any provision of, or require any filing (other than the filing of the
financing statements contemplated by the VSC Term Security Agreement and the
Borrower/IVOSC/Hall (Canada) Term Security Agreement), registration, consent or
approval under, any law, rule, regulation (including, without limitation,
Regulation U), order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to the Borrower or any of its
Subsidiaries; (d) result in a breach of or constitute a default or require any
consent under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected; (e) result in, or require, the creation or
imposition of any Lien (other than as created under the Term Loan Documents),
upon or with respect to any of the properties now owned or hereafter acquired by
the Borrower or any Subsidiary of the Borrower; or (f) cause the Borrower or any
Subsidiary of the Borrower to be in default under any such law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award or
any such indenture, agreement, lease or instrument.
Section 6.03. Legally Enforceable Agreements. Each Term Loan Document to
which the Borrower or any Subsidiary of the Borrower is a party is a legal,
valid and binding obligation of the Borrower or such Subsidiary (as the case may
be) enforceable against the Borrower or such Subsidiary (as the case may be) in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance, moratorium
and other similar laws affecting creditors' rights generally.
Section 6.04. Litigation. Except as set forth in Schedule 6.04, there are
no actions, suits or proceedings pending or, to the knowledge of the Borrower,
threatened, against or affecting the Borrower or any Subsidiary of the Borrower
before any court, governmental agency or arbitrator, which may, in any one case
or in the aggregate, materially adversely affect the financial condition,
operations, properties or business of the Borrower or any such Subsidiary or of
the ability of the Borrower or such Subsidiary to perform its obligations under
the Term Loan Documents to which it is a party.
Section 6.05. Financial Statements. (a) The consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as at July 31, 1997, and the
related consolidated income statement and statements of cash flows and changes
in stockholders' equity of the Borrower and its Consolidated Subsidiaries for
the fiscal year then ended, and the accompanying footnotes, together with the
opinion thereon of Amper, Politziner & Mattia, independent certified public
accountants, and
<PAGE>
the interim consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of January 31, 1998, and the related consolidated income
statement and statement of cash flows for the six-month period then ended,
copies of which have been furnished to each of the Banks, fairly present the
financial condition of the Borrower and its Consolidated Subsidiaries as at such
dates and the results of the operations of the Borrower and its Consolidated
Subsidiaries for the periods covered by such statements, all in accordance with
GAAP consistently applied (subject to year-end adjustments and the absence of
footnotes, in the case of such interim financial statements). Since July 31,
1997, there has been no material adverse change in the condition (financial or
otherwise), business or operations of the Borrower or any of its Subsidiaries,
except as may be reflected in the Forms 10-Q filed by the borrower with the
Securities and Exchange Commission between July 31, 1997 and the Closing Date.
(b) There are no liabilities of the Borrower or any of its
Consolidated Subsidiaries, fixed or contingent, which are material but are not
reflected in such financial statements or in the notes thereto, other than
liabilities arising in the ordinary course of business since July 31, 1997.
(c) No information, exhibit or report furnished by the Borrower in
writing to the Agent or any of the Banks in connection with the negotiation of
this Agreement contained to the Borrower's knowledge any material misstatement
of fact or omitted to state a material fact or any fact necessary to make the
statements contained therein not misleading.
Section 6.06. Ownership and Liens. Each of the Borrower and the
Consolidated Subsidiaries of the Borrower has title to, or valid leasehold
interests in, all of its properties and assets, real and personal, including the
properties and assets, and leasehold interests reflected in the financial
statements referred to in Section 6.05 (other than any properties or assets
disposed of in the ordinary course of business), and none of the properties and
assets owned by the Borrower or any Subsidiary of the Borrower and none of its
leasehold interests is subject to any Lien, except as disclosed in such
financial statements or as may be permitted hereunder (including without
limitation those identified on Schedule 6.10) and except for the Liens created
by the Term Loan Documents and the Liens in favor of the agent under the
Revolving Credit Agreement and the Liens in favor of the Designated Party that
were granted in connection with the Revolving Credit Agreement.
Section 6.07. Taxes. Each of the Borrower and its Subsidiaries has filed
or caused to be filed all tax returns (federal, state and local) required to be
filed and has paid or caused to be paid all taxes, assessments and governmental
charges and levies shown thereon to be due, including interest and penalties.
Section 6.08. ERISA. Each Plan, and, to the best knowledge of the
Borrower, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other applicable Federal or
state law, and no event or condition is occurring or exists concerning which the
Borrower would be under an obligation to furnish a report to the Bank in
accordance with Section 7.08(h) hereof. As of the most recent valuation date for
each Plan, each Plan was
<PAGE>
"fully funded" (which for purposes of this Section 6.08 shall mean that the fair
market value of the assets of the Plan is not less than the present value of the
accrued benefits of all participants in the Plan, computed on a Plan termination
basis) or the present value of accrued benefits (determined on such basis) does
not exceed the fair market value of the Plan's assets by an amount which is
material.
Section 6.09. Subsidiaries and Ownership of Stock. Schedule 6.09 contains
a complete and accurate list of the Subsidiaries of the Borrower, showing the
jurisdiction of incorporation or organization of each Subsidiary and showing the
percentage of the Borrower's ownership of the outstanding stock or other
interest of each such Subsidiary. All of the outstanding capital stock or other
interest of each such Subsidiary has been validly issued, is fully paid and
nonassessable and is owned by the Borrower free and clear of all Liens.
Section 6.10. Credit Arrangements. Schedule 6.10 contains a complete and
correct list of all credit agreements, indentures, purchase agreements,
guaranties, Capital Leases and other investments, agreements and arrangements
presently in effect providing for or directly relating to extensions of credit
(including agreements and arrangements for the issuance of letters of credit or
for acceptance financing) in respect of which the Borrower or any of its
Subsidiaries is in any manner directly or contingently obligated; and the
maximum principal or face amounts of the credit in question, outstanding and
which can be outstanding, are correctly stated, and all Liens of any nature
given or agreed to be given as security therefor are correctly described or
indicated in such Schedule.
Section 6.11. Operation of Business. Each of the Borrower and its
Subsidiaries possesses all licenses, permits, franchises, patents, copyrights,
trademarks and trade names, or rights thereto to conduct its business
substantially as now conducted and as presently proposed to be conducted, except
where the failure to possess any such right would not materially adversely
affect the financial condition, operations, properties or business of the
Borrower or any Subsidiary of the Borrower; and to the knowledge of the
Borrower, neither the Borrower nor any of its Subsidiaries is in violation of
any valid rights of others with respect to any of the foregoing.
Section 6.12. Hazardous Materials. The Borrower and each of its
Subsidiaries have obtained all permits, licenses and other authorizations which
are required under all Environmental Laws, except to the extent failure to have
any such permit, license or authorization would not have a material adverse
effect on the consolidated financial condition, operations or business of the
Borrower and its Consolidated Subsidiaries. The Borrower and each of its
Subsidiaries are in compliance with the terms and conditions of all such
permits, licenses and authorizations, and are also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations schedules and timetables contained in any applicable Environmental
Law or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply would not have a material adverse effect
on the consolidated financial condition, operations or business of the Borrower
and its Consolidated Subsidiaries.
<PAGE>
In addition, except as set forth in Schedule 6.12 hereto, or except as
would not have a material adverse effect on the consolidated financial
condition, operations, or business of the Borrower and its Consolidated
Subsidiaries:
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity with respect to any alleged
failure by the Borrower or any of its Subsidiaries to have any permit, license
or authorization required in connection with the conduct of the business of the
Borrower or any of its Subsidiaries or with respect to any generation,
treatment, storage, recycling, transportation, release or disposal, or any
release as defined in 42 U.S.C. ss.9601(22) ("Release"), of any substance
regulated under Environmental Laws ("Hazardous Materials") generated by the
Borrower or any of its Subsidiaries.
(b) Neither the Borrower nor any of its Subsidiaries has handled any
Hazardous Material, other than as a generator, on any property now or previously
owned or leased by the Borrower or any of its Subsidiaries; and
(i) no polychlorinated biphenyl is or has been present at any
property now or previously owned or leased by the Borrower or any of
its Subsidiaries;
(ii) no asbestos is or has been present at any property now or
previously owned or leased by the Borrower or any of its
Subsidiaries;
(iii) there are no underground storage tanks for Hazardous
Materials. active or abandoned, at any property now or previously
owned or leased by the Borrower or any of its Subsidiaries;
(iv) no Hazardous Materials have been Released, in a
reportable quantity, where such a quantity has been established by
statute, ordinance, rule. regulation or order, at, on or under any
property now or previously owned by the Borrower or any of its
Subsidiaries; and
(c) Neither the Borrower nor any of its Subsidiaries has transported
or arranged for the transportation of any Hazardous Material to any location
which is listed on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), listed for possible inclusion on the National Priorities List by the
Environmental Protection Agency in the Comprehensive Environmental Response and
Liability Information System as provided by 40 C.F.R. ss.300.5 ("CERCLIS") or on
any similar state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against the
Borrower or any of its Subsidiaries for clean-up costs, remedial work, damages
to natural resources or for personal injury claims, including, but not limited
to, claims under CERCLA.
(d) No Hazardous Material generated by the Borrower or any of its
Subsidiaries has been recycled, treated, stored, disposed of or Released by the
<PAGE>
Borrower or any of its Subsidiaries at any location other than those listed in
Schedule 6.12 hereto.
(e) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of the Borrower or any of its
Subsidiaries and no property now or previously owned or leased by the Borrower
or any of its Subsidiaries is listed or proposed for listing on the National
Priorities List promulgated pursuant to CERCLA, on CERCLIS or on any similar
state list of sites requiring investigation or clean-up.
(f) There are no Liens arising under or pursuant to any
Environmental laws on any of the real property or properties owned or leased by
the Borrower or any of its Subsidiaries, and no government actions have been
taken or are in process which could subject any of such properties to such Liens
and neither the Borrower nor any of its Subsidiaries would be required to place
any notice or restriction relating to the presence of Hazardous Materials at any
property owned by it in any deed to such property.
(g) There have been no environmental investigations, studies,
audits, test, reviews or other analyses conducted by or which are in the
possession of the Borrower or any of its Subsidiaries in relation to any
property or facility now or previously owned or leased by the Borrower or any of
its Subsidiaries which have not been made available to the Banks.
Section 6.13. No Default on Outstanding Judgments or Orders. Each of the
Borrower and its Subsidiaries has satisfied all judgments and neither the
Borrower nor any of its Subsidiaries is in default with respect to any judgment,
title, injunction, decree, rule or regulation of any court, arbitrator or
federal, state, municipal or other governmental authority, commission, board,
bureau, agency or instrumentality, domestic or foreign.
Section 6.14. No Defaults on Other Agreements. Neither the Borrower nor
any Subsidiary of the Borrower is a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction which could reasonably be expected to have a
material adverse effect on the business, properties, assets, operations or
conditions, financial or otherwise, of the Borrower or any such Subsidiary or
its ability to carry out its obligations under the Term Loan Documents to which
it is a party. Neither the Borrower nor any Subsidiary of the Borrower is in
default in any respect in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement or
instrument to which it is a party, except where such default would not result in
a material adverse effect on the business, properties, assets or financial
condition of the Borrower or any Subsidiary of the Borrower.
Section 6.15. Labor Disputes and Acts of God. Neither the business nor the
properties of the Borrower or of any of its Subsidiaries are affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether
<PAGE>
or not covered by insurance), materially and adversely affecting such business
or properties or the operation of the Borrower or such Subsidiary.
Section 6.16. Governmental Regulation. Neither the Borrower nor any
Subsidiary of the Borrower is subject to regulation under the Public Utility
Holding Company Act of 1935, the Investment Company Act of 1940, the Interstate
Commerce Act, the Federal Power Act or any statute or regulation limiting its
ability to incur indebtedness for money borrowed.
Section 6.17. Partnerships. Neither the Borrower nor any of its
Subsidiaries is a partner in any partnership other than Hidel Partners (of which
the Borrower owns 100% of the Partnership Interests).
Section 6.18. No Forfeiture Proceeding. No Forfeiture Proceeding is
pending or, to the knowledge of the Borrower, threatened.
Section 6.19. Solvency.
(a) The present fair saleable value of the assets of the Borrower
after giving effect to all the transactions contemplated by the Term Loan
Documents and the funding of all Commitments hereunder exceeds the amount of the
existing debts and other liabilities (including contingent liabilities) of the
Borrower.
(b) The property of the Borrower does not constitute unreasonably
small capital for the Borrower to carry out its business as now conducted and as
proposed to be conducted including the capital needs of the Borrower.
(c) The Borrower does not intend to, nor does it believe that it
will, incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be received by the Borrower, and
of amounts to be payable on or in respect of debt of the Borrower). The cash
available to the Borrower after taking into account all other anticipated uses
of the cash of the Borrower, is anticipated to be sufficient to pay all such
amounts on or in respect of debt of the Borrower when such amounts are required
to be paid.
(d) The Borrower does not believe that final judgments against it in
actions for money damages will be rendered at a time when, or in an amount such
that, the Borrower will be unable to satisfy any such judgments promptly in
accordance with their terms (taking into account the maximum reasonable amount
of such judgments in any such actions and the earliest reasonable time at which
such judgments might be rendered). The cash available to the Borrower after
taking into account all other anticipated uses of the cash of the Borrower
(including the payments on or in respect of debt referred to in paragraph (c) of
this Section 6.19), is anticipated to be sufficient to pay all such judgments
promptly in accordance with their terms.
Section 6.20. As to Collateral. (a) The assets comprising the Vitamin
Specialties Business have been transferred by the Borrower to VSC (except for
the tenant's interest under the leases of certain of the Stores; and subject to
the matters referred to in subsection (d) of this Section with respect to
trademarks), and the
<PAGE>
Vitamin Specialties Business is now conducted entirely by VSC and not by the
Borrower or any other Subsidiary.
(b) Schedule 6.20(b) hereto accurately sets forth as to each of the
Borrower and each Subsidiary of the Borrower, the address of (i) its chief
executive office and (ii) each place in which it keeps any inventory, equipment
or fixtures (including, without limitation, each place that is a Store).
(c) During the five years preceding the Closing Date, neither the
Borrower nor any Subsidiary of the Borrower has been known by any name other
than its current name, except for the following names:
(i) Hall Laboratories, Inc.
(ii) International Vitamin Corporation
(iii) International Vitamin Supplements, Inc.
(iv) Vitamin Factory Outlets, Inc.
(v) American Vitamin Products, Inc.
(vi) Hidel Partners
(vii) Ilan Packaging, Inc.
(viii) Vitamin Specialties Division of HealthRite Inc.
(d) None of the trademarks comprising the Vitamin Specialties Assets
is registered with the U.S. Patent and Trademark Office, except that "Vitamin
Specialties" (both with and without a logo) is so registered (and such
registration is of record subject to an outstanding interest in favor of
National Westminster Bank).
(e) The names and addresses of the landlords of the present Stores
are as identified on Schedule 6.20(e).
ARTICLE 7. AFFIRMATIVE COVENANTS.
So long as any of the Term Notes shall remain unpaid, the Borrower shall:
Section 7.01. Maintenance of Existence. Preserve and maintain, and (except
to the extent of any merger of a Subsidiary into the Borrower as permitted
hereby) cause each Subsidiary of the Borrower to preserve and maintain, its
corporate existence and good standing in the jurisdiction of its incorporation,
and qualify and remain qualified, and cause each such Subsidiary to qualify and
remain qualified, as a foreign corporation in each jurisdiction in which such
qualification is required.
<PAGE>
Section 7.02. Conduct of Business. Continue, and cause each Subsidiary of
the Borrower to continue, to engage in the same general manner in a business of
the same general type as conducted by the Borrower and its Subsidiaries
immediately prior to the execution and delivery of this Agreement.
Section 7.03. Maintenance of Properties. Maintain, keep and preserve, and
cause each Subsidiary of the Borrower to maintain, keep and preserve, all of its
properties, (tangible and intangible) necessary or useful in the proper conduct
of its business in good working order and condition, ordinary wear and tear
excepted.
Section 7.04. Maintenance of Records. Keep, and cause each Subsidiary of
the Borrower to keep, adequate records and books of account, in which complete
entries will be made in accordance with GAAP, reflecting all financial
transactions of the Borrower and such Subsidiaries.
Section 7.05. Maintenance of Insurance. Maintain, and cause each
Subsidiary of the Borrower to maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in the same or a similar
business and similarly situated, which insurance may provide for reasonable
deductibility from coverage thereof. The policy of property insurance covering
the inventory, equipment and fixtures of the Borrower or any Subsidiary
Guarantor shall name the Agent under a lender loss payable endorsement in form
acceptable to the Agent.
Section 7.06. Compliance with Laws. Comply, and cause each Subsidiary of
the Borrower to comply, in all respects with all applicable laws, rules,
regulations and orders (except where any failure to comply would not have a
material effect on the financial condition, operations, properties or business
of the Borrower or any of its Subsidiaries), such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its property (except to the extent
that the same is being contested in good faith by appropriate proceedings and
adequate reserves are set aside therefor).
Section 7.07. Right of Inspection. At any reasonable time and from time to
time, upon prior written notice, permit the Agent or any Bank or any agent or
representative thereof, (i) to examine and make copies and abstracts from the
records and books of account of, and visit the properties of, the Borrower and
any of its Subsidiaries, all at the cost of the Borrower, except that the
Borrower shall not be obligated to bear the cost of more than two such
inspections in any 12-month period at each of its Oregon and British Columbia
facilities; and (ii) to discuss the affairs, finances and accounts of the
Borrower and any such Subsidiary with any of their respective officers and
directors and the Borrower's independent accountants, provided however that in
the case of any such meeting with the Borrower's accountants, such meeting is
scheduled through the Borrower and the Borrower is permitted to be present.
Section 7.08. Reporting Requirements. Furnish directly to the Agent and to
each of the Banks:
<PAGE>
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
a consolidated income statement and statements of cash flows and changes in
stockholders' equity of the Borrower and its Consolidated Subsidiaries for such
fiscal year, all in the form required to be set forth in Form 10-K required to
be submitted to the Securities and Exchange Commission and all prepared in
accordance with GAAP and accompanied by an opinion thereon acceptable to the
Agent by Amper, Politziner & Mattia or other independent accountants of
recognized standing selected by the Borrower;
(b) as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and a consolidated income statement and statements of
cash flows and changes in stockholders' equity of the Borrower and its
Consolidated Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, all in the form required to
be set forth in Form 10-Q required to be submitted to the Securities and
Exchange Commission and all prepared in accordance with GAAP and certified by
the chief financial officer of the Borrower (subject to year-end adjustments);
(c) promptly upon receipt thereof, copies of any reports submitted
to the Borrower or any of its Subsidiaries by independent certified public
accountants in connection with examination of the financial statements of the
Borrower or any such Subsidiary made by such accountants;
(d) simultaneously with the delivery of the financial statements
referred to above, a certificate of the chief financial officer of the Borrower
(i) certifying that to the best of his knowledge no Default or Event of Default
has occurred and is continuing or, if a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto, and (ii) with computations
demonstrating compliance with the covenants contained in Article 9;
(e) simultaneously with the delivery of the annual financial
statements referred to in Section 7.08(a), a certificate of the independent
public accountants who audited such statements to the effect that, in making the
examination necessary for the audit of such statements, they have obtained no
knowledge of any condition or event which constitutes a Default or Event of
Default, or if such accountants shall have obtained knowledge of any such
condition or event, specifying in such certificate each such condition or event
of which they have knowledge and the nature and status thereof;
(f) promptly after becoming aware thereof, notice of all actions,
suits, and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Borrower or any of its Subsidiaries which, if determined adversely to the
Borrower or such Subsidiary, could have a material adverse effect on the
financial condition, properties, or operations of the Borrower or such
Subsidiary;
<PAGE>
(g) as soon as possible and in any event within 10 days after
becoming aware of the occurrence of each Default or Event of Default a written
notice setting forth the details of such Default or Event of Default and the
action which is proposed to be taken by the Borrower with respect thereto;
(h) as soon as possible, and in any event within ten days after the
Borrower knows or has reason to know that any of the events or conditions
specified below with respect to any Plan or Multiemployer Plan have occurred or
exist, a statement signed by a senior financial officer of the Borrower setting
forth details respecting such event or condition and the action, if any, which
the Borrower or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC by the
Borrower or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of
ERISA, with respect to a Plan, as to which PBGC has not by
regulation waived the requirement of Section 4043(a) of ERISA that
it be notified within 30 days of the occurrence of such event
(provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA including, without
limitation, the failure to make on or before its due date a required
installment under Section 412(m) of the Code or Section 302(e) of
ERISA, shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code) and any
request for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice
of intent to terminate any Plan or any action taken by the Borrower
or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Borrower or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by PBGC with respect to such Multiemployer
Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by the Borrower or any ERISA Affiliate that results in
liability under Section 4201 or 4204 of ERISA (including the
obligation to satisfy secondary liability as a result of a purchaser
default) or the receipt of the Borrower or any ERISA Affiliate of
notice from a Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it
intends to terminate or has terminated under Section 4041 A of
ERISA;
(v) the institution of a proceeding by a fiduciary or any
Multiemployer Plan against the Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed
within 30 days;
<PAGE>
(vi) the adoption of an amendment to any Plan that pursuant to
Section 401 (a)(29) of the Code or Section 307 of ERISA would result
in the loss of tax-exempt status of the trust of which such Plan is
a part if the Borrower or an ERISA Affiliate fails to timely provide
security to the Plan in accordance with the provisions of said
Sections;
(vii) any event or circumstance exists which may reasonably be
expected to constitute grounds for the Borrower or any ERISA
Affiliate to incur liability under Title IV of ERISA or under
Sections 412(c)(11) or 412(n) of the Code with respect to any Plan;
and
(viii) the Unfunded Benefit Liabilities of one or more Plans
increase after the date of this Agreement in an amount which is
material in relation to the financial condition of the Borrower;
(i) promptly after the request of any Bank, copies of each annual
report filed pursuant to Section 104 of ERISA with respect to each Plan
(including, to the extent required by Section 104 of ERISA, the related
financial and actuarial statements and opinions and other supporting statements,
certifications, schedules and information referred to in Section 103) and each
annual report filed with respect to each Plan under Section 4065 of ERISA;
provided, however, that in the case of a Multiemployer Plan, such annual reports
shall be furnished only if they are available to the Borrower or an ERISA
Affiliate;
(j) promptly after the furnishing thereof, copies of any material
statement or report furnished to any other party pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise required to be
furnished to the Banks pursuant to any other clause of this Section 7.08;
(k) promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports which the Borrower or any of
its Subsidiaries sends to its stockholders, and copies of all regular, periodic
and special reports, and all registration statements which the Borrower or any
such Subsidiary files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any national
securities exchange;
(l) promptly after the commencement thereof or promptly after the
Borrower knows of the commencement or threat thereof, notice of any Forfeiture
Proceeding;
(m) simultaneously with the delivery of the financial statements
referred to in Section 7.08(a), a separate consolidating balance sheet, income
statement and statement of cash flows as to VSC;
(n) prior to the opening of any Store after the Closing Date, (i)
written notice to the Agent of such opening, and (ii) a copy of the lease or
other occupancy agreement as to such Store; and
<PAGE>
(o) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries as the Agent
or any Bank may from time to time reasonably request (including, without
limiting the generality of the foregoing, financial statements described in
paragraph (a) and (b) of this Section that are consolidating as to the Borrower
and its Consolidated Subsidiaries).
Section 7.09. Registered Trademarks. (a) Cause VSC to assign to the Agent
any trademark comprising a Vitamin Specialties Asset that is hereafter
registered with the U.S. Patent and Trademark Office, promptly after such
registration is effected (which assignment shall be in form satisfactory to the
Agent); and
(b) Use its best efforts to cause National Westminster Bank to
discharge (in recordable form) its interest in the trademarks referred to in
Section 6.20(d), within 45 days after the Closing Date (or as soon thereafter as
possible).
Section 7.10. Store Leases. (a) Use its best efforts to cause, within 60
days after the Closing Date (or as soon as possible thereafter), the landlords
of the Stores (to the extent they have not already done so) to consent in
writing to the assignment of the tenant's interest under the leases of such
Stores by HealthRite, Inc. to the Borrower and then to VSC and then (as
collateral) to the Agent and its assignee; and provide copies of such written
consents to the Agent; and
(b) Use its best efforts to cause the landlord under each lease of a
Store that is entered into after the Closing Date to consent to the assignment
of such lease (as collateral) to the Agent and its assignee.
Section 7.11. Subordination and Nondisturbance Agreement. Use its best
efforts to cause, within 90 days after the Closing Date (or as soon thereafter
as possible), the existing tenant at the New Freehold/Howell Real Estate to
execute and deliver to the Agent a subordination, nondisturbance and attornment
agreement in the form of Exhibit M; and, if the Agent considers it necessary or
appropriate elects to engage counsel in connection therewith, the Borrower shall
pay the reasonable fees and disbursements of counsel for the Agent in connection
therewith.
ARTICLE 8. NEGATIVE COVENANTS.
So long as any of the Term Notes shall remain unpaid, the Borrower shall
not:
Section 8.01. Debt. Create, incur, assume or suffer to exist, or permit
any Subsidiary of the Borrower to create, incur, assume or suffer to exist any
Debt, except:
(a) Debt of the Borrower and its Subsidiaries under this Agreement,
the other Term Loan Documents, the Revolving Credit Agreement and the other
Facility Documents (as such term is defined in the Revolving Credit Agreement);
<PAGE>
(b) Debt described in Schedule 6.10, including renewals, extensions
or refinancings thereof, provided that (except as otherwise specified in Section
2.09(b) with respect to a refinancing of the mortgage Debt owing to Corestates -
New Jersey National Bank) the then-outstanding principal amount thereof does not
increase;
(c) Debt of the Borrower subordinated on terms satisfactory to the
Agent to the Borrower's obligations under this Agreement and the Notes;
(d) Debt of the Borrower or any such Subsidiary permitted under
Section 8.02 and Section 8.03;
(e) Debt in respect of letters of credit issued for the account of
the Borrower or any such Subsidiary in an aggregate face amount outstanding at
any time of up to $500,000 (in addition to the letter of credit issued under the
Revolving Credit Agreement);
(f) Debt of the Borrower under the interest rate protection
agreement described in Section 7.10 of the Revolving Credit Agreement;
(g) Debt of Hall (Canada) to the Borrower not to exceed $500,000
outstanding at any time;
(h) Debt of the Borrower to Hall (Canada) that is incurred as a
currency hedge, not to exceed $500,000 outstanding at any time; and
(i) Debt of Hall (Canada) to a Canadian institutional lender in an
amount not to exceed $500,000 outstanding at any time.
Section 8.02. Guaranties, Etc. Assume, guarantee, endorse or otherwise be
or become directly or contingently responsible or liable, or permit any
Subsidiary of the Borrower to assume, guarantee, endorse or otherwise be or
become directly or indirectly responsible or liable (including, but not limited
to, an agreement to purchase any obligation, stock, assets, goods or services or
to supply or advance any funds, asset, goods or services, or an agreement to
maintain or cause such Person to maintain a minimum working capital or net worth
or otherwise to assure the creditors of any Person against loss) for the
obligations of any Person, except (a) the VSC Term Guaranty and the IVOSC/Hall
(Canada) Term Guaranty, (b) guaranties by Subsidiaries of the obligations of the
Borrower under the Revolving Credit Agreement, and (c) guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business.
Section 8.03. Liens. Create, incur, assume or suffer to exist, or permit
any Subsidiary of the Borrower to create, incur, assume or suffer to exist, any
Lien, upon or with respect to any of its properties, now owned or hereafter
acquired, except:
(a) Liens in favor of the Agent and the Banks securing the Loans and
other obligations of the Borrower hereunder and under the other Term Loan
Documents (as the same may be assigned to the Designated Party); and Liens in
<PAGE>
favor of the agent and the banks under the Revolving Credit Agreement securing
the obligations of the Borrower under the Revolving Credit Agreement and the
other Facility Documents;
(b) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or if due and payable if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(c) Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than 30 days, or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves have been
established:
(d) Liens under workmen's compensation, unemployment insurance,
social security or similar legislation (other than ERISA);
(e) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(f) judgment and other similar Liens arising in connection with
court proceedings; provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(g) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower or any such Subsidiary of the
property or assets encumbered thereby in the normal course of its business or
materially impair the value of the property subject thereto;
(h) Liens securing obligations of such a Subsidiary to the Borrower;
(i) the Lien on the real estate of the Borrower located in Freehold,
New Jersey (not the New Freehold/Howell Real Estate) securing an obligation to
the Authority and Banque Nationale de Paris, Houston Agency, in the original
principal amount of $5,600,000, and any renewal, extension or refinancing
thereof provided that the same does not increase the then-outstanding principal
amount of such obligation; but not the extension of such Lien to other property;
(j) purchase money Liens on any property hereafter acquired or the
assumption of any Lien on property existing at the time of such acquisition, or
a Lien incurred in connection with any conditional sale or other title retention
agreement or a Capital Lease; provided that:
<PAGE>
(i) any property subject to any of the foregoing is acquired
by the Borrower or any such Subsidiary in the ordinary course of its
business and the Lien on any such property is created substantially
contemporaneously with such acquisition;
(ii) the obligation secured by any Lien so created, assumed or
existing shall not exceed 90% (or, in the case of a Capital Lease,
100%) of the lesser of cost or fair market value as of the time of
acquisition of the property covered thereby to the Borrower or such
Subsidiary acquiring the same;
(iii) each such Lien shall attach only to the property so
acquired and fixed improvements thereon; and
(iv) the Debt secured by all such Liens in favor of any Person
other than the Reference Bank shall not exceed $500,000 at any time
outstanding in the aggregate;
(k) one or more Liens in favor of the Designated Party on the same
assets and properties of the Borrower and its Subsidiaries as are encumbered by
Liens in favor of the agent under the Revolving Credit Agreement that are
subject and subordinate to such Liens in favor of the agent under the Revolving
Credit Agreement;
(l) the Lien encumbering the New Freehold/Howell Real Estate in
favor of Corestates - New Jersey National Bank securing an amount not in excess
of $1,450,000; and any refinancing of such Lien, subject to and in accordance
with Section 2.09; and
(m) Liens listed on Schedule 6.10, including renewals, extensions or
refinancings thereof, provided that the then-outstanding principal amount of no
such Lien is increased.
Section 8.04. Leases. Create, incur, assume or suffer to exist, or permit
any Subsidiary of the Borrower to create, incur, assume or suffer to exist, any
obligation as lessee for the rental or hire of any real or personal property,
except: (a) leases existing on the date of this Agreement and any extensions or
renewals thereof; (b) a lease of the New Freehold/Howell Real Estate pursuant to
a sale/leaseback arrangement, provided that there is compliance with Section
2.09; (c) leases (other than Capital Leases) which do not in the aggregate
require the Borrower and its Subsidiaries on a consolidated basis to make
payments (including taxes, insurance, maintenance and similar expense which the
Borrower or any Subsidiary is required to pay under the terms of any lease) in
any fiscal year of the Borrower in excess of $250,000; and (d) Capital Leases
permitted by Section 8.03.
Section 8.05. Investments. Make any loan or advance to any Person, or
purchase or otherwise acquire any capital stock, obligations or other securities
of any Person, or make any capital contribution to any Person, or otherwise
invest in or acquire any interest in any Person, or permit any Subsidiary of the
Borrower to do so, except: (a) direct obligations of the United States of
America or any agency thereof with maturities of one year or less from the date
of acquisition; (b)
<PAGE>
commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's
Corporation or "P-1" by Moody's Investors Service, Inc.; (c) certificates of
deposit with maturities of one year or less from the date of acquisition issued
by any commercial bank operating within the United States of America having
capital and surplus in excess of $200,000,000; (d) for stock, obligations or
securities received in settlement of debts (created in the ordinary course of
business) owing to the Borrower or any such Subsidiary; (e) currently
outstanding loans and advances to employees listed on Schedule 8.05 hereof, and
further loans and advances to employees hired after the Closing Date that are
made during fiscal year 1998 and that do not exceed in the aggregate $100,000;
(f) in addition to the loans and advances to Hall (Canada) that are permitted by
Section 8.01(g), other investments in Hall (Canada) that do not in the aggregate
exceed $250,000 at any time outstanding; (g) acquisitions of any Person (whether
by way of the acquisition of the capital stock of such Person or of the assets
of such Person) provided that (i) the aggregate amount of all such acquisitions
pursuant to this clause (g) does not exceed $100,000, (ii) the Agent is advised
in reasonable detail of the nature and extent of the direct and contingent
liabilities of such Person that are being assumed, and the Agent approves the
same, and (iii) (if assets are being acquired) such assets are free of all Liens
other than Liens permitted hereby and upon such acquisition the Bank has a
perfected security interest therein, and (iv) (if capital stock is being
acquired) such Person guarantees all existing and future obligations and
liabilities of the Borrower under the Revolving Credit Agreement and under this
Term Loan Agreement and creates in favor of the agent under the Revolving Credit
Agreement and of the Agent a first-priority Lien in all its existing and future
assets and properties, which guarantee and Lien shall be pursuant to
documentation in form and substance satisfactory to such agent and the Agent.
Section 8.06. Dividends. Declare or pay any dividends, purchase, redeem,
retire or otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as such
whether in cash, assets or in obligations of the Borrower, or allocate or
otherwise set apart any sum for the payment of any dividend or distribution on,
or for the purchase, redemption or retirement of any shares of its capital
stock, or make any other distribution by reduction of capital or otherwise in
respect of any shares of its capital stock or permit any of its Subsidiaries to
purchase or otherwise acquire for value any stock of the Borrower or another
such Subsidiary, except that the Borrower may declare and deliver dividends and
make distributions payable solely in common stock of the Borrower.
Section 8.07. Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of, or permit any Subsidiary of the Borrower to sell, lease, assign,
transfer or otherwise dispose of, any of its now owned or hereafter acquired
assets (including, without limitation, shares of stock and indebtedness of such
Subsidiaries, receivables and leasehold interests), except: (a) for inventory
disposed of in the ordinary course of business; (b) the sale or other
disposition of assets no longer used or useful in the conduct of its business;
(c) that any such Subsidiary may sell, lease, assign, or otherwise transfer its
assets to the Borrower; (d) the sale of the New Freehold/Howell Real Estate
pursuant to a sale/leaseback arrangement, provided that there is compliance with
Section 2.09; (e) the sale of equipment that is being replaced by other
equipment of equal or greater value; (f) the sale of other
<PAGE>
equipment, provided that (i) no single item sold pursuant to this clause (f) has
a value in excess of $250,000, (ii) the aggregate value of all items sold
pursuant to this clause (f) from the Closing Date through the Maturity Date does
not exceed $750,000; provided, however, that in the case of clauses (b), (d),
(e) and (f), such sales and dispositions shall be for not less than fair market
value.
Section 8.08. Stock of Subsidiaries, Etc. Sell or otherwise dispose of any
shares of capital stock of any of its Subsidiaries or permit any such Subsidiary
to issue any additional shares of its capital stock, except directors qualifying
shares.
Section 8.09. Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, with any Affiliate or permit any Subsidiary of the
Borrower to enter into any transaction, including, without limitation, the
purchase, sale or exchange of property or the rendering of any service, with any
Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than would
obtain in a comparable arm's length transaction with a Person not an Affiliate.
Section 8.10. Mergers, Acquisitions, Etc. Merge or consolidate with, or
sell, assign, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to, any Person, or acquire all or substantially all
of the assets or of a line of business of any Person (or enter into any
agreement to do any of the foregoing), or permit any Subsidiary of the Borrower
to do so, except (a) that any such Subsidiary (other than VSC) may merge into or
transfer assets to the Borrower; (b) an acquisition described in Section 8.05(g)
may be made; and (c) a Person may merge into the Borrower or any wholly-owned
Subsidiary of the Borrower, provided that (i) the Borrower or such wholly-owned
Subsidiary is the survivor in such merger; (ii) there shall be, in the judgment
of the Agent (after consultation with the Designated Party; but the final
determination shall be that of the Agent alone), as a result of such merger no
material adverse effect on (x) the business, operations, property, condition
(financial or otherwise), prospects, or ownership of the Borrower and its
Subsidiaries, or (y) the validity or enforceability of any of the Term Loan
Documents or the rights or remedies of the Agent or any of the Banks hereunder
or thereunder; (iii) the Agent shall have been provided with sufficient
information and documents, and sufficiently in advance of the effective date of
such merger, to enable the Agent to evaluate the merger; (iv) the assets of such
Person are free of Liens; (v) no Default or Event of Default exists or would,
after giving effect to such merger, exist; and (vi) prior to the effective date
of such merger the Borrower and/or such wholly-owned Subsidiary executes and
delivers to the Agent such instruments and documents (including without
limitation UCC-1 financing statements) as the Agent reasonably requests to
confirm the continuing validity, perfection and priority of its Lien on the
assets of the Borrower or such wholly-owned Subsidiary after giving effect to
such merger.
Section 8.11. As to Collateral. (a) Relocate, or permit any Subsidiary to
relocate, its chief executive office to a place other than the place identified
in Schedule 6.20(b), unless prior thereto the Borrower or such Subsidiary
Guarantor
<PAGE>
shall have given written notice thereof to the Agent and shall have executed and
delivered to the Agent for filing by the Agent (at the cost of the Borrower) any
and all UCC- 1 financing statements and other similar instruments as may be
necessary or appropriate to continue the perfection of the security interests
granted by it to the Agent pursuant to the Term Loan Documents.
(b) Permit any of the inventory, equipment or fixtures of the
Borrower or any Subsidiary to be located in any jurisdiction other than those
identified in Section 6.20(b), unless prior thereto the Borrower or the
applicable Subsidiary shall have notified the Agent in writing and shall have
executed and delivered to the Agent for filing by the Agent (at the cost of the
Borrower) any and all UCC-1 financing statements and other similar instruments
as may be necessary or appropriate to continue the perfection of the security
interests granted by it to the Agent pursuant to the Term Loan Documents.
Section 8.12. As to Vitamin Specialties Business in Particular. (a) Permit
the Vitamin Specialties Business to be conducted by any Person other than VSC.
Without limiting the generality of the foregoing, the Borrower shall not permit
VSC to transfer any of the Vitamin Specialties Assets to the Borrower or any
other Subsidiary, except that VSC may commingle revenues received by it with
funds of the Borrower and its other Subsidiaries in the ordinary course of
business of the Borrower and its Subsidiaries; provided, however, that VSC may
not so commingle its funds (or any other assets of VSC) after any assignment of
this Agreement and the Notes to the Designated Party, but VSC will instead
(after such assignment) retain its own funds and other assets (excluding the
Excluded Assets).
(b) Conduct, or permit any Subsidiary (other than VSC, and other
than a wholly-owned Subsidiary of VSC that shall have granted to the Agent a
Lien in all its assets in form and substance satisfactory to the Agent and all
of whose outstanding capital stock shall have been pledged to the Agent in form
and substance satisfactory to the Agent) to conduct, a retail vitamin and
nutrition business, either directly or by way of franchises to franchisees.
(c) After the occurrence of an Event of Default, ship any inventory
to a Store or otherwise transfer any material value to VSC or confer any
material benefit on VSC (or permit any Subsidiary to do so), unless payment in
full is made to the Borrower therefor or arrangements for payment in full to the
Borrower therefor are made by VSC that are satisfactory to the Agent.
Section 8.13. Employment Agreements. Make any change with respect to any
of the employment agreements with any of the Principals, copies of which are
being delivered to the Agent on the Closing Date.
ARTICLE 9. FINANCIAL COVENANTS.
So long as any of the Term Notes shall remain unpaid:
Section 9.01. EBITDA. The Borrower shall not permit Consolidated EBITDA
for the 12-month period ending July 31, 1998 to be less than $8,000,000.
<PAGE>
Section 9.02. Cash Flow Leverage Ratio. The Borrower shall not permit the
ratio, as of the last day of any fiscal quarter of the Borrower, of (x) Funded
Debt as of such day to (y) Consolidated EBITDA for the period of four
consecutive fiscal quarters ending such day, to be greater than the amount set
forth below opposite such day:
(i) April 30, 1998 4.5:1
(ii) July 31, 1998 4.0:1
(iii) October 31, 1998 3.5:1
(iv) January 31, 1999 3.0:1
(v) April 30, 1999 2.5:1
(vi) July 31, 1999 2.5:1
Notwithstanding the immediately preceding sentence, with respect to the
determination of such ratio as of the fiscal quarter ending April 30, 1998 only,
the divisor of such ratio (clause (y) above) shall not be Consolidated EBITDA
for the period of four consecutive fiscal quarters ending such day; instead such
divisor shall be the product of Consolidated EBITDA for the period of three
consecutive fiscal quarters ending such day, multiplied by 1.333.
Section 9.03. Tangible Net Worth. The Borrower shall maintain at all times
a Consolidated Tangible Net Worth of not less than the following amounts:
(A) until July 30, 1998: $14,500,000
(B) July 31, 1998 until July 30, The amount identified in (A)
1999: above, plus 50% of Consolidated
Net Income for the fiscal year
ended July 31, 1998;
(C) on and after July 31, 1999: The amount identified in (B)
above, plus 50% of Consolidated
Net Income for the fiscal year
ending July 31, 1999.
Section 9.04. Current Ratio. The Borrower shall at all times maintain a
ratio of Consolidated Current Assets to Consolidated Current Liabilities of not
less than 1.6:1.0.
Section 9.05. Interest Coverage. The Borrower shall not permit the ratio,
as of the last day of any fiscal quarter of the Borrower, of (x) Consolidated
EBITDA for the period of four consecutive fiscal quarters ending such day to (y)
cash interest expense in respect of all Consolidated Funded Debt for such period
of four consecutive fiscal quarters, to be less than the amount set forth below
opposite such day:
<PAGE>
(i) April 30, 1998 3.0:1.0
(ii) each of July 31, 1998, October
31, 1998, January 31, 1999 and
April 30, 1999 3.5:1.0
(iii) each fiscal-quarter ending
date thereafter 4.5:1.0.
Notwithstanding the immediately preceding sentence, with respect to the
determination of such ratio as of the fiscal quarter ending April 30, 1998 only,
the dividend of such ratio (clause (x) above) shall not be Consolidated EBITDA
for the period of four consecutive fiscal quarters ending such day; but instead
such dividend shall be the product of Consolidated EBITDA for the period of
three consecutive fiscal quarters ending such day, multiplied by 1.333.
Section 9.06. Capital Expenditures. The Borrower shall not permit its
Consolidated Capital Expenditures to be greater than:
(i) for the 12 month period ending April $2,000,000
30, 1998
(ii) for the 12 month period ending April $3,000,000
30, 1999
(iii) for the four-month period ending $ 500,000.
August 31, 1999
Section 9.07. No Quarterly Loss. The Borrower shall not incur a net loss
after taxes and extraordinary items (on a consolidated basis with its
Consolidated Subsidiaries) in more than one fiscal quarter in any period of four
consecutive fiscal quarters.
Section 9.08. EBITDA of VSC. The Borrower shall not permit the EBITDA of
VSC for any period consisting of four consecutive fiscal quarters to be less
than (a) negative $250,000, as to any such four-quarter period ending on or
before April 30, 1999, or (b) zero, as to any such four-quarter period ending
after April 30, 1999.
ARTICLE 10. EVENTS OF DEFAULT.
Section 10.01. Events of Default. Any of the following events shall be an
"Event of Default":
(a) the Borrower shall: (i) fail to pay the principal of any Term
Note at maturity or when required pursuant to Section 2.09; or (ii) fail to pay
any installment of principal of the Term Note on an Amortization Date and such
failure shall continue for three days; or (iii) fail to pay interest on any Term
Note or any fee or other amount due hereunder as and when due and payable and
such failure shall continue for three days;
<PAGE>
(b) any representation or warranty made or deemed made by the
Borrower or any Subsidiary of the Borrower in this Agreement or in any other
Term Loan Document or which is contained in any certificate, document, opinion,
financial or other written statement furnished at any time under or in
connection with this Agreement or any other Term Loan Document shall prove to
have been incorrect in any material respect on or as of the date made or deemed
made;
(c) the Borrower shall: (i) fail to perform or observe any term,
covenant or agreement contained in Section 2.02 or Articles 8 or 9; or (ii) fail
to pay, perform or observe any term, covenant or agreement on its part to be
performed or observed (other than the obligations specifically referred to
elsewhere in this Section 10.01) in any Term Loan Document and such failure
shall continue for 30 consecutive days;
(d) the Designated Party Term Guaranty or the Term Intercreditor
Agreement shall at any time after its execution and delivery and for any reason
cease to be in full force and effect or shall be declared null and void, or the
validity or enforceability thereof shall be contested by the Designated Party,
or the Designated Party shall deny it has any further liability or obligation
thereunder or shall fail to perform its obligations thereunder;
(e) the Borrower or any Subsidiary of the Borrower shall: (i) fail
to pay any Debt, including but not limited to indebtedness for borrowed money
(other than the Term Notes), of the Borrower or such Subsidiary, as the case may
be, or any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise); or (ii) fail to perform
or observe any term, covenant or condition on its part to be performed or
observed under any agreement or instrument relating to any such Debt, when
required to be performed or observed, if the effect of such failure to perform
or observe is to accelerate, or to permit the acceleration of, after the giving
of notice or passage of time, or both, the maturity of such Debt, whether or not
such failure to perform or observe shall be waived by the holder of such
indebtedness (except that such a failure under the Borrower's New Jersey
Economic Development Authority financing relating to its Irvington premises
shall not constitute an Event of Default if such failure is waived by the lender
thereunder); provided that (in the case of both (i) and (ii)) the aggregate
principal amount of such Debt as to which such failure to pay has occurred (and
not merely the installment or other portion thereof not paid), or as to which
the maturity is or is permitted to be accelerated by reason of such failure to
perform or observe, shall be $500,000 or more; or any such indebtedness whose
principal amount is $500,000 or more shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or if there shall occur under
the Revolving Credit Agreement an "Event of Default" (as such quoted term is
defined in the Revolving Credit Agreement);
(f) for so long as any of the Term Notes or the Facility B Loans are
outstanding, the Borrower shall fail to maintain current payments under its
trade credit obligations to the Designated Party, including but not limited to
the open trade credit account extended to the Borrower by the Designated Party;
and for such purpose, the Agent and Banks shall be entitled conclusively to rely
upon a certificate of the Treasurer of the Designated Party as to whether or not
such a failure has
<PAGE>
occurred or continues to exist, notwithstanding any dispute by the Borrower as
to whether or not such a failure has occurred or continues to exist. For the
purposes hereof, the current status will be determined on (i) the third business
day after the last day of each month for open account balances, and (ii) on the
due date for all other obligations;
(g) the Borrower, or any Subsidiary of the Borrower, or the
Designated Party: (i) shall generally not, or be unable to, or shall admit in
writing its inability to, pay its debts as such debts become due; or (ii) shall
make an assignment for the benefit of creditors, petition or apply to any
tribunal for the appointment of a custodian. receiver or trustee for it or a
substantial part of its assets; or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (iv) shall have had any such petition or application filed or any
such proceeding shall have been commenced, against it, in which an adjudication
or appointment is made or order for relief is entered, or which petition,
application or proceeding remains undismissed for a period of 60 days or more;
or (v) (other than in the case of the Designated Party) shall be the subject of
any proceeding under which its assets may be subject to seizure, forfeiture or
divestiture; or (vi) by any act or omission shall indicate its consent to,
approval of or acquiescence in any such petition, application or proceeding or
order for relief or the appointment of a custodian, receiver or trustee for all
or any substantial part of its property; or (vii) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a period
of 60 days or more;
(h) one or more judgments, decrees or orders for the payment of
money in excess of $500,000 in the aggregate shall be rendered against the
Borrower or any Subsidiary of the Borrower and such judgments, decrees or orders
shall continue unsatisfied and in effect for a period of 30 consecutive days
without being vacated, discharged, satisfied or stayed or bonded pending appeal;
(i) any event or condition shall occur or exist with respect to any
Plan or Multiemployer Plan concerning which the Borrower is under an obligation
to furnish a report to the Banks in accordance with Section 7.08(h) hereof and
as a result of such event or condition, together with all other such events or
conditions, the Borrower or any ERISA Affiliate has incurred or in the opinion
of the Required Banks is reasonably likely to incur a liability to a Plan, a
Multiemployer Plan, the PBGC, or a Section 4042 Trustee (or any combination of
the foregoing) which is material in relation to the financial position of the
Borrower;
(j) the Unfunded Benefit Liabilities of one or more Plans have
increased after the date of this Agreement in an amount which is material;
(k) if, during the lifetime of a Principal, the number of shares of
capital stock of the Borrower owned by such Principal and members of his
immediate family sharing the same household on the Closing Date (the "Closing
Date Shares") is reduced to less than 95% (or, following one year from the
Closing Date, 90%) of the Closing Date Shares by sales or other transfers (other
than sales or transfers to their issue, which will be deemed to continue to be
owned by such Principal) by such Principal or members of his immediate family
sharing the same
<PAGE>
household after the Closing Date (and for purposes hereof, 50% of the shares
acquired by a Principal after the Closing Date pursuant to Option Rights owned
by such Principal on the Closing Date shall be deemed to be included in the
Closing Date Shares of such Principal) or if any shares so required to be
retained are pledged or become subject to a security interest in favor of any
other Person; or at any time the Principals collectively own, beneficially and
of record and free of all Liens, less than 72% of the outstanding capital stock
of the Borrower, except that each Principal may dispose of up to 5% of his
Closing Date Shares from the Closing Date until December 31, 1998 and up to an
additional 5% of his Closing Date Shares from January 1, 1999 until the Maturity
Date (it being agreed that if any Principal disposes of less than such 5% from
the Closing Date until December 31, 1998, the remaining portion of such 5%
allowance may be carried over by such Principal to the period of January 1, 1999
until the Maturity Date);
(l) during any period of 12 consecutive months, commencing on the
date of this Agreement, individuals who at the beginning of such 12-month period
were directors of the Borrower cease for any reason to constitute a majority of
the board of directors of the Borrower;
(m) I. Alan Hirschfeld ceases to serve as the full-time chief
operating officer (or other position acceptable to the Agent) of the Borrower,
unless either (i) Mr. Hirschfeld is replaced within six months thereafter by a
Person selected by the Borrower whom the Agent reasonably approves in writing as
such replacement or (ii) all of E. Joseph Edell, Arthur S. Edell and Andrew M.
Pinkowski continue to serve full time as (respectively) the chairman/chief
executive officer, president and vice chairman (or other positions acceptable to
the Agent) of the Borrower:
(n) there is a seizure by or forfeiture in favor of any governmental
authority of any property of the Borrower or any of its Subsidiaries having a
value in excess of $1,000,000, other than by eminent domain proceedings where
the Borrower or such Subsidiary receives reasonable compensation therefor;
(o) the VSC Term Guaranty or the IVOSC/Hall (Canada) Term Guaranty
shall at any time after its execution and delivery and for any reason cease to
be in full force and effect as to the applicable Subsidiary or shall be declared
null and void as to such Subsidiary, or the validity or enforceability thereof
shall be contested in writing by such Subsidiary or such Subsidiary shall deny
in writing it has any further liability or obligation thereunder or shall fail
to perform its obligations thereunder;
(p) the VSC Term Security Agreement or the Borrower/IVOSC/Hall
(Canada) Term Security Agreement shall at any time after its execution and
delivery and for any reason cease: (A) to create a valid and perfected security
interest in and to the property purported to be subject to such Agreement,
having (in the case of the security interest created pursuant to the VSC Term
Security Agreement) first priority; or (B) to be in full force and effect; or
shall be declared null and void; or the validity or enforceability thereof shall
be contested in writing by the grantor thereunder, or the grantor thereunder
shall deny in writing it has any further liability or obligation thereunder, or
the grantor thereunder shall fail to perform any of its obligations thereunder;
or
<PAGE>
(q) the Stock Pledge Agreement shall at any time after its execution
and delivery and for any reason cease: (A) to create a valid and perfected first
priority security interest in and to the property purported to be subject to
such Agreement; or (B) to be in full force and effect, or shall be declared null
and void, or the validity or enforceability thereof shall be contested in
writing by the Borrower or VSC, or the Borrower shall deny in writing it has any
further liability or obligation thereunder, or the Borrower shall fail to
perform any of its obligations thereunder.
Section 10.02. Remedies. If any Event of Default shall occur and be
continuing, the Agent may or, upon request of the Required Banks, shall by
notice to the Borrower, declare the outstanding principal of the Notes, all
interest thereon and all other amounts payable under this Agreement or the Term
Notes to be forthwith due and payable, whereupon the Term Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower (provided that, in the case of an
Event of Default referred to Section 10.01(f) above with respect to the
Borrower, the Term Notes, all interest thereon and all such other amounts
payable shall be immediately due and payable without any notice and without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower). Upon the occurrence of an Event of
Default, the Agent may also exercise any and all other remedies that may be
available to it under the Term Loan Documents and such other remedies as may be
legally available to it.
Section 10.03. Rescission. If an Event of Default described in clause (ii)
or (iii) of Section 10.01(a) or in clause (ii) of Section 10.01(c) occurs that
the Designated Party is entitled to cure or cause to be cured under Section 2(a)
of the Designated Party Term Guaranty, and if such Event of Default is cured
within the time allowed under the Designated Party Term Guaranty, then any
declaration that is described in Section 10.02 and that is based solely on such
cured Event of Default shall be rescinded by the Agent; provided, however, that
in no event shall such rescission be required if any other Event of Default has
occurred and is continuing.
ARTICLE 11. THE AGENT; RELATIONS AMONG BANKS AND BORROWER.
Section 11.01. Appointment, Powers and Immunities of Agent. Each Bank
hereby irrevocably (but subject to removal by the Required Banks pursuant to
Section 11.09) appoints and authorizes the Agent to act as its agent hereunder
and under any other Term Loan Document with such powers as are specifically
delegated to the Agent by the terms of this Agreement and any other Term Loan
Document, together with such other powers as are reasonably incidental thereto.
The Agent shall have no duties or responsibilities except those expressly set
forth in this Agreement and any other Term Loan Document, and shall not by
reason of this Agreement be a trustee for any Bank. The Agent shall not be
responsible to the Banks for any recitals, statements, representations or
warranties made by the Borrower or any officer or official of the Borrower or
any other Person contained in this Agreement or any other Term Loan Document, or
in any certificate or other document or instrument referred to or provided for
in, or received by any of them
<PAGE>
under, this Agreement or any other Term Loan Document, or for the value,
legality, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Term Loan Document or any other document or
instrument referred to or provided for herein or therein, for the perfection or
priority of any collateral security for the Loans or for any failure by the
Borrower to perform any of its obligations hereunder or thereunder. The Agent
may employ agents and attorneys-in-fact and shall not be responsible, except as
to money or securities received by it or its authorized agents, for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither the Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder or under any other Term Loan
Document or in connection herewith or therewith, except for its or their own
gross negligence or willful misconduct. The Borrower shall pay any fee agreed to
by the Borrower and the Agent with respect to the Agent's services hereunder.
Section 11.02. Reliance by Agent. The Agent shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent. The Agent may deem and treat each Bank as
the holder of the Loan made by it for all purposes hereof unless and until a
notice by a Bank of assignment pursuant to Section 12.05 shall have been given
to the Agent, shall have been furnished to the Agent, but the Agent shall not be
required to deal with any Person who has acquired a participation in any Loan
from a Bank. As to any matters not expressly provided for by this Agreement or
any other Term Loan Document, the Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with instructions
signed by the Required Banks, and such instructions of the Required Banks and
any action taken or failure to act pursuant thereto shall be binding on all of
the Banks and any other holder of all or any portion of any Loan or any such
participation.
Section 11.03. Defaults. The Agent shall not be deemed to have knowledge
of the occurrence of a Default or Event of Default (other than the non-payment
of principal of or interest on the Loans to the extent the same is required to
be paid to the Agent for the account of the Banks) unless the Agent has received
notice from a Bank or the Borrower specifying such Default or Event of Default
and stating that such notice is a "Notice of Default." In the event that the
Agent receives such a notice of the occurrence of a Default or Event of Default,
the Agent shall give prompt notice thereof to the Banks (and shall give each
Bank prompt notice of each such non-payment). The Agent shall (subject to
Section 11.08) take such action with respect to such Default or Event of Default
which is continuing as shall be directed by the Required Banks; provided that,
unless and until the Agent shall have received such directions, the Agent may
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interest of
the Banks; and provided further that the Agent shall not be required to take any
such action which it determines to be contrary to law.
Section 11.04. Rights of Agent as a Bank. With respect to the Loan made by
it, the Agent in its capacity as a Bank hereunder shall have the same rights and
<PAGE>
powers hereunder as any other Bank and may exercise the same as though it were
not acting as the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include the Agent in its capacity as a Bank. The
Agent and its affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to (on a secured or unsecured basis), and
generally engage in any kind of banking, trust or other business with, the
Borrower (and any of its affiliates) as if it were not acting as the Agent, and
the Agent may accept fees and other consideration from the Borrower for services
in connection with this Agreement or otherwise without having to account for the
same to the Banks. Although the Agent and its affiliates may in the course of
such relationships and relationships with other Persons acquire information
about the Borrower, its Affiliates and such other Persons, the Agent shall have
no duty to disclose such information to the Banks.
Section 11.05. Indemnification of Agent. The Banks agree to indemnify the
Agent (to the extent not reimbursed under Section 12.03 or under the applicable
provisions of any other Term Loan Document, but without limiting the obligations
of the Borrower under Section 12.03 or such provisions), ratably in accordance
with their respective Bank Percentages (without giving effect to any
participations in all or any portion of its Loan sold by a Bank to any other
Person), for any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind and
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement, any other Term
Loan Document or any other documents contemplated by or referred to herein or
the transactions contemplated hereby or thereby (including, without limitation,
the costs and expenses which the Borrower is obligated to pay under Section
12.03 or under the applicable provisions of any other Term Loan Document but
excluding, unless a Default or Event of Default has occurred, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents or instruments; provided that no Bank shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the party to be indemnified.
Section 11.06. Documents. The Agent will forward to each Bank, promptly
after the Agent's receipt thereof, a copy of each report, notice or other
document required by this Agreement or any other Term Loan Document to be
delivered to the Agent for such Bank.
Section 11.07. Non-Reliance on Agent and Other Banks. Each Bank agrees
that it has, independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrower and its Subsidiaries and decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent or any other Bank, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any other Term
Loan Document. The Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement or any other Term
Loan Document or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Borrower or any Subsidiary
of the Borrower. Except for
<PAGE>
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Agent hereunder, the Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower or any
Subsidiary of the Borrower (or any of their Affiliates) which may come into the
possession of the Agent or any of its affiliates. The Agent shall not be
required to file this Agreement, any other Term Loan Document or any document or
instrument referred to herein or therein, for record or give notice of this
Agreement, any other Term Loan Document or any document or instrument referred
to herein or therein, to anyone.
Section 11.08. Failure of Agent to Act. Except for action expressly
required of the Agent hereunder, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder unless it shall have received further
assurances (which may include cash collateral) of the indemnification
obligations of the Banks under Section 11.05 in respect of any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action.
Section 11.09. Resignation or Removal of Agent. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving written notice thereof to the Banks and the Borrower, and the
Agent may be removed at any time with or without cause by the Required Banks;
provided that the Borrower and the other Banks shall be promptly notified
thereof. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Agent, which (if other than the Bank having the
next largest Bank Percentage) shall be reasonably acceptable to the Borrower. If
no successor Agent shall have been so appointed by the Required Banks and shall
have accepted such appointment within 30 days after the retiring Agent's giving
of notice of resignation or the Required Banks' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Banks, appoint a successor Agent,
which shall be a bank which has an office in New York, New York. The Required
Banks or the retiring Agent, as the case may be, shall upon the appointment of a
successor Agent promptly so notify the Borrower and the other Banks.
Notwithstanding the foregoing provisions of this Section, if all the Loans are
assigned by the Banks to the Designated Party, the Agent shall resign
contemporaneously therewith, and the Designated Party shall be deemed
automatically to have been appointed (and to have accepted the appointment) as
successor Agent. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article 11 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.
Section 11.10. Amendments Concerning Agency Function. The Agent shall not
be bound by any waiver, amendment, supplement or modification of this Agreement
or any other Term Loan Document which affects its duties hereunder or thereunder
unless it shall have given its prior consent thereto.
<PAGE>
Section 11.11. Liability of Agent. The Agent shall not have any
liabilities or responsibilities to the Borrower on account of the failure of any
Bank to perform its obligations hereunder or to any Bank on account of the
failure of the Borrower to perform its obligations hereunder or under any other
Term Loan Document.
Section 11.12. Transfer of Agency Function. Without the consent of the
Borrower or any Bank, the Agent may at any time or from time to time transfer
its functions as Agent hereunder to any of its offices wherever located,
provided that the Agent shall promptly notify the Borrower and the Banks
thereof, and provided further that unless such transfer is required by law, such
transfer does not require the Borrower to incur additional cost or expense that
is material in amount.
Section 11.13. Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified by a Bank or the Borrower (either one as appropriate being
the "Payor") prior to the date on which such Bank is to make payment hereunder
to the Agent of the proceeds of a Loan or the Borrower is to make payment to the
Agent, as the case may be (either such payment being a "Required Payment"),
which notice shall be effective upon receipt, that the Payor does not intend to
make the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient of such payment (and, if such recipient is the Borrower and
the Payor Bank fails to pay the amount thereof to the Agent forthwith upon
demand, the Borrower) shall, on demand, repay to the Agent the amount made
available to it together with interest thereon for the period from the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to the average daily Federal Funds Rate for
such period.
Section 11.14. Withholding Taxes. Each Bank represents that it is entitled
to receive any payments to be made to it hereunder without the withholding of
any tax and will furnish to the Agent such forms, certifications, statements and
other documents as the Agent may request from time to time to evidence such
Bank's exemption from the withholding of any tax imposed by any jurisdiction or
to enable the Agent to comply with any applicable laws or regulations relating
thereto. Without limiting the effect of the foregoing, if any Bank is not
created or organized under the laws of the United States of America or any state
thereof, in the event that the payment of interest by the Borrower is treated
for U.S. income tax purposes as derived in whole or in part from sources from
within the U.S., such Bank will furnish to the Agent Form 4224 or Form 1001 of
the Internal Revenue Service, or such other forms, certifications, statements or
documents, duly executed and completed by such Bank as evidence of such Bank's
exemption from the withholding of U.S. tax with respect thereto. The Agent shall
not be obligated to make any payments hereunder to such Bank in respect of any
Loan of such Bank until such Bank shall have furnished to the Agent the
requested form, certification, statement or document.
Section 11.15. Several Obligations and Rights of Banks. The failure of any
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but no
Bank
<PAGE>
shall be responsible for the failure of any other Bank to make a Loan to be made
by such other Bank. The amounts payable at any time hereunder to each Bank shall
be a separate and independent debt, and each Bank shall be entitled to protect
and enforce its rights arising out of this Agreement, and it shall not be
necessary for any other Bank to be joined as an additional party in any
proceeding for such purpose.
Section 11.16. Pro Rata Treatment of Loans, Etc. Except to the extent
otherwise provided: (a) each borrowing under Section 2.04 shall be made from the
Banks, pro rata according to the amounts of their respective Bank Percentages;
(b) each conversion under Section 2.05 of Loans of a particular type (but not
conversions provided for by Section 4.04), shall be made pro rata among the
Banks holding Loans of such type according to the respective principal amounts
of such Loans by such Banks; (c) each prepayment and payment of principal of or
interest on Loans of a particular type and a particular Interest Period shall be
made to the Agent for the account of the Banks holding Loans of such type and
Interest Period pro rata in accordance with the respective unpaid principal
amounts of such Loans of such Interest Period held by such Banks.
Section 11.17. Sharing of Payments Among Banks. If a Bank shall obtain
payment of any principal of or interest on any Loan made by it through the
exercise of any right of setoff, banker's lien, counterclaim, or by any other
means, it shall promptly purchase from the other Banks participations in (or, if
and to the extent specified by such Bank, direct interests in) the Loans made by
the other Banks in such amounts, and make such other adjustments from time to
time as shall be equitable to the end that all the Banks shall share the benefit
of such payment (net of any expenses which may be incurred by such Bank in
obtaining or preserving such benefit) pro rata in accordance with their
respective Bank Percentages (as in effect immediately before such payment). To
such end the Banks shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Bank so purchasing a
participation (or direct interest) in the Loans made by other Banks may exercise
all rights of setoff, banker's lien, counterclaim or similar rights with respect
to such participation (or direct interest). Nothing contained herein shall
require any Bank to exercise any such right or shall affect the right of any
Bank to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness of the Borrower.
Section 11.18. Successor Agent. Any bank, corporation or association into
which the Agent may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its business and assets as a
whole or substantially as a whole, or any bank, corporation or association
resulting from any such conversion, sale, merger, consolidation or transfer to
which it is a party, ipso facto, shall be and become successor Agent hereunder
and vested with all the powers, discretions, immunities, privileges and all
other matters as was its predecessor, without the execution or filing of any
instrument or any further act, deed or conveyance on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
Section 11.19. Term Intercreditor Agreement. Each Bank hereby authorizes
and ratifies the execution and delivery by the Agent, on behalf of such Bank, of
the
<PAGE>
Term Intercreditor Agreement, together with all amendments to and waivers of the
provisions of such Agreement that the Agent (in its reasonable judgment)
considers necessary or appropriate, and such Bank hereby agrees to be bound by
the terms and conditions thereof.
ARTICLE 12. MISCELLANEOUS.
Section 12.01. Amendments and Waivers. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement may be amended or
modified only by an instrument in writing signed by the Borrower, the Agent and
the Required Banks, or by the Borrower and the Agent acting with the consent of
the Required Banks, and any provision of this Agreement may be waived by the
Required Banks or by the Agent acting with the consent of the Required Banks;
provided that no amendment, modification or waiver shall, unless by an
instrument signed by all of the Banks or by the Agent acting with the consent of
all of the Banks: (a) extend the date fixed for the payment of principal of or
interest on any Loan, (b) reduce the amount of any payment of principal thereof
or the rate at which interest is payable thereon or any fee payable hereunder,
(c) alter the terms of this Section 12.01, or (d) amend the definition of the
term "Required Banks", and provided, further, that any amendment of Article 11
hereof or any amendment which increases the obligations of the Agent hereunder
shall require the consent of the Agent. Amendments, modifications and waivers of
this Agreement are also restricted by Section 5 of the Designated Party Term
Guaranty. No failure on the part of the Agent or any Bank to exercise and no
delay in exercising, any right hereunder or under any other Term Loan Document
shall operate as a waiver thereof or preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided under this
Agreement or under any other Term Loan Document are cumulative and not exclusive
of any remedies otherwise legally available.
Section 12.02. Usury. Anything herein to the contrary notwithstanding, the
obligations of the Borrower under this Agreement and the Term Notes shall be
subject to the limitation that payments of interest shall not be required to the
extent that receipt thereof would be contrary to provisions of law applicable to
a Bank limiting rates of interest which may be charged or collected by such
Bank.
Section 12.03. Expenses. The Borrower shall reimburse the Agent on demand
for all reasonable costs, expenses, and charges (including, without limitation,
reasonable fees and charges of external legal counsel for the Agent) incurred by
the Agent in connection with the preparation of this Agreement, the Term Notes
and the other Term Loan Documents; and the Borrower shall reimburse the Agent
and the Banks on demand for all reasonable costs, expenses and charges
(including, without limitation, reasonable fees and charges of external legal
counsel for the Agent and each Bank and costs allocated by their respective
internal legal departments) incurred by the Agent or any Bank in connection with
the modification of, or enforcement of their rights under, this Agreement, the
Term Notes or any of the other Term Loan Documents. The Borrower agrees to
indemnify the Agent and each Bank and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation
<PAGE>
or litigation or other proceedings (including any threatened investigation or
litigation or other proceedings) relating to any actual or proposed use by the
Borrower or any Subsidiary of the Borrower of the proceeds of the Loans,
including without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified).
Section 12.04. Survival. The obligations of the Borrower under Sections
4.01, 4.05 and 12.03 shall survive the repayment of the Loans.
Section 12.05. Assignment: Participations. (a) This Agreement shall be
binding upon, and shall inure to the benefit of, the Borrower, the Agent, the
Banks and their respective successors and assigns, except that the Borrower may
not assign or transfer its rights or obligations hereunder; and provided that
the right of The Chase Manhattan Bank to assign its Loan, in whole or in part,
without the prior written consent of the Designated Party is subject to the
restrictions contained in Section 15 of the Designated Party Term Guaranty.
(b) Subject to the restrictions contained in Section 15 of the
Designated Party Term Guaranty, each Bank may assign, or sell participations in,
all or any part of its Loan to another bank, financial institution or other
Person, in which event (i) in the case of an assignment, upon notice thereof by
such Bank to the Borrower and the Agent, the assignee shall have, to the extent
of such assignment (unless otherwise provided in the instrument of assignment)
the same rights, benefits and obligations as a Bank hereunder and such assignee
shall be a Bank hereunder; and (ii) in the case of a participation, the
participant shall have no rights under the Term Loan Documents and all amounts
payable under Article 3 shall be determined as if such Bank had not sold such
participation.
(c) In addition to the assignments and participations permitted
under the foregoing provisions of this Section, any Bank may assign and pledge
all or any portion of its Loan to (i) any affiliate of such Bank or (ii) any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
assigning Bank from its obligations hereunder.
Section 12.06. Notices. Unless otherwise specifically provided herein, any
notice, consent or other communication herein required or permitted to be given
shall be in writing and may be personally served, telecopied or sent by courier
service or United States mail and shall be deemed to have been given when
delivered in person or by courier service, upon receipt of a telecopy or three
days after deposit in the United States mail (registered or certified, with
postage prepaid and properly addressed); provided that the burden of providing
receipt of a telecopy shall not be met by a transmission report generated by the
sender's telecopy machine. For the purposes hereof, the addresses of the parties
hereto (until notice of a change thereof is delivered as provided in this
Section) shall be as set forth below each party's name on the signature pages
hereof, or, as to each party, at such
<PAGE>
other address as may be designated by such party in a written notice to all of
the other parties.
Section 12.07. Setoff. The Borrower agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim a Bank
may otherwise have, each Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of the Borrower at any of such Bank's offices, in Dollars or in
any other currency, against any amount payable by the Borrower to such Bank
under this Agreement or under such Bank's Term Note which is not paid when due
(regardless of whether such balances are then due to the Borrower), in which
case it shall promptly notify the Borrower and the Agent thereof; provided that
such Bank's failure to give such notice shall not affect the validity thereof.
Payments by the Borrower hereunder shall be made without setoff or counterclaim.
SECTION 12.08. JURISDICTION; IMMUNITIES. (a) THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT OR UNITED
STATES FEDERAL COURT SITTING IN NEW YORK COUNTY AND ANY NEW JERSEY STATE COURT
OR ANY UNITED STATES FEDERAL COURT SITTING IN NEW JERSEY OVER ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TERM NOTES OR ANY
OTHER TERM LOAN DOCUMENT. AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK OR NEW JERSEY STATE OR FEDERAL COURT. THE BORROWER IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS
SPECIFIED IN SECTION 12.06. THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE BORROWER FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY
OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON
CONVENIENS. THE BORROWER FURTHER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT
AGAINST THE AGENT SHALL BE BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES
FEDERAL COURT SITTING IN NEW YORK COUNTY. THE BORROWER WAIVES ANY RIGHT IT MAY
HAVE TO JURY TRIAL.
(b) Nothing in this Section 12.08 shall affect the right of the
Agent or any Bank to serve legal process in any other manner permitted by law or
affect the right of the Agent or any Bank to bring any action or proceeding
against the Borrower or its property in the courts of any other jurisdictions.
(c) To the extent that the Borrower has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether from
service or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, the Borrower
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement and the Notes.
<PAGE>
Section 12.09. Table of Contents; Headings. Any table of contents and the
headings and captions hereunder are for convenience only and shall not affect
the interpretation or construction of this Agreement.
Section 12.10. Severability. The provisions of this Agreement are intended
to be severable. If for any reason any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 12.11. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
Section 12.12. Integration. The Term Loan Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and supersede any prior oral or written statements or agreements with
respect to such transactions.
SECTION 12.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
Section 12.14. Confidentiality. Each Bank and the Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with safe and sound banking practices, any non-public information
supplied to it by the Borrower or any Subsidiary of the Borrower pursuant to
this Agreement or otherwise which is identified in writing by the Borrower as
being confidential at the time the same is delivered to the Banks or the Agent
(or their affiliates, directors, officers, employees or representatives),
provided that nothing herein shall limit the disclosure of any such information
(i) to the extent required by statute, rule, regulation or judicial process,
(ii) to counsel for any of the Banks or the Agent, (iii) to bank examiners,
auditors or accountants, (iv) in connection with any litigation to which any one
or more of the Banks is a party or (v) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to the
respective Bank a Confidentiality Agreement in substantially the form of Exhibit
G hereto.
Section 12.15. Treatment of Certain Information. The Borrower (a)
acknowledges that services may be offered or provided to it (in connection with
this Agreement or otherwise) by each Bank or by one or more of their respective
subsidiaries or affiliates and (b) acknowledges that information delivered to
each Bank by the Borrower may be provided to each such subsidiary and affiliate.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
-------------------------------
Name:
Title:
Address for Notices:
500 Halls Mill Road
Freehold, New Jersey 07728
Attention: Mr. I. Alan Hirschfeld
Telecopier No.: 908-308-4488
with a simultaneous copy to:
IVC Industries, Inc.
500 Halls Mill Road
Freehold, New Jersey 07728
Attention: Mr. E. Joseph Edell
Telecopier No: 908-308-4488
AGENT:
THE CHASE MANHATTAN BANK:
By: /s/ Lee P. Brennan
-------------------------------
Lee P. Brennan
Vice President
Address for Notices:
The Chase Manhattan Bank
New York Agency
1 Chase Manhattan Plaza
New York, New York 10081
Telecopier No.: 212-552-5650
with a simultaneous copy to:
The Chase Manhattan Bank
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Mr. Peter M. Fitzsimmons
Telecopier No.: 973-353-6158
<PAGE>
BANKS:
THE CHASE MANHATTAN BANK
By: /s/ Lee P. Brennan
-------------------------------
Lee P. Brennan
Vice President
Lending Office:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Address for Notices:
The Chase Manhattan Bank
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Mr. Peter M. Fitzsimmons
Telecopier No.: 973-353-6158
Confidential information indicated by X's has been omitted and filed separately
with the Securities and Exchange Commission.
DESIGNATED PARTY TERM GUARANTY
REFERENCE IS HEREBY MADE to the Term Loan Agreement dated the date hereof
among IVC Industries, Inc., a Delaware corporation (the "Borrower"), the Banks
party thereto, and The Chase Manhattan Bank, as Agent. (Such term loan
agreement, as the same may hereafter be amended or supplemented from time to
time, will be called herein the "Term Loan Agreement"; provided however that the
consent of the Guarantor (as hereinafter defined) is required for certain
changes to the Term Loan Agreement, as provided in Section 5 hereof). All
capitalized terms used herein and not defined shall have the respective meanings
ascribed to them in the Term Loan Agreement, except as otherwise specified
herein.
WHEREAS, the Term Loan Agreement provides for (among other things) the
Banks to make one or more term loans to the Borrower in the aggregate principal
amount of $3,500,000; and
WHEREAS, the Loan of each Bank will be evidenced by a Term Note of the
Borrower in favor of such Bank; and
WHEREAS, although certain provisions of the Term Loan Agreement suggest
that such $3,500,000 term-loan financing may consist of more than one loan made
by more than one bank and/or that assignments of portions thereof may be made by
one bank to other banks, in fact (as provided in Section 2.12 thereof) the full
$3,500,000 term loan is being made on the Closing Date by The Chase Manhattan
Bank alone, and it is not anticipated that such loan will be hereafter assigned
in whole or in part to other banks; and for purposes of this Guaranty
(notwithstanding the definition of such terms in the Term Loan Agreement), the
term "Bank" means only Chase (as "Chase" is defined in Section 15 hereof); the
term "Note" means the promissory note of the Borrower in favor of the Bank
evidencing the Bank's $3,500,000 term loan under the Term Loan Agreement; and
the term "Loan" means the $3,500,000 term loan being made by the Bank to the
Borrower on the Closing Date under the Term Loan Agreement; and
WHEREAS, XXXXXXX, a New Jersey corporation (the "Guarantor"), expects to
obtain substantial economic benefit from the Loan to be made to the Borrower
under the Term Loan Agreement; and
WHEREAS, the execution and delivery of this guaranty by the Guarantor is
required in order to induce the Bank and the Agent to enter into the Term Loan
Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and to induce the Bank and the Agent to enter into
the Term Loan Agreement, the Guarantor hereby agrees with the Bank and the Agent
as follows:
<PAGE>
1. The Guarantor hereby absolutely and unconditionally (except for the
condition set forth in Section 15 hereof) guarantees to the Bank and the Agent
the full and prompt payment, from time to time when the same shall become due
and payable (whether in installments, at stated maturity, upon acceleration,
upon mandatory prepayment, or otherwise), of all the obligations of the Borrower
under the Note, including the principal of and interest on the Note
(collectively, the "Obligations"). The liability of the Guarantor under this
guaranty shall expire on October 31, 1999, unless on or before such date a
demand for payment shall have been made by the Agent upon or after the
occurrence of an Event of Default.
2. (a) No demand for payment by the Guarantor under this Guaranty may be
made unless an Event of Default shall have occurred. The Guarantor shall be
obligated to make payment hereunder immediately upon receipt of such a demand in
writing from the Agent, except that if the only Event of Default that shall have
occurred is one described in clauses (ii) or (iii) of Section 10.01(a) of the
Term Loan Agreement or clause (ii) of Section 10.01(c) of the Term Loan
Agreement, then the Guarantor shall not be obligated to make such payment unless
such Event of Default continues for 30 days after such demand is made.
(b) A demand for payment under this Guaranty shall be for the full
outstanding principal balance of the Note and all accrued and unpaid interest
thereon and all other amounts due in respect thereof; and payment shall be made
by the Guarantor of the full outstanding principal balance of the Note, all
accrued and unpaid interest thereon and all other amounts due in respect of the
Note.
(c) The Guarantor further agrees with the Agent and the Bank that
the Guarantor will not prior to the payment of the Note in full refuse to sell,
or curtail, delay or condition its sales, to the Borrower of product under
normal commercial terms and conditions, as long as (x) the Borrower meets all
normal commercial terms and conditions, including not being materially past due
in its payment obligations to the Guarantor for Product purchased and (y) the
Guarantor has not been required to make payment under this Guaranty.
3. The Guarantor agrees that, as among the Guarantor, the Agent and the
Bank, the Obligations may be declared to be due and payable for purposes of this
guaranty notwithstanding any stay, injunction or other prohibition which may
prevent, delay or vitiate any such declaration as against the Borrower and that,
in the event of any such declaration (or attempted declaration), such
Obligations (whether or not due and payable by the Borrower) shall forthwith
become due and payable by the Guarantor for purposes of this guaranty.
Similarly, if the Agent is legally precluded from making a demand on the
Guarantor under the Guaranty by reason of the automatic stay of the Federal
Bankruptcy Code or any other stay or injunction, the Guarantor shall be
obligated to make payment hereunder at any time as the Agent may elect on or
after the occurrence of an Event of Default, and such demand will be deemed to
have been given at such time without the necessity of an actual demand. The
Guarantor further guarantees that all payments made by the Borrower to the Agent
and the Bank of any Obligation will, when made, be final and agrees that if any
such payment is recovered from, or repaid by, the Agent or the Bank in whole or
in part in any bankruptcy, insolvency or similar proceeding instituted by or
against
<PAGE>
the Borrower, this guaranty shall continue to be fully applicable to such
Obligation to the same extent as though the payment so recovered or repaid had
never been originally made on such Obligation.
4. This is a guaranty of payment and not of collection only.
5. The Guarantor hereby consents that from time to time, without notice to
or further consent of any Guarantor, the payment, performance or observance of
any or all of the Obligations or any and all of the other obligations of the
Borrower under the Term Loan Documents may be waived or the time of payment or
performance thereof extended or accelerated, or renewed in whole or in part, or
the terms of the Term Loan Documents or any part thereof may be changed and any
collateral therefor may be exchanged, surrendered or otherwise dealt with as the
Agent may determine, and any of the acts mentioned in the Term Loan Documents
may be done, all without affecting the liability of the Guarantor hereunder;
except that until such time as a demand is made by the Agent for payment under
this guaranty for payment in full of the Obligations, without the consent of the
Guarantor (which shall not be unreasonably withheld if the Agent requests such
consent) none of the provisions of the Term Loan Agreement or the other Term
Loan Documents as existing on the Closing Date (the "Closing Date Term Loan
Agreement" and the "Closing Date Term Loan Documents") may be affirmatively
waived or modified by the Agent and the Bank, if such waiver or modification
would (x) constitute a Restricted Change (as hereinafter defined) and (y)
materially adversely affect the Guarantor. No failure or delay on the part of
the Agent and the Bank in exercising any right or remedy shall operate as a
waiver or modification of any provision of the Closing Date Term Loan Agreement
or other Closing Date Term Loan Document. The Guarantor hereby waives
presentment of any instrument, demand of payment, protest and notice of
non-payment or protest thereof or of any exchange, sale, surrender or other
handling or disposition of such collateral, and any requirement that the Agent
or the Bank exhaust any right, power or remedy or proceed against the Borrower
under the Term Loan Documents or against any other person under any other
guaranty of, or security for, any of the Obligations. The Guarantor hereby
further waives any defense whatsoever which might constitute a defense available
to, or discharge of, the Borrower or a guarantor. As used herein, the term
"Restricted Change" means:
(i) any change in the maturity of the Loan (including without
limitation the definition of Maturity Date, beyond the possible extension
already contemplated in the definition of Maturity Date); provided,
however, that neither the acceleration of such maturity on or after the
occurrence of an Event of Default, nor the requirement of a mandatory
prepayment of the Loan pursuant to the Closing Date Term Loan Agreement,
shall constitute a Restricted Change;
(ii) any change in the time required for the payment of interest
under the Loan;
(iii) any increase in total amount of the Commitment of the Bank
above $3,500,000;
<PAGE>
(iv) any increase in the interest rate on the Loan above that
provided for in the Closing Date Term Loan Agreement; provided however
that in no event shall the determination by the Agent of the Money Market
Rate constitute a Restricted Change, nor shall the changes contemplated in
the definition of the term "Margin" in the Closing Date Term Loan
Agreement constitute a Restricted Change;
(v) any release of the Vitamin Specialties Assets or the New
Freehold/Howell Real Estate as collateral for the Loan, unless such
release (a) consists of a discharge of the Lien as to the New
Freehold/Howell Real Estate and is effected in connection with the
mortgage refinancing or sale/leaseback arrangement described in Section
2.09 of the Term Loan Agreement and prepayment of the Loan is made in
accordance with such Section 2.09, or (b) consists of an asset sale that
is not prohibited by Section 8.07 of the Term Loan Agreement;
(vi) any release of VSC from liability under the VSC Term Guaranty;
(vii) any increase or reduction in the total amount of the Facility
A Commitments; provided however that the reasonable exercise by the agent
of its rights under the Revolving Credit Agreement (for purposes of
computing the Borrowing Base) to change the advance rate as to Eligible
Accounts and Eligible Inventory, and to revise the criteria for
eligibility of Eligible Accounts and Eligible Inventory, shall not
constitute a Restricted Change (the terms "Facility A Commitments",
"Borrowing Base", "Eligible Accounts" and "Eligible Inventory" having the
meanings ascribed to such terms in the Revolving Credit Agreement);
(viii) any shortening of the maturity of Facility A, other than an
acceleration of such maturity on or after the occurrence of an Event of
Default; and
(ix) any waiver or modification of Section 10.01(k) of the Closing
Date Term Loan Agreement.
6. This guaranty shall be a continuing guaranty, and (except as otherwise
provided in Section 5 hereof) any other guarantor and any other party liable
upon or in respect of any Obligation hereby guaranteed may be released without
affecting the liability of the Guarantor. The liability of the Guarantor
hereunder shall be and remain in effect irrespective of the validity, regularity
or enforceability of the Note or any of the other Term Loan Documents and
irrespective of any present or future law or order of any government (whether of
right or in fact and whether the Agent or any Bank shall have consented thereto)
or of any agency thereof purporting to reduce, amend, restructure or otherwise
affect any Obligation or to vary the terms of payment.
7. Subject to Section 15 hereof, the Agent or the Bank may assign its
rights and powers hereunder, with all or any of the Obligations, and, in the
event of such assignment, the assignee hereof or of such rights and powers,
shall have the same rights and remedies as if originally named herein.
<PAGE>
8. Notice of acceptance of this guaranty and of the incurring of any and
all of the Obligations is hereby waived. This guaranty and all rights,
obligations and liabilities arising hereunder shall be governed by and construed
according to the laws of the State of New York. Unless the context otherwise
requires, all terms used herein which are defined in the Uniform Commercial Code
shall have the meanings therein stated.
9. The Guarantor agrees that, in addition to (and without limitation of)
any right of setoff, banker's lien or counterclaim the Agent or any Bank may
otherwise have, each of the Agent and the Bank shall be entitled, at its option,
to setoff and apply balances (general or special, time or demand, provisional or
final) held by it for account of such Guarantor at any of its offices in dollars
or in any other currency, against any amounts owing hereunder that are not paid
when due (regardless of whether such balances are then due to such Guarantor),
in which case it shall promptly notify such Guarantor thereof; provided however
that any failure to give such notice shall not affect the validity thereof.
10. No provision of this guaranty may be modified or waived without the
prior written consent of the Agent.
11. The Guarantor hereby expressly waives any and every right to a trial
by jury in any action on or related to this guaranty, the Obligations or the
enforcement of either or all of the same, and does further expressly waive any
and every right to interpose any counterclaim in any such action or proceeding.
12. The Guarantor agrees to reimburse the Agent and the Bank on demand for
all reasonable costs, expenses, and charges (including, without limitation,
reasonable attorneys' fees) incurred by the Agent or the Bank in connection with
any enforcement of this guaranty.
13. The rights, powers and remedies granted to the Agent and the Bank
herein shall be cumulative and in addition to any rights, powers and remedies to
which the Agent and the Bank may be entitled either by operation of law or
pursuant to the Term Loan Documents or any other document or instrument
delivered or from time to time to be delivered to the Agent or the Bank in
connection with the Term Loan Documents.
14. The Guarantor acknowledges and agrees that any payments received by
the Agent or the Bank from the Borrower, and any amount recovered by the Agent
or the Bank from the Borrower or any other guarantor of the obligations of the
Borrower (including, without limitation, the Obligations), and any amounts
realized from any collateral for the obligations of the Borrower (including,
without limitation, the Obligations), may be applied by the Agent or the Bank to
obligations of the Borrower other than the Obligations, with no resulting
reduction in the liability of the Guarantor under this Guaranty; provided
however that if the Borrower designates in writing to the Agent,
contemporaneously with its making of any payment to the Agent, that such payment
is to be applied to reduce the outstanding amount of the Obligations, and if no
Default or Event of Default exists at the time such payment is made, and if no
Default or Event of Default would result from such application of such payment,
then the Agent shall apply such payment so as to reduce the outstanding amount
of the Obligations.
<PAGE>
15. It is a condition to the liability of the Guarantor under this
Guaranty and the Term Intercreditor Agreement that Chase (as hereinafter
defined) shall assign its interests in the Term Loan Documents to the Guarantor
against payment hereunder, pursuant to the Term Intercreditor Agreement, but
shall not sell assignments or participations in the Loan. As used herein, the
term "Chase" means The Chase Manhattan Bank and also includes any entity that is
a successor thereto and any entity that is (directly or indirectly) wholly owned
by the bank holding company that owns such bank or successor entity. Nothing
herein shall preclude assignments of the Loan to or among the entities that so
comprise Chase.
16. Any notice, consent or other communication herein required or
permitted to be given shall be in writing and may be personally served or sent
by courier service or United States mail and shall be deemed to have been given
when delivered in person or by courier service, or three days after deposit in
the United States mail (registered or certified, with postage prepaid and
properly addressed). For the purpose hereof, the addresses of the parties hereto
(until notice of a change thereof is delivered as provided in this Section)
shall be as set forth below, or, as to each party, at such other address as may
be designated by such party in a written notice to all of the other parties:
If to the Guarantor:
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
-- With a simultaneous copy to:
XXXXXXX
XXXXXXX
XXXXXXX
XXXXXXX
If to the Agent or the Bank:
The Chase Manhattan Bank,
as Agent
New York Agency
1 Chase Manhattan Plaza
New York, NY 10081
-- With a simultaneous copy to:
The Chase Manhattan Bank
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Mr. Peter M. Fitzsimmons
<PAGE>
If to the Borrower:
IVC Industries, Inc.
500 Halls Mill Road
Freehold, NJ 07728
Attention: Mr. I. Alan Hirschfeld
-- With a simultaneous copy to:
IVC Industries, Inc.
500 Halls Mill Road
Freehold, NJ 07728
Attention: Mr. E. Joseph Edell
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly
executed by its proper officers this 1st day of May, 1998.
WITNESS: XXXXXXXXXXXXX
- -------------------------- By: XXXXXXXXXXXXXXXXX
Name: Name:
------------------------------
Title:
----------------------------
VSC TERM GUARANTY
REFERENCE IS HEREBY MADE to the Term Loan Agreement dated the date
hereof (which, as the same may hereafter be amended from time to time, will be
called herein the "Term Loan Agreement") among IVC Industries, Inc., a Delaware
corporation (the "Borrower"), the Banks party thereto, and The Chase Manhattan
Bank, as Agent. All capitalized terms used herein and not defined shall have the
respective meanings ascribed to them in the Term Loan Agreement.
WHEREAS, the Term Loan Agreement provides for the extension of
credit by the Banks to the Borrower; and
WHEREAS, all the obligations and liabilities (whether now existing
or hereafter arising) of the Borrower to any or all of the Agent and the Banks
under the Term Loan Agreement or any of the other Term Loan Documents (whether
for principal, interest, fees, reimbursement obligations, indemnification
obligations, costs of enforcement or otherwise) will be called herein the
"Obligations"; and
WHEREAS, Vitamin Specialties Corp., a Pennsylvania corporation (the
"Guarantor"), expects to obtain substantial economic benefit from the extension
of credit by the Banks to the Borrower under the Term Loan Agreement; and
WHEREAS, the execution and delivery of this guaranty by the
Guarantor is required in order to induce the Banks and the Agent to enter into
the Term Loan Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and to induce the Banks and the
Agent to enter into the Term Loan Agreement, the Guarantor hereby agrees with
the Banks and the Agent as follows:
1. The Guarantor hereby absolutely and unconditionally guarantees to
the Agent and the Banks that the Borrower will promptly pay, perform and observe
all the Obligations, and that all sums stated to be payable in, or which become
payable under, the Term Loan Documents by the Borrower will be promptly paid in
full when due, whether at stated maturity or earlier by reason of acceleration
or otherwise, and, in the case of one or more extensions of time of payment or
performance or renewals of any Obligation, that the same will be promptly paid
or performed (as the case may be) when due according to such extension or
renewal, whether at stated maturity or earlier by reason of acceleration or
otherwise, irrespective of the validity, regularity, or enforceability of any of
the Term Loan Documents and irrespective of any present or future law or order
of any government (whether of right or in fact and whether the Agent or any Bank
shall have consented thereto) or of any agency thereof purporting to reduce,
amend, restructure or otherwise affect any Obligation of the Borrower or other
obligor or to vary the terms of payment; provided, however, that the liability
of the Guarantor hereunder with respect to the Obligations shall not exceed at
any time 90% of Adjusted Net Worth (as hereinafter
<PAGE>
defined) of the Guarantor. The term "Adjusted Net Worth" of the Guarantor means
the current Net Worth of the Guarantor, plus (as and when Net Worth increases)
any increase in such amount of Net Worth after the date hereof (without any
decrease for any reduction after the date hereof in current Net Worth as so
increased). The term "Net Worth" of the Guarantor means the amount of all assets
of the Guarantor, at a fair valuation, less the total liabilities of the
Guarantor (including contingent liabilities other than the liabilities of the
Guarantor under this guaranty) .
2. The Guarantor agrees that, as among the Guarantor, the Agent and
the Banks, the Obligations may be declared to be due and payable for purposes of
this guaranty notwithstanding any stay, injunction or other prohibition which
may prevent, delay or vitiate any such declaration as against the Borrower and
that, in the event of any such declaration (or attempted declaration), such
Obligations (whether or not due and payable by the Borrower) shall forthwith
become due and payable by the Guarantor for purposes of this guaranty. The
Guarantor further guarantees that all payments made by the Borrower to the Agent
and the Banks of any Obligation will, when made, be final and agree that if any
such payment is recovered from, or repaid by, the Agent or any Bank in whole or
in part in any bankruptcy, insolvency or similar proceeding instituted by or
against the Borrower, this guaranty shall continue to be fully applicable to
such Obligation to the same extent as though the payment so recovered or repaid
had never been originally made on such Obligation.
3. This is a guaranty of payment and not of collection only.
4. The Guarantor hereby consents that from time to time, without
notice to or further consent of the Guarantor, the payment, performance or
observance of any or all of the Obligations may be waived or the time of payment
or performance thereof extended or accelerated, or renewed in whole or in part,
or the terms of the Term Loan Documents or any part thereof may be changed and
any collateral therefor may be exchanged, surrendered or otherwise dealt with as
the Agent may determine, and any of the acts mentioned in the Term Loan
Documents may be done, all without affecting the liability of the Guarantor
hereunder. The Guarantor hereby waives presentment of any instrument, demand of
payment, protest and notice of non-payment or protest thereof or of any
exchange, sale, surrender or other handling or disposition of such collateral,
and any requirement that the Agent or any Bank exhaust any right, power or
remedy or proceed against the Borrower under the Term Loan Documents or against
any other person under any other guaranty of, or security for, any of the
Obligations. The Guarantor hereby further waives any defense whatsoever which
might constitute a defense available to, or discharge of, the Borrower or a
guarantor. No payment by the Guarantor pursuant to any provision hereunder shall
entitle the Guarantor, by subrogation to the rights of the Agent or any Bank or
otherwise, to any payment by the Borrower (or out of the property of the
Borrower) except after payment in full of all sums (including interest, costs
and expenses) which may be or become payable by the Borrower to the Agent and
the Banks at any time or from time to time; provided, however, if the Guarantor
is an "insider" of the Borrower, as such term is defined in Section 101 of the
Federal Bankruptcy Code, the Guarantor hereby irrevocably waives any and all
rights to which it may be entitled, by operation of law or otherwise, upon
making any payment hereunder to be subrogated to the rights of the
<PAGE>
Agent and the Banks against the Borrower with respect to such payment or
otherwise to be reimbursed, indemnified or exonerated by the Borrower in respect
thereof.
5. This guaranty shall be a continuing guaranty, and any other
guarantor, and any other party liable upon or in respect of any Obligation
hereby guaranteed may be released without affecting the liability of the
Guarantor. The liability of the Guarantor hereunder shall be joint and several
with the liability of any other guarantor or other party upon or in respect of
the Obligations.
6. The Agent or any Bank may assign its rights and powers hereunder,
with all or any of the Obligations, and, in the event of such assignment, the
assignee hereof or of such rights and powers, shall have the same rights and
remedies as if originally named herein.
7. Notice of acceptance of this guaranty and of the incurring of any
and all of the Obligations of the Borrower pursuant to the Term Loan Documents
is hereby waived. This guaranty and all rights, obligations and liabilities
arising hereunder shall be governed by and construed according to the laws of
the State of New York. Unless the context otherwise requires, all terms used
herein which are defined in the Uniform Commercial Code shall have the meanings
therein stated.
8. The Guarantor represents and warrants that:
(a) The present fair saleable value of the assets of the
Guarantor after giving effect to all the transactions contemplated by the Term
Loan Documents (including this guaranty) and the execution and delivery by the
Guarantor of the VSC Revolver Guaranty dated the date hereof and the funding of
all Commitments exceeds the amount that will be required to be paid on or in
respect of the existing debts and other liabilities (including contingent
liabilities) of the Guarantor as they mature.
(b) The property of the Guarantor does not constitute
unreasonably small capital for the Guarantor to carry out its business as now
conducted and as proposed to be conducted including the capital needs of the
Guarantor.
(c) The Guarantor does not intend to, nor does it believe that
it will, incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be received by the Guarantor, and
of amounts to be payable on or in respect of debt of the Guarantor). The cash
available to the Guarantor after taking into account all other anticipated uses
of the cash of the Guarantor, is anticipated to be sufficient to pay all such
amounts on or in respect of debt of the Guarantor when such amounts are required
to be paid.
(d) The Guarantor does not believe that final judgments
against it in actions for money damages will be rendered at a time when, or in
an amount such that, the Guarantor will be unable to satisfy any such judgments
promptly in accordance with their terms (taking into account the maximum
reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered). The cash available
to the Borrower after taking into account all other anticipated uses of
<PAGE>
the cash of the Borrower (including the payments on or in respect of debt
referred to in paragraph (c) of this Section), is anticipated to be sufficient
to pay all such judgments promptly in accordance with their terms.
9. The Guarantor agrees that, in addition to (and without limitation
of) any right of setoff, banker's lien or counterclaim the Agent or any Bank may
otherwise have, each of the Agent and each Bank shall be entitled, at its
option, to setoff and apply balances (general or special, time or demand,
provisional or final) held by it for account of the Guarantor at any of its
offices in dollars or in any other currency, against any amounts owing hereunder
that are not paid when due (regardless of whether such balances are then due to
the Guarantor), in which case it shall promptly notify the Guarantor thereof;
provided however that any failure to give such notice shall not affect the
validity thereof.
10. No provision of this guaranty may be modified or waived without
the prior written consent of the Agent and the Required Banks.
11. The Guarantor hereby irrevocably submits to the jurisdiction of
any New York State court or Federal court sitting in New York City and New
Jersey State court or Federal court sitting in New Jersey in any action or
proceeding arising out of or relating to this guaranty, and the Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York State or New Jersey State or Federal
court. The Guarantor irrevocably consents to the service of any and all process
in any such action or proceeding by the mailing of copies of such process to the
Guarantor at its address specified on the signature page hereof. The Guarantor
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this paragraph shall affect the
rights of the Agent and the Banks to serve legal process in any other manner
permitted by law or affect the rights of the Agent and the Banks to bring any
action or proceeding against the Guarantor or any of its property in the courts
of any other jurisdiction. To the extent that the Guarantor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether from service or notice, attachment prior to judgment, attachment in aid
of execution, execution or otherwise) with respect to itself or its property,
the Guarantor hereby irrevocably waives such immunity in respect of its
Obligations under this guaranty. The Guarantor hereby expressly waives any and
every right to a trial by jury in any action on or related to this guaranty, the
Obligations or the enforcement of either or all of the same, and does further
expressly waive any and every right to interpose any counterclaim in any such
action or proceeding.
12. The Guarantor agrees to reimburse the Agent and the Banks on
demand for all reasonable costs, expenses, and charges (including, without
limitation, reasonable attorneys' fees) incurred by the Agent or the Banks in
connection with any enforcement of this guaranty.
13. The rights, powers and remedies granted to the Agent and the
Banks herein shall be cumulative and in addition to any rights, powers and
remedies to which the Agent and the Banks may be entitled either by operation of
law or pursuant to the Term Loan Documents or any other document or instrument
delivered or from time to time to be delivered to the Agent or any Bank in
connection with the Term Loan Documents.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be
duly executed by their proper officers this 1st day of May, 1998.
WITNESS: VITAMIN SPECIALTIES CORP.
/s/ Lee P. Brennan By: /s/ I. Alan Hirschfeld
- --------------------------- -------------------------------------
Name: Name:
---------------------- ---------------------------------
Title:
---------------------------
Address of Guarantor:
500 Halls Mill Road
Freehold, NJ 07728
VSC TERM SECURITY AGREEMENT
THIS AGREEMENT, dated as of the 1 day of May, 1998, is made by
VITAMIN SPECIALTIES CORP., a Pennsylvania corporation (the "Grantor"), in favor
of THE CHASE MANHATTAN BANK in its capacity as Agent under the Term Loan
Agreement hereinafter referred to (the "Agent").
Preliminary Statement
A. Contemporaneously herewith, IVC Industries, Inc., a Delaware
corporation (the "Borrower"), is entering into a certain Term Loan Agreement
dated the date hereof (which, as the same may be hereafter amended or
supplemented from time to time, will be called herein the "Term Loan Agreement")
among itself, the Banks party thereto and the Agent. All capitalized terms used
herein and not defined shall have the respective meanings ascribed to them in
the Term Loan Agreement.
B. Contemporaneously herewith, the Grantor is executing and
delivering a guaranty dated the date hereof (which, as the same may hereafter be
amended or supplemented from time to time, will be called herein the "VSC Term
Guaranty") in favor of the Agent and the Banks, pursuant to which the Grantor is
guaranteeing all the obligations and liabilities (now existing or hereafter
arising) of the Borrower to any or all of the Agent and the Banks under the Term
Loan Agreement or any of the other Term Loan Documents.
C. The execution and delivery of this Agreement is required in order
to induce the Banks and the Agent to enter into the Term Loan Agreement.
NOW, THEREFORE, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), and in order to induce the Banks
and the Agent to enter into the Term Loan Agreement, the Grantor hereby agrees
as follows:
As used in this Agreement, the term "Liabilities" shall mean all
obligations and liabilities (now existing or hereafter arising) of the Grantor
to any or all of the Agent and the Banks under the VSC Term Guaranty.
The term "Security" shall mean all personal property and fixtures of
the Grantor, whether now or hereafter existing or now owned or hereafter
acquired and wherever located, of every kind and description, tangible or
intangible, including, but not limited to, all money, goods (including
equipment, farm products and inventory), instruments, securities, documents,
chattel paper, accounts, contract rights, general intangibles, credits, claims,
demands, precious metals and any other property, rights and interests of the
Grantor, and shall include the proceeds, products and accessions of and to any
thereof. The Security includes (without limitation) the following assets of the
Grantor:
(a) all inventories;
<PAGE>
(b) all tangible personal property, computer equipment,
brochures, store signage, store fixtures and leasehold improvements,
including tangible personal property referred to on Schedule 1.03 of
the HealthRite Purchase Agreement;
(c) all cash actually present "in the till" at any of
the Stores;
(d) all accounts receivable;
(e) all rights in leases of the Stores;
(f) all rights in purchase orders, sales orders, order
books, mailing lists, customer accounts and customer lists and
records;
(g) all rights in intellectual property, including the
names "Vitamin Specialties" and "Herbal Specialties", proprietary
information, computer software, customer lists, mailing lists, trade
secrets, patents, patent applications, copyrights, copyright
applications, trademarks, service marks, trademark or service mark
registration applications, art work, boards, plates, films and
related art work (such as in catalogs), tradenames, licenses of any
such property or rights, goodwill and permits;
(h) all necessary permits and certificates issued or
granted;
(i) all books and records, including, without
limitation, quality control records and computer software and data
bases; and
(j) all goodwill.
As security for the payment of all the Liabilities, the Grantor
hereby grants to the Agent a security interest in and a general lien upon the
Security.
At any time and from time to time, upon the demand of the Agent, the
Grantor will: (1) give, execute, deliver, file and/or record any notice,
statement, instrument, document, agreement or other papers that may be necessary
or desirable, or that the Agent may request, in order to create, preserve,
perfect, or validate any security interest granted pursuant hereto or to enable
the Agent to exercise and enforce its rights hereunder or with respect to such
security interest; and (2) permit representatives of the Agent or any Bank at
any time during business hours to inspect its inventory and to inspect and make
abstracts from the Grantor's books and records pertaining to the Security. The
right is expressly granted to the Agent, at its discretion, to file one or more
financing statements under the Uniform Commercial Code naming the Grantor as
debtor and the Agent as secured party and indicating therein the types or
describing the items of Security herein specified. A photographic or other
reproduction of this agreement shall be sufficient as a financing statement.
With respect to the Security, or any part thereof, which at any time shall come
into the possession or custody or under the control of the Agent or any Bank or
any of their agents, associates or correspondents, for any purpose, the right is
expressly granted to the Agent, at its discretion, to transfer to or register in
the name of itself or its nominee any of the Security; and to exercise or cause
its nominee to exercise all or any powers with respect to the Security with the
same force and effect as an absolute owner
<PAGE>
thereof; all without notice (except such notice as may be required by applicable
law and cannot be waived) and without liability except to account for property
actually received by it.
The Agent at its discretion may, if an Event of Default exists, in
its name or in the name of the Grantor or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for, or make any compromise or settlement deemed desirable with
respect to, any of the Security, but the Agent shall be under no obligation to
do so, or the Agent may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the Security,
without thereby incurring responsibility to, or discharging or otherwise
affecting any liability of, the Grantor. The Agent shall not be required to take
any steps necessary to preserve any rights against prior parties to any of the
Security. If an Event of Default exists, the Agent may use or operate any of the
Security for the purpose of preserving the Security or its value in the manner
and to the extent the Agent reasonably deems appropriate, but the Agent shall be
under no obligation to do so. Upon the occurrence and during the continuance of
an Event of Default, the Grantor shall, at the request of the Agent, assemble
the Security at such place or places as the Agent designates in its request,
and, to the extent permitted by applicable law, the Agent shall have the right,
with or without legal process and with or without prior notice or demand, to
take possession of the Security or any part thereof and to enter any premises
for the purpose of taking possession thereof. The Agent shall have the rights
and remedies with respect to the Security of a secured party under the Uniform
Commercial Code (whether or not such Code is in effect in the jurisdiction where
the rights and remedies are asserted). In addition, with respect to the
Security, or any part thereof, which shall then be or shall thereafter come into
the possession or custody of the Agent, any Bank or any of their agents,
associates or correspondents, the Agent may sell or cause to be sold in the
Borough of Manhattan, New York City, or elsewhere, in one or more sales or
parcels, at such price as the Agent may deem best, and for cash or on credit or
for future delivery, without assumption of any credit risk, all or any of the
Security, at any broker's board or at public or private sale, in any reasonable
manner permissible under the Uniform Commercial Code (except that, to the extent
permitted thereunder, the Grantor hereby waives the requirements of said Code),
and the Agent or anyone else may be the purchaser of any or all of the Security
so sold and thereafter hold the same absolutely, free from any claim or right of
whatsoever kind, including any equity of redemption, of the Grantor, any such
demand, notice or right and equity being hereby expressly waived and released.
The Grantor will pay to the Agent all reasonable expenses (including reasonable
attorneys' fees and legal expenses incurred by any or all of the Agent and the
Banks) of, or incidental to, the enforcement of any of the provisions hereof or
of any of the Liabilities, or any actual or attempted sale of any of the
Security or receipt of the proceeds thereof, and for the care of the Security
and defending or asserting the rights and claims of the Agent in respect
thereof, by litigation or otherwise, including expense of insurance; and all
such expenses shall be indebtedness within the terms of this agreement.
Notwithstanding that the Agent, whether in its own behalf and/or in behalf of
another or others, may continue to hold Security and regardless of the value
thereof, the Grantor shall be and remain liable for the payment in full,
principal and interest, of any balance of the Liabilities and expenses at any
time unpaid.
<PAGE>
No delay on the part of the Agent in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof or the exercise of any other power or right. The rights, remedies and
benefits herein expressly specified are cumulative and not exclusive of any
rights, remedies or benefits which any or all of the Agent and the Banks may
otherwise have. The Grantor hereby waive(s) presentment, notice of dishonor and
protest of all instruments included in or evidencing the Liabilities or the
Security and any and all other notices and demands whatsoever, whether or not
relating to such instruments.
No provision hereof shall be modified or limited except by a written
instrument executed by the party sought to be charged therewith, expressly
referring hereto and to the provision so modified or limited. This agreement
shall be binding upon the Grantor and its successors and assigns, and shall
inure to the benefit of the Agent and the Banks and their respective successors
and assigns, and shall be governed by and construed according to the laws of the
State of New York. Unless the context otherwise requires, all terms used herein
which are defined in the New York Uniform Commercial Code shall have the
meanings therein stated.
Upon any assignment by the Agent to the Designated Party of this
Agreement, the Excluded VSC Assets shall automatically be released from the Lien
of this Agreement (without any need for any documentation or consent on the part
of the Agent or the Designated Party, such automatic release being a condition
of the grant herein of such Lien); but the Excluded VSC Assets shall remain
subject to the Lien granted by the Grantor (pursuant to a separate security
agreement being granted by the Grantor contemporaneously herewith) to secure
obligations under the Revolving Credit Agreement. As used herein, the term
"Excluded VSC Assets" means (i) any and all cash (including, without limitation,
deposit accounts and investments that are cash equivalents) of VSC existing on
the day on which the Agent assigns to the Designated Party the Lien of the Agent
in the Vitamin Specialties Assets, other than cash "in the till" at the Stores
on the day on which the Agent assigns to the Designated Party; provided,
however, that all cash that is received by VSC after such day shall not
constitute Excluded VSC Assets; and (ii) any and all inventory of VSC that is
not located at a Store, except for any such inventory that shall have already
been paid for by VSC. The Excluded VSC Assets are intended to be excluded from
any assignment by the Agent to the Designated Party of the Lien of the Agent in
the Vitamin Specialties Assets; but the Excluded VSC Assets will remain subject
to the Lien securing the obligations under Revolving Credit Agreement.
Grantor acknowledges that the Designated Party has agreed to execute and
deliver the Designated Party Term Guaranty in reliance upon this Agreement,
among other things. In order to further induce the Designated Party to execute
and deliver the Designated Party Term Guaranty, Grantor agrees that, upon any
assignment of the Loans to the Designated Party pursuant to Section 1 of the
Term Intercreditor Agreement, Grantor will permit the Designated Party or its
designees, at the Designated Party's option, to take over any or all operations
of Grantor at any of its locations, with full power to control and to conduct
any or all aspects of Grantor's operations as the Designated Party may see fit,
for the purposes of applying or generating cash on hand or cash from operations
or sales of inventory or assets, for the purposes of reimbursing the Designated
Party for amounts paid by it under or in connection with the Designated Party
Term Guaranty, including its and its designees'
<PAGE>
expenses in connection with any such operations, until all such amounts and
expenses have been fully and finally reimbursed and paid. Grantor agrees to
indemnify the Designated Party, its designees, and their officers, directors,
employees and agents, from and against any and all liabilities and expenses
incurred by them in such connection, except for their gross negligence or
willful misconduct.
VITAMIN SPECIALTIES CORP.
By: /s/ I. Alan Hirschfeld
---------------------------------
Name:
Title:
IVOSC/HALL (CANADA) TERM GUARANTY
REFERENCE IS HEREBY MADE to the Term Loan Agreement dated the date
hereof (which, as the same may hereafter be amended from time to time, will be
called herein the "Term Loan Agreement") among IVC Industries, Inc., a Delaware
corporation (the "Borrower"), the Banks party thereto, and The Chase Manhattan
Bank, as Agent. All capitalized terms used herein and not defined shall have the
respective meanings ascribed to them in the Term Loan Agreement.
WHEREAS, the Term Loan Agreement provides for the extension of
credit by the Banks to the Borrower; and
WHEREAS, all the obligations and liabilities (whether now existing
or hereafter arising) of the Borrower to any or all of the Agent and the Banks
under the Term Loan Agreement or any of the other Term Loan Documents (whether
for principal, interest, fees, reimbursement obligations, indemnification
obligations, costs of enforcement or otherwise) will be called herein the
"Obligations"; and
WHEREAS, each of the undersigned (each, a "Guarantor") expects to
obtain substantial economic benefit from the extension of credit by the Banks to
the Borrower under the Term Loan Agreement; and
WHEREAS, the execution and delivery of this guaranty by the
Guarantors is required in order to induce the Banks and the Agent to enter into
the Term Loan Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and to induce the Banks and the
Agent to enter into the Term Loan Agreement, the Guarantors hereby jointly and
severally agree with the Banks and the Agent as follows:
1. The Guarantors hereby absolutely, unconditionally, jointly and
severally guarantee to the Agent and the Banks that the Borrower will promptly
pay, perform and observe all the Obligations, and that all sums stated to be
payable in, or which become payable under, the Term Loan Documents by the
Borrower will be promptly paid in full when due, whether at stated maturity or
earlier by reason of acceleration or otherwise, and, in the case of one or more
extensions of time of payment or performance or renewals of any Obligation, that
the same will be promptly paid or performed (as the case may be) when due
according to such extension or renewal, whether at stated maturity or earlier by
reason of acceleration or otherwise, irrespective of the validity, regularity,
or enforceability of any of the Term Loan Documents and irrespective of any
present or future law or order of any government (whether of right or in fact
and whether the Agent or any Bank shall have consented thereto) or of any agency
thereof purporting to reduce, amend, restructure or otherwise affect any
Obligation of the Borrower or other obligor or to vary the terms of payment;
provided, however, that the liability of any Guarantor hereunder with respect to
the Obligations shall not exceed at any time 90% of Adjusted Net Worth (as
hereinafter defined) of such Guarantor. The term "Adjusted Net Worth" of a
Guarantor means the
<PAGE>
current Net Worth of such Guarantor, plus (as and when Net Worth increases) any
increase in such amount of Net Worth after the date hereof (without any decrease
for any reduction after the date hereof in current Net Worth as so increased).
The term "Net Worth" of a Guarantor means the amount of all assets of such
Guarantor, at a fair valuation, less the total liabilities of such Guarantor
(including contingent liabilities other than the liabilities of such Guarantor
under this guaranty).
2. The Guarantors agree that, as among the Guarantors, the Agent and
the Banks, the Obligations may be declared to be due and payable for purposes of
this guaranty notwithstanding any stay, injunction or other prohibition which
may prevent, delay or vitiate any such declaration as against the Borrower and
that, in the event of any such declaration (or attempted declaration), such
Obligations (whether or not due and payable by the Borrower) shall forthwith
become due and payable by the Guarantors for purposes of this guaranty. The
Guarantors further guarantee that all payments made by the Borrower to the Agent
and the Banks of any Obligation will, when made, be final and agree that if any
such payment is recovered from, or repaid by, the Agent or any Bank in whole or
in part in any bankruptcy, insolvency or similar proceeding instituted by or
against the Borrower, this guaranty shall continue to be fully applicable to
such Obligation to the same extent as though the payment so recovered or repaid
had never been originally made on such Obligation.
3. This is a guaranty of payment and not of collection only.
4. The Guarantors hereby consent that from time to time, without
notice to or further consent of any Guarantor, the payment, performance or
observance of any or all of the Obligations may be waived or the time of payment
or performance thereof extended or accelerated, or renewed in whole or in part,
or the terms of the Term Loan Documents or any part thereof may be changed and
any collateral therefor may be exchanged, surrendered or otherwise dealt with as
the Agent may determine, and any of the acts mentioned in the Term Loan
Documents may be done, all without affecting the liability of any Guarantor
hereunder. The Guarantors hereby waive presentment of any instrument, demand of
payment, protest and notice of non-payment or protest thereof or of any
exchange, sale, surrender or other handling or disposition of such collateral,
and any requirement that the Agent or any Bank exhaust any right, power or
remedy or proceed against the Borrower under the Term Loan Documents or against
any other person under any other guaranty of, or security for, any of the
Obligations. The Guarantors hereby further waive any defense whatsoever which
might constitute a defense available to, or discharge of, the Borrower or a
guarantor. No payment by any Guarantor pursuant to any provision hereunder shall
entitle such Guarantor, by subrogation to the rights of the Agent or any Bank or
otherwise, to any payment by the Borrower (or out of the property of the
Borrower) except after payment in full of all sums (including interest, costs
and expenses) which may be or become payable by the Borrower to the Agent and
the Banks at any time or from time to time; provided, however, if any Guarantor
is an "insider" of the Borrower, as such term is
<PAGE>
defined in Section 101 of the Federal Bankruptcy Code, such Guarantor hereby
irrevocably waives any and all rights to which it may be entitled, by operation
of law or otherwise, upon making any payment hereunder to be subrogated to the
rights of the Agent and the Banks against the Borrower with respect to such
payment or otherwise to be reimbursed, indemnified or exonerated by the Borrower
in respect thereof.
5. This guaranty shall be a continuing guaranty, and any other
guarantor, and any other party liable upon or in respect of any Obligation
hereby guaranteed may be released without affecting the liability of any
Guarantor. The liability of the Guarantors hereunder shall be joint and several
with each other and joint and several with the liability of any other guarantor
or other party upon or in respect of the Obligations.
6. The Agent or any Bank may assign its rights and powers hereunder,
with all or any of the Obligations, and, in the event of such assignment, the
assignee hereof or of such rights and powers, shall have the same rights and
remedies as if originally named herein.
7. Notice of acceptance of this guaranty and of the incurring of any
and all of the Obligations of the Borrower pursuant to the Term Loan Documents
is hereby waived. This guaranty and all rights, obligations and liabilities
arising hereunder shall be governed by and construed according to the laws of
the State of New York. Unless the context otherwise requires, all terms used
herein which are defined in the Uniform Commercial Code shall have the meanings
therein stated.
8. Each Guarantor represents and warrants that:
a) The present fair saleable value of the assets of the
Guarantor after giving effect to all the transactions contemplated by the Term
Loan Documents (including this guaranty) and the funding of all Commitments
exceeds the amount that will be required to be paid on or in respect of the
existing debts and other liabilities (including contingent liabilities) of the
Guarantor as they mature.
b) The property of the Guarantor does not constitute
unreasonably small capital for the Guarantor to carry out its business as now
conducted and as proposed to be conducted including the capital needs of the
Guarantor.
c) The Guarantor does not intend to, nor does it believe that
it will, incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be received by the Guarantor, and
of amounts to be payable on or in respect of debt of the Guarantor). The cash
available to the Guarantor after taking into account all other anticipated uses
of the cash of the Guarantor, is anticipated to be sufficient to pay all such
amounts on or in respect of debt of the Guarantor when such amounts are required
to be paid.
<PAGE>
d) The Guarantor does not believe that final judgments against
it in actions for money damages will be rendered at a time when, or in an amount
such that, the Guarantor will be unable to satisfy any such judgments promptly
in accordance with their terms (taking into account the maximum reasonable
amount of such judgments in any such actions and the earliest reasonable time at
which such judgments might be rendered). The cash available to the Borrower
after taking into account all other anticipated uses of the cash of the Borrower
(including the payments on or in respect of debt referred to in paragraph (c) of
this Section), is anticipated to be sufficient to pay all such judgments
promptly in accordance with their terms.
9. Each Guarantor agrees that, in addition to (and without
limitation of) any right of setoff, banker's lien or counterclaim the Agent or
any Bank may otherwise have, each of the Agent and each Bank shall be entitled,
at its option, to setoff and apply balances (general or special, time or demand,
provisional or final) held by it for account of such Guarantor at any of its
offices in dollars or in any other currency, against any amounts owing hereunder
that are not paid when due (regardless of whether such balances are then due to
such Guarantor), in which case it shall promptly notify such Guarantor thereof;
provided however that any failure to give such notice shall not affect the
validity thereof.
10. No provision of this guaranty may be modified or waived without
the prior written consent of the Agent and the Required Banks.
11. Each Guarantor hereby irrevocably submits to the jurisdiction of
any New York State court or Federal court sitting in New York City and any New
Jersey State court or Federal court sitting in New Jersey in any action or
proceeding arising out of or relating to this guaranty, and each Guarantor
hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State or New Jersey
State or Federal court. Each Guarantor irrevocably consents to the service of
any and all process in any such action or proceeding by the mailing of copies of
such process to such Guarantor at its address specified on the signature page
hereof. Each Guarantor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
paragraph shall affect the rights of the Agent and the Banks to serve legal
process in any other manner permitted by law or affect the rights of the Agent
and the Banks to bring any action or proceeding against such Guarantor or any of
its property in the courts of any other jurisdiction. To the extent that a
Guarantor has or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether from service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise) with
respect to itself or its property, such Guarantor hereby irrevocably waives such
immunity in respect of its Obligations under this guaranty. Each Guarantor
hereby expressly waives any and every right to a trial by jury in any action on
or related to this guaranty, the Obligations or the enforcement of either or all
of the same, and does further expressly waive any and every right to interpose
any counterclaim in any such action or proceeding.
<PAGE>
12. The Guarantors agree to reimburse the Agent and the Banks on
demand for all reasonable costs, expenses, and charges (including, without
limitation, reasonable attorneys' fees) incurred by the Agent or the Banks in
connection with any enforcement of this guaranty.
13. The rights, powers and remedies granted to the Agent and the
Banks herein shall be cumulative and in addition to any rights, powers and
remedies to which the Agent and the Banks may be entitled either by operation of
law or pursuant to the Term Loan Documents or any other document or instrument
delivered or from time to time to be delivered to the Agent or any Bank in
connection with the Term Loan Documents.
This Guaranty is not intended to be assigned to the Designated Party
in the event that the Term Note and the other Term Loan Documents are assigned
to the Designated Party upon a payment under the Designated Party Term Guaranty.
Instead, upon any such assignment to the Designated Party of the Term Note and
other Term Loan Documents, this Guaranty shall become void and of no further
force or effect.
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this instrument to be
duly executed by their proper officers this 1 day of May, 1998.
WITNESS: HALL LABORATORIES, LTD.
/s/ B. Eyre By:/s/ P.W. Schreiber
- ----------------------------------- -----------------------------------
Name: Name:
------------------------------ ------------------------------
Title:
-----------------------------
Address of Guarantor:
13060 80th Avenue #207
Surrey, British Columbia, Canada
WITNESS: INTERNATIONAL VITAMIN OVERSEAS
SALES CORP.
By:
- ----------------------------------- -----------------------------------
Name: Name:
------------------------------ ------------------------------
Title:
-----------------------------
Address of Guarantor:
500 Halls Mill Road
Freehold, NJ 07728
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this instrument to be
duly executed by their proper officers this 1 day of May, 1998.
WITNESS: HALL LABORATORIES, LTD.
By:
- ----------------------------------- -----------------------------------
Name: Name:
------------------------------ ------------------------------
Title:
-----------------------------
Address of Guarantor:
13060 80th Avenue #207
Surrey, British Columbia, Canada
WITNESS: INTERNATIONAL VITAMIN OVERSEAS
SALES CORP.
/s/ Susan A. Denkovic By: /s/ I. Alan Hirschfeld
- ----------------------------------- -----------------------------------
Name: Name:
------------------------------ ------------------------------
Title:
-----------------------------
Address of Guarantor:
500 Halls Mill Road
Freehold, NJ 07728
BORROWER/IVOSC/HALL (CANADA) TERM SECURITY AGREEMENT
THIS AGREEMENT, dated as of the 1 day of May, 1998, is made by IVC
INDUSTRIES, INC., a Delaware corporation (the "Borrower"); INTERNATIONAL VITAMIN
OVERSEAS SALES CORP., a New Jersey corporation ("IVOSC"); and HALL LABORATORIES,
LTD., a corporation organized under the laws of British Columbia ("Hall
(Canada)"; the Borrower, IVOSC and Hall (Canada) being called collectively the
"Grantors", and individually, a "Grantor"), in favor of THE CHASE MANHATTAN BANK
in its capacity as Agent under the Term Loan Agreement hereinafter referred to
(the "Agent").
Preliminary Statement
A. Contemporaneously herewith, the Borrower is entering into a
certain Term Loan Agreement dated the date hereof (which, as the same may be
hereafter amended or supplemented from time to time, will be called herein the
"Term Loan Agreement") among itself, the Banks party thereto and the Agent. All
capitalized terms used herein and not defined shall have the respective meanings
ascribed to them in the Term Loan Agreement.
B. Contemporaneously herewith, IVOSC and Hall (Canada) are executing
and delivering a guaranty dated the date hereof (which, as the same may
hereafter be amended or supplemented from time to time, will be called herein
the "IVOSC/Hall (Canada) Term Guaranty") in favor of the Agent and the Banks,
pursuant to which IVOSC and Hall (Canada) are guaranteeing all the obligations
and liabilities (now existing or hereafter arising) of the Borrower to any or
all of the Agent and the Banks under the Term Loan Agreement or any of the other
Term Loan Documents.
C. The execution and delivery of this Agreement is required in order
to induce the Banks and the Agent to enter into the Term Loan Agreement.
NOW, THEREFORE, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), and in order to induce the Banks
and the Agent to enter into the Term Loan Agreement, each Grantor hereby agrees
as follows:
As used in this Agreement, the term "Liabilities" shall mean all
obligations and liabilities (now existing or hereafter arising) of the Grantor
to any or all of the Agent and the Banks under the Term Loan Agreement and the
Term Notes (in the case of the Borrower) or the IVOSC/Hall (Canada) Term
Guaranty (in the case of IVOSC and Hall (Canada)). The term "Security" shall
mean all personal property and fixtures of each Grantor, whether now or
hereafter existing or now owned or hereafter acquired and wherever located, of
every kind and description, tangible or intangible, including, but not limited
to, all money, goods (including equipment, farm products and inventory),
instruments, securities, documents, chattel paper, accounts, contract rights,
general intangibles, credits, claims (including, without limitation, the balance
of every deposit account of any Grantor with the Agent or any Bank and any other
claim of any Grantor against the Agent or any Bank), demands, precious metals
and any other property, rights
<PAGE>
and interests of each Grantor, and shall include the proceeds, products and
accessions of and to any thereof.
As security for the payment of all the Liabilities, each Grantor
hereby grants to the Agent a security interest in and a general lien upon the
Security.
At any time and from time to time, upon the demand of the Agent,
each Grantor will: (1) give, execute, deliver, file and/or record any notice,
statement, instrument, document, agreement or other papers that may be necessary
or desirable, or that the Agent may request, in order to create, preserve,
perfect, or validate any security interest granted pursuant hereto or to enable
the Agent to exercise and enforce its rights hereunder or with respect to such
security interest; and (2) permit representatives of the Agent or any Bank at
any time during business hours to inspect its inventory and to inspect and make
abstracts from such Grantor's books and records pertaining to the Security. The
right is expressly granted to the Agent, at its discretion, to file one or more
financing statements under the Uniform Commercial Code naming each Grantor as
debtor and the Agent as secured party and indicating therein the types or
describing the items of Security herein specified. A photographic or other
reproduction of this agreement shall be sufficient as a financing statement.
With respect to the Security, or any part thereof, which at any time shall come
into the possession or custody or under the control of the Agent or any Bank or
any of their agents, associates or correspondents, for any purpose, the right is
expressly granted to the Agent, at its discretion, to transfer to or register in
the name of itself or its nominee any of the Security; and to exercise or cause
its nominee to exercise all or any powers with respect to the Security with the
same force and effect as an absolute owner thereof; all without notice (except
such notice as may be required by applicable law and cannot be waived) and
without liability except to account for property actually received by it.
The Agent at its discretion may, if an Event of Default exists, in
its name or in the name of any Grantor or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for, or make any compromise or settlement deemed desirable with
respect to, any of the Security, but the Agent shall be under no obligation to
do so, or the Agent may extend the time for payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the Security,
without thereby incurring responsibility to, or discharging or otherwise
affecting any liability of, any Grantor. The Agent shall not be required to take
any steps necessary to preserve any rights against prior parties to any of the
Security. If an Event of Default exists, the Agent may use or operate any of the
Security for the purpose of preserving the Security or its value in the manner
and to the extent the Agent reasonably deems appropriate, but the Agent shall be
under no obligation to do so. Upon the occurrence and during the continuance of
an Event of Default, each Grantor shall, at the request of the Agent, assemble
the Security at such place or places as the Agent designates in its request,
and, to the extent permitted by applicable law, the Agent shall have the right,
with or without legal process and with or without prior notice or demand, to
take possession of the Security or any part thereof and to enter any premises
for the purpose of taking possession thereof. The Agent shall have the rights
and remedies with respect to the Security of a secured party under the Uniform
Commercial Code (whether or not such Code is in effect in the jurisdiction where
the rights and remedies are asserted). In addition, with respect to the
Security, or any part thereof, which shall then be or shall
<PAGE>
thereafter come into the possession or custody of the Agent, any Bank or any of
their agents, associates or correspondents, the Agent may sell or cause to be
sold in the Borough of Manhattan, New York City, or elsewhere, in one or more
sales or parcels, at such price as the Agent may deem best, and for cash or on
credit or for future delivery, without assumption of any credit risk, all or any
of the Security, at any broker's board or at public or private sale, in any
reasonable manner permissible under the Uniform Commercial Code (except that, to
the extent permitted thereunder, each Grantor hereby waives the requirements of
said Code), and the Agent or anyone else may be the purchaser of any or all of
the Security so sold and thereafter hold the same absolutely, free from any
claim or right of whatsoever kind, including any equity of redemption, of any
Grantor, any such demand, notice or right and equity being hereby expressly
waived and released. Each Grantor will pay to the Agent all reasonable expenses
(including reasonable attorneys' fees and legal expenses incurred by any or all
of the Agent and the Banks) of, or incidental to, the enforcement of any of the
provisions hereof or of any of the Liabilities, or any actual or attempted sale
of any of the Security or receipt of the proceeds thereof, and for the care of
the Security and defending or asserting the rights and claims of the Agent in
respect thereof, by litigation or otherwise, including expense of insurance; and
all such expenses shall be indebtedness within the terms of this agreement.
Notwithstanding that the Agent, whether in its own behalf and/or in behalf of
another or others, may continue to hold Security and regardless of the value
thereof, each Grantor shall be and remain liable for the payment in full,
principal and interest, of any balance of the Liabilities and expenses at any
time unpaid.
No delay on the part of the Agent in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof or the exercise of any other power or right. The rights, remedies and
benefits herein expressly specified are cumulative and not exclusive of any
rights, remedies or benefits which any or all of the Agent and the Banks may
otherwise have. Each Grantor hereby waive(s) presentment, notice of dishonor and
protest of all instruments included in or evidencing the Liabilities or the
Security and any and all other notices and demands whatsoever, whether or not
relating to such instruments.
No provision hereof shall be modified or limited except by a written
instrument executed by the party sought to be charged therewith, expressly
referring hereto and to the provision so modified or limited. This agreement
shall be binding upon each Grantor and its successors and assigns, and shall
inure to the benefit of the Agent and the Banks and their respective successors
and assigns, and shall be governed by and construed according to the laws of the
State of New York. Unless the context otherwise requires,
<PAGE>
all terms used herein which are defined in the New York Uniform Commercial Code
shall have the meanings therein stated.
The security interests granted hereby are junior and subordinated to (i)
the security interests granted pursuant to the Security Agreement dated April
30, 1996 from each Grantor in favor of The Chase Manhattan Bank (National
Association) in its capacity as Agent under a certain Credit Agreement dated
such date; and (ii) the security interests granted pursuant to the Security
Agreement dated April 30, 1996 from each Grantor in favor of the Designated
Party in respect of a certain reimbursement obligation relating to the aforesaid
Credit Agreement.
This Security Agreement is not intended to be assigned to the Designated
Party in the event that the Term Note and other Term Loan Documents are assigned
to the Designated Party upon a payment under the Designated Party Term Guaranty.
Instead, upon any such assignment to the Designated Party of the Term Note and
other Term Loan Documents, this Security Agreement and the security interests
granted herein shall become void and of no further force or effect.
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
----------------------------------
Name:
Title:
INTERNATIONAL VITAMIN OVERSEAS
SALES CORP.
By: /s/ I. Alan Hirschfeld
----------------------------------
Name:
Title:
HALL LABORATORIES, LTD.
By:
----------------------------------
Name:
Title:
STOCK PLEDGE AGREEMENT
THIS AGREEMENT, dated May 1, 1998, made by IVC INDUSTRIES, INC., a
Delaware corporation (the "Pledgor"), to THE CHASE MANHATTAN BANK in its
capacity as agent under the Term Loan Agreement hereinafter referred to (the
"Pledgee").
Preliminary Statement
A. Contemporaneously herewith, the Pledgor is entering into a
certain term loan agreement with the Pledgee and the Banks party thereto (which,
as the same may hereafter be amended or restated from time to time, will be
called the "Term Loan Agreement") providing for term-loan financing in the
aggregate principal amount of $3,500,000 to the Pledgor.
B. It is a condition precedent to the execution and delivery
of the Term Loan Agreement by the Pledgee and the Banks that the Pledgor shall
grant the security interest contemplated by this Agreement in the collateral
described below.
NOW, THEREFORE, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), and in order to induce the
Pledgee and the Banks to enter into the Term Loan Agreement and to extend the
credit contemplated thereby, the Pledgor hereby agrees as follows:
1. Pledge of Securities. (a) As security for the payment and
performance of the Liabilities (as such term is hereinafter defined), the
Pledgor hereby assigns, transfers and pledges to the Pledgee, and grants the
Pledgee a security interest in, 1,000 shares of common stock of VITAMIN
SPECIALTIES CORP., a Pennsylvania corporation, (which shares shall be called the
"Pledged Securities" and which corporation shall be called the "Company"),
together with all cash, securities and other property that may hereafter be
payable in respect of the Pledged Securities as a dividend or distribution or in
exchange therefor, and all proceeds of the foregoing. The certificate(s) for the
Pledged Securities, accompanied by stock powers duly executed in blank by the
Pledgor, have been delivered by the Pledgor to the Pledgee. The Pledgee may, at
its option and upon written notice to the Pledgor at any time while on Event of
Default (as hereinafter defined) exists, transfer the registration of any or all
of the Pledged Securities into its name or the name of any nominee.
(b) As used herein, the term "Liabilities" means (i) all
obligations and liabilities, now existing or hereafter arising, of the Pledgor
under the Term Loan Agreement or the other Term Loan Documents, including
(without limitation) the indebtedness evidenced by the Notes (as the terms "Term
Loan Documents" and "Notes") are defined in the Term Loan Agreement); and (ii)
all obligations and liabilities, now existing or hereafter arising, of the
Pledgor under this Agreement.
2. Representations and Warranties. The Pledgor represents and
warrants that:
<PAGE>
(i) it has good title to the Pledged Securities, free and clear of
all liens and claims other than the lien of this Agreement;
(ii) the Pledged Securities constitute all the stock and other
securities of the Company in which the Pledgor has an ownership interest;
(iii) the Pledged Securities have been validly issued and are fully
paid and nonassessable;
(iv) the making and performance by the Pledgor of this Agreement and
the pledging of the Pledged Securities are within the corporate powers of the
Pledgor, have been duly authorized by all necessary corporate action on the part
of the Pledgor, do not violate any provision of law or the charter or by-laws of
the Pledgor, and do not contravene any contractual restriction binding on the
Pledgor or the Pledged Securities;
(v) this Agreement is a legal, valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms;
(vi) no consent, approval or authorization of any person or entity
is required for (a) the execution, delivery and performance of this Agreement by
the Pledgor or the creation and perfection of the security interest granted
pursuant to this Agreement; or (b) for the exercise by the Pledgee of the voting
rights or any of the other rights, powers or remedies in respect of the Pledged
Securities pursuant to this Agreement, except as may be required in connection
with the disposition of the Pledged Securities by securities laws affecting the
offering and sale of securities generally;
(vii) the Pledged Securities constitute all of the outstanding
common stock of the Company; there is no outstanding preferred stock of the
Company; and there are no outstanding options, warrants, calls or commitments of
any character whatsoever relating to any of the unissued capital stock of the
Company, and no outstanding securities convertible into or exchangeable for any
capital stock of the Company; and
(viii) this Agreement and the delivery of the Pledged Securities to
the Pledgee, together with the fully executed stock powers, creates a fully
perfected, first priority lien on the Pledged Securities for the benefit of the
Pledgee.
3. Voting Pledged Securities. Unless an Event of Default has
occurred that has not been waived, the Pledgor shall be entitled to vote the
Pledged Securities and give consents, waivers and ratifications in respect
thereof for purposes that are not inconsistent with the terms of this Agreement.
All such rights of the Pledgor shall, however, cease upon the occurrence of an
Event of Default (unless such Event of Default is waived). At any time during
the occurrence of an Event of Default that has not been waived, the Pledgee may
vote any or all of the Pledged Securities (whether or not such Pledged
Securities have been transferred into its name, or into the name of its nominee,
as provided in Section 1 hereof), and give all consents, waivers and
ratifications in respect thereof, and otherwise act with respect thereto as
though it were the owner thereof. The Pledgor hereby irrevocably constitutes and
appoints the Pledgee the proxy and attorney-in-fact of the Pledgor, with full
power of substitution, to take, subject to the provisions of this Agreement, any
and all such action with respect to the Pledged Securities.
<PAGE>
4. Dividends. Unless an Event of Default has occurred that has
not been waived, all ordinary cash dividends on the Pledged Securities shall be
paid to the Pledgor. All other dividends and distributions and proceeds of any
kind in respect of any of the Pledged Securities, whenever paid or made, and all
ordinary cash dividends on the Pledged Securities paid after the occurrence of
an Event of Default (unless such Event of Default is waived), shall be delivered
directly to the Pledgee and held in pledge hereunder. Any such dividends or
distributions or proceeds required to be delivered to the Pledgee that are
received by the Pledgor, shall be held by the Pledgor in trust for the Pledgee
until the same are delivered by the Pledgor to the Pledgee.
5. Additional Securities. To the extent that it is within the
control of the Pledgor, the Pledgor shall not permit the Company to issue, after
the date of this Agreement, any capital stock or other securities convertible
into capital stock, unless all of such stock or other securities shall,
immediately after its issuance, be delivered to the Pledgee for holding by the
Pledgee in pledge hereunder. Any such stock or other securities so delivered
shall be included in the term "Pledged Securities", as used herein.
6. Transfer of Pledged Securities. The Pledgor shall not sell,
assign, encumber or otherwise transfer all or any part of the Pledged Securities
(or permit or suffer the same to be sold, assigned, encumbered or otherwise
transferred, whether by operation of law or otherwise).
7. Default. As used in this Pledge Agreement, the term "Event
of Default" has the same meaning ascribed to such term in the Term Loan
Agreement.
8. Remedies on Default. (A) Upon the occurrence of an Event of
Default, the Pledgee shall be entitled to exercise all rights, remedies and
powers provided or allowed by this Agreement, any other applicable agreement,
the New York Uniform Commercial Code and any other applicable law. All such
rights, remedies and powers shall be cumulative. The Pledgor waives any right to
require a marshalling of assets in connection with any disposition of the
Pledged Securities following an Event of Default and any right to require that
resort be had to any other remedy to satisfy the Liabilities prior to
realization on the Pledged Securities. If the Pledgee shall elect to dispose of
any of the Pledged Securities following an Event of Default (whether by way of
public or private sale or otherwise) and notice of such disposition is required
by law to be given, the Pledgor agrees that 10 days' advance notice to it of
such disposition shall constitute sufficient notice thereof.
(B) Any sale of the Pledged Securities by the Pledgee
following an Event of Default may be public or private, at any exchange,
broker's board of elsewhere, for cash or on credit or for future delivery, and
at such price or prices, and on such terms, as the Pledgee may deem reasonable.
Any sale hereunder may be conducted by an auctioneer or any officer, employee,
attorney or agent of the Pledgee. To the extent permitted by applicable law, the
Pledgee may be the purchaser of all or any of the Pledged Securities so sold.
The Pledgee reserves the right to reject any and all bids at such sale which, in
its sole discretion, it shall deem unacceptable. Any such sale may be held at
such time or times and at such place or places as the Pledgee may determine. The
Pledgee shall not be obligated to make any such sale pursuant to any such
notice. The Pledgee
<PAGE>
may adjourn any public or private sale from time to time by announcement at the
proposed sale, and such sale may, without further notice, be made at the time
and place to which the same may be so adjourned from time to time.
(C) The Pledgor recognizes that, in taking action pursuant to
this Section, the Pledgee may be restricted in effecting a public sale of all or
of a part of the Pledged Securities by reason of certain requirements contained
in the Securities Act of 1933, as amended, and the regulations thereunder, or
any applicable State securities laws, and the Pledgee may deem it necessary or
appropriate to resort to one or more private sales to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire the
Pledged Securities for their own account, for investment and not with a view to
the distribution or sale thereof. The Pledgor agrees that such private sales so
made may be at prices and on other terms less favorable to the Pledgor than if
the Pledged Securities were sold at public sales. The Pledgor agrees that
private sales made under the foregoing circumstances shall be deemed to have
been made in a commercially reasonable manner.
9. Protection of the Pledgee. Other than the exercise of
reasonable care in the custody of the Pledged Securities, the Pledgee shall have
no responsibility for or duty with respect to any Pledged Securities or any
matter or proceedings arising out of or relating thereto. The Pledgee shall be
deemed to have exercised reasonable care in the custody and preservation of the
Pledged Securities in its possession if the Pledged Securities are accorded
treatment substantially equal to that which it accords its own property. As to
all matters in connection with this Agreement, the Pledgee may consult with
legal counsel and shall be fully protected in taking, or omitting to take, any
action in good faith reliance thereon. Neither the Pledgee nor any of its
directors, officers, employees, agents or counsel shall be liable for any action
lawfully taken or omitted to be taken by it or them hereunder or in connection
herewith, except for their own gross negligence or willful misconduct.
10. Expenses. The Pledgor shall upon demand pay to the Pledgee
all costs and expenses (including, without limitation, attorneys' fees) the
Pledgee may suffer or incur in connection with (i) the preparation and
administration of this Agreement, (ii) the custody or preservation of the
Pledged Securities and the validity, perfection, and priority of the security
interests provided for in this Agreement, (iii) the failure of the Pledgor to
perform or observe any provisions of this Agreement, and (iv) the exercise or
enforcement by the Pledgee of any of its rights, powers or remedies hereunder.
11. Changes; Waivers. No provision of this Agreement may be
changed or waived orally, but only by an instrument in writing executed by the
party to be charged therewith. No failure or delay on the part of the Pledgee in
exercising any right, remedy or power shall operate as a waiver thereof, nor
shall any single or partial exercise thereof
<PAGE>
preclude any further or other exercise of the same or any other right, remedy or
power. No modification of the terms of payment of the indebtedness secured
hereby or waiver thereof or forbearance on the part of the Pledgee or release of
any other collateral for such indebtedness shall affect in any way whatsoever
the continuing effectiveness of this Agreement or the validity, perfection or
priority of the security interest granted hereby.
12. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York (without giving
effect to principles of conflicts of law).
13. Continuing Effect. This Pledge Agreement shall remain in
effect until the Liabilities shall have been satisfied in full. This Agreement
shall be binding upon the Pledgor, its successors and assigns, and inure to the
benefit of the Pledgee, its successors and assigns.
14. Notices. Any notice, request or other communication
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been properly given at the times and in the manner and
at the addresses provided in Section 12.06 of the Term Loan Agreement.
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be
executed by its duly authorized officer as of the day and year first above
written.
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
----------------------------------
Name:
Title:
- --------------------------------------------------------------------------------
COLLATERAL ASSIGNMENT OF STORE LEASES
by
IVC INDUSTRIES, INC.
a Delaware Corporation,
In Favor of
THE CHASE MANHATTAN BANK, AS AGENT
Dated: May 1, 1998
- --------------------------------------------------------------------------------
Record and Return to:
Gibbons, Del Deo, Dolan,
Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Michael J. Lubben, Esq.
<PAGE>
COLLATERAL ASSIGNMENT OF STORE LEASES
This Collateral Assignment of Store Leases is made as of May 1, 1998.
BY: IVC INDUSTRIES, INC., a Delaware corporation having its principal
place of business at 500 Halls Mill Road, Freehold, New Jersey 07728, and its
successors and assigns ("Assignor");
IN FAVOR OF: The Chase Manhattan Bank, as Agent under the Term Loan
Agreement defined below, having offices at One Chase Manhattan Plaza, New York,
New York 10081, and its successors and assigns ("Assignee").
RECITALS:
Contemporaneously herewith, the parties have executed a Term Loan
Agreement, dated as of the date hereof, among Assignor, Assignee, and each of
the banks which is a party thereto (the "Term Loan Agreement"); and
Pursuant to the Term Loan Agreement, Assignor will receive loans and
related benefits, and Assignee requires, among other things, that Assignor grant
this Assignment.
NOW THEREFORE, in consideration of the above premises and other good and
valuable consideration, receipt of which is hereby acknowledged, Assignor hereby
agrees as follows:
1. Definitions.
A. Defined Terms. In addition to the terms defined above, the
following capitalized terms in this Assignment shall have the following
meanings:
"Assignment" means this Collateral Assignment of Store Leases
and all modifications, renewals and extensions of, and all amendments to, this
Assignment.
"Event of Default" has the meaning set forth in the Term Loan
Agreement.
"Leases" means the leases set forth on Exhibit A hereto, all
renewals, extensions or modifications thereof, and any and all other leases
entered into or assumed by the Assignor for real property used for store leases
to conduct retail vitamin sales, now or hereafter existing.
"Loans" has the meaning set forth in the Term Loan Agreement.
<PAGE>
"Term Loan Documents" has the meaning set forth in the Term
Loan Agreement, including this Assignment.
"Property" means any real property which is the subject of a
Lease.
2. Granting Clause. To secure the observance, payment and performance of
the Loans and all obligations of Assignor under or in connection with the Term
Loan Agreement, Assignor hereby assigns and transfers to Assignee all of
Assignor's rights, title and interest under the Leases, including all future
rentals, issues and profits from any sublease or license of the Property while
such Lease remains in effect. These grants, however, are made upon the express
condition that after the Loans and all such obligations are paid and performed
in full, without offset and without deduction or credit for any amount payable
for taxes or otherwise, this Assignment shall be discharged by Assignee upon
Assignor's request.
3. Confirmation of Assignment. A written statement of any employee or
agent of Assignee that the Loans remain outstanding shall be sufficient evidence
of the continuing force and effect of this Assignment.
4. Payment to Assignee. A demand by Assignee on any tenant or user of the
Property while the Lease remains in effect shall be sufficient warrant to that
tenant or user to make future payments to Assignee without the necessity for any
further consent whatsoever by Assignor. Assignor hereby agrees to assert no
claim whatsoever against any tenant or occupant relating to the making of
payments to Assignee pursuant to this Assignment.
5. Term Loan Agreement. Assignor hereby agrees to perform all its duties
and obligations under the Term Loan Agreement and other Term Loan Documents. If
there shall be any inconsistency between any term or condition of this
Assignment and that of the Term Loan Agreement, the term or condition in the
Term Loan Agreement shall prevail.
6. Performance of Lease. Assignor agrees to each of the following:
(A) to perform all of its duties and obligations under each Lease in
a timely manner;
(B) to send to Assignee copies of any notices of default under, or
violations or termination of, any Lease, immediately upon receipt;
(C) to make no modifications of any Lease without Assignee's prior
written consent;
(D) to sublet, or permit any tenant to use any portion of any
Property, only with Assignee's prior written consent; and
2
<PAGE>
(E) not to pay rent in advance of one month.
7. Consents. Assignor covenants and agrees, within ninety (90) days after
the date hereof, or as soon as possible thereafter, to use its best efforts to
obtain for each Lease the landlord's consent to this Assignment, in
substantially the form attached hereto as Exhibit B, and for all Leases entered
into after the date hereof, to obtain the landlord's consent to this Assignment
upon entering into said Lease.
8. Remedies. After any failure to perform any of the terms and conditions
of this Assignment, upon the occurrence of any Event of Default, Assignee may,
at Assignee's option, do any of the following in any order and at any time,
simultaneously or not simultaneously, after ten (10) days notice to the landlord
under any Lease, directly or through any nominee:
(A) assume all rights and obligations of Assignor under any Lease;
(B) assign any Lease and furnish to the landlord an assignment and
assumption agreement from the assignee;
(C) cure any defaults by Assignor under any Lease; and
(D) exercise all other rights and remedies available at law or in
equity.
9. Other Remedies. No provision of this Assignment and no act done or
omitted by Assignee pursuant to this Assignment shall be deemed to be a waiver
by Assignee of any rights and remedies under this Assignment or any other Term
Loan Document, and this Assignment is made and accepted without prejudice to any
of the rights and remedies possessed by Assignee under any other Term Loan
Document or agreement, or at law or in equity. Assignee may collect the Loans,
exercise any other remedies and enforce any other security either prior to,
simultaneously with, or subsequent to the exercise of any right or remedy under
this Assignment.
10. No Liability. Unless Assignee shall assume rights and duties of
Assignor under a Lease or assign the same, (i) Assignee shall not be obligated
to perform or discharge any obligation or duty to be performed or discharged by
Assignor under such Lease; and (ii) Assignor hereby agrees to indemnify and to
save harmless Assignee from any and all liability arising from such Lease or
from this Assignment. This Assignment shall not make Assignee responsible or
liable for any negligence in the management, operation, upkeep, repair or
control of the Property resulting in loss or injury or death to any tenant,
licensee, employee or other person.
11. Assignee's Payments. Any payments or expenses incurred by Assignee to
protect its interest in the Leases including curing any defaults by Assignor
under any Lease, shall be part of the Loans secured by this Assignment and shall
be due and owing with interest at the Default Rate under the Term Loan
Agreement.
3
<PAGE>
12. Further Assurances. Assignor shall, within ten (10) days of Assignee's
demand, execute and deliver all such further assurances and assignments and
deliver the original executed form of any Lease as Assignee may, from time to
time, reasonably request, the reasonable cost of so doing to be paid by
Assignor.
13. Miscellaneous Terms. All provisions in Article 12 of the Term Loan
Agreement as to waivers, modifications, governing law, notices, jurisdiction and
successors and assignors are incorporated into, and deemed to apply to, this
Assignment.
14. Receipt of Copy. Assignor acknowledges receipt of a true copy of this
Assignment, without charge.
Assignor has executed this Collateral Assignment of Store Leases, as of
the date first written above.
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
----------------------------------
Name:
Title:
ACKNOWLEDGMENT
STATE OF NEW JERSEY :
: SS:
COUNTY OF Somerset :
On this 1st day of May, 1998 before me personally came I. Alan Hirschfeld,
to me known, who, being duly sworn, did depose and say that he is Executive Vice
President of IVC INDUSTRIES, INC., the corporation described in and which
executed the foregoing instrument, and that he is authorized to execute the
foregoing instrument on behalf of said corporation and that he executed the
instrument as the act of said corporation.
/s/ S.A. Denkovic
----------------------------------
4
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COLLATERAL ASSIGNMENT OF STORE LEASES
by
VITAMIN SPECIALTIES CORP.
a Pennsylvania Corporation,
In Favor of
THE CHASE MANHATTAN BANK, AS AGENT
Dated: May 1, 1998
----------------------------------------------------------------
Record and Return to:
Gibbons, Del Deo, Dolan,
Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Michael J. Lubben, Esq.
<PAGE>
COLLATERAL ASSIGNMENT OF STORE LEASES
This Collateral Assignment of Store Leases is made as of May 1, 1998.
BY: VITAMIN SPECIALTIES CORP., a Pennsylvania corporation having its
principal place of business at 500 Halls Mill Road, Freehold, New Jersey 07728,
and its successors and assigns ("Assignor");
IN FAVOR OF: The Chase Manhattan Bank, as Agent under the Term Loan
Agreement defined below, having offices at One Chase Manhattan Plaza, New York,
New York 10081, and its successors and assigns ("Assignee").
RECITALS:
Contemporaneously herewith, Assignor has executed a VSC Term Security
Agreement, dated as of the date hereof, in favor of Assignee (the "Agreement");
and
Pursuant to the Agreement and the arrangements referred to therein,
including the VSC Term Guaranty and Term Loan Agreement as defined therein,
Assignor will receive substantial benefits, and Assignee requires, among other
things, that Assignor grant this Assignment.
NOW THEREFORE, in consideration of the above premises and other good and
valuable consideration, receipt of which is hereby acknowledged, Assignor hereby
agrees as follows:
1. Definitions.
A. Defined Terms. In addition to the terms defined above, the
following capitalized terms in this Assignment shall have the following
meanings:
"Assignment" means this Collateral Assignment of Store Leases
and all modifications, renewals and extensions of, and all amendments to, this
Assignment.
"Event of Default" has the meaning set forth in the Term Loan
Agreement.
"Leases" means the leases set forth on Exhibit A hereto, all
renewals, extensions or modifications thereof, and any and all other leases
entered into or assumed by the Assignor for real property used for store leases
to conduct retail vitamin sales, now or hereafter existing.
"Loans" has the meaning set forth in the Term Loan Agreement.
<PAGE>
"Term Loan Documents" has the meaning set forth in the Term
Loan Agreement, including this Assignment.
"Property" means any real property which is the subject of a
Lease.
2. Granting Clause. To secure the observance, payment and performance of
the Loans and all obligations of Assignor under or in connection with the VSC
Term Guaranty , Assignor hereby assigns and transfers to Assignee all of
Assignor's rights, title and interest under the Leases, including all future
rentals, issues and profits from any sublease or license of the Property while
such Lease remains in effect. These grants, however, are made upon the express
condition that after the VSC Term Guaranty and Loans and all such obligations
are paid and performed in full, without offset and without deduction or credit
for any amount payable for taxes or otherwise, this Assignment shall be
discharged by Assignee upon Assignor's request.
3. Confirmation of Assignment. A written statement of any employee or
agent of Assignee that the Loans remain outstanding shall be sufficient evidence
of the continuing force and effect of this Assignment.
4. Payment to Assignee. A demand by Assignee on any tenant or user of the
Property while the Lease remains in effect shall be sufficient warrant to that
tenant or user to make future payments to Assignee without the necessity for any
further consent whatsoever by Assignor. Assignor hereby agrees to assert no
claim whatsoever against any tenant or occupant relating to the making of
payments to Assignee pursuant to this Assignment.
5. VSC Term Guaranty. Assignor hereby agrees to perform all its duties and
obligations under the VSC Term Guaranty and other Term Loan Documents binding
upon it. If there shall be any inconsistency between any term or condition of
this Assignment and that of the VSC Term Guaranty, the term or condition in the
VSC Term Guaranty shall prevail.
6. Performance of Lease. Assignor agrees to each of the following:
(A) to perform all of its duties and obligations under each Lease in
a timely manner;
(B) to send to Assignee copies of any notices of default under, or
violations or termination of, any Lease, immediately upon receipt;
(C) to make no modifications of any Lease without Assignee's prior
written consent;
(D) to sublet, or permit any tenant to use any portion of any
Property, only with Assignee's prior written consent; and
<PAGE>
(E) not to pay rent in advance of one month.
7. Consents. Assignor covenants and agrees, within ninety (90) days after
the date hereof, or as soon as possible thereafter, to use its best efforts to
obtain for each Lease the landlord's consent to this Assignment, in
substantially the form attached hereto as Exhibit B, and for all Leases entered
into after the date hereof, to obtain the landlord's consent to this Assignment
upon entering into said Lease.
8. Remedies. After any failure to perform any of the terms and conditions
of this Assignment, upon the occurrence of any Event of Default, Assignee may,
at Assignee's option, do any of the following in any order and at any time,
simultaneously or not simultaneously, after ten (10) days notice to the landlord
under any Lease, directly or through any nominee:
(A) assume all rights and obligations of Assignor under any Lease;
(B) assign any Lease and furnish to the landlord an assignment and
assumption agreement from the assignee;
(C) cure any defaults by Assignor under any Lease; and
(D) exercise all other rights and remedies available at law or in
equity.
9. Other Remedies. No provision of this Assignment and no act done or
omitted by Assignee pursuant to this Assignment shall be deemed to be a waiver
by Assignee of any rights and remedies under this Assignment, the VSC Term
Guaranty or any other Term Loan Document, and this Assignment is made and
accepted without prejudice to any of the rights and remedies possessed by
Assignee under the VSC Term Guaranty, any other Term Loan Document or agreement,
or at law or in equity. Assignee may collect the Loans, exercise any other
remedies and enforce any other security either prior to, simultaneously with, or
subsequent to the exercise of any right or remedy under this Assignment.
10. No Liability. Unless Assignee shall assume rights and duties of
Assignor under a Lease or assign the same, (i) Assignee shall not be obligated
to perform or discharge any obligation or duty to be performed or discharged by
Assignor under such Lease; and (ii) Assignor hereby agrees to indemnify and to
save harmless Assignee from any and all liability arising from such Lease or
from this Assignment. This Assignment shall not make Assignee responsible or
liable for any negligence in the management, operation, upkeep, repair or
control of the Property resulting in loss or injury or death to any tenant,
licensee, employee or other person.
11. Assignee's Payments. Any payments or expenses incurred by Assignee to
protect its interest in the Leases including curing any defaults by Assignor
under any Lease, shall be part of the Loans secured by this Assignment and shall
be due and owing with interest at the Default Rate under the Term Loan
Agreement.
<PAGE>
12. Further Assurances. Assignor shall, within ten (10) days of Assignee's
demand, execute and deliver all such further assurances and assignments and
deliver the original executed form of any Lease as Assignee may, from time to
time, reasonably request, the reasonable cost of so doing to be paid by
Assignor.
13. Miscellaneous Terms. All provisions in Article 12 of the Term Loan
Agreement as to waivers, modifications, governing law, notices, jurisdiction and
successors and assignors are incorporated into, and deemed to apply to, this
Assignment.
14. Receipt of Copy. Assignor acknowledges receipt of a true copy of this
Assignment, without charge.
Assignor has executed this Collateral Assignment of Store Leases, as of
the date first written above.
VITAMIN SPECIALTIES CORP.
By: /s/ I. Alan Hirschfeld
----------------------------
Name:
Title:
ACKNOWLEDGMENT
STATE OF NEW JERSEY :
: SS:
COUNTY OF SOMERSET :
On this 1st day of May, 1998 before me personally came I. Alan Hirschfeld,
to me known, who, being duly sworn, did depose and say that he is Exec. Vice
President of VITAMIN SPECIALTIES CORP., the corporation described in and which
executed the foregoing instrument, and that he is authorized to execute the
foregoing instrument on behalf of said corporation and that he executed the
instrument as the act of said corporation.
/s/ S. A. Denkovic
----------------------------
TERM TRADEMARK COLLATERAL ASSIGNMENT
IVC INDUSTRIES, INC., a Delaware corporation and VITAMIN SPECIALTIES
CORP., a Pennsylvania corporation (collectively, the "Assignors"), do hereby
grant, assign and convey to THE CHASE MANHATTAN BANK, as agent under the Term
Loan Agreement referred to below (the "Agent"), the registered trademarks and
trademark applications identified on Annex I hereto and the goodwill represented
thereby (the "Trademarks") together with all the proceeds thereof, as collateral
security for all the Liabilities (as hereinafter defined);
SUBJECT TO a reservation on the part of the Assignors (until the
occurrence of an Event of Default, as hereinafter defined) of a license to use
the Trademarks for the Assignors' own benefit, provided that such use does not
violate the terms of the Term Loan Agreement or any of the other Term Loan
Documents. The license so reserved shall terminate upon the occurrence of an
Event of Default.
This Assignment is being executed and delivered pursuant to the Term Loan
Agreement dated as of the date hereof (which, as the same may hereafter be
amended or supplemented from time to time, will be called, the "Term Loan
Agreement") between IVC Industries, Inc., the Banks party thereto and the Agent.
All capitalized terms used in this Assignment and not defined shall have the
respective meanings ascribed to them in the Term Loan Agreement.
As used herein, the term "Liabilities" means all indebtedness, obligations
and liabilities of every kind and nature of the Assignor to any or all of the
Banks and the Agent under any or all of the Term Loan Agreement and the other
Term Loan Documents.
The assignment effected hereby shall be governed by Article 9 of the New
York Uniform Commercial Code. Upon the occurrence and during the continuance of
an Event of Default, the Assignee shall have the rights and remedies of a
secured party as set forth therein (including, without limitation, the right to
dispose of the Trademarks and to apply the proceeds of the disposition to
satisfy the Obligations) and otherwise available at law or in equity.
The Agent shall have no duties with respect to the Trademarks, other than
the duties of a secured party under the New York Uniform Commercial Code.
Without limiting the generality of the foregoing, the Agent shall have no duty
to prosecute any action for trademark infringement against any person.
The address of the Agent for purposes of this Assignment is:
The Chase Manhattan Bank
One Riverfront Plaza
Newark, New Jersey 07102
or such other address as the Agent may designate to the Assignor in writing from
time to time.
<PAGE>
This Assignment shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of this
1st day of May, 1998.
ATTEST/WITNESS: IVC INDUSTRIES, INC.
/s/ Martin A. Pickus By: /s/ I. Alan Hirschfeld
- ------------------------- -----------------------------
ATTEST/WITNESS: VITAMIN SPECIALTIES CORP.
/s/ Martin A. Pickus By: /s/ I. Alan Hirschfeld
- ------------------------- -----------------------------
STATE OF NEW JERSEY:
: SS.:
COUNTY OF SOMERSET :
On this 1st day of May, 1998, before me, the undersigned, personally
appeared I Alan Hirschfeld, the Exec. Vice President of IVC Industries, Inc.,
who, I am satisfied, is the person who signed the foregoing instrument, and he
or he did acknowledge that he or she signed and delivered the same in his or her
capacity as such officer, and that he or she was authorized to do so, and that
the foregoing instrument is the voluntary act and deed of such corporation, made
by virtue of the authority of its board of directors.
/s/ S. A. Denkovic
-------------------------
Notary Public
<PAGE>
STATE OF NEW JERSEY:
: SS.:
COUNTY OF SOMERSET :
On this 1st day of May, 1998, before me, the undersigned, personally
appeared I. Allan Hirschfeld, the Exec Vice President of Vitamin Specialties
Corp., who, I am satisfied, is the person who signed the foregoing instrument,
and he or he did acknowledge that he or she signed and delivered the same in his
or her capacity as such officer, and that he or she was authorized to do so, and
that the foregoing instrument is the voluntary act and deed of such corporation,
made by virtue of the authority of its board of directors.
/s/ S.A. Denkovic
-------------------------
Notary Public
ASSIGNMENT OF LEASES AND RENTS
THIS ASSIGNMENT, dated this 1 day of May, 1998, made by IVC
INDUSTRIES, INC. ("Assignor"), a New Jersey corporation having an address at 500
Halls Mill Road, Freehold, New Jersey 07728, to THE CHASE MANHATTAN BANK, as
Agent under the Term Loan Agreement hereinafter referred to (which, together
with its successors in that capacity, will be called herein the "Assignee"),
having an address at One Riverfront Plaza, Newark, New Jersey 07102.
W I T N E S S E T H:
THAT, as part consideration for the credit extended by the Banks to
Assignor pursuant to the Term Loan Agreement (as such capitalized terms are
hereinafter defined), and for ten dollars and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
THE ASSIGNOR hereby assigns, grants and transfers to Assignee the
entire lessor's interest in and to (a) all leases and other agreements, now
existing or hereafter entered into, affecting the use or occupancy of all or any
part of the real property described on Exhibit A hereto (such real property
being called herein the "Premises"); (b) all guarantees of any lessee's
obligations thereunder; and (c) all extensions, renewals and modifications of
the foregoing (all of the foregoing being called herein collectively the
"Leases");
TOGETHER WITH the immediate and continuing right to collect and
receive all of the rents, income, issues and profits arising from the Leases or
otherwise from the use or occupancy of the Premises, now or hereafter due
(herein called collectively the "Rents"), including (without limitation) base
rents, minimum rents, additional rents, percentage rents; charges for parking,
maintenance, taxes and insurance; deficiency rents and damages following
default; the premium payable by any lessee upon the exercise of a cancellation
privilege originally provided in any Lease; all proceeds payable under any
policy of insurance covering loss of rent resulting from any destruction or
damage to the Premises; and all other rights and claims of any kind which
Assignor may have against any lessee or any other occupant of the Premises in
respect of the Premises.
THIS ASSIGNMENT is an absolute, unconditional and present assignment
by Assignor to Assignee of the Leases and Rents, and not merely the passing of a
security interest. Upon the execution and delivery of this Assignment, title to
the Rents shall vest in Assignee, and no further act shall be required to
effectuate such conveyance.
THIS ASSIGNMENT is made in connection with the execution and
delivery of the Term Loan Agreement dated the date hereof (which, as the same
may be amended from time to time, will be called herein the "Term Loan
Agreement") among Assignor, the Banks party thereto and the Agent (as agent for
such Banks), pursuant to which a $3,500,000 term loan is this day being made to
Assignor.
<PAGE>
All capitalized terms used herein and not defined shall have the
meanings ascribed to them in the Term Loan Agreement. All amounts at any time
owing to the Banks or Assignee under the Term Loan Documents will be called
herein the "Debt".
THIS ASSIGNMENT is made on the following terms, covenants and
conditions:
1. Representations and Warranties. Assignor represents and warrants,
as to the Leases now existing, that (a) Assignor is the sole owner of the entire
lessor's interest in the Leases; (b) the Leases are valid and enforceable and
have not been altered or amended in any manner whatsoever, except for such
amendments as have been delivered to Assignee; (c) none of the Rents has been
assigned or otherwise pledged or hypothecated; (d) none of the Rents has been
collected for more than one (1) month in advance; (e) the premises demised under
the Leases have been completed and the tenants under the Leases have accepted
the same and have taken possession of the same on a rent-paying basis; (f) there
exists no offset or defense to the payment of any portion of the Rents; and (g)
Assignor has the power to execute and deliver, and hereby does voluntarily
execute and deliver, this Assignment.
2. Certain Covenants. Assignor shall perform and observe all the
covenants contained in the Mortgage relating to the Leases and the Rents.
3. License to Collect. This Assignment constitutes a present,
absolute assignment of the Leases and the Rents. Nevertheless, subject to the
terms of this Section 3, Assignee grants to Assignor a revocable license to
collect (but not prior to accrual) the Rents. Assignor shall hold the Rents, or
a portion thereof sufficient to discharge all sums due currently from time to
time under the Term Loan Documents, in trust for Assignee for the payment of
such sums. Upon or at any time after an Event of Default, the license granted to
Assignor herein shall, at the election of Assignee, be automatically revoked.
4. Remedies of Assignee. Upon or at any time after an Event of
Default, Assignee may, at its option, without waiving such Event of Default,
without notice and without regard to the adequacy of the security for the Debt,
either in person or by agent, with or without bringing any action or proceeding,
or by a receiver appointed by a court, take any or all of the following actions:
(a) revoke the license granted in the immediately preceding
Section of this Assignment;
(b) take possession of the Premises and have, hold, manage,
lease and operate the Premises on such terms and for such period of
time as Assignee may deem proper, with full power to make from time
to time all alterations, renovations, repairs or replacements
thereto or thereof as may seem proper to Assignee;
(c) either with or without taking possession of the Premises,
and either in its own name or in the name of Assignor, demand, sue
for and
<PAGE>
otherwise collect and receive all Rents, including those past due
and unpaid, and may apply the Rents to the payment of the following
in such order and proportion as Assignee in its sole discretion may
determine, any law, custom or use to the contrary notwithstanding:
(i) all expenses of managing and securing the Premises, including
(without limitation) the salaries, fees and wages of a managing
agent and such other employees or agents as Assignee may deem
necessary or desirable, and all expenses of operating and
maintaining the Premises, including (without limitation) all taxes,
charges, claims, assessments, water charges, sewer rents, and
premiums for all insurance which Assignee may deem necessary or
desirable, and the cost of all alterations, renovations, repairs or
replacements, and all expenses incident to taking and retaining
possession of the Premises; and (ii) the Debt, including (without
limitation) all costs and attorneys' fees.
In addition to the rights which Assignee may have herein upon
the occurrence of an Event of Default, Assignee, at its option, either may
require Assignor to pay monthly in advance to Assignee, or any receiver
appointed to collect the Rents, the fair and reasonable rental value for the use
and occupation of such part of the Premises as may be in possession of Assignor,
or may require Assignor to vacate and surrender possession of the Premises to
Assignee or to such receiver and, in default thereof, Assignor may be evicted by
summary proceedings or otherwise.
For purposes of this Section 4, Assignor grants to Assignee
its irrevocable power of attorney, coupled with an interest, to take any and all
of the aforementioned actions and any or all other actions designated by
Assignee for the proper management and preservation of the Premises including
(without limitation) the endorsement of checks made payable to Assignor in
respect of rent payments by tenants. The exercise by Assignee of the remedies
granted it in this Section 4 and the collection of the Rents and the application
thereof as herein provided shall not be considered a waiver of any Event of
Default.
5. No Liability of Assignee. Assignee shall not be liable for any
loss sustained by Assignor resulting from Assignee's failure to let the Premises
after an Event of Default or from any other act or omission of Assignee in
managing the Premises after an Event of Default, unless such loss is caused by
the willful misconduct and bad faith of Assignee. Assignee shall not be
obligated to perform or discharge any obligation, duty or liability under the
Leases or under or by reason of this Assignment. Without limiting the generality
of the immediately preceding sentence, Assignee shall not be bound by or liable
under any covenant of quiet enjoyment contained in any Lease in the event that
the lessee thereunder is joined as a party defendant in any action to foreclose
the Mortgage and is barred and foreclosed thereby of its interest in the
Premises. Assignor shall indemnify Assignee and hold Assignee harmless from and
against any and all liability, loss or damage which may or might be incurred
under the Leases or under or by reason of this Assignment and from any and all
claims and demands whatsoever, including the defense of any such claims or
demands which may be asserted against Assignee by reason of any alleged
obligations and undertakings on its part to perform or discharge any of the
terms, covenants or agreements contained in the Leases. Should Assignee incur
any such liability, loss or damage, the amount thereof, including costs,
expenses and reasonable
<PAGE>
attorneys' fees, together with interest thereon at the Default Rate (as defined
in the Mortgage), shall be secured hereby and by the Mortgage, and Assignor
shall pay Assignee therefor immediately upon demand and upon the failure of
Assignor so to do Assignee may, at its option, declare the Note and all other
sums secured by the Mortgage immediately due and payable. This Assignment shall
not operate to place any obligation or liability for the control, care,
management or repair of the Premises upon Assignee, nor for the carrying out of
any of the terms and conditions of the Leases; nor shall it operate to make
Assignee responsible or liable for any waste committed on the Premises by the
tenants or any other parties, or for any dangerous or defective condition of the
Premises, including without limitation the presence of any Hazardous Materials
(as defined in the Mortgage), or for any negligence in the management, upkeep,
repair or control of the Premises resulting in loss or injury or death to any
tenant, licensee, employee or stranger.
6. Notice to Lessees. Assignor hereby irrevocably authorizes and
directs the lessees and other occupants under the Leases, upon receipt from
Assignee of written notice, to pay over to Assignee all Rents and to continue so
to do until otherwise notified by Assignee. Assignor agrees that lessees shall
have the right to rely upon any such notice from Assignee, and that lessees
shall pay the Rents to Assignee without any obligation and without any right to
inquire as to whether an Event of Default has occurred, notwithstanding any
claim of Assignor to the contrary. Assignor shall have no claim against lessees
for any Rents paid by them to Assignee.
7. Future Leases. This Assignment is and shall be automatically
effective as to each and every Lease entered into after the date hereof, without
any necessity of any further or supplemental assignment.
8. Release of Security. Assignee may take or release security for
the payment of the Debt, may release any party primarily or secondarily liable
therefor and may apply any security held by it to the reduction or satisfaction
of the Debt without prejudice to any of its rights under this Assignment.
9. Other Remedies. Nothing contained in this Assignment and no act
done or omitted by Assignee pursuant to the powers and rights granted to
Assignee hereunder shall be deemed to be a waiver by Assignee of its rights and
remedies under any of the Term Loan Documents, and this Assignment is made and
accepted without prejudice to any of the rights and remedies possessed by
Assignee under the terms thereof. The right of Assignee to collect the Debt and
to enforce any other security therefor held by it may be exercised by Assignee
either prior to, simultaneously with, or subsequent to any action taken by it
hereunder.
10. No Mortgagee in Possession. Nothing herein contained shall be
construed as constituting Assignee a "mortgagee in possession" in the absence of
the taking of actual possession of the Premises by Assignee. In the exercise of
the powers herein granted to Assignee, no liability shall be asserted or
enforced against Assignee, all such liability being expressly waived and
released by Assignor.
11. No Oral Changes. This Assignment and any provisions hereof may
not be modified, amended, waived, extended, changed, discharged or terminated
orally, or
<PAGE>
by any act or failure to act on the part of Assignor or Assignee, but only by an
agreement in writing signed by the party against whom the enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
12. No Impairment. (a) The failure of Assignee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Assignment.
(b) Assignor shall not be relieved of Assignor's obligations
hereunder or in respect of the Debt by reason of any or all of the following:
(i) the failure of Assignee to comply with any request
of Assignor or any guarantor to take any action to realize upon this
Assignment or otherwise enforce any of the provisions hereof or of
the Debt; or
(ii) the release, regardless of consideration, of the
whole or any part of the Premises or any other security for the
Debt, or of any person liable for the Debt or any portion thereof;
or
(iii) any agreement or stipulation by Assignee with
Assignor or (without any necessity of notice to or consent by
Assignor) with any subsequent owner of the Premises, extending the
time of payment or otherwise modifying or supplementing the terms of
the Debt, this Assignment or of any instrument or agreement executed
in connection herewith;
any and all of which may be done by Assignee without any necessity of notice to
or consent by the holder of any subordinate lien or encumbrance or any other
person, and without in any manner impairing this Assignment or its priority.
(c) Assignee may resort for the payment of the Debt to any
other security held by Assignee in such order and manner as Assignee, in its
discretion, may elect.
(d) Assignee may take action to recover the Debt, or any
portion thereof, without prejudice to the right of Assignee thereafter to
enforce this Assignment.
(e) No omission on the part of Assignee to name any tenant as
a defendant in any foreclosure proceeding shall impair in any way whatsoever the
entitlement of Assignee to a deficiency judgment or diminish the amount of the
deficiency.
(f) Acceptance of any payment after the occurrence of any
default or Event of Default shall not be deemed a waiver or cure of such default
or Event of Default and shall not impair any acceleration of the maturity of the
Debt or any other right or remedy to enforce the Debt or this Assignment.
Acceptance of any payment less than any amount then due shall be deemed an
acceptance on account only.
<PAGE>
(g) The rights of Assignee under this Assignment and under the
Term Loan Documents shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Assignee shall be
construed as an election to proceed under any one provision hereof or thereof to
the exclusion of any other provision. Assignee shall not be limited exclusively
to the rights and remedies herein or therein stated but shall be entitled to
every right and remedy now or hereafter afforded at law or in equity.
(h) The interest granted herein to the Assignee in the Rents,
and the rights of the Assignee hereunder to collect and receive the Rents and to
exercise any of the other rights and powers herein granted to the Assignee,
shall survive the entry of a judgment of foreclosure in respect of the Mortgage.
13. Inapplicable Provisions. If any term, covenant or condition of
this Assignment is held to be invalid, illegal or unenforceable in any respect,
this Assignment shall be construed without such provision.
14. Governing Law. This Assignment shall be construed and enforced
in accordance with the laws of the state in which the Premises is located.
15. Termination of Assignment. This Assignment shall continue to be
effective until payment in full of the Debt and the delivery and recording of a
satisfaction or discharge of the Mortgage duly executed by Assignee, whereupon
this Assignment shall be terminated. The affidavit, certificate, letter or
statement of any officer of Assignee showing any part of the Debt to remain
unpaid shall constitute conclusive evidence of the continuing effectiveness of
this Assignment, and any person is hereby authorized to rely thereon.
THIS ASSIGNMENT, including the covenants, warranties, powers and
other provisions herein contained, shall inure to the benefit of Assignee and
any subsequent holder of the Mortgage, and shall be binding upon Assignor, its
heirs, successors and assigns, including any subsequent owner of the Premises.
IN WITNESS WHEREOF, Assignor has executed this instrument the day
and year first above written.
Attest/Witness: IVC INDUSTRIES, INC.
/s/ Martin A. Pickus By: /s/ I. Alan Hirschfeld
- ----------------------- -------------------------
Name:
Title:
- --Exhibit A - Property Description
<PAGE>
STATE OF NEW JERSEY
SS.:
COUNTY OF NEW SOMERSET
On this 1st day of May, 1998, before me, the undersigned, personally
appeared I. Alan Hirschfeld, the Executive Vice President of IVC Industries,
Inc., who, I am satisfied, is the person who signed the foregoing instrument,
and he did acknowledge under oath that he signed and delivered the same in his
capacity as such officer, that he was authorized to execute the same on behalf
of such corporation, and that the foregoing instrument is the voluntary act and
deed of such corporation, made by virtue of the authority of its board of
directors.
/s/ S.A. Denkovic
-----------------
Confidential information indicated by X's has been omitted and filed separately
with the Securities and Exchange Commission.
TERM INTERCREDITOR AGREEMENT
THIS AGREEMENT, dated this 1st day of May, 1998, by XXXXX
XXXXXXXXXX., a New Jersey corporation ("XXXXXXX"); THE CHASE MANHATTAN BANK, in
its capacity as agent for the banks party to the Term Loan Agreement referred to
below (the "Agent"); IVC INDUSTRIES, INC., a Delaware corporation ("IVC");
INTERNATIONAL VITAMIN OVERSEAS SALES CORP., a New Jersey corporation ("IVOSC");
HALL LABORATORIES, LTD., a corporation organized under the laws of British
Columbia ("Hall (Canada)" and, collectively with IVC and IVOSC, the "Original
Obligors"); and VITAMIN SPECIALTIES CORP., a Pennsylvania corporation ("VSC";
and, collectively with the Original Obligors, the "Obligors").
Preliminary Statement
A. Reference is made to the Term Loan Agreement dated the date
hereof among IVC, the Banks party thereto and the Agent. (Such term loan
agreement, as the same may hereafter be amended or supplemented from time to
time, will be called herein the "Term Loan Agreement"; provided however that the
consent of XXXXXXX is required for certain changes to the Term Loan Agreement,
as provided in Section 5 of the XXXXXXX Term Guaranty hereinafter referred to.)
All capitalized terms used herein and not defined shall have the respective
meanings ascribed to them in the Term Loan Agreement.
B. XXXXXXX is this day executing and delivering to the Agent and the
Banks a guaranty (the "XXXXXXX Term Guaranty") of the obligations of IVC to the
Agent and the Banks under the Term Loan Agreement.
C. The Obligors are this day agreeing to reimburse XXXXXXX for any
and all amounts that may be paid by XXXXXXX under the XXXXXXX Term Guaranty,
plus interest thereon, plus collection costs with respect thereto, pursuant to a
certain May 1998 Amendment Agreement dated the date hereof.
D. XXXXXXX and the Agent desire to provide for the assignment by the
Agent and the Banks to XXXXXXX of the Term Loan Agreement and the other Chase
Documents, including the Term Loan Liens (as such capitalized terms are
hereinafter defined), upon a payment by XXXXXXX in full of its obligations under
the XXXXXXX Term Guaranty.
E. In order to induce the Agent and the Banks to enter into the Term
Loan Agreement, and in order to induce XXXXXXX to execute and deliver the
XXXXXXX Term Guaranty, the parties hereto are executing and delivering this Term
Intercreditor Agreement.
<PAGE>
NOW, THEREFORE, for ten dollars ($10.00) and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto agree as follows:
SECTION 1. Assignment of Term Loan Documents. (a) Simultaneously
with the payment by XXXXXXX in full of its obligations under the XXXXXXX Term
Guaranty following a demand by the Agent for such payment, the Agent and the
Banks shall transfer and assign to XXXXXXX all their respective rights, title
and interest in and to the Term Loan Agreement and the other Chase Documents (as
such capitalized term is hereinafter defined), including (without limitation)
the Term-Loan Liens (as such term is hereinafter defined). At such time, (i) the
Agent and the Banks shall execute and deliver to XXXXXXX an Assignment of Term
Loan Documents in substantially the form attached hereto as Schedule A-1, and
(ii) the Agent shall execute, acknowledge and deliver to XXXXXXX an Assignment
of Mortgage in substantially the form attached hereto as Schedule A-2. Promptly
thereafter, (x) the Agent shall execute and deliver to XXXXXXX a UCC assignment
as to each UCC-1 financing statement filed in connection with the Term Loan
Agreement in favor of the Agent against VSC to evidence the Term-Loan Liens, and
(y) the Agent shall deliver to XXXXXXX the stock certificate(s) delivered by IVC
to the Agent pursuant to the Stock Pledge Agreement evidencing the shares of VSC
pledged by IVC to the Agent pursuant to the Stock Pledge Agreement, and (z) each
Bank shall deliver to XXXXXXX the Term Note in favor of such Bank.
(b) As used herein, the term "Chase Documents" means the
following:
(i) the Term Loan Agreement;
(ii) the Term Notes;
(iii) the Stock Pledge Agreement;
(iv) the VSC Term Guaranty;
(v) the VSC Term Security Agreement;
(vi) the Mortgage;
(vii) the Assignment of Leases and Rents;
(viii) the Collateral Assignment of Store Leases;
(ix) the Term Trademark Assignment;
(x) the Edell Term Subordination Agreement;
(xi) the Authorization Letter;
(xii) the Designated Party Identification Agreement;
(xiii) UCC-1 Financing Statements filed in connection
with the Term Loan Agreement in favor of the
Agent against VSC to evidence the Term-Loan
Liens.
(c) As used herein, the term "Term-Loan Liens" means the Liens
on the Vitamin Specialties Assets (excluding the Excluded VSC Assets) and the
New Freehold/Howell Real Estate (subject to subsection (d) of this Section) and
the outstanding capital stock of VSC securing the obligations and liabilities of
the Borrower under the Term Loan Agreement (or securing the VSC Term Guaranty of
such obligations and liabilities).
(d) Notwithstanding anything to the contrary contained in this
Agreement or any other Term Loan Document, if the Mortgage shall have been
discharged
<PAGE>
by the Agent upon a refinancing or a sale/leaseback arrangement as contemplated
by Section 2.09 of the Term Loan Agreement, the phrases "Term-Loan Lien" and
"Chase Document" shall not include the Mortgage or the Assignment of Leases and
Rents, and the Agent shall have no obligation to execute or deliver an
Assignment of Mortgage to XXXXXXX as provided in Section 1(a) of this Agreement.
(e) It is understood by the parties hereto that
(notwithstanding that the VSC Term Security Agreement is to be assigned
hereunder), no Lien on the Excluded VSC Assets is to be assigned hereunder.
SECTION 2. Relative Priorities as between Agent/Banks and XXXXXXX in
Vitamin Specialties Assets. (a) Pursuant to the May 1998 Amendment Agreement (as
hereinafter defined), the Revolving Credit Agreement Liens (as hereinafter
defined) in the Vitamin Specialties Assets (other than the Excluded VSC Assets)
are subordinate to the Term-Loan Liens in the Vitamin Specialties Assets, and
such Term-Loan Liens in the Vitamin Specialties Assets will continue to rank
prior to such Revolving Credit-Agreement Liens in the Vitamin Specialties Assets
(other than the Excluded VSC Assets) if and when the Term-Loan Liens are
assigned by the Agent to XXXXXXX, notwithstanding the terms of the Designated
Party Subordination and Intercreditor Agreement dated April 30, 1997. Reference
is made to the May 1998 Amendment Agreement for a complete statement of the
agreement as to the priority of the Term-Loan Liens relating to the Revolving
Credit-Agreement Liens in the Vitamin Specialties Assets.
(b) Also pursuant to the May 1998 Amendment Agreement, the
obligations of VSC under its guaranty of the Revolving Credit Agreement referred
to therein are made, from and after such assignment, subordinate in right of
payment to VSC's guaranty of the Term Loan Obligations referred to therein.
Reference is made to the May 1998 Amendment Agreement for a complete statement
of the agreement as to such subordination.
(c) As used herein, the term "May 1998 Amendment Agreement"
means the May 1998 Amendment Agreement dated the date hereof among IVC, IVOSC,
Hall (Canada), VSC, the Banks party to the Revolving Credit Agreement referred
to therein, The Chase Manhattan Bank as agent for such Banks (the "Revolving
Credit Agreement Agent"), and XXXXXXX. The term "Credit-Agreement Liens" means
the Liens granted to the Revolving Credit Agreement Agent in the Vitamin
Specialties Assets, as security for the obligations of the Obligors under the
Credit Agreement. The term "Term-Loan Liens" is defined in the May 1998
Amendment Agreement.
1. SECTION 3. Obligations of the Obligors Unconditional. Nothing
contained in this Agreement, is intended to or shall impair, as between any of
the Obligors and the Agent and Banks, or between the Obligors and XXXXXXX, the
obligation of such Obligors, which is absolute and unconditional, to pay their
respective obligations as and when the same shall become due and payable in
accordance with their terms, or affect the relative rights of the Agent, Banks
or XXXXXXX, except as provided herein, or any other creditors of any Obligor;
nor shall anything herein prevent the Agent, Banks or XXXXXXX from exercising
their respective remedies otherwise permitted under applicable law upon default.
The intercreditor provisions of this Agreement are and are intended solely for
the purpose
<PAGE>
of defining the rights of XXXXXXX, on the one hand, and the Agent and the Banks,
on the other hand.
SECTION 4. Further Assurances. Each Obligor shall, at its expense
and at any time and from time to time, promptly execute and deliver all further
instruments and other documents, and take all further action, that may be
necessary or, in the opinion of XXXXXXX desirable, or that XXXXXXX may request,
in order to protect any right or interest granted or purported to be granted
hereby or to enable XXXXXXX to exercise and enforce its rights and remedies
hereunder. Following payment in full by XXXXXXX of its obligations under the
XXXXXXX Term Guaranty, each of the Agent and the Banks shall promptly execute
and deliver such further instruments as XXXXXXX may reasonably request to better
confirm the assignment to XXXXXXX of the Chase Documents, provided that XXXXXXX
bears the cost thereof (if any) and that the same involves no material risk of
liability to any of the Agent or the Banks.
SECTION 5. Expenses. The Obligors agree, jointly and severally, to
pay upon demand to XXXXXXX the amount of any and all expenses, including
(without limitation) the reasonable fees and disbursements of counsel for
XXXXXXX, which XXXXXXX may incur in connection with the enforcement of any
rights or interests hereunder.
SECTION 6. Certain Rights of XXXXXXX to Compel Acceleration. (a) If
an Event of Default under Section 10.01(k) of the Term Loan Agreement occurs, or
if an Event of Default occurs under Section 10.01(c)(i) of the Term Loan
Agreement that consists of a breach of Section 8.10 of the Term Loan Agreement,
XXXXXXX shall be entitled (on 15 days' advance notice by XXXXXXX to the Agent)
to require the Agent and the Banks to accelerate the maturity of the Term Notes,
provided that XXXXXXX makes payment (under the XXXXXXX Term Guaranty) to the
Agent of the outstanding balance of the Term Notes immediately upon such
acceleration, against assignment as provided in Section 1 hereof.
(b) Neither the Agent nor any of the Banks shall have an
obligation to notify XXXXXXX of the occurrence of any Event of Default described
in subsection (a) of this Section, or any other Default or Event of Default.
Each Obligor shall give XXXXXXX written notice of the occurrence of any Default
or Event of Default within ten days after any such occurrence.
SECTION 7. Binding Effect on Banks. The Agent is entering into this
Agreement in its capacity as Agent for the Banks under the Term Loan Agreement,
and this Agreement shall inure to the benefit of and be binding upon the Banks.
SECTION 8. Reporting Requirements. IVC shall deliver to XXXXXXX all
the financial statements, certificates, reports, notices and other information
required to be provided to the Agent and the Banks under Section 7.08 of the
Term Loan Agreement, at the times provided in such Section 7.08.
SECTION 9. Notices. Any notice, consent or other communication
herein required or permitted to be given shall be in writing and may be
personally served or sent by courier service or United States mail and shall
have been deemed to have been given when delivered in person or by courier
service, or three days after deposit in the United
<PAGE>
States mail (registered or certified, with postage prepaid and properly
addressed). For purposes hereof, the addresses of the parties hereto (until
notice of a change thereof is delivered as provided in this Section) shall be as
set forth below, or, as to each party, at such other address as may be
designated by such party in a written notice to all the other parties:
If to XXXXXXX:
XXXXXXX XXXXXXX XXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
-- with a simultaneous copy to:
XXXXXXX XXXXXXX XXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
If to the Agent or the Banks:
The Chase Manhattan Bank, as Agent
1 Chase Manhattan Plaza
New York Agency
New York, New York 10081
-- with a simultaneous copy to:
The Chase Manhattan Bank
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Mr. Peter M. Fitzsimmons
If to any of the Obligors:
c/o IVC Industries, Inc.
500 Halls Mill Road
Freehold, New Jersey 07728
Attention: Mr. I. Alan Hirschfeld
-- with a simultaneous copy to:
IVC Industries, Inc.
500 Halls Mill Road
Freehold, New Jersey 07728
Attention: Mr. E. Joseph Edell
SECTION 10. Miscellaneous. (a) No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed by the parties
hereto, and no
<PAGE>
waiver of any provision of this Agreement, and no consent to any departure
therefrom, shall be effective unless it is in writing and signed by the party
against whom the same is sought to be enforced, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that in all events the Banks shall be bound
by any such amendment, waiver or consent signed by the Agent.
(b) No failure on the part of XXXXXXX to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
(c) This Agreement shall be binding on and inure to the
benefit of (i) XXXXXXX and the Obligors and their respective successors and
assigns, and (ii) the Agent and the Banks and their successors, transferees and
assigns and shall continue in effect so long as any of the XXXXXXX Term Guaranty
or the Term Notes remain outstanding.
(d) If any portion of this Agreement is held to be
non-enforceable in any jurisdiction, it shall be enforceable in any other
jurisdiction, and the remaining portions of this Agreement shall continue in
effect.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(f) This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Term
Intercreditor Agreement to be duly executed and delivered by the respective
officers thereunto duly authorized, as of the date first above written.
WITNESS: XXXXXXX XXXXXXX
XXXXXXXXXXXXXXX By: XXXXXXXXXXXX
Name: Name:
Title: Title:
WITNESS: THE CHASE MANHATTAN BANK, as Agent
XXXXXXXXXXXXXXX By: /s/ Lee P. Brennan
Name: ----------------------------
Title: Lee P. Brennan
Vice President
<PAGE>
WITNESS: IVC INDUSTRIES, INC.
XXXXXXXXXXXXXXX By: /s/ I. Alan Hirschfeld
Name: ----------------------------
Title: Name:
Title:
WITNESS: INTERNATIONAL VITAMIN OVERSEAS
SALES CORP.
By: /s/ I. Alan Hirschfeld
- ------------------------------ ----------------------------
Name: Name:
Title: Title:
WITNESS: HALL LABORATORIES, LTD.
- ------------------------------ By: ----------------------------
Name: Name:
Title: Title:
WITNESS: VITAMIN SPECIALTIES CORP.
XXXXXXXXXXXXXXX By: /s/ I. Alan Hirschfeld
Name: ----------------------------
Title: Name:
Title:
<PAGE>
Schedule A-1
to Term Intercreditor Agreement
ASSIGNMENT OF TERM LOAN DOCUMENTS
THE CHASE MANHATTAN BANK ("Chase"), for valuable consideration,
hereby assigns and transfers to XXXXXXX XXXXXXX ("XXXXXXX") all the rights,
title and interest of Chase (as Agent and as Bank) in, to and under the Term
Loan Agreement and the other Chase Documents (as such capitalized terms are
hereinafter defined). All capitalized terms used in this Assignment and not
defined shall have the respective meanings ascribed to them in the Term Loan
Agreement.
Chase hereby represents that it is the owner and holder of 100% of
the interest of the Agent and the Banks under the Term Loan Agreement and the
other Chase Documents, and that Chase has not granted any participation interest
or security interest with respect thereto. Except as otherwise expressly
provided in the immediately preceding sentence, this Assignment is being made
without any recourse, representation or warranty whatsoever.
As used herein, the term "Term Loan Agreement" means the Term Loan
Agreement dated _________________, 1998 among IVC Industries, Inc., the Banks
party thereto and The Chase Manhattan Bank, as Agent. The term "Chase Documents"
means the following:
(i) the Term Loan Agreement;
(ii) the Term Notes;
(iii) the Stock Pledge Agreement;
(iv) the VSC Term Guaranty;
(v) the VSC Term Security Agreement;
(vi) [the Mortgage];
(vii) [the Assignment of Leases and Rents];
(viii) the Collateral Assignment of Store Leases;
(ix) the Term Trademark Assignment;
(x) the Edell Term Subordination Agreement;
(xi) the Authorization Letter;
(xii) the Designated Party Identification Agreement;
(xiii) UCC-1 Financing Statements filed in connection
with the Term Loan Agreement in favor of the Agent
against VSC to evidence the Term-Loan Liens.
IN WITNESS WHEREOF, Chase has executed this Assignment as of this
____ day of ___________, ______.
WITNESS: THE CHASE MANHATTAN BANK
By:
- ------------------------------- --------------------------------
Name:
Title:
<PAGE>
Schedule A-2
to Term Intercreditor Agreement
ASSIGNMENT OF MORTGAGE
THE CHASE MANHATTAN BANK, as Agent for the Banks under the Term Loan
Agreement hereinafter referred to (the "Mortgagee"), for valuable consideration,
does hereby assign and transfer to XXXXXXXXXXXXXXXXXX INC. all the rights, title
and interest of the Mortgagee in, to and under the Mortgage and the Assignment
of Leases and Rents (as such terms are hereinafter defined).
As used herein, the term "Mortgage" means the Mortgage dated
________________, 1998 from IVC Industries, Inc. to the Mortgagee in respect of
certain premises in Monmouth County, New Jersey, which was recorded in the
Office of the Clerk of Monmouth County in Book _____, page _____; and the term
"Assignment of Leases and Rents" means the Assignment of Leases and Rents dated
___________, 1998 from IVC Industries, Inc. to the Mortgagee with respect to
such premises, which was recorded in the such office in Book _____, page _____.
This Assignment is made without any recourse, representation or
warranty whatsoever, except that the Mortgagee represents that it is the owner
and holder of 100% of the interests of the Agent and the Banks in the Mortgage
and the Assignment of Leases and Rents and that the Mortgagee has not granted
any participation interest or security interest with respect thereto.
IN WITNESS WHEREOF, the Mortgagee has executed this Assignment as of
this ____ day of ___________, ______.
WITNESS: THE CHASE MANHATTAN BANK
By:
- ------------------------------- --------------------------------
Name:
Title:
STATE OF _____________
SS:
COUNTY OF ____________
On this ____ day of _____________, ____, before me, the undersigned,
personally appeared ______________________, the _______________________ of The
Chase Manhattan Bank, who, I am satisfied, is the person who signed the
foregoing instrument, and he or she did acknowledge under oath that he or she
signed and delivered the same in his or her capacity as such officer and that
the foregoing instrument is the voluntary act and deed of such bank made by
virtue of proper authority.
Confidential information indicated by X's has been omitted and filed separately
with the Securities and Exchange Commission.
MAY 1998 AMENDMENT AGREEMENT
THIS AGREEMENT, dated this 1 day of May, 1998, among IVC INDUSTRIES,
INC., a Delaware corporation (the "Borrower"); INTERNATIONAL VITAMIN OVERSEAS
SALES CORP., a New Jersey corporation ("IVOSC"); HALL LABORATORIES, LTD., a
corporation organized under the laws of British Columbia ("Hall (Canada)" and,
together with the Borrower and IVOSC, called herein sometimes the "Original
Obligors"); VITAMIN SPECIALTIES CORP., a Pennsylvania corporation ("VSC" and,
together with the Original Obligors, called herein sometimes the "Obligors");
the Banks party to the Revolving Credit Agreement hereinafter referred to (the
"Banks"); THE CHASE MANHATTAN BANK, as agent for the Banks (in such capacity,
together with its successors, the "Agent"); and XXXXXXXXXXXXXX, a New Jersey
corporation (the "Designated Party").
Preliminary Statement
A. Pursuant to the Credit Agreement dated as of April 30, 1996 among
the Borrower, the Banks and the Agent (the "Original Revolving Credit
Agreement"), the Agent and the Banks agreed to make certain loans and extend
other credit to the Borrower.
B. By the Amendment to Credit Agreement dated June 19, 1997 (the
"June 1997 Amendment"), the Banks agreed to increase temporarily the maximum
amount of such loans available to the Borrower by $500,000.
C. The Original Revolving Credit Agreement, as amended by the June
1997 Amendment, will be called herein the "Revolving Credit Agreement". All
capitalized terms used in herein and not defined shall have the respective
meanings ascribed to them in the Revolving Credit Agreement.
D. Pursuant to documentation executed in connection with the
Original Revolving Credit Agreement:
(i) IVOSC and Hall (Canada) guaranteed the obligations of the
Borrower under and relating to the Revolving Credit Agreement;
(ii) the Borrower, IVOSC and Hall (Canada) granted a
first-priority Lien on substantially all their assets and properties
(excluding real estate) to secure their respective obligations to
the Agent and the Banks under and relating to the Revolving Credit
Agreement;
(iii) the Designated Party guaranteed the Facility B Loans
made by the Banks pursuant to the Revolving Credit Agreement;
(iv) the Borrower, IVOSC and Hall (Canada) agreed to reimburse
the Designated Party for any amounts that the Designated Party may
pay to the Banks pursuant to its guaranty of the Facility B Loans;
<PAGE>
(v) the Borrower, IVOSC and Hall (Canada) granted to the
Designated Party a second-priority Lien on substantially all their
assets and properties (excluding real estate) as security for such
reimbursement obligations;
(vI) the Borrower, IVOSC and Hall (Canada) also granted to the
Designated Party a "springing Lien" to secure trade debt that may be
owing by any of them to the Designated Party, which Lien is to
become effective only if an Event of Default occurs;
(viii) the Agent (on behalf of the Banks) and the Designated
Party agreed between themselves that (x) such reimbursement
obligations of the Original Obligors in favor of the Designated
Party would be subordinate to the obligations of the Original
Obligors owing to the Banks under and relating to the Revolving
Credit Agreement, and (y) such Liens granted by the Original
Obligors to the Designated Party would be subordinate to such Liens
granted by the Original Obligors to the Agent and the Bank.
E. The Borrower acquired from HealthRite, Inc. a line of business
known as the Vitamin Specialties business. The Borrower has formed VSC as a new
wholly-owned Subsidiary of the Borrower, and the Borrower has transferred to VSC
all of the assets comprising the Vitamin Specialties business (except for the
tenant's interest under certain leases). The Vitamin Specialties business is now
conducted by VSC, and not by the Borrower.
F. Pursuant to a Term Loan Agreement dated the date hereof among the
Borrower, the banks party thereto and The Chase Manhattan Bank, as agent, such
banks are this day making a new $3,500,000 term loan to the Borrower (such loan
being called herein the "Term Loan"). The Term Loan is being guaranteed by VSC
and the Designated Party, as well as by IVOSC and Hall (Canada). The Term Loan
is being secured by Liens on the Vitamin Specialties Assets (as hereinafter
defined) and on the New Freehold/Howell Real Estate, as well as by junior Liens
on the assets of the Borrower, IVOSC and Hall (Canada).
G. In connection with the making of the Term Loan, the parties
hereto desire to amend certain provisions of the Revolving Credit Agreement and
the documents executed in connection therewith.
NOW, THEREFORE, for ten dollars and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto hereby agree as follows:
ARTICLE 1. AS TO THE REVOLVING CREDIT AGREEMENT.
Section 1.1 Confirmation of Commitment. The Borrower acknowledges
that the temporary $500,000 increase in the amount of the Facility A Commitment
(from $15,000,000 to $15,500,000) that was effected by the June 1997 Amendment
has expired, and that the amount of the Facility A Commitment is now
$15,000,000.
Section 1.2 "Borrowing Base" Definition. The definition of
"Borrowing Base" in Section 1.01 of the Revolving Credit Agreement is hereby
amended to read as follows:
"Borrowing Base" means, at any time, the sum of (A) 85% of the
amount of Eligible Accounts as of such time; plus (B) until the
sooner of the Facility A
<PAGE>
Expiration Date or July 31, 1999, the lesser of (i) 50% of the
amount of Eligible Inventory as of such time, or (ii) $7,500,000;
provided, however, that the amount of any or all of such percentages
may be changed by the Agent from time to time in its reasonable
discretion upon 30 days' prior written notice to the Borrower. On
and after the sooner of the Facility A Expiration Date or July 31,
1999, no Inventory will be included in the Borrowing Base, and
clause (B) in the immediately preceding sentence will be zero.
Section 1.3 "Consolidated EBITDA" Definition. The definition of
"Consolidated EBITDA" in Section 1.01 of the Revolving Credit Agreement is
hereby amended to read as follows:
"Consolidated EBITDA" with respect to any period means the
EBITDA of the Borrower and its Consolidated Subsidiaries for such
period, as determined on a consolidated basis in accordance with
GAAP, excluding however (a) any nonrecurring extraordinary charge
related to the termination of the Borrower's contract with Revlon or
to the integration of the Portland manufacturing facility with the
Freehold manufacturing facility, (b) any nonrecurring extraordinary
non-cash charge, and (c) any non-cash charge (which may be
recurring) for stock of the Borrower or options in respect thereof
granted to employees of the Borrower as compensation, which (in the
case of all of (a), (b) and (c)) would otherwise be included in
computing the consolidated earnings of the Borrower.
Section 1.4 "Consolidated Funded Debt" Definition. The definition of
"Consolidated Funded Debt" in Section 1.01 of the Revolving Credit Agreement is
hereby amended to read as follows:
"Consolidated Funded Debt" means, as of any day, Funded Debt
of the Borrower and its Consolidated Subsidiaries as of such day, as
determined on a consolidated basis in accordance with GAAP, less the
amount of cash of the Borrower held on such day in the ordinary
demand deposit account(s) of the Borrower with The Chase Manhattan
Bank (excluding any payroll account, trust account or other special
purpose account).
Section 1.5 "Current Liabilities" Definition. The definition of
"Current Liabilities" in Section 1.01 of the Revolving Credit Agreement is
hereby amended by adding the following at the end thereof, before the period:
"and excluding the portion of the principal of the Term Loan
Obligations that is due and payable on the maturity date thereof".
Section 1.6 "Margin" Definition. (a) The definition of "Margin"
in Section 1.01 of the Revolving Credit Agreement is hereby amended by adding
the following sentence immediately after the end of the second sentence:
"Notwithstanding the immediately preceding sentence, with respect to
the determination of such quotient as of the fiscal quarter ending
April 30, 1998 only, the divisor of such quotient (clause (ii)
above) shall not be Consolidated EBITDA for such fiscal quarter and
the three preceding fiscal quarters; instead such divisor shall be
the product of Consolidated EBITDA for such fiscal quarter and the
two preceding fiscal quarters (on a combined basis for such three
quarters), multiplied by 1.333."
<PAGE>
(b) The definition of "Margin" in Section 1.01 of the Revolving
Credit Agreement is hereby further amended by adding thereto the following new
paragraph:
"Additionally, the Margin as computed pursuant to the
immediately preceding paragraph shall be automatically increased
from time to time under the following circumstances:
(aa) if (and each time that) as of the last day of any fiscal
quarter of the Borrower (commencing with the fiscal quarter
ending April 30, 1998) the aforesaid quotient is 4.0 or
greater, the Margin shall be increased by 50 basis points.
Each such increase shall take effect on such last day of the
fiscal quarter and shall remain in effect permanently; and
(bb) if (and each time that) as of the last day of any fiscal
quarter of the Borrower (commencing with the fiscal quarter
ending July 31, 1998) the aforesaid quotient is less than 4.0
but is greater than 3.0, the Margin shall be increased by 25
basis points. Each such increase shall take effect on such
last day of the fiscal quarter and shall remain in effect
permanently."
Section 1.7. "New Freehold/Howell Real Estate Definition. (a) The
definition of "New Freehold/Howell Real Estate" in Section 1.01 of the Revolving
Credit Agreement is hereby amended by correcting the reference to the tax lot
and block of the portion thereof lying in Howell Township to Lot 18.01 in Block
164.
Section (b) Vitamin Specialties Corp. Section 1.01 of the Revolving
Credit Agreement is hereby amended by adding the following definition thereto:
""VSC" means Vitamin Specialties Corp., a Pennsylvania corporation."
(b) The definition of "Subsidiary Guarantor" in Section 1.01
of the Revolving Credit Agreement is hereby amended by adding the phrase "and
VSC" after the phrase "and IVOSC".
(c) Contemporaneously with the execution and delivery of this
Agreement, VSC shall execute and deliver to the Agent a guarantee of all
existing and future liabilities of the Borrower under the Revolving Credit
Agreement and the other Facility Documents, in form and substance satisfactory
to the Agent. Such guaranty shall be deemed a "Subsidiary Guaranty", as such
term is used in the Revolving Credit Agreement.
(d) Contemporaneously with the execution and delivery of this
Agreement, VSC shall execute and deliver to the Agent a security agreement
(together with appropriate UCC-1 financing statements) granting to the Agent a
Lien on all its existing and future properties and assets (including, without
limitation, the Vitamin Specialties Assets) to secure such guaranty by VSC
described in the immediately preceding paragraph (c). Such security agreement
shall be in form and substance satisfactory to the Agent and shall be deemed a
"Subsidiary Security Agreement", as such term is used in the Revolving Credit
Agreement. Such Liens granted to the Agent on the Vitamin Specialties Assets
shall be junior to the Term Loan Lien (as hereinafter defined) on the Vitamin
Specialties Assets.
(e) Schedule I of the Revolving Credit Agreement is hereby
amended by adding thereto the following:
<PAGE>
"Vitamin Specialties Corp., a Pennsylvania corporation. All
the outstanding capital stock of VSC is owned by the
Borrower."
(f) Schedule IV of the Revolving Credit Agreement is hereby
amended by adding thereto the following:
"Vitamin Specialties Corp.
Chief executive office: 500 Halls Mill Road
Freehold, NJ 07728
Locations of collateral: At the locations identified on Annex
I to this Amendment Agreement.
Section 1.9 "Vitamin Specialties Assets" Definition. Section 1.01 of
the Revolving Credit Agreement is hereby amended by adding the following
definition thereto:
""Vitamin Specialties Assets" means all personal property and
fixtures of VSC, whether now or hereafter existing or now owned or
hereafter acquired and wherever located, of every kind and
description, tangible or intangible, including, but not limited to,
all money, goods (including equipment, farm products and inventory),
instruments, securities, documents, chattel paper, accounts,
contract rights, general intangibles, credits, claims, demands,
precious metals and any other property, rights and interests of VSC,
and shall include the proceeds, products and accessions of and to
any thereof. The Vitamin Specialties Assets include (without
limitation) the following assets of VSC:
(a) all inventories;
(b) all tangible personal property, computer equipment,
brochures, store signage, store fixtures and leasehold improvements,
including tangible personal property referred to on Schedule 1.03 of
the HealthRite Purchase Agreement;
(c) all cash actually present "in the till" at any of the
Stores;
(d) all accounts receivable;
(e) all rights in leases of the Stores;
(f) all rights in purchase orders, sales orders, order books,
mailing lists, customer accounts and customer lists and records;
(g) all rights in intellectual property, including the names
"Vitamin Specialties" and "Herbal Specialties", proprietary
information, computer software, customer lists, mailing lists, trade
secrets, patents, patent applications, copyrights, copyright
applications, trademarks, service marks, trademark or service mark
registration applications, art work, boards, plates, films and
related art work (such as in catalogs), tradenames, licenses of any
such property or rights, goodwill and permits;
(h) all necessary permits and certificates issued or granted;
<PAGE>
(i) all books and records, including, without limitation,
quality control records and computer software and data bases; and
(j) all goodwill.
As used herein, the term "Vitamin Specialties Business" means the
line of business acquired by the Borrower from HealthRite, Inc.
pursuant to the HealthRite Purchase Agreement. The term "HealthRite
Purchase Agreement means the Asset Purchase Agreement dated as of
May 29, 1997 between the Borrower and HealthRite, Inc. The term
"Stores" means the 16 retail stores at the locations identified on
Schedule 6.20(b) of the Term Loan Agreement at which the Vitamin
Specialties Business is conducted, and any other bona fide retail
stores hereafter opened by VSC primarily to conduct the Vitamin
Specialties Business. The term "Vitamin Specialties Assets" also
means and includes any rights of the Borrower in leases of the
Stores and trademarks of the Vitamin Specialties Business that were
assigned (or intended to be assigned) by HealthRite Inc. to the
Borrower pursuant to the HealthRite Purchase Agreement, and further
assigned to VSC, subject to (in the case of such leases) landlord's
consent or (in the case of such trademarks) registration of such
assignment.
Section 1.10 "Excluded VSC Assets" Definition. Section 1.01 of the
Revolving Credit Agreement is hereby amended by adding the following definition
thereto:
"Excluded VSC Assets" means (i) any and all cash (including,
without limitation, deposit accounts and investments that are cash
equivalents) of VSC existing on the day on which the Term Loan Agent
assigns such Lien to the Designated Party the Lien of the Term Loan
Agent in the Vitamin Specialties Assets, other than cash "in the
till" at the Stores (as defined in the Term Loan Agreement) on the
day on which the Term Loan Agent assigns such Lien to the Designated
Party; provided, however, that all cash that is received by VSC
after such day shall not constitute Excluded VSC Assets; and (ii)
any and all inventory of VSC that is not located at a Store, except
for any such inventory that shall already been paid for by VSC. The
Excluded VSC Assets are intended to be excluded from any assignment
by the Term Loan Agent to the Designated Party of the Lien of the
Term Loan Agent in the Vitamin Specialties Assets; but the Excluded
VSC Assets will remain subject to a Lien securing all obligations
under the Revolving Credit Agreement.
Section 1.11. "Eligible Accounts" and "Eligible Inventory"
Definitions. (a) The definition of "Eligible Accounts" in Section 1.01 of the
Revolving Credit Agreement is hereby amended by adding the following phrase at
the end of the first sentence thereof, before the period:
", but excluding in all events Accounts comprising Vitamin
Specialties Assets".
(b) The definition of "Eligible Inventory" in Section 1.01 of
the Revolving Credit Agreement is hereby amended by adding the following phrase
at the end of the first sentence thereof, before the period:
", but excluding in all events Inventory comprising Vitamin
Specialties Assets".
<PAGE>
Section 1.12. Definitions Relating to Term Loan. Section 1.01 of the
Revolving Credit Agreement is hereby amended by adding thereto the following
definitions:
""Term Loan Agreement" means the loan agreement dated May ____, 1998
(as the same may hereafter be amended or supplemented from time to
time) among the Borrower, the banks party thereto (the "Term Loan
Banks"), and The Chase Manhattan Bank as agent (the "Term Loan
Agent")."
""Term Loan Closing Date" has the meaning ascribed to the word
"Closing Date" in the Term Loan Agreement.
""Term Loan Obligations" means the obligations of the Borrower under
the Term Loan Agreement and the Term Note (as such term is defined
in the Term Loan Agreement), but in no event having a principal
amount more than $3,500,000 (as such $3,500,000 principal amount may
be reduced from time to time by payments made in respect thereof)."
""Term Loan Liens" means the Liens on the Vitamin Specialties Assets
(excluding the Excluded VSC Assets, if and when the Term Loan Liens
are assigned to the Designated Party) and on the New Freehold/Howell
Real Estate and on the outstanding capital stock of VSC securing the
Term Loan Obligations (or securing the guaranty by VSC of the Term
Loan Obligations)."
Section 1.13 Pro-Rata Reduction in Commitments. Section 2.07 of the
Revolving Credit Agreement is hereby amended by adding the following at the end
thereof:
"Notwithstanding the foregoing provisions of this Section, the
unused Facility A Commitments may not be reduced unless the Facility
B Commitments are reduced by an equivalent percentage reduction; and
the unused Facility B Commitments may not be reduced unless the
Facility A Commitments are reduced by an equivalent percentage
reduction. If, after giving effect to any such reduction, the
aggregate outstanding principal balance of the Facility A Loans
would exceed the Facility A Commitments or the aggregate outstanding
principal balance of the Facility B Loans would exceed the Facility
B Commitments, the Borrower shall immediately prepay such excess
simultaneously with such reduction."
Section 1.14 Mandatory Prepayment of Facility A. Upon the mortgage
refinancing or sale/leaseback of the New Freehold/Howell Real Estate that is
referred to in Section 2.09 of the Term Loan Agreement, the Borrower shall apply
a portion of the Net Refinancing Proceeds (as such term is defined in the Term
Loan Agreement) to the prepayment of the Facility A Loans as provided in such
Section 2.09.
Section 1.15 Amendment Fee. Section 2.11 of the Revolving Credit
Agreement is hereby amended by adding thereto the following new paragraph:
"(d) The Borrower shall pay to the Agent for the account of
the Banks on April 30, 1999 an amendment fee in the amount of
$100,000; provided, however, that if (and each time that) at the end
of any fiscal quarter of the Borrower (X) the quotient of (i)
Consolidated Funded Debt on the last day of such fiscal quarter
divided by (ii) Consolidated EBITDA for such fiscal quarter and the
three preceding fiscal quarters (on a combined basis for such four
quarters) is
<PAGE>
less than 3.0, and (Y) no Default or Event of Default exists, the
amount of such fee shall be reduced by $25,000. Notwithstanding the
immediately preceding sentence, with respect to the determination of
such quotient as of the fiscal quarter ending April 30, 1998 only,
the divisor of such quotient (clause (ii) above) shall not be
Consolidated EBITDA for such fiscal quarter and the three preceding
fiscal quarters; instead such divisor shall be the product of
Consolidated EBITDA for such fiscal quarter and the two preceding
fiscal quarters (on a combined basis for such three quarters),
multiplied by 1.333. Such fee shall be allocated among the Banks in
accordance with the respective outstanding principal balances of
their Facility A Loans from time to time. If the maturity of the
Facility A Loans is accelerated by reason of the occurrence of an
Event of Default, or if the Facility A Loans are prepaid in full,
such fee shall become immediately due and payable in full (giving
effect to any reductions that shall have previously occurred)
simultaneously with such acceleration or prepayment."
Section 1.16 Debt. Section 8.01 of the Revolving Credit Agreement is
hereby amended (x) by adding the following at the end of subsection (a) thereof:
"and Debt of the Borrower and its Subsidiaries under the Term
Loan Agreement and the other Term Loan Documents (as such term
is defined in the Term Loan Agreement)";
(y) by changing the period at the end of subsection (h) thereof to "; and"; and
(z) by adding the following new subsections (i) and (j) at the end of such
Section:
"(i) Debt of Hall (Canada) to a Canadian institutional lender
in an amount not to exceed $500,000 outstanding at any time;
and
(j) Debt of the Borrower not in excess of $1,450,000 principal
amount payable to Corestates - New Jersey National Bank
incurred to finance the acquisition of the New Freehold/Howell
Real Estate; and a mortgage refinancing of such property that
is described in Section 2.09 of the Term Loan Agreement."
Section 1.17 Guaranties. Section 8.02 of the Revolving Credit
Agreement is hereby amended by adding the following at the end thereof, before
the period:
"and (c) guaranties by Subsidiaries of the Term Loan
Obligations".
Section 1.18 Liens. Section 8.03 of the Revolving Credit Agreement
is hereby amended (x) by adding the following at the end of subsection (a)
thereof:
"and Liens granted on the Vitamins Specialties Assets and the
New Freehold/Howell Real Estate and on the outstanding capital
stock of VSC securing the Term Loan Obligations";
and (y) by amending subsection (l) thereof to read as follows:
"(l) a Lien on the New Freehold/Howell Real Estate not in
excess of $1,450,000 principal amount in favor of Corestates -
New Jersey National Bank incurred to finance the acquisition
thereof; and a mortgage
<PAGE>
refinancing of such property that is described in Section
2.09(b) of the Term Loan Agreement."
Section 1.19 Leases. Section 8.04 of the Revolving Credit Agreement
is hereby amended by (x) changing the period at the end thereof to "; and"; and
(y)( by adding the following thereto:
"(d) a lease of the New Freehold/Howell Real Estate pursuant
to a sale/leaseback arrangement, provided that there is
compliance with Section 2.09 of the Term Loan Agreement."
Section 1.20 Employee Loans. Section 8.05 of the Revolving Credit
Agreement is hereby amended by adding the following to clause (e) thereof,
before the semicolon:
", and further loans and advances to employees hired after the
Term Loan Closing Date that are made during fiscal year 1998
and that do not exceed in the aggregate $100,000".
Section 1.21 Sale/Leaseback. Section 8.07 of the Revolving Credit
Agreement is hereby amended by changing clause (d) to read as follows:
"the sale of the New Freehold/Howell Real Estate pursuant to a
sale/leaseback arrangement, provided that there is compliance
with Section 2.09 of the Term Loan Agreement;"
and by changing clause (f)(iii) to read as follows:
"the aggregate value of all items sold pursuant to this clause
(f) from the Term Loan Closing Date through the Facility A
Expiration Date does not exceed $750,000".
Section 1.22. Mergers. Section 8.11 of the Revolving Credit
Agreement is hereby amended (x) by changing "(i)" to "(a)" and "(ii)" to "(b)";
and (y) by adding the following thereto at the end thereof, before the period:
"; and (c) a Person may merge into the Borrower or any
wholly-owned Subsidiary of the Borrower, provided that (i) the
Borrower or such wholly-owned Subsidiary is the survivor in
such merger; (ii) there shall be, in the judgment of the Agent
(after consultation with the Designated Party; but the final
determination shall be that of the Agent), as a result of such
merger no material adverse effect on (x) the business,
operations, property, condition (financial or otherwise),
prospects, or ownership of the Borrower and its Subsidiaries,
or (y) the validity or enforceability of any of the Facility
Documents or the rights or remedies of the Agent or any of the
Banks hereunder or thereunder; (iii) the Agent shall have been
provided with sufficient information and documents, and
sufficiently in advance of the effective date of such merger,
to enable the Agent to evaluate the merger; (iv) the assets of
such Person are free of Liens; (v) no Default or Event of
Default exists or would, after giving effect to such merger,
exist; and (vi) prior to the effective date of such merger the
Borrower and/or such wholly-owned Subsidiary executes and
delivers to
<PAGE>
the Agent such instruments and documents (including without
limitation UCC-1 financing statements) as the Agent reasonably
requests to confirm the continuing validity, perfection and
priority of its Lien on the assets of the Borrower or such
wholly-owned Subsidiary after giving effect to such merger".
Section 1.23. Vitamin Specialties Business. The following is hereby
added as Section 8.13 of the Revolving Credit Agreement:
"Section 8.13 As to Vitamin Specialties Business in
Particular. (a) Permit the Vitamin Specialties Business to be
conducted by any Person other than VSC. Without limiting the
generality of the foregoing, the Borrower shall not permit VSC
to transfer any of the Vitamin Specialties Assets to the
Borrower or any other Subsidiary, except that VSC may
commingle revenues received by it with funds of the Borrower
and its other Subsidiaries in the ordinary course of business
of the Borrower and its Subsidiaries; provided, however, that
VSC may not so commingle its funds (or any other assets of
VSC) after any assignment of the Term Loan Agreement to the
Designated Party, but VSC will instead (after such assignment)
retain its own funds and other assets (excluding the Excluded
Assets).
(b) Conduct, or permit any Subsidiary (other than VSC,
and other than a wholly-owned Subsidiary of VSC that shall
have granted to the Agent a Lien on all its assets in form and
substance satisfactory to the Agent and all of whose
outstanding capital stock shall have been pledged to the Agent
in form and substance satisfactory to the Agent) to conduct, a
retail vitamin and nutrition business, either directly or by
way of franchises to franchisees.
(c) After the occurrence of an Event of Default, ship
any inventory to a Store or otherwise transfer any material
value to VSC or confer any material benefit on VSC (or permit
any Subsidiary to do so), unless payment in full is made to
the Borrower therefor or arrangements for payment in full to
the Borrower therefor are made by VSC that are satisfactory to
the Agent."
Section 1.24 Employment Agreements. The following is hereby added as
Section 8.14 of the Revolving Credit Agreement:
"Until the Term Loan Obligations shall have been paid in full,
make any change with respect to any of the employment
agreements with any of the Principals, copies of which are
being delivered to the Agent on the Term Loan Closing Date."
Section 1.25 EBITDA. Section 9.01 of the Revolving Credit Agreement
is hereby amended to read as follows:
"The Borrower shall not permit Consolidated EBITDA for the
12-month period ending July 31, 1998 to be less than
$8,000,000."
<PAGE>
Section 1.26 Cash Flow Leverage Ratio. Section 9.02 of the Revolving
Credit Agreement is hereby amended to read as follows:
"The Borrower shall not permit the ratio, as of the last day of any
fiscal quarter of the Borrower, of (x) Funded Debt as of such day to
(y) Consolidated EBITDA for the period of four consecutive fiscal
quarters ending such day, to be greater than the amount set forth
below opposite such day:
(i) April 30, 1998 4.5:1
(ii) July 31, 1998 4.0:1
(iii) October 31, 1998 3.5:1
(iv) January 31, 1999 3.0:1
(v) April 30, 1999 2.5:1
(vi) July 31, 1999 and the last day
of each fiscal quarter thereafter 2.5:1
Notwithstanding the immediately preceding sentence, with respect to
the determination of such ratio as of the fiscal quarter ending
April 30, 1998 only, the divisor of such ratio (clause (y) above)
shall not be Consolidated EBITDA for such period of four consecutive
fiscal quarters ending such day; instead such divisor shall be the
product of Consolidated EBITDA for the period of three consecutive
fiscal quarters ending such day, multiplied by 1.333."
1.1. Section 1.27 Tangible Net Worth. Section 9.03 of the Revolving
Credit Agreement is hereby amended to read as follows:
"(A) Until July 30, 1998: $14,500,000;
(B) July 31, 1998 until
July 30, 1999: The amount identified in (A)
above, plus 50% of Consolidated
Net Income for the fiscal year
ended July 31, 1998;
(C) July 31, 1999 until
July 30, 2000: The amount identified in (B)
above, plus 50% of Consolidated
Net Income for the fiscal year
ending July 31, 1999;
(D) July 31, 2000 until
July 30, 2001: The amount identified in (C)
above, plus 50% of Consolidated
Net Income for the fiscal year
ending July 31, 2000;
(E) July 31, 2001 until
July 30, 2002: The amount identified in (D)
above, plus 50% of Consolidated
Net Income for the fiscal year
ended July 31, 2001;
<PAGE>
(F) July 31, 2002 until
July 30, 2003: The amount identified in (E)
above, plus 50% of Consolidated
Net Income for the fiscal year
ended July 31, 2002."
Section 1.28. Interest Coverage. Section 9.05 of the Revolving
Credit Agreement is hereby amended to read as follows:
"The Borrower shall not permit the ratio, as of the last day of any
fiscal quarter of the Borrower, of (x) Consolidated EBITDA for the
period of four consecutive fiscal quarters ending such day to (y)
cash interest expense in respect of all Consolidated Funded Debt for
such period of four consecutive fiscal quarters, to be less than the
amount set forth below opposite such day:
(i) April 30, 1998 3.0:1.0
(ii) each of July 31, 1998, October
31, 1998, January 31, 1999
and April 30, 1999 3.5:1.0
(iii) each fiscal-quarter ending
date thereafter 4.5:1.0.
Notwithstanding the immediately preceding sentence, with respect to
the determination of such ratio as of the fiscal quarter ending
April 30, 1998 only, the dividend of such ratio (clause (x) above)
shall not be Consolidated EBITDA for the period of four consecutive
fiscal quarters ending such day; but instead such dividend shall be
the product of Consolidated EBITDA for the period of three
consecutive fiscal quarters ending such day, multiplied by 1.333."
Section 1.29 Capital Expenditures. Section 9.06 of the Revolving
Credit Agreement is hereby amended to read as follows:
"The Borrower shall not permit its Consolidated Capital Expenditures
in any fiscal year of the Borrower to be greater than:
(i) for the 12-month period
ending April 30, 1998 $2,000,000
(ii) for the 12-month period
ending April 30, 1999 $3,000,000
(iii) for the 4-month period
ending August 31, 1999 $ 500,000
(iv) for the 12-month period
ending April 30, 2000 $1,400,000
(v) for the 12-month period
ending April 30, 2001 and each
12-month period thereafter $1,200,000."
<PAGE>
Section 1.30 EBITDA of VSC. The following is hereby added as Section
9.08 of the Revolving Credit Agreement:
"The Borrower shall not permit the EBITDA of VSC for any period
consisting of four consecutive fiscal quarters to be less than (a)
negative $250,000, as to any such four-quarter period ending on or
before April 30, 1999, or (b) zero, as to any such four-quarter
period ending after April 30, 1999."
Section 1.31 Cross-Default. Section 10.01(e) of the Revolving Credit
Agreement is hereby amended by adding at the end thereof the following phrase:
"or if there shall occur under the Term Loan Agreement an "Event of
Default" (as such quoted term is defined in the Term Loan
Agreement);"
Section 1.32 Shareholdings. Section 10.01(j) of the Revolving Credit
Agreement is hereby amended by adding the following at the end thereof:
"or if any shares so required to be retained are pledged or become
subject to a security interest in favor of any other Person; or at
any time the Principals collectively own, beneficially and of record
and free of all Liens, less than 72% of the outstanding capital
stock of the Borrower, except that each Principal may dispose of up
to 5% of the shares owned by him on the Term Loan Closing Date from
the Term Loan Closing Date until December 31, 1998 and up to an
additional 5% of the shares owned by him on the Term Loan Closing
Date from January 1, 1999 until the maturity date under the Term
Loan Agreement (it being agreed that if any Principal disposes of
less then such 5% from the Term Loan Closing Date until December 31,
1998, the remaining portion of such 5% allowance may be carried over
by such Principal to the period of January 1, 1999 until such
maturity date)."
Section 1.33. Guarantor Consent. IVOSC, Hall (Canada) and the
Designated Party, which guaranteed all (in the case of IVOSC and Hall (Canada))
or some (in the case of the Designated Party) of the obligations of the Borrower
under the Revolving Credit Agreement, hereby consent to the amendments to the
Revolving Credit Agreement set forth in this Article.
ARTICLE 2. AS TO DESIGNATED PARTY GUARANTY.
Section 2.1 Change as to Limitations. (a) Section 2 of the
Designated Party Guaranty is hereby amended, in the fourth paragraph of
subsection (c) thereof, by changing the table of Measuring Periods, Benchmarks
and Applicable Percentages so as to read as follows:
Measuring Period Benchmark Applicable Percentage
---------------- --------- ---------------------
(A) The 12-month period $ 50%
ending October 31, 1998 11,000,000
(B) The 12-month period $ 50%
ending April 30, 1999 11,000,000
(b) Section 2 of the Designated Party Guaranty is hereby further
amended by adding a new subsection (h) as follows:
<PAGE>
"(h) Notwithstanding the foregoing provisions of subsections (a),
(b), (c), (d) and (e) of this Section 2, the Maximum Principal
Liability shall not be reduced to an amount less than $6,500,000 for
so long as the Term Loan Obligations remain outstanding."
ARTICLE 3. AS TO DESIGNATED PARTY-OBLIGOR DOCUMENTS.
Section 3.1 Generally. As hereinafter provided in this Article, the
Obligors desire to agree to reimburse the Designated Party for any and all
amounts that may be paid by the Designated Party under the Designated Party Term
Guaranty, and to secure such reimbursement obligation by a junior Lien on their
respective assets.
Section 3.2 Amendment of Guaranty Reimbursement Agreement. (a) VSC
hereby joins in the Guaranty Reimbursement Agreement (as hereinafter defined) as
an "Obligor" thereunder; and VSC agrees to pay all amounts required to be paid
thereunder as provided therein. Every reference therein to an "Obligor" shall be
deemed to include VSC (as well as the Original Obligors).
(b) The definition of the term "XXXXXXX Guaranty" in the
Guaranty Reimbursement Agreement is hereby amended so as to mean each of (i) the
Designated Party Guaranty and (ii) the Designated Party Term Guaranty (as such
term is defined in the Term Loan Agreement).
(c) As used herein, the term "Guaranty Reimbursement
Agreement" means the Guaranty Reimbursement Agreement dated April 30, 1996 from
the Original Obligors in favor of the Designated Party.
Section 3.3. Spreading of Liens in favor of Designated Party. (a)
Each Original Obligor Security Agreement (as hereinafter defined) is hereby
amended by inserting the following sentence immediately after the definition of
"Liabilities" in the first sentence in the fifth paragraph thereof:
"Without limiting the generality of the foregoing, the term
"Liabilities" includes the obligation of the Grantor to reimburse
the Secured Party for all amounts paid by the Secured Party under
the Designated Party Term Guaranty and the Term Intercreditor
Agreement, plus interest thereon as provided in the Guaranty
Reimbursement Agreement, plus collection costs as provided in the
Guaranty Reimbursement Agreement."
(b) The DP Trademark Collateral Assignment (as hereinafter
defined) is hereby amended by inserting the following sentence immediately after
the definition of "Liabilities" in the first sentence in the fourth paragraph
thereof:
"Without limiting the generality of the foregoing, the term
"Liabilities" includes the obligation of the Assignor to reimburse
the Assignee for all amounts paid by the Assignee under the
Designated Party Term Guaranty and the Term Intercreditor Agreement,
plus interest thereon as provided in the Guaranty Reimbursement
Agreement, plus collection costs as provided in the Guaranty
Reimbursement Agreement."
<PAGE>
(c) As used herein, the term "Original Obligor Security
Agreements" means (i) the Security Agreement dated April 30, 1996 from the
Borrower to the Designated Party, (ii) the Security Agreement dated April 30,
1996 from IVOSC to the Designated Party, and (iii) the Security Agreement dated
April 30, 1996 from Hall (Canada) to the Designated Party. The term "DP
Trademark Collateral Assignment" means the Trademark Collateral Assignment dated
April 30, 1996 from the Borrower to the Designated Party.
(d) VSC shall, contemporaneously herewith on the Term Loan
Closing Date, execute and deliver to the Designated Party a security agreement
in respect of its assets (excluding the Excluded VSC Assets) to secure its
reimbursement obligation to the Designated Party as provided in this Article.
Section 3.4. Takeover of Vitamin Specialties Business. The Obligors
acknowledge that the Designated Party is executing and delivering the Designated
Party Term Guaranty in reliance on this Agreement, among other things. The
Original Obligors agree to cause VSC to perform its obligations under the VSC
Term Security Agreement being executed concurrently with this Agreement,
including allowing the Designated Party to take over VSC's operations upon any
assignment of the Term Loan Documents to the Designated Party pursuant to
Section 1 of the Term Intercreditor Agreement. The Original Obligors further
agree, upon any such assignment and in conjunction with the exercise by the
Designated Party of its security interest, to provide to VSC, so long as the
Designated Party may request, until it is reimbursed or paid in full in respect
of the Term Loan Obligations as contemplated by the VSC Term Security Agreement,
any or all personnel, systems, inventory, supplies, storage or other goods or
services previously provided by them to VSC for the conduct of such operations,
at the same costs as previously charged, but (a) no inventory charges shall be
in excess of prices charged to Original Obligors' most favored customers, and
(b) other charges shall not exceed customary charges in the relevant industry.
The Agent agrees to exercise its rights relative to the Revolving Credit
Agreement and the other Facility Documents with a view to allowing the
Designated Party to exercise such takeover rights as to VSC, provided that such
agreement by the Agent shall (i) in no way impair in any material respect the
availability to the Agent or the exercise by the Agent of any of its rights or
remedies under the Revolving Credit Agreement or the other Facility Documents as
to the Original Obligors and (ii) not be binding upon any successor or assign of
the Agent (whether an assignee of the Agent's security interest or a purchaser
of assets encumbered thereby at a public or private sale under the Uniform
Commercial Code).
ARTICLE 4. AS TO DESIGNATED PARTY SUBORDINATION AND INTERCREDITOR AGREEMENT.
Section 4.1 Generally. (a) In the Designated Party Subordination and
Intercreditor Agreement dated April 30, 1996, the Agent (for itself and the
Banks) and the Designated Party provided for the relative priority (as between
them) of the liabilities owing to them by the Original Obligors and the relative
priority (as between them) of the Liens in their favor on the assets of the
Original Obligors securing such liabilities. Generally, the liabilities owing to
the Designated Party (other than Trade Debt, as defined therein) are subordinate
to the liabilities owing to the Agent and the Banks, and the Liens in favor of
the Designated Party are subordinate to the Liens in favor of the Agent securing
the liabilities under the Revolving Credit Agreement.
(b) Contemporaneously herewith, the Term Loan Agent and the
Designated Party are providing for the assignment by the Term Loan Agent to the
Designated
<PAGE>
Party of the Term Loan Agreement and related documents and the Term Loan Liens,
upon the payment in full of the obligations of the Designated Party under the
Designated Party Term Guaranty. Such provision is contained in the Designated
Party Term Guaranty and the Term Intercreditor Agreement (as such capitalized
terms are defined in the Term Loan Agreement).
(c) Upon such assignment, it is not intended that the Term
Loan Obligations or the Term Loan Liens be subordinate to the obligations owing
by the Obligors to the Agent and the Banks in respect of the Revolving Credit
Agreement or to the Liens securing such obligations.
(d) The parties desire to adjust certain of the provisions of
the Designated Party Subordination and Intercreditor Agreement so as to account
for the Term Loan Obligations and the Term Loan Liens, as hereinafter provided.
Section 4.2 Before Assignment. The definition of "Senior Debt" in
the Designated Party Subordination and Intercreditor Agreement is hereby amended
so as to include (in addition to the obligations and liabilities already
included therein) the Term Loan Obligations (including the guaranties by the
Subsidiaries of the Term Loan Obligations), until such time as the Term Loan
Agreement is assigned by the Term Loan Agent to the Designated Party. Similarly,
the definition of the term "Senior Liens" in the Designated Party Subordination
and Intercreditor Agreement is hereby amended so as to include (in addition to
the liens already included therein) the Term Loan Liens, until the time of such
assignment. Upon such assignment, the Term Loan Obligations (including such
guaranties) shall automatically cease to be "Senior Debt", and the Term Loan
Liens shall automatically cease to be "Senior Liens", within the meanings of
such terms in the Designated Party Subordination and Intercreditor Agreement.
Section 4.3 At and After Assignment. From and after the assignment
by the Term Loan Agent to the Designated Party of the Term Loan Agreement, the
Term Loan Obligations shall not constitute Subordinated Debt and the Term Loan
Liens shall not constitute Subordinate Liens (as the terms "Subordinate Debt"
and "Subordinate Liens" are defined in the Designated Party Subordination and
Intercreditor Agreement), notwithstanding anything to the contrary contained in
the Designated Party Subordination and Intercreditor Agreement. Nothing in the
Designated Party Subordination and Intercreditor Agreement shall preclude or
restrict the Designated Party from taking such steps to collect the Term Loan
Obligations and to realize on the Term Loan Liens as the Designated Party
considers appropriate following such assignment by the Term Loan Agent to the
Designated Party. The obligations of VSC under its Guaranty of the Revolving
Credit Agreement shall, from and after such assignment, be subordinate in right
of payment to the prior payment in full of the Term Loan Obligations, which have
been guaranteed by VSC; provided, however, that nothing in this sentence shall
preclude the Agent after such assignment from applying the Excluded VSC Assets
to such obligations of VSC under its Guaranty of the Revolving Credit Agreement,
prior to the payment in full of the Term Loan Obligations.
Section 4.4 Independent Reimbursement Obligation. The parties
acknowledge that from and after such assignment, in addition to being directly
liable to the Designated Party (as assignee) on the Term Loan Obligations and
under the Term Loan Liens, the Obligors will be independently liable to the
Designated Party under their reimbursement obligation set forth in Article 3 of
this Amendment Agreement (even though it is the same indebtedness); and that
such reimbursement obligation is secured by a Lien on assets beyond the assets
encumbered by the Term Loan Liens so assigned. To the extent that the Lien
securing such reimbursement obligation encumbers assets of the Obligors other
than the assets
<PAGE>
encumbered by the Term Loan Liens, such Lien on such other assets shall continue
to be subordinate to the Senior Liens securing the liabilities under the
Revolving Credit Agreement, as provided in Designated Party Subordination and
Intercreditor Agreement.
Section 4.5 Joinder by VSC. VSC is hereby joined as a party in the
Designated Party Subordination and Intercreditor Agreement as an "Obligor"
thereunder; and each reference therein to an "Obligor" shall be deemed to
include VSC (as well as the Original Obligors).
Section 4.6. VSC Security Agreements. The parties hereto acknowledge
that VSC is this day executing and delivering (a) the VSC Term Security
Agreement in favor of the Term Loan Agent, and (b) the VSC Revolver Security
Agreement in favor of the Agent and (c) a Security Agreement in favor of the
Designated Party. Notwithstanding any different sequence of actual filing or
perfection of the Liens thereunder, such VSC Term Security Agreement shall rank
first in priority, and such VSC Revolver Security Agreement shall rank second in
priority, and such Security Agreement in favor of the Designated Party shall
rank third in priority.
Section 4.7. Term Loan Agent. The Chase Manhattan Bank, in its
capacity as Term Loan Agent, is joining in this Agreement for the purpose of
agreeing to the provisions of this Article.
ARTICLE5. MISCELLANEOUS.
Section 5.3 Security Agreements to Designated Party. (a) The
Designated Party hereby acknowledges and agrees that the grant of the Term Loan
Liens to the Agent does not violate the restriction against the granting of
Liens that is set forth in the three Security Agreements dated April 30, 1996 by
the Original Obligors (respectively) to the Designated Party, or in the three
Guaranty and Security Agreements dated May 10, 1996 by the Original Obligors
(respectively) to the Designated Party securing the Trade Debt.
(b) The Original Obligors acknowledge and reaffirm the
provisions of such Security Agreements and Guaranties and Security Agreements,
respectively.
Section 5.4. Change of Address. (a) For purposes of all the Facility
Documents, the address of the Agent for notices is hereby changed to read as
follows:
The Chase Manhattan Bank
New York Agency
1 Chase Manhattan Plaza
New York, New York 10081
Telecopier No.: 212-552-5650
-- with a simultaneous copy to:
The Chase Manhattan Bank
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Mr. Peter M. Fitzsimmons
Telecopier No.: 973-353-6158
<PAGE>
(b) For purposes of all the Facility Documents, the address
for notices of The Chase Manhattan Bank, as Bank, is hereby changed to read as
follows:
The Chase Manhattan Bank
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Mr. Peter M. Fitzsimmons
Telecopier No.: 973-353-6158
Section 5.3. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to an amendment of the Revolving
Credit Agreement and the other Facility Documents, and it supersedes and
replaces all prior and contemporaneous agreements, discussions and
understandings (whether written or oral) with respect to such amendment.
Section 5.4. Continuing Effect. Except as otherwise expressly
provided in this Agreement, all the terms and conditions of the Revolving Credit
Agreement and the other Facility Documents shall continue in full force and
effect.
Section 5.5 Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Banks that:
(a) All the representations and warranties set forth in the
Revolving Credit Agreement are true and complete on and as of the
date of this Agreement (with the same effect as though made on and
as of such date).
(b) No Default or Event of Default exists.
(c) No Obligor has any offset or defense with respect to any
of its obligations under any of the Facility Documents or any claim
or counterclaim against the Agent or any of the Banks whatsoever
(any such offset, defense, claim or counterclaim as may now exist
being hereby irrevocably waived by the Obligors).
(d) This Agreement has been duly authorized, executed and
delivered by the Borrower and the other Obligors.
Section 5.6 Expenses. The Borrower shall pay all reasonable expenses
incurred by the Agent in connection with the transaction contemplated by this
Agreement, including (without limitation) the fees and disbursements of counsel
for the Agent and filing fees.
Section 5.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the day
and year first above written.
<PAGE>
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
---------------------------
Name:
Title:
INTERNATIONAL VITAMIN OVERSEAS
SALES CORP.
By: /s/ I. Alan Hirschfeld
---------------------------
Name:
Title:
HALL LABORATORIES, LTD.
By:
---------------------------
Name:
Title:
VITAMIN SPECIALTIES CORP.
By: /s/ I. Alan Hirschfeld
---------------------------
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK, as Agent
and as Bank and (to the extent
provided in Article 4) as Term Loan
Agent
By: /s/ Lee P. Brennan
---------------------------
Lee P. Brennan
Vice President
XXXXXXX XXXXXXX
By: XXXXXXXXXXXX
Name:
Title:
VSC REVOLVER GUARANTY
REFERENCE IS HEREBY MADE to the Credit Agreement dated April 30,
1996, as amended June 19, 1997 (which, as the same is contemporaneously herewith
being amended and may hereafter be amended from time to time, will be called
herein the "Revolving Credit Agreement") among IVC Industries, Inc., a Delaware
corporation (the "Borrower"), the Banks party thereto, and The Chase Manhattan
Bank (National Association), as Agent. All capitalized terms used herein and not
defined shall have the respective meanings ascribed to them in the Revolving
Credit Agreement.
WHEREAS, the Revolving Credit Agreement provides for the extension
of credit by the Banks to the Borrower; and
WHEREAS, all the obligations and liabilities (whether now existing
or hereafter arising) of the Borrower to any or all of the Agent and the Banks
under the Revolving Credit Agreement or any of the other Facility Documents
(whether for principal, interest, fees, reimbursement obligations,
indemnification obligations, costs of enforcement or otherwise) will be called
herein the "Obligations"; and
WHEREAS, Vitamin Specialties Corp., a Pennsylvania corporation (the
"Guarantor") expects to obtain substantial economic benefit from the extension
of credit by the Banks to the Borrower under the Revolving Credit Agreement; and
WHEREAS, the execution and delivery of this guaranty by the
Guarantor is required in order to induce the Banks and the Agent to enter into a
certain amendment to the Revolving Credit Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and to induce the Banks and the
Agent to enter into the Revolving Credit Agreement, the Guarantor hereby agrees
with the Banks and the Agent as follows:
1. The Guarantor hereby absolutely and unconditionally guarantees
to the Agent and the Banks that the Borrower will promptly pay, perform and
observe all the Obligations, and that all sums stated to be payable in, or which
become payable under, the Facility Documents by the Borrower will be promptly
paid in full when due, whether at stated maturity or earlier by reason of
acceleration or otherwise, and, in the case of one or more extensions of time of
payment or performance or renewals of any Obligation, that the same will be
promptly paid or performed (as the case may be) when due according to such
extension or renewal, whether at stated maturity or earlier by reason of
acceleration or otherwise, irrespective of the validity, regularity, or
enforceability of any of the Facility Documents and irrespective of any present
or future law or order of any government (whether of right or in fact and
whether the Agent or any Bank shall have consented thereto) or of any agency
thereof purporting to reduce, amend, restructure or otherwise affect any
Obligation of the Borrower or other obligor or to vary the terms of payment;
provided, however, that the liability of the Guarantor hereunder with respect to
the Obligations shall not exceed at any time 90% of Adjusted Net Worth (as
hereinafter
<PAGE>
defined) of the Guarantor. The term "Adjusted Net Worth" of the Guarantor means
the current Net Worth of the Guarantor, plus (as and when Net Worth increases)
any increase in such amount of Net Worth after the date hereof (without any
decrease for any reduction after the date hereof in current Net Worth as so
increased). The term "Net Worth" of the Guarantor means the amount of all assets
of the Guarantor, at a fair valuation, less the total liabilities of the
Guarantor (including contingent liabilities other than the liabilities of the
Guarantor under this guaranty) .
2. The Guarantor agrees that, as among the Guarantor, the Agent
and the Banks, the Obligations may be declared to be due and payable for
purposes of this guaranty notwithstanding any stay, injunction or other
prohibition which may prevent, delay or vitiate any such declaration as against
the Borrower and that, in the event of any such declaration (or attempted
declaration), such Obligations (whether or not due and payable by the Borrower)
shall forthwith become due and payable by the Guarantor for purposes of this
guaranty. The Guarantor further guarantees that all payments made by the
Borrower to the Agent and the Banks of any Obligation will, when made, be final
and agree that if any such payment is recovered from, or repaid by, the Agent or
any Bank in whole or in part in any bankruptcy, insolvency or similar proceeding
instituted by or against the Borrower, this guaranty shall continue to be fully
applicable to such Obligation to the same extent as though the payment so
recovered or repaid had never been originally made on such Obligation.
3. This is a guaranty of payment and not of collection only.
4. The Guarantor hereby consents that from time to time, without
notice to or further consent of the Guarantor, the payment, performance or
observance of any or all of the Obligations may be waived or the time of payment
or performance thereof extended or accelerated, or renewed in whole or in part,
or the terms of the Facility Documents or any part thereof may be changed and
any collateral therefor may be exchanged, surrendered or otherwise dealt with as
the Agent may determine, and any of the acts mentioned in the Facility Documents
may be done, all without affecting the liability of the Guarantor hereunder. The
Guarantor hereby waives presentment of any instrument, demand of payment,
protest and notice of non-payment or protest thereof or of any exchange, sale,
surrender or other handling or disposition of such collateral, and any
requirement that the Agent or any Bank exhaust any right, power or remedy or
proceed against the Borrower under the Facility Documents or against any other
person under any other guaranty of, or security for, any of the Obligations. The
Guarantor hereby further waives any defense whatsoever which might constitute a
defense available to, or discharge of, the Borrower or a guarantor. No payment
by the Guarantor pursuant to any provision hereunder shall entitle the
Guarantor, by subrogation to the rights of the Agent or any Bank or otherwise,
to any payment by the Borrower (or out of the property of the Borrower) except
after payment in full of all sums (including interest, costs and expenses) which
may be or become payable by the Borrower to the Agent and the Banks at any time
or from time to time; provided, however, if the Guarantor is an "insider" of the
Borrower, as such term is defined in Section 101 of the Federal Bankruptcy Code,
the Guarantor hereby irrevocably waives any and all rights to which it may be
entitled, by operation of law or otherwise, upon making any payment hereunder to
be subrogated to the rights of the
<PAGE>
Agent and the Banks against the Borrower with respect to such payment or
otherwise to be reimbursed, indemnified or exonerated by the Borrower in respect
thereof.
5. This guaranty shall be a continuing guaranty, and any other
guarantor, and any other party liable upon or in respect of any Obligation
hereby guaranteed may be released without affecting the liability of the
Guarantor. The liability of the Guarantor hereunder shall be joint and several
with the liability of any other guarantor or other party upon or in respect of
the Obligations.
6. The Agent or any Bank may assign its rights and powers
hereunder, with all or any of the Obligations, and, in the event of such
assignment, the assignee hereof or of such rights and powers, shall have the
same rights and remedies as if originally named herein.
7. Notice of acceptance of this guaranty and of the incurring of
any and all of the Obligations of the Borrower pursuant to the Facility
Documents is hereby waived. This guaranty and all rights, obligations and
liabilities arising hereunder shall be governed by and construed according to
the laws of the State of New York. Unless the context otherwise requires, all
terms used herein which are defined in the Uniform Commercial Code shall have
the meanings therein stated.
8. The Guarantor represents and warrants that:
(a) The present fair saleable value of the assets of the
Guarantor after giving effect to the execution and delivery of this Guaranty and
the VSC Term Guaranty dated the date hereof exceeds the amount that will be
required to be paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Guarantor as they mature.
(b) The property of the Guarantor does not constitute
unreasonably small capital for the Guarantor to carry out its business as now
conducted and as proposed to be conducted including the capital needs of the
Guarantor.
(c) The Guarantor does not intend to, nor does it believe
that it will, incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be received by the
Guarantor, and of amounts to be payable on or in respect of debt of the
Guarantor). The cash available to the Guarantor after taking into account all
other anticipated uses of the cash of the Guarantor, is anticipated to be
sufficient to pay all such amounts on or in respect of debt of the Guarantor
when such amounts are required to be paid.
(d) The Guarantor does not believe that final judgments
against it in actions for money damages will be rendered at a time when, or in
an amount such that, the Guarantor will be unable to satisfy any such judgments
promptly in accordance with their terms (taking into account the maximum
reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered). The cash available
to the Guarantor after taking into account all other anticipated uses of the
cash of the Guarantor (including the payments on or in respect of debt referred
to in
<PAGE>
paragraph (c) of this Section), is anticipated to be sufficient to pay all such
judgments promptly in accordance with their terms.
9. The Guarantor agrees that, in addition to (and without
limitation of) any right of setoff, banker's lien or counterclaim the Agent or
any Bank may otherwise have, each of the Agent and each Bank shall be entitled,
at its option, to setoff and apply balances (general or special, time or demand,
provisional or final) held by it for account of the Guarantor at any of its
offices in dollars or in any other currency, against any amounts owing hereunder
that are not paid when due (regardless of whether such balances are then due to
the Guarantor), in which case it shall promptly notify the Guarantor thereof;
provided however that any failure to give such notice shall not affect the
validity thereof.
10. No provision of this guaranty may be modified or waived
without the prior written consent of the Agent and the Required Banks.
11. The Guarantor hereby irrevocably submits to the
jurisdiction of any New York State or Federal court sitting in New York City and
New Jersey State court or Federal court sitting in New Jersey in any action or
proceeding arising out of or relating to this guaranty, and the Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York State or New Jersey State or Federal
court. The Guarantor irrevocably consents to the service of any and all process
in any such action or proceeding by the mailing of copies of such process to the
Guarantor at its address specified on the signature page hereof. The Guarantor
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this paragraph shall affect the
rights of the Agent and the Banks to serve legal process in any other manner
permitted by law or affect the rights of the Agent and the Banks to bring any
action or proceeding against the Guarantor or any of its property in the courts
of any other jurisdiction. To the extent that the Guarantor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether from service or notice, attachment prior to judgment, attachment in aid
of execution, execution or otherwise) with respect to itself or its property,
the Guarantor hereby irrevocably waives such immunity in respect of its
Obligations under this guaranty. The Guarantor hereby expressly waives any and
every right to a trial by jury in any action on or related to this guaranty, the
Obligations or the enforcement of either or all of the same, and does further
expressly waive any and every right to interpose any counterclaim in any such
action or proceeding.
12. The Guarantor agrees to reimburse the Agent and the
Banks on demand for all reasonable costs, expenses, and charges (including,
without limitation, reasonable attorneys' fees) incurred by the Agent or the
Banks in connection with any enforcement of this guaranty.
<PAGE>
13. The rights, powers and remedies granted to the Agent and
the Banks herein shall be cumulative and in addition to any rights, powers and
remedies to which the Agent and the Banks may be entitled either by operation of
law or pursuant to the Facility Documents or any other document or instrument
delivered or from time to time to be delivered to the Agent or any Bank in
connection with the Facility Documents.
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be
duly executed by their proper officers this 1 day of May, 1998.
WITNESS: VITAMIN SPECIALTIES CORP.
/s/ Catherine A. Mann By: /s/ I. Alan Hirschfeld
- ------------------------------- -----------------------------------
Name: Name:
-------------------------- -----------------------------
Title:
----------------------
Address of Guarantor:
500 Halls Mill Road
Freehold, NJ 07728
VSC REVOLVER SECURITY AGREEMENT
THIS AGREEMENT, dated as of the 1 day of May, 1998, is made by
VITAMIN SPECIALTIES CORP., a Pennsylvania corporation (the "Grantor"), in favor
of THE CHASE MANHATTAN BANK in its capacity as Agent under the Revolving Credit
Agreement hereinafter referred to (the "Agent").
Preliminary Statement
A. IVC Industries, Inc., a Delaware corporation (the "Borrower"),
entered into a certain Credit Agreement dated April 30, 1996 (as amended June
19, 1997) (which, as the same is contemporaneously herewith being amended and
may be hereafter amended or supplemented from time to time, will be called
herein the "Revolving Credit Agreement") among itself, the Banks party thereto
and the Agent. All capitalized terms used herein and not defined shall have the
respective meanings ascribed to them in the Revolving Credit Agreement.
B. Contemporaneously herewith, the Grantor is executing and
delivering a guaranty dated the date hereof (which, as the same may hereafter be
amended or supplemented from time to time, will be called herein the "VSC
Revolver Guaranty") in favor of the Agent and the Banks, pursuant to which the
Grantor is guaranteeing all the obligations and liabilities (now existing or
hereafter arising) of the Grantor to any or all of the Agent and the Banks under
the Revolving Credit Agreement or any of the other Facility Documents.
C. The execution and delivery of this Agreement is required in order
to induce the Banks and the Agent to enter into a certain amendment to the
Revolving Credit Agreement.
NOW, THEREFORE, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), and in order to induce the Banks
and the Agent to enter into the Revolving Credit Agreement, the Grantor hereby
agrees as follows:
As used in this Agreement, the term "Liabilities" shall mean all
obligations and liabilities (now existing or hereafter arising) of the Grantor
to any or all of the Agent and the Banks under the VSC Revolver Guaranty.
The term "Security" shall mean all personal property and fixtures of
the Grantor, whether now or hereafter existing or now owned or hereafter
acquired and wherever located, of every kind and description, tangible or
intangible, including, but not limited to, all money, goods (including
equipment, farm products and inventory), instruments, securities, documents,
chattel paper, accounts, contract rights, general intangibles, credits, claims
(including, without limitation, the balance of every deposit account of the
Grantor with the Agent or any Bank and any other claim of the Grantor against
the Agent or any Bank), demands, precious metals and any other property, rights
and interests of the Grantor, and shall include the proceeds, products and
accessions of
<PAGE>
and to any thereof. The term "Security" includes (without limitation) the
Vitamin Specialties Assets, which include (without limitation) the Excluded VSC
Assets.
As security for the payment of all the Liabilities, the Grantor
hereby grants to the Agent a security interest in and a general lien upon the
Security.
At any time and from time to time, upon the demand of the Agent, the
Grantor will: (1) give, execute, deliver, file and/or record any notice,
statement, instrument, document, agreement or other papers that may be necessary
or desirable, or that the Agent may request, in order to create, preserve,
perfect, or validate any security interest granted pursuant hereto or to enable
the Agent to exercise and enforce its rights hereunder or with respect to such
security interest; and (2) permit representatives of the Agent or any Bank at
any time during business hours to inspect its inventory and to inspect and make
abstracts from the Grantor's books and records pertaining to the Security. The
right is expressly granted to the Agent, at its discretion, to file one or more
financing statements under the Uniform Commercial Code naming the Grantor as
debtor and the Agent as secured party and indicating therein the types or
describing the items of Security herein specified. A photographic or other
reproduction of this agreement shall be sufficient as a financing statement.
With respect to the Security, or any part thereof, which at any time shall come
into the possession or custody or under the control of the Agent or any Bank or
any of their agents, associates or correspondents, for any purpose, the right is
expressly granted to the Agent, at its discretion, to transfer to or register in
the name of itself or its nominee any of the Security; and to exercise or cause
its nominee to exercise all or any powers with respect to the Security with the
same force and effect as an absolute owner thereof; all without notice (except
such notice as may be required by applicable law and cannot be waived) and
without liability except to account for property actually received by it.
The Agent at its discretion may, if an Event of Default exists, in
its name or in the name of the Grantor or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for, or make any compromise or settlement deemed desirable with
respect to, any of the Security, but the Agent shall be under no obligation to
do so, or the Agent may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the Security,
without thereby incurring responsibility to, or discharging or otherwise
affecting any liability of, the Grantor. The Agent shall not be required to take
any steps necessary to preserve any rights against prior parties to any of the
Security. If an Event of Default exists, the Agent may use or operate any of the
Security for the purpose of preserving the Security or its value in the manner
and to the extent the Agent reasonably deems appropriate, but the Agent shall be
under no obligation to do so. Upon the occurrence and during the continuance of
an Event of Default, the Grantor shall, at the request of the Agent, assemble
the Security at such place or places as the Agent designates in its request,
and, to the extent permitted by applicable law, the Agent shall have the right,
with or without legal process and with or without prior notice or demand, to
take possession of the Security or any part thereof and to enter any premises
for the purpose of taking possession thereof. The Agent shall have the rights
and remedies with respect to the Security of a secured party under the Uniform
Commercial Code (whether or not such Code is in effect in the jurisdiction where
the rights and remedies are asserted). In addition, with respect to the
Security, or any part thereof, which shall then be or shall
<PAGE>
thereafter come into the possession or custody of the Agent, any Bank or any of
their agents, associates or correspondents, the Agent may sell or cause to be
sold in the Borough of Manhattan, New York City, or elsewhere, in one or more
sales or parcels, at such price as the Agent may deem best, and for cash or on
credit or for future delivery, without assumption of any credit risk, all or any
of the Security, at any broker's board or at public or private sale, in any
reasonable manner permissible under the Uniform Commercial Code (except that, to
the extent permitted thereunder, the Grantor hereby waives the requirements of
said Code), and the Agent or anyone else may be the purchaser of any or all of
the Security so sold and thereafter hold the same absolutely, free from any
claim or right of whatsoever kind, including any equity of redemption, of the
Grantor, any such demand, notice or right and equity being hereby expressly
waived and released. The Grantor will pay to the Agent all reasonable expenses
(including reasonable attorneys' fees and legal expenses incurred by any or all
of the Agent and the Banks) of, or incidental to, the enforcement of any of the
provisions hereof or of any of the Liabilities, or any actual or attempted sale
of any of the Security or receipt of the proceeds thereof, and for the care of
the Security and defending or asserting the rights and claims of the Agent in
respect thereof, by litigation or otherwise, including expense of insurance; and
all such expenses shall be indebtedness within the terms of this agreement.
Notwithstanding that the Agent, whether in its own behalf and/or in behalf of
another or others, may continue to hold Security and regardless of the value
thereof, the Grantor shall be and remain liable for the payment in full,
principal and interest, of any balance of the Liabilities and expenses at any
time unpaid.
No delay on the part of the Agent in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof or the exercise of any other power or right. The rights, remedies and
benefits herein expressly specified are cumulative and not exclusive of any
rights, remedies or benefits which any or all of the Agent and the Banks may
otherwise have. The Grantor hereby waive(s) presentment, notice of dishonor and
protest of all instruments included in or evidencing the Liabilities or the
Security and any and all other notices and demands whatsoever, whether or not
relating to such instruments.
No provision hereof shall be modified or limited except by a written
instrument executed by the party sought to be charged therewith, expressly
referring hereto and to the provision so modified or limited. This agreement
shall be binding upon the Grantor and its successors and assigns, and shall
inure to the benefit of the Agent and the Banks and their respective successors
and assigns, and shall be governed by and construed according to the laws of the
State of New York. Unless the context otherwise requires, all terms used herein
which are defined in the New York Uniform Commercial Code shall have the
meanings therein stated.
<PAGE>
The security interest granted herein (except as to the Excluded VSC
Assets) is and shall remain subordinate to the security interest granted in the
separate Security Agreement dated the date hereof from the Grantor to The Chase
Manhattan Bank in its capacity as agent under the Term Loan Agreement that
secures the Term-Loan Obligations (as such separate Security Agreement is now
held by such Bank or may hereafter be assigned by such Bank).
VITAMIN SPECIALTIES CORP.
By: /s/ I. Alan Hirschfeld
-----------------------------
Name:
Title:
Confidential information indicated by X's has been omitted and filed separately
with the Securities and Exchange Commission.
VSC SECURITY AGREEMENT
THIS AGREEMENT, dated as of the 1st day of May, 1998, is made by
VITAMIN SPECIALTIES CORP., a Pennsylvania corporation (the "Grantor"), in favor
of XXXXXXXXX XXXX INC., a New Jersey corporation ("XXXX").
Preliminary Statement
A. Contemporaneously herewith, IVC Industries, Inc., a Delaware
corporation (the "Borrower"), is entering into a certain Term Loan Agreement
dated the date hereof (which, as the same may be hereafter amended or
supplemented from time to time, will be called herein the "Term Loan Agreement")
among itself, the Banks party thereto and The Chase Manhattan Bank in its
capacity as Agent (the "Agent"). All capitalized terms used herein and not
defined shall have the respective meanings ascribed to them in the Term Loan
Agreement.
B. Contemporaneously herewith, XXXX is executing and delivering a
guaranty dated the date hereof (which, as the same may hereafter be amended or
supplemented from time to time, will be called herein the "Designated Party Term
Guaranty") in favor of the Agent and the Banks, pursuant to which XXXX is
guaranteeing to any or all of the Agent and the Banks the term loan in the
amount of $3,500,000 made by the Agent and the Banks to the Borrower pursuant to
the Term Loan Agreement.
C. Contemporaneously herewith, the Grantor is executing and
delivering a guaranty dated the date hereof (the "VSC Term Guaranty") in favor
of the Agent and the Banks, pursuant to which the Grantor is guaranteeing all
the obligations and liabilities (now existing or hereafter arising) of the
Borrower to any or all of the Agent and the Banks under the Term Loan Agreement
or any of the other Term Loan Documents.
D. Contemporaneously herewith, the Grantor is executing and
delivering the May 1998 Amendment Agreement, dated the date hereof (the
"Amendment Agreement") pursuant to which the Grantor is joining the Guaranty
Reimbursement Agreement under which the Grantor shall reimburse XXXX for any
amounts paid by XXXX under each of the Designated Party Term Guaranty and the
Designated Party Guaranty (as defined in the Amendment Agreement).
E. The Borrower is the parent and sole shareholder of the
outstanding capital stock of the Grantor, and the Grantor shall receive
substantial economic benefits from the Borrower's entering into the Term Loan
Agreement.
F. The execution and delivery of this Agreement is required in order
to induce XXXX to make the Designated Party Term Guaranty, and the execution and
delivery
<PAGE>
of the Designated Party Term Guaranty is required in order to induce the Banks
and the Agent to enter into the Term Loan Agreement.
NOW, THEREFORE, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), and in order to induce XXXX to
make the Designated Party Term Guaranty, the Grantor hereby agrees as follows:
As used in this Agreement, the term "Liabilities" shall mean all
obligations and liabilities (now existing or hereafter arising) of the Grantor
to XXXX under the Designated Party Term Guaranty and/or the Designated Party
Guaranty.
The term "Security" shall mean all personal property and fixtures of
the Grantor, other than the Excluded VSC Assets, whether now or hereafter
existing or now owned or hereafter acquired and wherever located, of every kind
and description, tangible or intangible, including, but not limited to, all
money, goods (including equipment, farm products and inventory), instruments,
securities, documents, chattel paper, accounts, contract rights, general
intangibles, credits, claims, demands, precious metals and any other property,
rights and interests of the Grantor, and shall include the proceeds, products
and accessions of and to any thereof. The Security, other than the Excluded VSC
Assets, includes (without limitation) the following assets of the Grantor:
(a) all inventories;
(b) all tangible personal property, computer equipment, brochures,
store signage, store fixtures and leasehold improvements, including
tangible personal property referred to on Schedule 1.03 of the HealthRite
Purchase Agreement;
(c) all cash actually present "in the till" at any of the Stores;
(d) all accounts receivable;
(e) all rights in leases of the Stores;
(f) all rights in purchase orders, sales orders, order books,
mailing lists, customer accounts and customer lists and records;
(g) all rights in intellectual property, including the names
"Vitamin Specialties" and "Herbal Specialties", proprietary information,
computer software, customer lists, mailing lists, trade secrets, patents,
patent applications, copyrights, copyright applications, trademarks,
service marks, trademark or service mark registration applications, art
work, boards, plates, films and related art work (such as in catalogs),
tradenames, licenses of any such property or rights, goodwill and permits;
(h) all necessary permits and certificates issued or granted;
(i) all books and records, including, without limitation, quality
control records and computer software and data bases; and
<PAGE>
(j) all goodwill.
As security for the payment of all the Liabilities, the Grantor
hereby grants to XXXX a security interest in and a general lien upon the
Security.
At any time and from time to time, upon the demand of XXXX, the
Grantor will: (1) give, execute, deliver, file and/or record any notice,
statement, instrument, document, agreement or other papers that may be necessary
or desirable, or that XXXX may request, in order to create, preserve, perfect,
or validate any security interest granted pursuant hereto or to enable XXXX to
exercise and enforce its rights hereunder or with respect to such security
interest; and (2) permit representatives of XXXX at any time during business
hours to inspect its inventory and to inspect and make abstracts from the
Grantor's books and records pertaining to the Security. The right is expressly
granted to XXXX, at its discretion, to file one or more financing statements
under the Uniform Commercial Code naming the Grantor as debtor and XXXX as
secured party and indicating therein the types or describing the items of
Security herein specified. A photographic or other reproduction of this
agreement shall be sufficient as a financing statement. With respect to the
Security, or any part thereof, which at any time shall come into the possession
or custody or under the control of XXXX or any of its designees, agents,
associates or correspondents, for any purpose, the right is expressly granted to
XXXX, at its discretion, to transfer to or register in the name of itself or its
nominee any of the Security; and to exercise or cause its nominee to exercise
all or any powers with respect to the Security with the same force and effect as
an absolute owner thereof; all without notice (except such notice as may be
required by applicable law and cannot be waived) and without liability except to
account for property actually received by it.
XXXX at its discretion may, if an Event of Default exists, in its
name or in the name of the Grantor or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for, or make any compromise or settlement deemed desirable with
respect to, any of the Security, but XXXX shall be under no obligation to do so,
or XXXX may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any of the Security, without thereby
incurring responsibility to, or discharging or otherwise affecting any liability
of, the Grantor. XXXX shall not be required to take any steps necessary to
preserve any rights against prior parties to any of the Security. If an Event of
Default exists, XXXX may use or operate any of the Security for the purpose of
preserving the Security or its value in the manner and to the extent XXXX
reasonably deems appropriate, but XXXX shall be under no obligation to do so.
Upon the occurrence and during the continuance of an Event of Default, the
Grantor shall, at the request of XXXX, assemble the Security at such place or
places as XXXX designates in its request, and, to the extent permitted by
applicable law, XXXX shall have the right, with or without legal process and
with or without prior notice or demand, to take possession of the Security or
any part thereof and to enter any premises for the purpose of taking possession
thereof. XXXX shall have the rights and remedies with respect to the Security of
a secured party under the Uniform Commercial Code (whether or not such Code is
in effect in the jurisdiction where the rights and remedies are asserted). In
addition, with respect to the Security, or any part thereof, which shall then be
or shall thereafter come into the possession or custody of XXXX or any of its
designees, agents, associates or
<PAGE>
correspondents, XXXX may sell or cause to be sold in the Borough of Manhattan,
New York City, or elsewhere, in one or more sales or parcels, at such price as
XXXX may deem best, and for cash or on credit or for future delivery, without
assumption of any credit risk, all or any of the Security, at any broker's board
or at public or private sale, in any reasonable manner permissible under the
Uniform Commercial Code (except that, to the extent permitted thereunder, the
Grantor hereby waives the requirements of said Code), and XXXX or anyone else
may be the purchaser of any or all of the Security so sold and thereafter hold
the same absolutely, free from any claim or right of whatsoever kind, including
any equity of redemption, of the Grantor, any such demand, notice or right and
equity being hereby expressly waived and released. The Grantor will pay to XXXX
all reasonable expenses (including reasonable attorneys' fees and legal expenses
incurred by any or all of XXXX) of, or incidental to, the enforcement of any of
the provisions hereof or of any of the Liabilities, or any actual or attempted
sale of any of the Security or receipt of the proceeds thereof, and for the care
of the Security and defending or asserting the rights and claims of XXXX in
respect thereof, by litigation or otherwise, including expense of insurance; and
all such expenses shall be indebtedness within the terms of this agreement.
Notwithstanding that XXXX, whether in its own behalf and/or in behalf of another
or others, may continue to hold Security and regardless of the value thereof,
the Grantor shall be and remain liable for the payment in full, principal and
interest, of any balance of the Liabilities and expenses at any time unpaid.
No delay on the part of XXXX in exercising any power or right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any power or right hereunder preclude other or further exercise thereof or the
exercise of any other power or right. The rights, remedies and benefits herein
expressly specified are cumulative and not exclusive of any rights, remedies or
benefits which any or all of XXXX may otherwise have. The Grantor hereby
waive(s) presentment, notice of dishonor and protest of all instruments included
in or evidencing the Liabilities or the Security and any and all other notices
and demands whatsoever, whether or not relating to such instruments.
No provision hereof shall be modified or limited except by a written
instrument executed by the party sought to be charged therewith, expressly
referring hereto and to the provision so modified or limited. This agreement
shall be binding upon the Grantor and its successors and assigns, and shall
inure to the benefit of XXXX and its respective successors and assigns, and
shall be governed by and construed according to the laws of the State of New
York. Unless the context otherwise requires, all terms used herein which are
defined in the New York Uniform Commercial Code shall have the meanings therein
stated.
Grantor acknowledges that the Designated Party has agreed to execute and
deliver the Designated Party Term Guaranty in reliance upon this Agreement,
among other things. In order to further induce XXXX to execute and deliver the
Designated Party Term Guaranty, Grantor agrees that, upon any assignment of the
Loans to XXXX pursuant to Section 1 of the Term Intercreditor Agreement, Grantor
will permit XXXX or its designees, at XXXX's option, to take over any or all
operations of Grantor at any of its locations, with full power to control and to
conduct any or all operations of Grantor at any of its locations, with full
power to control and to conduct any or all aspects of Grantor's operations as
XXXX may see fit, for the purposes of applying or generating cash on hand or
cash from operations or sales of inventory or assets, for the purposes of
reimbursing XXXX for
<PAGE>
amounts paid by it under or in connection with the Designated Party Term
Guaranty, including its and its designees' expenses in connection with any such
operations, until all such amounts and expenses have been fully and finally
reimbursed and paid. Grantor agrees to indemnify XXXX, its designees, and their
officers, directors, employees and agents, from and against any and all
liabilities and expenses incurred by them in such connection, except for their
gross negligence or willful misconduct.
VITAMIN SPECIALTIES CORP.
By: /s/ I. Alan Hirschfeld
----------------------------
Name:
Title:
Confidential information indicated by X's has been omitted and filed separately
with the Securities and Exchange Commission.
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID LAWS.
STOCK PURCHASE WARRANT
To Subscribe for and Purchase Common Stock of
IVC INDUSTRIES, INC.
THIS CERTIFIES that, for value received, XXXXXXXXX, a New Jersey
corporation ("XXXXXXXXX"), or its transferee(s) (XXXXXXXXX or any such
transferee being a "Holder"), is entitled to subscribe for and purchase from IVC
INDUSTRIES, INC., a Delaware corporation (hereinafter called the "Corporation"),
at the price of $2.00 per share (such price, as from time to time to be adjusted
as hereinafter provided, being the "Warrant Exercise Price"), at any such time
on or prior to the latest date determined under the following paragraph, the
number of shares (the "Shares") of Common Stock (as defined below) determined
according to Section 1 below (subject to adjustment as hereinafter provided), of
fully paid and nonassessable shares of Common Stock, $.01 par value, of the
Corporation (the "Common Stock"), subject, however, to the provisions and upon
the terms and conditions hereinafter set forth. This Warrant is issued in
conjunction with the Designated Party Term Guaranty being executed concurrently
herewith by XXXXXXXXX (the "Designated Party Term Guaranty"). This Warrant and
any warrant or warrants subsequently issued upon exchange or transfer hereof are
hereinafter collectively called the "Warrant" or "Warrants".
Holder may not exercise this Warrant prior to October 31, 2000, but may
exercise it, in whole or in part, at any time on such date or thereafter until
October 31, 2002 or any such later date as the Term Note or Loan, as defined in
the Term Loan Agreement dated as of May 1, 1998 among the Corporation, The Chase
Manhattan Bank, as Agent, and the Banks party thereto (the "Term Loan
Agreement") shall be paid in full and no longer outstanding, and the Designated
Party Term Guaranty shall have terminated without having been drawn upon, after
which this Warrant shall expire.
Section 1. Number of Shares. If the Term Note or Loan shall be outstanding
and not paid in full, the number of Shares which the Holder hereof shall be
entitled to purchase at the Warrant Exercise Price at any time shall be
determined by first comparing the XXXXXXXXXXXXXXXXXXXXXXXXXXX during each
Measuring Period against the relevant Benchmark (as such latter terms are
defined in the following two sentences). The term "XXXXXXXXXXXXXXXXXXXXXXXXXXX"
for a Measuring Period means the dollar amount of XXXXXXXXX actually made by the
Corporation, Hall Laboratories, Ltd. and International Vitamin Overseas Sales
Corp. from XXXXXXXXX and/or its affiliates during such Measuring Period of XXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXX whatsoever
<PAGE>
("XXXXXXX"). For purposes of this Section 1, the term "Measuring Period" means
one of the successive twelve-month periods of time with the first twelve month
period ending October 31, 1998, and each of the twelve month periods ending each
successive April 30 and October 31 as long as this Warrant is in force; and the
term "Benchmark" for each such Measuring Period means $24,000,000.
Then, in any case under this Section 1 where the dollar amount of
XXXXXXXXXXXXXXXXXXXXXXXXXXX in such Measuring Period is less than the Benchmark,
the Holder shall be entitled to purchase that number of Shares equal to the
dollar amount of the shortfall divided by the Warrant Exercise Price. See
Example A on Exhibit A hereto.
In any case under this Section 1, beginning with the Measuring Period
ending October 31, 1998, where the XXXXXXXXXXXXXXXXXXXXXXXXXXX for a given
Measuring Period exceeds the Benchmark, then the number of Shares which the
Holder shall otherwise be entitled to purchase under this Section 1 will be
reduced by a number of Shares ("Overage Shares") equal to (i) if the Holder is
then entitled to purchase any Shares under this Section 1, the excess, or (ii)
if the Holder is then not entitled to purchase any Shares under this Section 1,
fifty percent of the excess, of XXXXXXXXXXXXXXXXXXXXXXXXXXX over the Benchmark
for such Measuring Period, divided by the Warrant Exercise Price. See Examples B
and C on Exhibit A.
The number of Shares at any time subject to this Warrant, as determined in
accordance with this Section 1, shall be vested at the end of each respective
Measuring Period, and shall be subject to increase by any number of Shares so
determined at the end of the next succeeding Measuring Period, and subject to
reduction by any number of Overage Shares for any prior Measuring Period in
accordance with the preceding paragraph, which new number shall then be vested
in turn; and so on.
If the Term Note and Loan shall be paid in full and no longer outstanding
at any time prior to the expiration of this Warrant, the Holder shall continue
to be entitled to purchase the number of Shares as determined according to the
above paragraphs, but such number will be subject to reduction for any Overage
Shares arising under the second preceding paragraph in any Measuring Periods
occurring after such payment in full (but never less than zero); but if the
Designated Party Term Guaranty has not been drawn upon and has been terminated
in all respects, then the number of Shares vested and exercisable hereunder
shall be reduced to zero and this Warrant shall expire.
Notwithstanding any other provisions of this Warrant, if the Designated
Party Term Guaranty is drawn down in whole or in part at any time, then the
Holder shall be entitled, in addition to the Shares which it is otherwise
entitled to purchase under this Section 1, to receive at its option one Share
for each $1.00 of the amount drawn down upon the Designated Party Term Guaranty,
all of which shares shall be vested and exercisable at the time of such
drawdown.
Section 2. Exercise of Warrant.
(a) Method of Exercise. The rights represented by this Warrant may
be exercised by the Holder hereof, in whole at any time or from time to
time in part, but not
<PAGE>
as to a fractional share of Common Stock, by the surrender of this Warrant
(properly endorsed) at the office of the Corporation at 500 Halls Mills
Road, Freehold, New Jersey 07728 (or at such other agency or office of the
Corporation in the United States as it may designate by notice in writing
to the Holder hereof at the address of such Holder appearing on the books
of the Corporation), and by payment to the Corporation of the Warrant
Exercise Price in the manner described in paragraph (b) below, for each
share being purchased.
(b) The Holder may make payment in respect of the exercise of this
Warrant as follows:
(i) Cash Exercise. By payment to the Corporation of the
Warrant Exercise Price in cash or by certified or official bank
check, for each share being purchased:
(ii) Notes Exercise. By surrender to the Corporation of any
promissory notes or other obligations issued by the Corporation,
with all such notes or other obligations of the Corporation so
surrendered being credited against the Warrant Exercise Price in an
amount equal to the principal amount thereof plus the amount of any
accrued and unpaid interest thereon to the date of such surrender;
(iii)Combined Payment Method. By satisfaction of the Warrant
Exercise Price for each share being acquired in any combination of
the methods described in clauses (i) or (ii) above.
(c) Delivery of Certificates. Etc. In the event of any exercise of
the rights represented by this Warrant, a certificate or certificates for
the shares of Common Stock so purchased, registered in the name of the
Holder, shall be delivered to the Holder hereof within a reasonable time,
not exceeding ten days, after the rights represented by this Warrant shall
have been so exercised; and, unless this Warrant has expired, a new
Warrant representing the number of shares (except a remaining fractional
share), if any, with respect to which this Warrant shall not then have
been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is
issued upon exercise of this Warrant shall for all purposes be deemed to
have become the Holder of record of such shares on the date on which the
Warrant was surrendered and payment of the Warrant Exercise Price and any
applicable taxes was made, except that, if the date of such surrender and
payment is a date on which the stock transfer books of the Corporation are
closed, such person shall be deemed to have become the Holder of such
shares at the close of business on the next succeeding date on which the
stock transfer books are open.
Section 3. Adjustment of Number of Shares. Upon each adjustment of the
Warrant Exercise Price as provided in Section 4, the Holder of this Warrant
shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment, the number of shares (calculated to the nearest
tenth of a share) obtained by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto
<PAGE>
immediately prior to such adjustment and dividing the product thereof by the
Warrant Exercise Price resulting from such adjustment.
Section 4. Adjustment of Price Upon Issuance of Common Stock. The Warrant
Exercise Price shall be subject to adjustment from time to time as follows:
(a) If the Corporation shall issue, after the date hereof, any
Additional Stock (as hereinafter defined) without consideration or for a
consideration per share less than the Warrant Exercise Price in effect
immediately prior to the issuance of such Additional Stock, the Warrant
Exercise Price in effect immediately prior to each such issuance shall
forthwith be reduced to an amount equal to such lower purchase price for
such Additional Stock (or in the case of options and similar securities,
the consideration received for the option and to be received upon exercise
of such option), or, if for no consideration, $.01.
(b) "Additional Stock" as used herein shall mean any shares of
Common Stock issued (or deemed to have been issued) or rights, warrants,
options or other exchangeable securities convertible into Common Stock
(including shares of Common Stock held in the Corporation's treasury) by
the Corporation after the date hereof; provided, that, the term
"Additional Stock" shall not include any Common Stock, or any rights,
warrants, options or other exchangeable securities convertible into Common
Stock, presently existing or hereafter issued or deemed issued under the
Corporation's existing stock option and employee benefit programs.
(c) Except to the limited extent provided for in paragraph (h), no
adjustment of the Warrant Exercise Price pursuant to this Section 4 shall
have the effect of increasing the Warrant Exercise Price above the Warrant
Exercise Price in effect immediately prior to such adjustment.
(d) No adjustment in the Warrant Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least
one cent ($.0l) in the Warrant Exercise Price; provided, however, that any
adjustments which by reason of this paragraph (d) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this
paragraph (d) shall be made to the nearest one cent ($.01). In the case of
the issuance of Common Stock for cash, the consideration shall be deemed
to be the amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(e) In the case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other than cash
shall be deemed to be the fair value thereof as determined in good faith
by the Board of Directors.
(f) In the case of the issuance (whether before, on or after the
date hereof) of options to purchase or rights to subscribe for Common
Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to
<PAGE>
subscribe for such convertible or exchangeable securities, the following
provisions shall apply for all purposes of this Section 4:
(i) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability including, without limitation, the
passage of time, but without taking into account potential
antidilution adjustments) of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at
the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in
paragraph (e) and this paragraph (f)), if any, received by the
Corporation upon the issuance of such options or rights plus the
minimum exercise price provided in such options or rights (without
taking into account potential antidilution adjustments) for the
Common Stock covered thereby.
(ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability
including, without limitation, the passage of time, but without
taking into account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange
thereof, shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for
a consideration equal to the consideration, if any, received by the
Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or
accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account
potential antidilution adjustments) upon the conversion or exchange
of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner
provided in paragraph (e) and this paragraph (f)).
(iii) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable
securities, the Warrant Exercise Price, to the extent in any way
affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such
options or rights or the conversion or exchange of such securities.
(iv) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Warrant Exercise Price, to the extent
in any way affected by or computed using such options, rights or
<PAGE>
securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable securities which
remain in effect) actually issued upon the exercise of such options
or rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such
securities.
(v) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to subparagraphs (i) and
(ii) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either
subparagraph (iii) or (iv).
(g) In the event the Corporation should at any time or from time to
time after the date hereof fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of Holders of Common Stock entitled to receive a dividend or
distribution payable in additional shares of Common Stock or Common Stock
equivalents without payment of by any such Holder for the additional
shares of Common Stock or the Common Stock equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the
Warrant Exercise Price shall be appropriately decreased so that the number
of shares of Common Stock issuable upon exercise of the Warrants shall be
increased in proportion to such increase in the aggregate of shares of
Common Stock outstanding and those issuable with respect to such Common
Stock equivalents.
(h) If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such
combination, the Warrant Exercise Price shall be appropriately increased
so that the number of shares of Common Stock issuable upon exercise of the
Warrants shall be decreased in proportion to such decrease in outstanding
shares.
(i) In case the Corporation shall take a record of the Holders of
its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, options or
convertible securities convertible or exchangeable into Common Stock, or
(ii) to subscribe for or purchase Common Stock, options or securities
convertible or exchangeable into Common Stock, then such record date shall
be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be,
provided that such shares of Common Stock, options or securities
convertible or exchangeable into Common Stock shall in fact have been
issued or sold.
(j) If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere
in this Section 4), provision shall be made so that the
<PAGE>
Holders of the Warrants shall thereafter be entitled to receive upon the
basis and the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon exercise of
such Warrants the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a Holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 4 with respect to the
rights of the Holders of the Warrants after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Warrant Exercise Price then in effect and the number of shares issuable
upon exercise of the Warrants) shall be applicable after that event as
nearly equivalent as may be practicable.
(k) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, exchange or
conversion of Common Stock or other securities, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action dilute the voting power or rights to which the
Holder is or would be entitled under this Warrant or any Shares which it
may be entitled to purchase hereunder, or avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holders of the Warrants against
impairment.
(l) If any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the Corporation
with and into another corporation, or the sale of all or substantially all
of its assets to another corporation, shall be effected while this Warrant
is outstanding in such a manner that Holders of shares of Common Stock
shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such
reorganization or reclassification, consolidation, merger or sale, lawful
and adequate provision shall be made whereby each Holder shall thereafter
have the right to receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore receivable upon exercise of such Warrant, such shares of
stock, securities or assets as may be issued or payable with respect to or
in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore so
receivable had such reorganization or reclassification, consolidation,
merger or sale not taken place, and in such case appropriate provision
shall be made with respect to the rights and interests of the Holders of
the Warrants to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Warrant Exercise Price and of
the number of shares of Common Stock issuable upon thereof) shall
thereafter be applicable, as nearly as may be possible, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of the Warrants. The Corporation shall not effect any such
consolidation, merger or sale unless prior thereto or simultaneously
therewith the survivor or successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument
executed and
<PAGE>
mailed or delivered to each Holder of Warrants, the obligation to deliver
to such Holder of Warrants such shares of stock, securities or assets as,
in accordance with the foregoing provisions, such Holder of Warrants may
be entitled to receive, and containing the express assumption of such
successor corporation of the due and punctual performance and observance
of every provision of the Warrants to be performed and observed by the
Corporation and of all liabilities and obligations of the Corporation
hereunder with respect to the Warrants.
(m) Upon the occurrence of each adjustment or readjustment of the
Warrant Exercise Price pursuant to this Section 4, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each Holder of
Warrants a statement, setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
Holder of Warrants, furnish or cause to be furnished to such Holder a like
certificate setting forth (i) such adjustment and readjustment, (ii) the
Warrant Exercise Price at the time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which at
the time would be received upon the exercise of such Warrants.
(n) The Corporation will at all times reserve and keep available out
of its authorized Common Stock or its treasury shares, solely for the
purpose of issue upon the exercise of this Warrant as herein provided,
such number of shares of Common stock as shall then be issuable upon the
exercise of this Warrant. The Corporation covenants that all shares of
Common Stock which shall be so issued shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, and, without limiting the generality of
the foregoing, the Corporation covenants that it will from time to time
take all such action as may be requisite to assure that the par value per
share of the Common Stock is at all times equal to or less than the
effective Warrant Exercise Price. The Corporation will take all such
action as may be necessary to assure that all such shares of Common Stock
may be so issued without violation of any applicable law or regulation, or
of any requirements of any national securities exchange upon which the
Common Stock of the Corporation may be listed. The Corporation will not
take any action which results in any adjustment of the Warrant Exercise
Price if the total number of shares of Common Stock issued and issuable
after such action upon exercise of the Warrants would exceed the total
number of shares of Common Stock then authorized by the Corporation's
Certificate of Incorporation. The Corporation has not granted and will not
grant any right of first refusal with respect to shares issuable upon
exercise of this Warrant, and there are no preemptive rights associated
with such shares.
(o) The issuance of certificates for shares of Common Stock upon
exercise of the Warrants shall be made without charge to the Holders of
such Warrants for any issuance tax in respect thereof provided that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of any Holder of the Warrants.
<PAGE>
(p) The Corporation will at no time close its transfer books against
the transfer of the shares of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant.
(q) As used herein the term "Common Stock" shall mean and include
the Common Stock, $.01 par value, of the Corporation as presently
authorized _____________________, and also any capital stock of any class
of the Corporation hereinafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the Holders thereof to
participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and any other common stock or such capital stock arising from
any reorganization, reclassification, exchange, consideration or merger,
in order to maintain the voting and other rights of Holders relative to
all other common or capital stock of the Corporation or any successor. As
of the date hereof, 17,127,392 shares of Common Stock are outstanding, all
of which have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth on Schedule I hereto, there are no
rights, warrants, options or other exchangeable securities convertible
into Common Stock (including shares of Common Stock held in the
Corporation's treasury).
Section 5. Notices of Record Dates. In the event of
(1) any taking by the Corporation of a record of the Holders of any
class of securities for the purpose of determining the Holders thereof who
are entitled to receive any dividend or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(2) any capital reorganization of the corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any transfer of all or substantially all the assets of the
Corporation to or consolidation or merger of the Corporation with or into
any other corporation, or
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then and in each such event the Corporation will give notice to the Holder of
this Warrant specifying (i) the date on which any such record is to be taken for
the purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the Holders of record of Common
Stock will be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given at least 30 days and not more than 90
days prior to the date therein specified.
<PAGE>
Section 6. Registration Rights. The rights of the Holder hereof with
respect to the registration under the Securities Act of the shares of Common
stock issuable upon the exercise of this Warrant are set forth in the
Registration Rights Agreement, dated as of May 1, 1998, between the Corporation
and XXXXXXXXX.
Section 7. No Stockholder Rights or Liabilities. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Corporation. No provision hereof, in the absence of affirmative action by
the Holder hereof to purchase shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Warrant Exercise Price or as a stockholder of
the Corporation, whether such liability is asserted by the Corporation or by
creditors of the Corporation.
Section 8. Investment Representation and Legend. The Holder, by acceptance
of the Warrant, represents and warrants to the Corporation that it is acquiring
the Warrant and the shares of Common Stock (or other securities) issuable upon
the exercise hereof for investment purposes only and not with a view towards the
resale or other distribution thereof and agrees that the Corporation may affix
upon this Warrant the following legend:
"Neither this Warrant nor the shares issuable upon the exercise of
this Warrant have been registered under the Securities Act of 1933, as
amended, or any applicable state securities laws and may not be sold or
transferred in the absence of registration or an exemption therefrom under
said laws."
The Holder, by acceptance of this Warrant, further agrees that the Corporation
may affix the following legend to certificates for shares of Common Stock issued
upon exercise of this Warrant:
<PAGE>
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THEY HAVE BEEN REGISTERED UNDER SAID LAWS OR UNLESS IN THE OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION AN EXEMPTION FROM REGISTRATION
IS AVAILABLE."
Section 9. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as
to indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Corporation, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 10. Notices. All notices, requests and other communications
required or permitted to be given or delivered hereunder shall be in writing,
and shall be delivered, or shall be sent by certified or registered mail,
postage prepaid and addressed, if to the Holder to such Holder at the address
shown on such Holder's Warrant or Warrant Shares or at such other address as
shall have been furnished to the Corporation by notice from such Holder. All
notices, requests and other communications required or permitted to be given or
delivered hereunder shall be in writing, and shall be delivered, or shall be
sent by certified or registered mail, postage prepaid and addressed to the
Corporation at such address as shall have been furnished to the Holder by notice
from the Corporation.
Section 11. Transfers. XXXXXXXXX or any transferee or Holder of this
Warrant may freely transfer its interests in all or any part of this Warrant at
any time, but prior to the date three years from the date of this Warrant, no
transfers of this Warrant may be made except if the transferee is an affiliate
of the transferor, or if the Corporation shall otherwise consent.
IN WITNESS WHEREOF, IVC INDUSTRIES, INC. has executed this Warrant on and
as of the day and year first above written.
Dated: As of May 1, 1998 IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
Name:
Title:
<PAGE>
SUBSCRIPTION AGREEMENT
To:
Dated:
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase [_____] shares of Common
Stock covered by such Warrant, and makes payment herewith in full therefor at
the price per share provided by such Warrant [specify method of payment as
provided in the Warrant].
Signature
-----------------------------------
--------------------------------------------
Address
-----------------------------------
--------------------------------------------
<PAGE>
EXHIBIT A
Example A: At October 31, 1998
Actual XXXXXXXXX Prior Twelve Months: $20 million
Less Base Period XXXXXXXXXXXXXXXXXXXX: $24 million
Shortfall $4 million
Warrant Allows the Purchase of 2,000,000 Shares at $2.00
- --------------------------------------------------------------------------------
Example B: At April 30, 1999
Actual XXXXXXXXX Prior Twelve Months: $25 million
Less Base Period XXXXXXXXXXXXXXXXXXXX: $24 million
Overage $1 million
Overage Shares equal 500,000 shares (at $2.00)
Thus, starting with the Example A balance, the new Warrant balance equals
1,500,000 Shares as of April 30, 1999
- --------------------------------------------------------------------------------
Example C: At October 31, 1999
Actual XXXXXXXXX Prior Twelve Months: $28 million
Less Base Period XXXXXXXXXXXXXXXXXXXX: $24 million
Period Overage $4 million
Of Period Overage, $3,000,000, or 1,500,000 Shares (at $2.00), is applied to
Warrant balance, bringing the cumulative Warrant balance to zero.
Therefore, Period Overage $4 million
Less Period Overage applied $3 million
Surplus $1 million
Surplus Carried Forward to the next period: 50% of $1 million or
$0.5 million
Overage Shares of 250,000 Shares (at $2.00) are carried forward to next period.
CONFIDENTIAL INFORMATION INDICATED BY X'S HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
REGISTRATION RIGHTS AGREEMENT
dated as of May 1, 1998
between
IVC INDUSTRIES, INC.
AND
XXXXXXXXXXXXXXXXXXXX
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of May 1, 1998, between IVC
Industries, Inc., a Delaware corporation (the "Company"), and XXXXXXXX., a New
Jersey corporation ("Purchaser"). This Agreement is made pursuant to the Stock
Purchase Warrant, of even date herewith (the "Warrant") between the Company and
the Purchaser. The Company has agreed to provide the Purchaser and any Permitted
Transferees of Registrable Securities (as hereinafter defined) that may be
issued, from time to time, the registration rights with respect to the
Registrable Securities, as set forth in this Agreement. Capitalized terms used
herein without definition shall have the meanings set forth in the Warrant.
The parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized terms shall have the
following meanings:
"Commencement Date" shall have the meaning assigned to such term in
Section 3 hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Demand Registration" shall have the meaning assigned to such term in
Section 3 hereof.
"Holder" shall mean the Purchaser, or any Permitted Transferee permitted
by the terms of the Warrant, who is the owner of the Registrable Securities.
"Permitted Transferee" means any transferee of the Purchaser permitted by
the terms of the Warrant.
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint state company trust, unincorporated
organization, joint venture, a government authority or other entity of whatever
nature.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement, and all other amendments and supplements
to the Prospectus, including post-effective amendments to the Registration
Statement of which such Prospectus is a part, and all material incorporated by
reference in such Prospectus.
"Registrable Securities" shall mean the Securities, but only so long as
they remain Restricted Securities.
"Registration Statement" means any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the
<PAGE>
Prospectus, amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits, and all material incorporated by
reference in such Registration Statement.
"Restricted Securities" means the Registrable Securities unless and until,
in the case of any such Securities, (i) they have been effectively registered
under the Securities Act and disposed of in accordance with the Registration
Statement covering them, (ii) they are distributed to the public pursuant to
Rule 144 (or any similar provision then in force) under the Securities Act, or
(iii) they are otherwise freely transferable without restriction under the
Securities Act, and Purchaser has received an opinion of its legal counsel to
such effect.
"Securities" shall mean the shares of Common Stock issued or issuable from
time to time to Purchaser or its Permitted Transferees upon exercise of the
Warrant.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2. Securities Subject to this Agreement. The Securities entitled to the
benefits of this Agreement are the Registrable Securities.
3. Demand Registration.
(a) Request for Registration. Subject to the provisions of Section 3(b)
hereof and during the period commencing at any time after the earlier to occur
of (i) six months following the effective date of the first Registration
Statement of a public offering of securities of the Company, or any successor
entity to the Company through merger, reorganization, exchange, transfer or
otherwise, and (ii) October 31, 2000, through and including the date five years
after the expiration date of the Warrant, the Holder may make a written request
to the Company for registration under and in accordance with the provisions of
the Securities Act of up to all of the Registrable Securities owned by the
Holder (a "Demand Registration").
(b) Number of Registrations. The Holder is entitled to two (2)
Demand Registrations. The Holder agrees that if the Company reasonably
determines that there are material developments which require the filing of a
post-effective amendment to the Registration Statement, then the Holder agrees
to refrain from selling any Registrable Securities until the post-effective
amendment is declared effective. The Company agrees to file and attempt to have
declared effective such post-effective amendment as soon as possible. The
Company shall not be deemed to have effected a Demand Registration unless and
until such Demand Registration is declared effective.
(c) Priority on Demand Registrations. If the managing underwriter of
a Demand Registration (or in the case of a Demand Registration not being
underwritten, the Holder) advises the Company in writing that in its opinion the
principal amount and/or number of Securities proposed to be sold in such
offering cannot be sold without resulting in an adverse effect on such offering,
the Company will include in any such registration only the number of securities
which, in the opinion of such underwriter (or the Holder, as the case may be)
can be
<PAGE>
sold; provided, that all Registrable Securities which the Holder has requested
to be included in such Demand Registration pursuant to this Section 3 are not so
included, the Holder shall be entitled to any additional Demand Registration
hereunder (with all expenses of registration relating to such additional Demand
Registration to be borne by the Company) on the same terms and conditions as
would have applied to the Holder had such earlier Demand Registration not been
made.
(d) Selection of Underwriters and Counsel. If any Demand
Registration is an underwritten offering with respect to any issue of
Registrable Securities, the Holder will select the investment banker or bankers
and manager or managers to administer the offering and one counsel to the
sellers of such Registrable Securities in such offering; provided, that such
investment bankers and managers shall be of nationally recognized standing and
reasonably satisfactory to the Company. The Holder shall pay all underwriting
discounts and commissions of such investment banker or bankers and manager or
managers. The Company shall pay the reasonable fees and expenses of one such
counsel to the sellers of such Registrable Securities incurred in connection
with reviewing and otherwise acting in connection with the Registration
Statement relating to such underwritten public offering.
4. Piggyback Registration Rights.
(a) If the Company at any time or from time to time subsequent to the date
of this Agreement proposes to register any securities under the Securities Act
either for its own account or the account of any selling stockholders (other
than pursuant to Section 3 and other than pursuant to a registration statement
on Forms S-4 or S-8 or any successor or similar forms), it will give written
notice to the Holder of its intention at least thirty (30) days in advance of
the filing of any registration statement with respect thereto. Upon the written
request of the Holder given within fifteen (15) days after receipt of such
notice, the Company, subject to Section 4(b) below, will cause such number of
the Registrable Securities requested by the Holder to be registered to be so
registered pursuant to such registration statement.
(b) Underwritten Offerings.
(i) In the case of an underwritten offering by the Company of
securities, the Company shall, with respect to Registrable Securities that
the Holder then desires to sell, enter into an underwriting agreement with
the same underwriters engaged by the Company with respect to securities
being offered by the Company and cause such underwriters to include in any
such underwriting all of the Registrable Securities that the Holder then
desires to sell; provided, however, that such underwriting agreement is in
substantially the same form as the underwriting agreement that the Company
enters into in connection with the primary offering it is making.
(ii) If the managing underwriter with respect to an offering
pursuant to this Section 4 requests in writing that the number of shares
of Registrable Securities of the Holder that are entitled to be registered
pursuant to this Section 4 be reduced because in the judgment of the
managing underwriter the offering would be materially and adversely
affected, then the shares of Registrable Securities of the Holder that it
wishes to register
<PAGE>
pursuant to this Section 4 shall be reduced by such amount as the managing
underwriter may determine in writing so as to not materially and adversely
affect the proposed offering.
5. Information. Upon making a request pursuant to Section 3 or 4, the
Holder shall specify the number of shares of Registrable Securities to be
registered and shall also specify the intended method of disposition thereof;
provided, however, that if the Holder specifies one particular type of
underwritten offering, such method of disposition shall be the type of
underwritten offering or a series of such underwritten offerings used in
connection with the disposition of the Securities as the Company may elect
during the time period the Registration Statement is effective.
The Company may require the Holder to furnish to the Company such
information regarding itself and the distribution of Registrable Securities as
the Company may from time to time reasonably request in writing in order to
comply with the Securities Act. The Holder agrees to notify the Company as
promptly as practicable of any inaccuracy or change in information it has
previously furnished to the Company.
6. Registration Procedures. If and whenever the Company is required by the
provisions of Section 3 or 4 to effect a registration under the Securities Act,
the Company will, at its expense, as expeditiously as practicable, but in no
event later than 30 days after receipt of a request from a Holder pursuant to
the terms of Section 3 or 4:
(a) In accordance with the Securities Act and the rules and regulations of
the Commission, prepare and file with the Commission a Registration Statement in
the form of an appropriate registration statement with respect to the
Registrable Securities and use its best efforts to cause such Registration
Statement to become and remain continuously effective until all of the
Registrable Securities covered by such Registration Statement have been sold in
accordance with the intended methods of disposition of the seller or sellers set
forth in such Registration Statement. The Company shall prepare and file with
the Commission such amendments to such Registration Statement and supplements to
the Prospectus contained therein as may be necessary to keep such Registration
Statement effective and such Registration Statement and Prospectus accurate and
complete during such period;
(b) Furnish to the Holder such reasonable number of copies of the
Registration Statement and Prospectus and such other documents as the Holder may
reasonably request in order to facilitate the public offering of the Registrable
Securities;
(c) Use its best efforts to register or qualify the Securities covered by
such Registration Statement under such state securities or blue sky laws of such
jurisdictions as the Holder may reasonably request, provided, however, that the
Company shall not be obligated to file any general consent to service of process
or to qualify as a foreign corporation in any jurisdiction in which it is not so
qualified or to subject itself to taxation in connection with any such
registration or qualification of such Securities;
<PAGE>
(d) Notify the Holder, promptly after receiving notice thereof, of the
date and time when such Registration Statement and each post-effective amendment
thereto has become effective or a supplement to any Prospectus forming a part of
such Registration Statement has been filed;
(e) Notify the Holder promptly of any request by the Commission for the
amending or supplementing of such Registration Statement or Prospectus or for
additional information;
(f) Prepare and file with the Commission, promptly upon the request of the
Holder, the Registration Statement and any amendments or supplements to such
Registration Statement or Prospectus which, in the reasonable opinion of counsel
for the Holder, is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of the Securities by
such Holder or to otherwise comply with the requirements of the Securities Act
and such rules and regulations;
(g) Prepare and promptly file with the Commission and promptly notify the
Holder of the filing of such amendments or supplements to such Registration
Statement or Prospectus as may be necessary to correct any statements or
omissions if, at the time when a Prospectus relating to such Securities is
required to be delivered under the Securities Act, any event has occurred as the
result of which any such Prospectus or any other Prospectus then in effect may
include an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(h) Advise the Holder, promptly after receiving notice or obtaining
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such Registration Statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(i) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make generally available to the Company's
security holders earnings statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than forty-five (45) days after the end of any
twelve (12) month period (or ninety (90) days, if such a period is a fiscal
year) beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of a Registration Statement; and
(j) Not file any amendment or supplement to such Registration Statement or
Prospectus to which the Holder has objected on the grounds that such amendment
or supplement does not comply in all material respects with the requirements of
the Securities Act or the rules and regulations thereunder, after having been
furnished with a copy thereof at least three business days prior to the filing
thereof unless the Company shall have obtained an opinion of counsel that such
amendment is required under the Securities Act or the rules or regulations
adopted thereunder in connection with the distribution of Securities by the
Company or the Holder.
<PAGE>
7. Expenses of Registration. All expenses of the Company incident to the
Company's performance of or compliance with the provisions of Sections 3, 4, 5
and 6 of this Agreement shall be borne by the Company, including without
limitation:
(a) All registration and filing fees;
(b) Fees and expenses of compliance with all securities or blue sky laws
(including fees and disbursements of counsel for the Company in connection with
blue sky qualifications of the Registrable Securities; provided, however, that
the Company shall not be required to consent to general service of process in
any such state);
(c) Printing, messenger, telephone and delivery expenses; and
(d) Fees and disbursements of counsel for the Company and its independent
auditors.
Nothing in this Section 7 shall be deemed to require the Company to pay or
bear the expenses of the Holder's attorney or accountants or any other personal
expenses or any underwriting discounts, selling commissions or similar fees if
any registration pursuant hereto results in an underwritten public offering of
all or any portion of the Registrable Securities.
8. Indemnification and Contribution.
(a) Indemnification by the Company. Whenever, pursuant to Section 3 or 4,
a Registration Statement relating to the Registrable Securities is filed under
the Securities Act, the Company will indemnify and hold harmless the Holder each
of its officers, directors and employees, and each person, if any, who controls
the Holder (collectively, the "Holder Indemnitee" and, individually, a "Holder
Indemnitees"), against any and all losses, claims, damages or liabilities, joint
or several, to which such Holder Indemnitees may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, or Prospectus contained therein, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Holder Indemnitee for all legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action.
(b) Indemnification by Holder. The Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who has signed the
Registration Statement and each other person, if any, who controls the Company,
within the meaning of the Securities Act (collectively, the "Company
Indemnitees" and, individually, a "Company Indemnitee") against all losses,
claims, damages or liabilities, joint or several, to which such Company
Indemnitees may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such Registration Statement, or Prospectus
contained therein, or any amendment or supplement thereto, or arise out
<PAGE>
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only if, and to the extent that, such statement or
omission was in reliance upon and in conformity with written information
furnished to the Company by the Holder specifically for use in the preparation
thereof.
(c) Indemnification Procedures. Promptly after receipt by a Holder
Indemnitee or a Company Indemnitee (collectively, "Indemnitees" and,
individually, an "Indemnitee") under Section 8(a) or 8(b) of notice of the
commencement of any action, such Indemnitee will, if a claim in respect thereof
is to be made against the indemnifying party under such clause, notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any Indemnitee otherwise than under such
clauses. In case any such action shall be brought against any Indemnitee, and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such Indemnitee of its
election to assume the defense thereof, the indemnifying party shall not be
liable to such Indemnitee under such clause for any legal or other expenses
subsequently incurred by such Indemnitee in connection with the defense thereof
other than reasonable costs of investigation; provided, however, that the
Indemnitee shall have the right to employ one counsel to represent such
Indemnitee if, in the reasonable judgment of such Indemnitee it is advisable for
such party to be represented by separate counsel because separate defenses are
available, or because a conflict of interest exists between such indemnified and
indemnifying party in respect of such claim, and in that event the fees and
expenses of such separate counsel shall be paid by the indemnifying party.
Notwithstanding the foregoing, if the Company is an Indemnitee, the Company
shall designate the one counsel, and in all other circumstances, the one counsel
shall be designated by a majority in interest based upon the Registrable
Securities of the Indemnitees.
For purposes of this Section 7 the terms "control," and "controlling
person" have the meanings given to such terms under the Securities Act.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, or is insufficient to hold harmless an Indemnitee, then the
indemnifying party shall contribute to the amount paid or payable by the
Indemnitee as a result of such losses, claims, damages liabilities or expenses
(i) in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the Indemnitee on the
other from the registration or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, or provides a lesser sum to the
Indemnitee than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the Indemnitee on the other but also the
relative fault of the indemnifying party and the Indemnitee as well as any other
relevant equitable considerations. Notwithstanding the foregoing, no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
<PAGE>
9. Amendment and Modification. This Agreement may be amended, modified or
supplemented in any respect only by written agreement by the Company and the
Holder.
10. Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New Jersey, without giving effect to
the choice of law principles thereof.
11. Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of this Agreement, including that provision, in any
other jurisdiction.
12. Notices. All notices and other communications hereunder shall be in
writing and, unless otherwise provided herein, shall be deemed duly given if
delivered personally or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses or (at such other address
for the party as shall be specified by like notice):
(a) If to the Company:
IVC Industries, Inc.
500 Halls Mill Road
Freehold, New Jersey 07728
Attention: I. Alan Hirschfield
or as the Company shall designate to the Holder in writing,
with a simultaneous copy to:
IVC Industries, Inc.
500 Halls Mill Road
Freehold, New Jersey 07728
Attention: E. Joseph Edell
(b) If to the Holder:
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
or as the Holder shall designate to the Company in writing,
with a simultaneous copy to:
<PAGE>
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
13. Headings; Execution in Counterparts. The headings and captions
contained herein are for convenience of reference only and shall not control or
affect the meaning or construction of any provision hereof. This Agreement may
be executed in any number of counterparts, each of which shall be deemed to be
an original and all of which together shall constitute one and the same
instrument.
14. Entire Agreement. This Agreement, including any exhibits hereto and
the documents and instruments referred to herein and therein, embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
representations, warranties, covenants or undertakings other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
15. Attorneys' Fees. If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover such reasonable attorneys fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled, as may be ordered in connection with such
proceeding.
16. Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their successors and assigns.
IN WITNESS WHEREOF, this Agreement has been signed by each of the parties
hereto as of this 1st day of May, 1998.
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
Name:
Title:
<PAGE>
XXXXXXXXXXXXXX
By XXXXXXXXXXXXXXX
Name:
Title:
AGREEMENT
This Agreement is being made this 2nd day of June, 1998
BY AND BETWEEN: IVC INDUSTRIES, INC.
(ID#
having an address at 500 Halls
Mill Road, Freehold, New Jersey
07728 (hereinafter referred to
as the "Seller)
AND : THE NAVESINK GROUP
(ID# )
having an address at 49 Buena
Vista Road, Rumson, New Jersey
07760 (hereinafter referred to
as the "Purchaser").
W I T N E S S E T H :
1. WHEREAS Seller is the owner in fee simple of land and building
situated in the Township of Freehold and the Township of Howell, County of
Monmouth and State of New Jersey, known as 569 Halls Mill Road, Freehold, New
Jersey, and also shown on the tax map of the Township of Freehold as Block 79,
Lots 2.01, 3 and 3Q and also shown on the tax map of the Township of Howell as
Block 164, Lot 18.01 (the "Property"); and
NOW, THEREFORE, in consideration of the mutual promises hereinafter
set forth and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. SUBJECT OF CONVEYANCE.
Seller hereby agrees to sell and convey, and Purchaser hereby
agrees to purchase, the following, all of which shall be deemed to be included
in and subject to all terms and conditions set forth in this Agreement:
(i) the Property; and
<PAGE>
(ii) all right, title and interest, if any, of the Seller in
and to those certain improvements, fixtures, equipment, furniture and other
personal property affixed to or appurtenant to the Property, if any.
(iii) all right, title and interest, if any, of the Seller in
and to any land lying in the bed of any public street, road or right of way, in
front of the Property to the center line thereof; and
2. DEFINITIONS OF CERTAIN TERMS.
For purposes of this Agreement, unless the context otherwise
requires:
"Cash Payment" is Four Million and 00/100 ($4,000,000.00)
Dollars, subject to adjustment as provided herein.
"Closing" shall mean the date on which the Deed to the
Property shall be delivered and title thereto conveyed to Purchaser.
"Closing Date" shall mean a date (excluding Saturdays, Sundays
or legal holidays) which is 30 days following the end of the Inspection Period.
Time is not of the essence for the initial date of the Closing Date, and neither
Purchaser nor Seller may make time of the essence until after the initial
Closing Date.
"Deed" shall mean a bargain and sale deed with covenants
against grantor's acts in proper statutory form for recording.
"Deposit" is Twenty-Five Thousand and 00/100 ($25,000.00)
Dollars upon signing of this Agreement and an additional Seventy-Five Thousand
and 00/100 ($75,000.00) Dollars twenty-one (21) days thereafter.
"Escrow Agent" is Wilentz, Goldman & Spitzer.
"Execution Date" is the date set forth on the first page of
this Agreement.
2
<PAGE>
"Government Authorities" shall mean any agency, board, bureau,
commission, department or body of any municipal, county, state or federal
government unit, or any subdivision thereof, having, asserting or acquiring
jurisdiction over all or any part of the Property or the management, operation,
use or improvement thereof.
"Hazardous Substance" means any substance which is listed as
"hazardous" or "toxic" in the regulations implementing the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 et seq., the Resource Conservation and Recovery Act ("RCRA") 42
U.S.C. Section 6901 et seq., or under applicable New Jersey Law.
"Inspection Period" is the period commencing on the Execution
Date (unless this Agreement has been terminated by either party for some reason
permitted herein) and ending at midnight on the 60th day following the Execution
Date.
"ISRA" is the Industrial Site Recovery Act, N.J.S.A. 13.1K-6
et seq., the regulations promulgated thereunder and any amending or successor
legislation and regulations.
"NJDEP" is the New Jersey Department of Environmental
Protection.
"Permitted Encumbrances" is as defined in Section 5.
"Tests and Studies" is as defined in Section 3.
"Title Company" shall mean any title company licensed to do
business in the State of New Jersey and reasonably acceptable to the Purchaser.
3
<PAGE>
3. INSPECTION PERIOD: PURCHASER'S RIGHT OF INSPECTION PRIOR TO
CLOSING
(a) During the Inspection Period, Purchaser, at its sole
expense, shall have the right, but not the obligation, to perform Tests and
Studies (as hereinafter defined) and shall have the right to inspect the
environmental condition of the Property. Said inspection shall be satisfactory
to Purchaser in its sole discretion. If the results of Purchaser's inspections
("Tests and Studies") reveal conditions which were not previously known to
Purchaser which, are not compatible with or, in the Purchaser's sole judgment
and discretion either materially impair the value of the Property or are
inconsistent with Purchaser's plans for the development of the Property as
referred to in the Lease identified on Exhibit C attached hereto, the Purchaser
shall have the right to terminate this Agreement by written notice to Seller
given within the Inspection Period. In addition to the above rights, Purchaser
shall have the absolute right to terminate this Agreement without reason by
written notice delivered to Seller within twenty-one (21) days of the date of
this Agreement. In the event Purchaser terminates this Agreement, Purchaser
shall be entitled to the return of the Deposit together with any interest earned
thereon, and this Agreement shall be null and void and the parties hereto shall
be relieved of all further obligations hereunder except as otherwise provided
herein.
(b) During the Inspection Period Purchaser, its agents and
contractors, shall have the right to enter upon the Property and perform (or
cause to be performed) tests, including a Phase I environmental study,
investigations and studies of or related to the Property including, but not
limited to, soil borings, ground water investigation, percolation tests,
surveys, architectural, engineering, environmental and access studies and other
tests, investigations or studies as Purchaser, in its sole discretion,
determines is necessary or desirable to satisfy Purchaser of the feasibility of
owning and using the Property (collectively the "Tests and Studies").
Additionally, the Purchaser shall have complete access to the information in
Seller's possession or in the possession of Seller's consultants, regarding the
environmental condition of the Property and will be provided the opportunity to
inspect and examine to its satisfaction all permits related to the facility,
including but not limited to environmental and operational permits. During the
4
<PAGE>
Inspection Period Purchaser will have the opportunity to independently
investigate, analyze and appraise the value of the Property. Purchaser's access
to such information, along with Purchaser's right to independently investigate,
analyze and appraise the value of the Property shall be included in the
definition of "Tests and Studies". Purchaser shall not be required to supply
Seller with copies of the results of the Tests and Studies.
(c) Purchaser shall repair and restore any portion of the
surface of the Property disturbed by Purchaser, its agents or contractors during
the conduct of any of the Tests and Studies to substantially the same condition
as existed prior to such disturbance. Seller shall cooperate with Purchaser in
facilitating the Tests and Studies at no cost or expense to Seller.
(d) Purchaser shall defend, indemnify and hold harmless Seller
from and against any and all claims asserted against or incurred by the Seller
as a result of the inspection rights afforded the Purchaser herein including,
but not limited to, injury to or death of persons, or damage to or loss of
property, caused by the Purchaser or Purchaser's agents or representatives in
connection with the inspection rights afforded to the Purchaser herein.
4. PURCHASE PRICE AND PAYMENT.
Purchaser agrees to pay to Seller as and for the purchase
price for the Property the sum of Four Million One Hundred and 00/100
($4,100,000.00) Dollars in the manner following:
5
<PAGE>
(a) By bank, cashier's or certified check payable on its
face to the order of Wilentz, Goldman & Spitzer,
escrowee, upon the execution of this Agreement, receipt
of which, subject to collection, is acknowledged, to be
held in escrow by Seller's attorneys, Wilentz, Goldman &
Spitzer (herein the "Escrow Agent") in an interest
bearing account, with the interest to accrue for the
benefit of the party ultimately receiving the deposit
(the "Deposit"): $ 100,000.00
(b) The balance, by a bank, certified or cashier's check
drawn on a member bank of the New York Clearing House,
or, if Seller so requests, by federal funds, or by wire
transfer of federal funds (the "Cash Payment"), the sum
of: $4,000,000.00
-------------
TOTAL $4,100,000.00
5. MATTERS TO WHICH THIS SALE IS SUBJECT.
The Property is being sold and conveyed subject to any lien
for municipal real estate taxes, assessments or utilities that are not yet due
and payable and any easements or restrictions that do not reasonably interfere
with the intended use or operation or impair the value of the Property
(collectively the "Permitted Encumbrances").
6. ADJUSTMENTS.
The items listed in this Section shall be apportioned between
Seller and Purchaser on the Closing Date. All apportionment shall be made as of
midnight on the date preceding the Closing Date, except those items not capable
of determination on the Closing Date or which are expressly provided to be
determined on a subsequent date, which shall be adjusted after the Closing Date,
although computed as of midnight on the date preceding the Closing Date.
(a) Purchaser shall receive a credit against the purchase
price at Closing in an amount equal to the New Jersey Realty Transfer Tax.
(b) To the extent that the apportionments and
6
<PAGE>
adjustments in this paragraph are not based on final figures at Closing or
calculated erroneously or omitted, the applicable provisions of this Article
shall survive Closing, corrected after Closing, and the party entitled to
reimbursement hereunder shall promptly be paid the sums due upon demand.
7. SELLER'S REPRESENTATIONS.
Seller hereby represents that the following are true as of the
date hereof:
(a) There are no suits or litigation currently pending, or, to
the knowledge of Seller, threatened in writing, against Seller or with respect
to the Property.
(b) There are no leases, service contracts, union contracts or
employment agreements affecting the Property or the operation thereof which
would be an obligation of Purchaser, except as otherwise set forth on Exhibit
"C" annexed hereto and made a part hereof.
(c) Seller is a duly organized and validly existing
corporation under the laws of the State of Delaware and is duly authorized to
transact business in the State of New Jersey.
(d) To the best of Seller's knowledge, no parties other than
the tenants disclosed on Exhibit "C" have any rights in the Property.
(e) Seller is the sole owner of the Property and has full
power, authority and right to execute, deliver and perform this Agreement.
(f) All of the improvements, fixtures and articles of personal
property included in the sale, if any, subject to the terms of the lease set
forth in Exhibit C, are owned by the Seller, free and clear from all liens,
claims, and encumbrances.
(g) There are no pending proceedings for the taking of any or
all of the Property by condemnation or eminent domain, and to the best of
Seller's knowledge no such proceeding
7
<PAGE>
is about to be commenced.
(h) Seller is not a "foreign person" as defined in Section
1445(f)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). If
Seller fails or refuses to deliver to Purchasers at the closing a certificate
evidencing that Seller is not a "foreign person", or if Seller is a "foreign
person", then Purchasers shall be entitled to withhold from the Purchase Price a
tax equal to ten percent of the Purchase Price, as required by Section 1445 of
the Code.
8. SELLER'S COVENANTS.
Seller covenants and agrees that, between the date hereof and
the Closing Date, it shall perform or observe the following with respect to the
Property:
(a) Seller will not enter into any new leases with respect to
the Property, or any modifications, extensions or renewal of any current leases.
(b) Seller shall not voluntarily cause or permit the Property,
or any interest therein, to be alienated, mortgaged, liened, encumbered or
otherwise be transferred between the date hereof and the Closing Date.
(c) Seller shall maintain the Property during the term of this
Agreement.
(d) No fixtures, equipment or personal property included in
this sale, if any, shall be removed from the Property by Seller.
(e) Except as otherwise expressly provided in this Agreement,
all notices of violations of law, ordinances, orders or requirements issued
prior to the date of this Agreement by any governmental authority having
jurisdiction over the Property shall be removed by the Seller prior to closing.
(f) Additionally, Seller shall be responsible for the payment
of any fines or penalties for any violations of laws, statutes, ordinances,
codes, rules, regulations, requirements, or executive mandates arising prior to
the Closing Date. This
8
<PAGE>
provision shall survive closing of title.
(g) Seller agrees to provide Purchaser with a list of reports
authored by Seller's environmental consultants in connection with the
environmental condition of the Property. The list of reports shall be provided
to the Purchaser within ten (10) days from the date of this Agreement.
(h) Seller shall furnish Purchaser a copy of whatever back
title it may have in its possession within 10 days following the Execution Date.
(i) Seller shall deliver possession of the Property to
Purchaser on the Closing Date in the condition required by this Agreement and in
accordance with the terms, covenants and conditions of this Agreement.
(j) Without limiting the other rights of Purchaser, Seller
shall permit Purchaser and its agents and experts full access to the Property
during reasonable hours to conduct the Tests and Studies.
9. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.
The obligations of Purchaser to purchase the Property and to
perform the other covenants and obligations to be performed by Purchaser on the
Closing Date shall be subject to the following conditions (all or any of which
may be waived, in whole or in part, by Purchaser except for the contingency
regarding minor subdivision approval):
(i) The representations made by Seller in Section 8 herein
shall be true and correct in all respects as though such statements had been
made on and as of the Closing Date and the Seller's covenants herein shall have
been complied with in all material respects.
(ii) The Title Company is prepared to issue to Purchaser a
Title Policy acceptable to Purchaser, which does not set up as exceptions any
exceptions other than "Permitted Encumbrances," or such other exceptions which
Purchaser may specifically accept.
9
<PAGE>
(iii) Seller shall have delivered to Purchaser a compliance
certificate or other certification required by ISRA upon a transfer of title as
contemplated herein.
(iv) Purchaser shall have a sixty (60) day period (the
"Mortgage Contingency Period"), beginning on the first business day after the
Execution Date, in order to obtain a mortgage loan in the minimum principal
amount of $3,000,000.00, at an 8% rate with payments based on a 25 year
amortization schedule. Purchaser agrees to proceed diligently and expeditiously
in applying for this mortgage financing, and any financing commitment issued
shall be at no cost or expense to the Seller. The commitment for this loan must
be reasonably acceptable to the Purchaser. Upon Purchaser's satisfaction of this
contingency, or should Purchaser wish to waive this contingency, Purchaser shall
so notify Seller in writing of the satisfaction or waiver of same. If Purchaser
has neither satisfied nor waived this mortgage contingency within the Mortgage
Contingency Period, then in that event either party may terminate this Agreement
and the Deposit shall be refunded to the Purchaser, or the parties may mutually
agree to further extend the Mortgage Contingency Period.
10. CONDITION PRECEDENT TO SELLER'S OBLIGATIONS.
The obligation of Seller to sell the Property and to perform
the other covenants and obligations to be performed by Seller on the Closing
Date shall be subject to the following conditions, all or any of which may be
waived, in whole or in part, in writing, by Seller:
(i) Purchaser shall deliver to Seller all monies and other
obligations and documentation required to be delivered, performed or complied
with by Purchaser on or prior to Closing.
(ii) Seller's Post Closing Lease.
The Purchaser and the Seller shall enter into a post-closing
lease of a portion of the Property substantially in the form of Exhibit E,
annexed (the "Lease") which will have dates filled in and exhibits attached
later prior to execution. If as a result of a survey, to be procured by the
Purchaser with a copy furnished to the Seller, it is determined that any
improvements
10
<PAGE>
are on tax lots and blocks defined as adjacent property in the attached form of
lease than the form of the lease shall be revised to include in the Premises the
portion of the adjacent property having said improvements.
(iii) Seller shall have obtained the written agreement of
Sterns Rental Corp. to change its lease to a sublease with IVC Industries, Inc.
11. ENVIRONMENTAL CONDITIONS AND INDEMNIFICATION.
Except as otherwise provided in this Section, the Seller does
not make any claims or promises about the condition or value of the Property
included in this sale except as otherwise specifically provided. As set forth
herein, the Purchaser is being provided the opportunity to conduct Tests and
Studies of the Property and relies on those Tests and Studies and other further
inspections and rights which are provided for in this Agreement.
Seller shall be solely responsible for, and shall indemnify,
save harmless and defend Purchaser and any future buyer of the Property against
any and all liabilities arising directly or indirectly as a consequence of any
and all environmental conditions caused or created to the Property prior to
Closing. Seller agrees to remain responsible for all obligations pursuant to
state, federal, and local environmental laws, with respect to the investigation
and remediation of surface and subsurface conditions at and off-site the
Property for all conditions which existed at the Property prior to and at the
time of Closing. The assumption of this obligation shall survive Closing. This
obligation shall include, without limitation, any and all obligations or
responsibilities arising under the Industrial Site Recovery Act ("ISRA"),
N.J.S.A. 13:1K-6 et seq., the Spill Compensation and Control Act (the "Spill
Act"), N.J.S.A. 58:10-23.11 et seq. (Regulations N.J.A.C. 7:1E-1.1 et seq.), the
Solid Waste Management Act, N.J.S.A. 13:1E-1 et seq. (Regulations N.J.A.C.
7:26-1 et seq.), the Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C.A. Section 6901 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C.A. Section 9601 et
seq., the Clean Water Act ("CWA"), Water Pollution Control Act, N.J.S.A.
58:10A-1 et seq., or any other federal, state or local environmental law, rule
or regulation.
11
<PAGE>
12. ENVIRONMENTAL COMPLIANCE AND COMPLIANCE WITH ISRA.
(a) As a condition precedent to Purchaser's obligation to
purchase the Property, Seller shall have applied for and received from the New
Jersey Department of Environmental Protection ("NJDEP") prior to the Closing
Date, pursuant to the Industrial Site Recovery Act, N.J.S.A. 13:1 K-6 et. seq.,
the regulations promulgated thereunder and those promulgated under the former
Environmental Clean-up Responsibility Act, and any successor or amended
legislation or regulations (hereinafter collectively called "ISRA"), such
approvals, permits or consents sufficient to permit Closing to occur. If closing
takes place pursuant to a Remediation Agreement, then Seller (or Purchaser, if
Purchaser is proceeding pursuant to subparagraph (b) below) shall post such
remediation funding source as may be required by NJDEP. (The receipt of the
necessary NJDEP approvals, permits or consents, or a Remediation Agreement,
shall hereinafter be called "ISRA Closing Compliance").
If the aforesaid condition precedent is not satisfied prior to the Closing Date
then, Purchaser shall have the right to terminate this Agreement on written
notice to the other, or it may agree to extend the compliance deadline set forth
herein. If this Agreement is terminated pursuant to this subparagraph, the
Deposit shall be returned to Purchaser together with any interest earned
thereon.
(b) In addition to Seller's other environmental obligations
under this Agreement, if any, on and after the Closing Date, if Seller uses a
Remedial Action Workplan approval or Remediation Agreement to achieve ISRA
Closing Compliance, Seller shall be responsible for achieving ISRA Compliance
pursuant to the Remedial Action Workplan or the Remediation Agreement, with
respect to all Hazardous Substances or hazardous wastes existing as of the
Closing Date or occurring after the Closing Date as a result of the actions or
omissions of the Seller or the Seller's representatives. Purchaser acknowledges
that if the Property is subject to an ongoing remediation by the Seller pursuant
to ISRA, and the Purchaser agrees to grant reasonable access to Seller as is
necessary to complete that process. For purposes of this subparagraph (b),
Seller and Seller's representatives shall have access to the Property in
accordance with an Access Agreement to
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<PAGE>
be agreed to and signed by the parties, (the "Access Agreement"). The term "ISRA
Compliance" as used herein shall mean that Seller shall have received (i) a No
Further Action Letter from the NJDEP approving Seller's negative declaration; or
(ii) a No Further Action letter from the NJDEP approving the implementation of
the Remedial Action Workplan. After Closing, Purchaser shall not take any
action, including without limitation any construction activity, which materially
interferes with or prohibits the achievement of ISRA Compliance. Purchaser
agrees that Seller may complete ISRA remedial requirements at the Property to
any level acceptable to the New Jersey Department of Environmental Protection
("NJDEP") and the Purchaser agrees to the imposition of Institutional and
Engineering controls and Classification Exception Areas as part of Seller's
efforts to satisfy remedial requirements with respect to the Property so long as
same do not preclude use of the Property for purposes of warehousing, packaging
and assembly.
(c) Purchaser shall be solely responsible for, and shall
indemnify, save harmless and defend Seller against any and all liabilities
arising directly or indirectly as a consequence of any and all environmental
conditions caused or created by Purchaser subsequent to Closing. Nothing
contained herein shall serve to preclude or limit Seller's rights with regard to
contamination caused to the Property post-Closing unless caused by Seller.
(d) Purchaser shall reasonably cooperate with Seller in
Seller's efforts to achieve ISRA Compliance, including, without limitation, the
execution of any and all documents which must be executed by Purchaser provided
the information contained in such documents is within Purchaser's knowledge, is
true and accurate, and does not create any liability on Purchaser, financial or
otherwise.
(e) The Seller shall notify the Purchaser of any notice of
violation of law the Seller may receive between the time of the signing of this
Agreement and the Closing. Seller shall also make its files relating to its
dealings with the NJDEP available for inspections and copying by Purchaser (at
Purchaser's expense) at a mutually convenient time in response to a written
request by Purchaser.
13
<PAGE>
(f) The provisions of this Section 12 shall survive the
Closing and/or termination of this Agreement.
13. LIMITED SURVIVAL OF SELLER'S REPRESENTATIONS AND COVENANTS.
Unless otherwise expressly stated herein, none of the
representations and warranties made or provided by Seller in this Agreement
shall be deemed to be continuing warranties, representations, covenants and
agreements and same shall not survive beyond the Closing Date.
14. EXPENSES.
(a) Seller shall pay the fees, costs and expenses of Seller's
counsel in connection with the closing as well as the realty transfer fee
imposed in connection with the delivery of the Deed.
(b) Purchaser shall pay the fees, costs and expenses of
Purchaser's counsel, all title insurance premiums and charges, all recording
fees, all survey or surveyor charges, and any fees, costs or expenses incurred
by Purchaser in connection with its inspection of the Property.
15. BROKERS.
Purchaser and Seller represent to each other that they have
dealt with no other real estate broker in connection with this transaction,
other than Douglas J. Kelly Associates and Zimmel Associates (hereinafter
sometimes collectively referred to as the "Brokers"). Seller and Purchaser
further covenant and agree that to the extent any third party claims, other than
Broker's claims, a broker or finder's fee through a party, the party breaching
the within representation will indemnify and save the other party harmless from
any and all claims, judgment, suits, costs of suits, and all their costs and
expenses including attorney's fees and costs to enforce the indemnity, which
either party may incur in connection therewith. The Seller shall be responsible
to pay the real estate commission of $100,000 to the Brokers as set forth in the
Broker's agreement which commission shall be earned, due and payable only if, as
and when title to the Property closes and the Purchase Price is paid to the
Seller.
14
<PAGE>
16. TITLE.
(a) Purchaser agrees to promptly cause title to the Property
to be examined by the Title Company and shall promptly thereafter furnish to
Seller's attorney, a specification in writing of any objections to title set
forth in such report that are not Permitted Encumbrances. If Purchaser notifies
Seller's attorney as herein provided of an objection to title, Seller shall be
afforded an opportunity to cure the objection. If Seller is unable to cure the
objection for any reason within thirty (30) days, then, unless Purchaser waives
its objections to title, Purchaser may terminate this Agreement by written
notice to the Seller on or after such date, in which event, this Agreement shall
become void and of no further effect, and Seller shall cause the Deposit
referred to in Section 4 (a) above to be returned to Purchaser, together with
any interest earned thereon, and neither party thereafter shall have any further
obligation of any nature to the other hereunder or by reason hereof.
(b) Nothing contained in this Article shall be deemed to
require Seller to bring any action or proceeding or any other steps to remove
any defect in or objection to title or to fulfill any condition.
(c) The Property shall be conveyed by Seller to Purchaser
subject only to the Permitted Encumbrances.
(e) If at the Closing Date, there may be a mortgage of record,
or judgment against Seller, which is a lien and which Seller is obligated to pay
and discharge, Seller may use all or any portion of the purchase price payable
at Closing to satisfy the mortgage or judgment. Purchaser, if requested, agrees
to provide at Closing, federal funds, to be wired as directed, or cashier's or
certified checks, as requested by Seller, aggregating a portion of the purchase
price, payable at Closing to facilitate the satisfaction of any such liens or
encumbrances.
15
<PAGE>
17. CASUALTY LOSS.
(a) Seller shall deliver the Property at Closing in their
present condition, reasonable wear and tear accepted. In the event there is any
loss or destruction of the Property by fire or other casualty prior to the
closing of title, then Seller shall have the option of either undertaking the
repair and restoration or notifying Purchaser that it elects not to undertake
such repair and/or restoration. If Seller elects not to undertake such repair or
restoration, then Purchaser shall have the option either to accept title
notwithstanding such damage or destruction and, together with the conveyance,
accept from Seller, a transfer of Seller's right, title and interest in and to
insurance proceeds, if any, covering the loss, or to terminate this Agreement;
the election of Purchaser to be made within fifteen (15) days following
Purchaser's receipt of notice of such loss or destruction and Seller's statement
that elects not to repair and restore with a copy of the insurance polices in
effect at the time of the loss. If Purchaser elects to cancel this Agreement by
reason of such loss or destruction, this Agreement shall terminate and shall
become null and void and the Seller shall cause the Deposit to be returned to
Purchaser, together with any interest earned therein and the parties shall be
released and discharged of all further claims and obligations, each to the other
hereunder. Nothing herein contained shall impose any duty on Seller to undertake
such repair or restoration, or to have adequate or sufficient insurance to cover
such loss.
(b) Seller hereby agrees to furnish Purchaser with written
notification of any such fire or casualty within twenty-four (24) hours of such
event, or as soon as practical thereafter.
18. CONDEMNATION.
The parties agree that if, prior to Closing, all or any
portion of the Property be taken by an entity with the power of eminent domain,
or should agreement be reached between the Seller and any such entity in lieu of
condemnation under applicable law, then and in such event, Purchaser shall have
the right to terminate this Agreement or to proceed to the Closing Date. If
Purchaser shall elect to close, then the parties shall
16
<PAGE>
proceed to close pursuant to the terms of this Agreement and Seller shall, at
Closing, sign all of its right, title and interest in and to any condemnation or
eminent domain awards to Purchaser. No adjustment shall be made to the purchase
price in such event. If Purchaser shall elect to terminate this Agreement, this
Agreement shall terminate and shall become null and void and the Seller shall
cause the Deposit to be returned to Purchaser, together with any interest earned
therein and the parties shall be released and discharged of all further claims
and obligations, each to the other hereunder.
19. REMEDIES.
(a) In the event Purchaser fails or refuses to perform on the
Closing Date, for whatever reason, and provided the Seller is free from default
hereunder, the Seller shall retain the Deposit as liquidated damages in which
case neither party shall have any obligations to the other thereafter.
(b) If the Seller shall be unable to perform on the Closing
Date or be unable to convey the Property in accordance with the terms of this
Agreement, or in the event of any default on the part of Seller or Seller's
failure to comply with any representation, warranty or agreement in any material
respect, Purchaser shall be entitled to either terminate this Agreement and
obtain a refund of the Deposit, together with any interest earned thereon, plus
an additional sum to defray Purchaser's actual out-of-pocket expenses not to
exceed $2,500 in the aggregate, or institute a suit for specific performance.
20. ASSESSMENTS.
If, on the Closing Date, the Property or any part thereof
shall be or shall have been affected by an assessment or assessments for
municipal improvements completed prior to the date of Closing, which are or may
become payable in annual installments, of which the first installment is either
then a charge or lien or has been paid, then for the purposes of this Agreement
all the unpaid installments of any such assessment, including those which are to
become due and payable after the Closing Date, shall be deemed to be due and
payable and to be liens upon the Property and shall be paid and discharged by
Seller on the Closing Date.
17
<PAGE>
21. CLOSING OF TITLE AND DOCUMENTS TO BE DELIVERED AT CLOSING.
(a) The closing of title and delivery of the Deed and payment
of the purchase consideration shall take place at the offices of Wilentz,
Goldman & Spitzer, 90 Woodbridge Center Drive, Woodbridge, New Jersey at 10:00
A.M. on the Closing Date, or at such other place in the State of New Jersey as
may be agreed upon by Purchaser and Seller.
(b) At the Seller's sole discretion, if the Closing does not
occur by July 30, 1998, this Agreement and the parties' rights and obligations
hereunder shall automatically terminate.
(c) Seller shall deliver the following to Purchaser as
Closing:
(i) A Bargain and Sale Deed with covenants against
grantor's acts, executed and acknowledged in the proper form for recordation,
subject only to the Permitted Encumbrances and other conditions as otherwise
herein provided;
(ii) A bill of sale for all improvements, fixtures,
equipment and personal property included in this sale, if any, with Seller's
warranty that same are free of all liens, claims or encumbrances.
(iii) A corporate resolution, certificate of secretary
of Seller certifying the adoption and continued effectiveness of such
resolution.
(iv) A copy of the document received by NJDEP in
accordance with Section 12 hereof;
(v) An affidavit sworn to by Seller stating under
penalty of perjury that Seller is not a foreign person as defined in the
Internal Revenue Code, '1445, and stating Seller's United States Taxpayer
identification number:
(vi) A credit on the closing statement to
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<PAGE>
Purchaser against the Closing proceeds of an amount equal to the Realty Transfer
Fee;
(vii) An affidavit of title in usual form which will
confirm that no work has been performed at the Property or materials supplied to
give rise to a mechanic's or materialman's lien against the Project.
(viii) All other certificates, licenses, permits,
authorizations and approvals issued for or with respect to the Property by
governmental authorities, together with an assignment of all of Seller's rights
hereunder or with respect thereto; access for purposes of copying all records
and files of Seller (at Purchaser's cost) pertaining to the operation and
maintenance of the Property as Purchaser may reasonably request, and such other
documents as Purchaser, its lender or title company may reasonably request
provided same relate to clearance of a title objection.
(d) The Purchaser at Closing shall deliver to Seller the items
set forth below:
(i) The Cash Payment as provided in Section 4 (c)
hereof;
(ii) A Corporate Resolution authorizing this purchase in
accordance with the terms of this Agreement;
22. NOTICES.
All notices, demands, requests, or other writings in this
Agreement provided to be given or made or sent, or which may be given or made or
sent, by either party hereto to the other or by Escrow Agent, shall be in
writing and shall be delivered by depositing the same with any nationally
recognized overnight delivery service, or by telecopy or fax machine, in either
event with all transmittal fees prepaid, properly addressed, and sent to the
following addresses:
19
<PAGE>
If to Seller: IVC INDUSTRIES, INC.
Attention: Mr. I. Alan Hirschfeld,
Executive Vice President and CFO
500 Halls Mill Road
Freehold, New Jersey 07728
(732) 308-3000 (tele.)
(732) 308-4488 (fax)
with a copy to: SHELDON E. JAFFE, ESQ.
WILENTZ, GOLDMAN & SPITZER
90 Woodbridge Center Drive
P.O. Box 10, Suite 900
Woodbridge, New Jersey 07095
(732) 855 - 6050 (tele.)
(732) 855 - 6117 (fax)
If to Purchaser: THE NAVESINK GROUP
c/o Don Devine
49 Buena Vista Road
Rumson, New Jersey 07760
with a copy to: LOUIS E. DELLA TORRE, JR., ESQ.
SCHUMANN, HANLON, DOHERTY, McCROSSIN
& PAOLINO
30 Montgomery Street - 15th Floor
Jersey City, New Jersey 07302
(201) 434-2000 (tele.)
(201) 938-1503 (fax)
If to Escrow Agent: WILENTZ, GOLDMAN & SPITZER
90 Woodbridge Center Drive
P.O. Box 10 Suite 900
Woodbridge, New Jersey 07095
Attention: Sheldon E. Jaffe, Esq.
(732) 855-6050 (tele.)
(732) 855-6117 (fax)
or to such other address as either party may from time to time designate by
written notice to the other or to the Escrow Agent. Notices given by (i)
overnight delivery service as aforesaid shall be deemed received and effective
on the first business day
20
<PAGE>
following such dispatch and (ii) telecopy or fax machine shall be deemed given
at the time and on the date of machine transmittal provided same is sent prior
to 4:00 p.m. on a business day (if sent later, than notice shall be deemed given
on the next business day) and if the sending party receives a written send
verification on its machines and forwards a copy thereof by regular mail
accompanied by such notice or communication. Notices may be given by counsel for
the parties described above, and such Notices shall be deemed given by Purchaser
or Seller, as the case may be, for all purposes hereunder.
21
<PAGE>
23. ESCROW AGREEMENT.
Upon the signing of this Agreement by the parties, Purchaser
shall deliver the Deposit to Escrow Agent. The parties agree that the Deposit
shall be held by the Escrow Agent in escrow and disposed of only in accordance
with the provisions of this Section 23. The parties agree that the Deposit shall
be deposited in an interest bearing savings account with Amboy National Bank,
Old Bridge, New Jersey and all interest accruing thereon shall be paid to the
party entitled to receive the Deposit
(a) The Escrow Agent will deliver the Deposit to Seller or to
Purchaser, as the case may be, under the following conditions:
(i) To Seller on the Closing Date;
(ii) To Seller upon receipt of written demand therefor,
such demand stating that Purchaser has defaulted in the performance of this
Agreement and specifically setting forth the facts and circumstances underlying
such default. The Escrow Agent shall not honor such demand until more than ten
(10) days have elapsed after the Escrow Agent has mailed a copy of such demand
to Seller or Purchaser, as the case may be, nor thereafter if the Escrow Agent
shall have received written notice of objection from Purchaser in accordance
with the provisions of clause (b) of this Section 23; or
(iii) To Purchaser upon receipt of written demand
therefor, such demand stating that this Agreement has been terminated in
accordance with the provisions hereof, or Seller has defaulted in the
performance of this Agreement, and specifically setting forth the facts and
circumstances underlying the same. The Escrow Agent shall not honor such demand
until more than ten (10) days have elapsed after the Escrow Agent has mailed a
copy of such demand to Seller or Purchaser, as the case may be, nor thereafter,
if the Escrow Agent shall have received written notice of objection from the
other party in accordance with the provisions of clause (b) of this Section 23.
(b) Upon the filing of a written demand for the Deposit by
Purchaser or Seller, pursuant to subclause (ii) or (iii) of clause (a) of this
Section 23, the Escrow Agent shall
22
<PAGE>
promptly mail a copy thereof to the other party. The other party shall have the
right to object to the delivery of the Deposit by filing written notice of such
objection with Escrow Agent at any time within ten (10) days after the mailing
of such copy to it, but not thereafter. Such notice shall set forth the basis
for objecting to the delivery of the Deposit. Upon receipt of such notice, the
Escrow Agent shall promptly mail a copy thereof to the party who filed the
written demand.
(c) In the event the Escrow Agent shall have received the
notice of objection provided for in clause (b) above and within the time therein
prescribed, the Escrow Agent shall continue to hold the Deposit until (i) the
Escrow Agent receives written notice from Seller and Purchaser directing the
disbursement of said Deposit, in which case, the Escrow Agent shall then
disburse said Deposit in accordance with said direction, or (ii) in the event of
litigation between Seller and Purchaser, the Escrow Agent shall deliver the
Deposit to the Clerk of the Court in which said litigation is pending, or (iii)
the Escrow Agent takes such affirmative steps as the Escrow Agent may, in the
Escrow Agent's reasonable opinion, elect in order to terminate the Escrow
Agent's duties including, but not limited to, depositing the Deposit with the
Court and bringing an action for interpleader. The costs thereof to be borne by
whichever of Seller or Purchaser is the losing party.
(d) The Escrow Agent may act upon any instrument or other
writing believed by it in good faith to be genuine and to be signed and
presented by the proper person and it shall not be liable in connection with the
performance of any duties imposed upon the Escrow Agent by the provisions of
this Agreement, except for damages caused by the Escrow Agent's own negligence
or willful default. The Escrow Agent shall have no duties or responsibilities
except those set forth herein. The Escrow Agent shall not be bound by any
modification of this Agreement, unless the same is in writing and signed by
Purchaser and Seller, and, if the Escrow Agent's duties hereunder are affected,
unless Escrow Agent shall have given prior written consent thereto. In the event
that the Escrow Agent shall be uncertain as to the Escrow Agent's duties or
rights hereunder, or shall receive instructions from Purchaser or Seller which,
in the Escrow Agent's opinion, are in conflict with any of the provisions
hereof, the Escrow Agent
23
<PAGE>
shall be entitled to hold and apply the Deposit pursuant to clause (c) above and
may decline to take any other action. The Escrow Agent shall not charge a fee
for its services as escrow agent.
(e) The Purchaser acknowledges that the Escrow Agent is also
the attorney for the Seller. In that regard, the Purchaser agrees that the
Escrow Agent may continue to represent the Seller in this transaction and in all
transactions relating to this Agreement and also continue to serve as the Escrow
Agent hereunder and hereby waives any potential conflict of interest presented
by said fact. In the event a dispute arises between the Seller and Purchaser
with respect to this Agreement, the Purchaser agrees that the Escrow Agent may
continue to serve as the Seller's attorney in said dispute.
24. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between
the parties and incorporates and supersedes all prior negotiations and
discussions between the parties.
(b) This Agreement cannot be amended, waived, or terminated
orally, but only by an agreement in writing signed by the party to be charged.
(c) This Agreement shall be interpreted and governed by the
laws of the State of New Jersey and shall be binding upon the parties hereto and
their respective successors and assigns.
(d) Whenever in this Agreement there is a provision for the
return of the Deposit, the provision shall be deemed to include all interest
earned thereon.
(e) The caption headings in this Agreement are for convenience
only and are not intended to be part of this Agreement and shall not be
construed to modify, explain or alter any of the terms, covenants or conditions
herein contained.
(f) If any term, covenant or condition of this Agreement is
held to be invalid, illegal or unenforceable in any respect, this Agreement
shall be construed without such provision.
24
<PAGE>
(g) Each party shall, from time to time, execute, acknowledge
and deliver such further instruments, and perform such additional acts, as the
other party may reasonably request in order to effectuate the intent of this
Agreement. Nothing contained in this Agreement shall be deemed to create any
rights or obligations of partnership, joint venture or similar association
between Seller and Purchaser. This Agreement shall be given a fair and
reasonable construction in accordance with the intentions of the parties hereto,
and without regard to or aid of canons requiring construction against Seller,
Purchaser or the party whose counsel drafted this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
PURCHASER:
THE NAVESINK GROUP
By: /s/Donald J. Devine
-----------------------------
DON DEVINE
SELLER:
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
------------------------------
I. ALAN HIRSCHFELD
Executive Vice President & CFO
25
<PAGE>
The undersigned joins in the execution of the Agreement solely for the purpose
of acknowledging the receipt of the Deposit and its agreement to hold the
Deposit in escrow in accordance with the terms hereof.
ESCROW AGENT:
WILENTZ, GOLDMAN & SPITZER
By: /s/ Sheldon E. Jaffe
--------------------
SHELDON E. JAFFE
26
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EXHIBIT C
Lease between IVC Industries, Inc. and Sterns Rental Corp dated March 27, 1997
commencing on April 1, 1997 for a term of two (2) years with right to extend for
three additional one (1) year option terms.
27
LEASE AGREEMENT
BETWEEN:
569 HALLS MILL ROAD, L.L.C.
(hereinafter "Landlord")
AND:
IVC Industries Inc.
(hereinafter "Tenant")
PREMISES: The Property known as 569 Halls Mill Road, Freehold, New Jersey and
designated as Lot 3 in Block 79 as shown on the Tax Map of the
Township of Freehold, Monmouth County, New Jersey
DATED: July 28, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS AND BASIC PROVISIONS.....................................3
2. LEASE GRANT AND TERM.................................................4
3. BASE RENT............................................................6
4. LATE CHARGE..........................................................7
5. UTILITIES AND SERVICES...............................................7
6. USE..................................................................8
7. ALTERATIONS, ADDITIONS OR IMPROVEMENTS...............................9
8. TENANT'S REPAIR AND MANTENANCE......................................14
9. MECHANICS' LIENS....................................................16
10. SIGNS..............................................................17
11. TENANT'S EQUIPMENT.................................................17
12. INDEMNIFICATION....................................................18
13. SUBORDINATION......................................................19
14. ASSIGNMENT AND SUBLETTING..........................................20
15. RULES AND REGULATIONS..............................................21
16. INSPECTION.........................................................21
17. CONDEMNATION.......................................................22
18. FIRE OR OTHER CASUALTY.............................................23
19. HOLDING OVER.......................................................23
-1-
<PAGE>
TABLE OF CONTENTS (continued)
PAGE
----
20. EVENTS OF DEFAULT.................................................24
21. SURRENDER OF PREMISES..............................................28
22. LANDLORD'S LIENS...................................................28
23. INSURANCE..........................................................28
24. BROKERAGE..........................................................29
25. ESTOPPEL CERTIFICATES..............................................29
26. NOTICES............................................................29
27. FORCE MAJEURE......................................................30
28. SEPARABILITY.......................................................30
29. AMENDMENTS: BINDING EFFECT........................................31
30. QUIET ENJOYMENT....................................................31
31. GENDER.............................................................32
32. LIABILITY..........................................................32
33. NOTICE TO LENDER...................................................32
34. CAPTIONS...........................................................32
35. NO PARTNERSHIP.....................................................33
36. SALE...............................................................33
37. BENEFIT AND BURDEN.................................................33
-2-
<PAGE>
TABLE OF CONTENTS (continued)
PAGE
----
38. ENTIRE AGREEMENT...................................................33
39. APPLICABLE LAW.....................................................33
40. MISCELLANEOUS......................................................34
41. ENVIRONMENTAL REPRESENTATIONS AND CONVENANTS ......................35
42. SECURITY DEPOSIT...................................................38
43. EXHIBITS AND ATTACHMENTS...........................................39
44. RENEWAL TERM.......................................................40
45. FIRST RIGHT TO NEGOTIATE PURCHASE..................................41
46. RIGHT OF FIRST REFUSAL.............................................41
-3-
<PAGE>
LEASE AGREEMENT
This Lease ("Lease") made as of July 28 1998, between: 569 HALLS MILL
ROAD, L.L.C., having an address at P.O. Box 622, Rumson, New Jersey 07760
("Landlord") and IVC Industries Inc., a New Jersey corporation having an address
at 500 Halls Mill Road, Freehold, New Jersey 07728 ("Tenant").
FUNDAMENTAL LEASE PROVISIONS
Landlord shall lease the Premises to the Tenant pursuant to the following
Fundamental Lease Provisions:
Premises:
The Premises consist of the Building, and loading docks, parking lot area
and land located on the property known as 569 Halls Mill Road, Freehold, New
Jersey and also designated as Lots 2.01, 3 and 3Q in Block 79 as shown on the
Tax Map of the Township of Freehold, Monmouth County, New Jersey and also
designated as Block 164, Lot 18.01 as shown on the Tax Map of the Township of
Howell, Monmouth County as delineated and described in Exhibit "A" attached
hereto.
Term:
A term commencing on the Commencement Date and terminating ten (10) years
from the Commencement Date unless earlier terminated in accordance with the
terms of this Lease.
Commencement Date:
The Commencement Date shall be July 28, 1998.
Annual Base Rent:
Base Rent shall commence on July 28, 1998 ("Rent Commencement Date").
For each lease year commencing with the first lease year the Annual Base
Rent (based upon approximately 129,600 square
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feet of gross rentable area) shall be as follows:
The first lease year (July 28, 1998 through July 27, 1999): $422,500 per annum
The second lease year (July 28, 1999 through July 27, 2000): $455,000 per annum
The third lease year (July 28, 2000 through July 27, 2001): $487,500 per annum
The fourth, fifth and sixth lease years (July 28, 2001 through July 27, 2004):
$520,000 per annum
The seventh, eighth, ninth and tenth lease year (July 28, 2004 through July 27,
2008): $585,000 per annum
Base Rent Per Month:
The monthly Base Rent shall commence on July 28, 1998 ("Rent Commencement
Date"). The monthly Base Rent during each lease year commencing with the first
lease year shall be as follows:
The first lease year (July 28, 1998 through July 27, 1999); $35,208.33 per month
The second lease year (July 28, 1999 through July 27, 2000): $37,916.67 per
month
The third lease year (July 28, 2000 through July 27, 2001): $40,625.00 per month
The fourth, fifth and sixth lease years (July 28, 2001 through July 27, 2004):
$43,333.33 per month
The seventh, eighth, ninth and tenth lease years (July 28, 2004 through July 27,
2008): $48,750.00 per month
Security Deposit:
$100,000.00 (Non-Interest bearing)
Permitted Use:
Warehousing, packaging, assembly of promotional materials, displays and
like items and distributing of merchandise and supplies. Any existing farmland
use may be continued.
Tenant's SIC Number:
2833
Broker:
None
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1. DEFINITIONS AND BASIC PROVISIONS
1.1 Fundamental Lease Provisions.
The Fundamental Lease Provisions shall be read in conjunction with all
other provisions of this Lease applicable thereto. Each reference in this Lease
to any of the Fundamental Lease Provisions on pages 1, 2 and 3 shall be
construed to incorporate all of the terms provided for under such provisions. If
there is any conflict between any of the Fundamental Lease Provisions set forth
herein and any other provisions of this lease, the latter shall control. This
listing on pages 1 and 2 of monetary amounts payable by Tenant shall not be
construed to be an exhaustive list of all monetary amounts payable by Tenant
under this Lease.
1.2 Definitions.
In addition to other terms defined herein, the following terms shall have
the meaning set forth herein unless the context otherwise requires:
1.2.1 "Building" shall mean the building upon the Premises.
1.2.2 "Governmental Authorities" shall mean all federal, state,
county, municipal and governmental entities, and all departments, commissions,
boards, bureaus and offices thereof, having or claiming jurisdiction over the
Premises.
1.2.3 "Landlord" shall mean the party designated as such on page 1
hereof, and its successors and assigns.
1.2.4 "Premises" means the Building and improvements and land
located upon the Property known as 569 Halls Mill Road, Freehold, New Jersey and
also designated as Lots 2.01, 3, 3Q in Block 79 as shown on the Tax Map of the
Township of Freehold, Monmouth County and also designated as Block 164, Lot
18.01 as shown on the Tax Map of the Township of Howell, Monmouth County as
delineated and described in
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Exhibit "A" attached hereto.
1.2.5 "Real estate taxes" shall be deemed to mean all taxes and
assessments, special or otherwise, assessed upon or with respect to the
ownership of and/or all other taxable interests in the building and property of
which the Premises are a part, imposed by federal, state or local governmental
authority, or any other taxing authority having jurisdiction over the building
and property excluding income, intangible, franchise, capital stock, or state
inheritance taxes.
1.2.6 "Rent" shall include Base Rent, Additional Rent and all other
compensation required under this Lease.
1.2.7 "Tenant" shall mean the tenant identified on page 1 of this
Lease.
1.2.8 "Term" shall mean the period of time specified in the
Fundamental Lease Provisions. Whenever the phrase "year(s)" or "year(s) of the
term of this Lease" is used, the same (sometimes referred to as a "Lease Year")
shall be deemed to be the period beginning on the Commencement Date and every
anniversary thereof (or, if such Commencement Date does not occur on the first
(1st) day of a calendar month, then beginning with the first (1st) day of the
calendar month next following the Commencement Date and every anniversary
thereof) and expiring on the last day of the month twelve (12) consecutive
calendar months later. The "First Lease Year" shall include that portion of the
month from the Commencement Date (if the same does not occur on the first (1st)
day of a calendar month) to the end of such month.
2. LEASE GRANT AND TERM
2.1 Grant. Landlord leases to Tenant, and Tenant leases from Landlord the
Premises described in the Fundamental Lease Provisions and delineated on Exhibit
A of this Lease.
2.2 Term. The Term of this Lease shall be for the
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period of time specified in the Fundamental Lease Provisions commencing as
hereinafter set forth.
2.3 Commencement Date.
2.3.1 The Term shall commence on July 28, 1998.
2.4 Acceptance of Premises. Tenant shall accept possession of the Premises
on the Commencement Date of this Lease. This Lease shall continue for the Term
specified in the Fundamental Lease provisions. Tenant accepts the Premises "as
is". Tenant acknowledges that it presently occupies the Premises and therefore,
is fully knowledgeable as to the condition of the Premises. By occupying the
Premises, Tenant shall be deemed to have accepted the same as suitable for the
purpose herein intended and to have acknowledged that the same comply fully with
Landlord's obligations.
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3. BASE RENT
3.1 Base Rent. During the Term of this Lease, the annual Base Rent shall
be the sum set forth in the Fundamental Lease Provisions, which shall be payable
by Tenant in equal monthly installments as set forth in the Fundamental Lease
Provisions, on or before the first day of each month, in advance, payable to
Landlord or Landlord's agent at the address to which notices to Landlord are to
be sent hereunder, or such other place as the Landlord may designate, without
any prior demand therefor and without any deductions or setoff whatsoever.
Tenant's failure to make timely payments of rent as provided in Article 20.1
shall constitute an event of default under this Lease. Tenant may apply the
Security Deposit against the Base Rent due in the last three (3) months of the
Term with any difference between the Security Deposit and Base Rent to be paid
by Tenant to Landlord. Any portion of the Security Deposit not applied against
the Base Rent shall be returned in accordance with the terms of Article 42 of
the Lease.
3.2 Upon the Commencement Date, Tenant shall maintain fire and extended
coverage insurance and comprehensive liability insurance in accordance with the
provisions of Article 23.
Upon the Commencement Date, Tenant shall pay as additional rent real
estate taxes, as defined in this Lease, for the building and property of which
the Premises are a part.
3.3 Tenant shall pay to the taxing authority all real estate taxes for the
Premises when due. Proof of payment shall be furnished to Landlord by Tenant
upon request by Landlord.
3.4 Prorating Rent. If the Commencement Date occurs on
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a date other than the first day of a calendar month then the monthly rent for
such fractional month will be prorated on a daily basis based on the actual
number of days in the month.
3.5 The obligation to pay the additional rent in Article 3 shall survive
the expiration or termination of the Lease.
4. LATE CHARGE
Tenant shall pay a late charge ("Late Charge") of five (5%) percent (or
the lawful rate, if less), of any installment of Base Rent or additional rent
(or any portion thereof) that is not paid within ten (10) business days of the
due date. Notice of nonpayment and the Late Charge shall be provided by Landlord
to Tenant. In addition, Tenant shall pay an additional 3/4th of one percent (or
the lawful rate, if less) per month for every month (or portion of a month) on
any installment of Base Rent or additional rent (or any portion thereof) that is
not paid within thirty (30) days of the due date and after notice of nonpayment
by Landlord to Tenant.
5. UTILITIES AND SERVICES
5.1 Beginning on the Commencement Date of the Lease, the Tenant shall pay
all utilities servicing the Premises. Upon request from Landlord, Tenant shall
furnish to Landlord proof of payment of the utilities. This obligation by Tenant
to pay for utilities and services incurred during the term under this paragraph
5.1 shall survive the expiration or termination of this Lease.
5.2 Should any utility service become unavailable from any public utility
company, public authority or any other person, firm or corporation, including
Landlord, supplying such utility, Landlord shall incur no liability whatsoever
and it shall not constitute a termination of this Lease or an eviction
(constructive or otherwise) hereunder provided that
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the unavailability is not due to Landlord's negligence or willful misconduct.
6. USE
6.1 The Premises shall be used solely for the Permitted Use set forth in
the Fundamental Lease Provisions and for no other purposes except upon
Landlord's written consent.
6.2 Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire insurance or other insurance upon the
Building or any of its contents, or cause a cancellation of any insurance policy
covering the Building or any part thereof or its contents. Tenant shall comply
with all requirements of the insurance companies insuring the Premises.
6.3 Tenant at its own cost and expense shall keep the premises clean and
free of pests and vermin to the reasonable satisfaction of Landlord.
6.4 Tenant shall not remove, attempt to remove or manifest an intention to
remove all or substantially all of Tenant's goods or property from or out of the
Premises, other than in the ordinary and usual course of business, without
having first paid and satisfied Landlord for all Rent which may be due or may
become due during the entire term of this Lease.
6.5 Compliance With Laws. Tenant shall comply with all applicable
covenants, conditions and restrictions now or hereafter affecting the Premises;
with all laws, ordinances, regulations, directives and requirements of all
governmental authorities having jurisdiction over the Premises; and with any
certificate of occupancy for the Building and shall not permit anything to be
done on the Premises in violation thereof. Upon demand, Tenant shall discontinue
any use of the
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Premises in violation of any covenants, conditions and restrictions, or of any
law, ordinance, regulation or governmental directive or of the certificate of
occupancy.
6.6 Tenant shall immediately give notice to Landlord in the event that
Tenant receives notice of any violation of law, ordinance, regulation, directive
or requirement of any governmental authority or any violation of the Certificate
of Occupancy.
7. ALTERATIONS, ADDITIONS OR IMPROVEMENTS
7.1 Tenant shall not make any material changes, improvements or additions
to the Premises without the Landlord's prior written consent which shall not be
unreasonably withheld. Tenant shall reimburse Landlord (which reimbursement
shall be deemed additional rent) for any and all reasonable costs, including
without limitation, legal, engineering or architectural costs incurred by
Landlord in reviewing the plans and specifications relating to any changes,
improvements or additions.
7.2 At Landlord's request and provided Landlord gives notice at the time
of its consent pursuant to Article 7.1 that it would require removal at the end
of the term, Tenant shall remove any changes, improvements, or additions made
during the term at the end of the Term and restore the Premises to its original
condition reasonable wear and tear excepted. Tenant may remove from the Premises
movable fixtures, personal property and those items set forth on Exhibit B which
shall remain Tenant's property at all times.
7.3 Tenant may elect to add to the existing Building or construct another
building ("New Building") upon the Premises at Landlord's cost and expense.
Tenant shall submit a plan to Landlord of the addition or New Building for
Landlord's consent which shall not be unreasonably withheld. The
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criteria for Landlord's approval shall be whether the addition or New Building
is for a structure consistent with the uses permitted under the Lease with no
special features making it unusable for future tenants and whether Landlord can
obtain financing as specified herein. The Base Rent for the proposed addition or
New Building shall be calculated on the following basis: The Landlord is to
secure a loan in the amount of 100% of the cost of the addition or New Building.
The Landlord shall secure a loan at competitive rates for a ten (10) year term
on a twenty-five (25) year amortization schedule. The annual debt service
created for this loan multiplied by 1.20 shall determine the annual Base Rent
for the addition or New Building. The annual Base Rent for the addition or New
Building shall be fixed for the new ten (10) year term which shall be applicable
in the event of the construction of the addition or New Building.
The addition or New Building shall be constructed with due diligence by
Landlord in accordance with the Tenant's Plan.
Any addition or New Building must comply with all governmental
requirements prior to the start of construction. Landlord shall at its cost and
expense diligently proceed to procure necessary governmental approvals for the
addition or New Building.
The Base Rent for the addition or New Building shall be added to the
current Base Rent on the existing facility to create the new Base Rent for the
entire facility.
In the event that the addition or New Building is constructed, the Tenant
agrees to enter into a new ten (10) year lease for the additions or New Building
from the date of the completion of the addition or New Building and its delivery
to Tenant. In such event the term of the existing
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lease shall be extended to be coterminous with the term of the lease for the
addition or New Building. During the extended term, the Annual Base Rent set
forth in the Fundamental Lease Provisions of this Lease shall remain in effect
for the balance of the existing ten (10) year term in respect to the existing
improvements. (Tenant shall pay rent for the addition or New Building as set
forth in this Article 7.3.). If the term is so extended, after the expiration of
the tenth (10th) lease year of the existing initial term the Annual Base Rent
per annum set forth in Article 44 of the Lease for the renewal term or terms
shall be utilized as the Annual Base Rent for the remainder of the extended ten
(10) year term in respect to the existing improvements. By way of example, if
the addition or New Building is constructed and the extended term commences on
the first day of the seventh lease year of the existing term the Annual Base
Rent shall be $585,00 per annum for the first six (6) lease years of the
remaining term (based initially upon the Annual Base Rent in the Fundamental
Lease Provisions and then upon the Annual Base Rent in Article 44) and the
Annual Base Rent for remaining four (4) lease years of the extended term shall
be $617,500 in years seven, eight, and nine and $650,000 in year ten.
In the event of an extension of the Lease pursuant to this Paragraph 7.3,
the Renewal Term period shall be reduced by the period of the extension under
this Paragraph 7.3. By way of example, if the Lease is extended for an
additional six (6) years under Paragraph 7.3, the Renewal Term period under
Article 44 which equals a total of ten (10) years shall be reduced by six (6)
years for a remaining renewal term period of four (4) years subsequent to the
termination of the term extended pursuant to Paragraph 7.3 (at the applicable
lease year rent set forth in Article 44).
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Any New Building or addition to the Premises shall not be in excess of
70,000 sq. ft. and any addition or New Building shall be of similar construction
to the existing building with a minimum of 24' clear height with appropriate
docks for this type of Building.
During the first three years after the Commencement Date Tenant shall have
the exclusive right to request Landlord to construct additional space upon the
Premises as set forth in Article 7.3 and in the event that Tenant shall exercise
such right the option of Landlord to recapture a portion of the Premises shall
be null and void. After the expiration of the third lease year, provided Tenant
has not requested Landlord to construct an addition or New Building as set forth
in Article 7.3 then the Landlord upon thirty (30) days notice to Tenant may
elect to recapture the portion of the Premises as delineated and described in
Exhibit A-1 as attached hereto ("Recaptured Premises").
In the event that the Landlord provides notice of its intention to
recapture said portion of the Premises the Tenant shall have the right within
said thirty (30) day period to request the Landlord to construct the addition or
New Building upon said portion of the Premises in which event Landlord's
exercise of the option to recapture the said portion of the Premises shall be
null and void and Tenant shall continue to Lease said portion of the Premises.
If the Landlord recaptures the portion of the Premises as set forth herein
then the Landlord shall be permitted to construct improvements upon said
Recaptured Premises subject to the limitations contained in this Lease and the
rights afforded to Tenant pursuant to Articles 45 and 46. No use of the
Recaptured Premises by Landlord or its tenants or successors shall interfere
with the right of Tenant to use the
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Premises except Landlord shall have the right to use the Recaptured Premises as
provided herein. In the event Landlord recaptures the Recaptured Premises as
provided herein, Landlord and Tenant shall thereafter share use of the roadway
shown on the survey attached hereto as Exhibit A-1 for purposes of ingress and
egress or such roadway as otherwise agreed by the parties. Landlord shall pay
for any costs associated with sharing the roadway and changes to the roadway,
e.g. widening, relocation costs, maintenance and repairs. Landlord shall be
responsible at its sole cost and expense to obtain any required governmental
approvals arising from the sharing of the roadway. Landlord's use shall not
materially interfere with Tenant's use of the roadway for the Tenant's Permitted
Use as set forth in the Fundamental Lease Provisions. In the event of a dispute
relating to the roadway if the parties cannot agree the dispute shall be
submitted by the parties to the American Arbitration Association (or its
successor) for resolution. The fees and charges of the American Arbitration
Association and arbitrator shall be shared equally by the parties. The decision
of the arbitrator shall be final and binding upon the parties.
In the event that the Landlord elects to recapture said portion of the
Premises then Landlord shall pay real estate taxes and other charges and costs
attributable to the Recaptured Premises, shall insure the Recaptured Premises
with the same coverage required of Tenant under this Lease and shall defend,
indemnity and save harmless Tenant from and against all fines, suits, claims,
demands, losses and actions (including attorneys' fees) for any injury to
persons or damage to or to loss of property on or about the Recaptured
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Premises. Tenant shall have no responsibility for the Recaptured Premises and
shall be relieved of any and all further responsibility in respect to said
Recaptured Premises. If the Landlord recaptures the Recaptured Premises pursuant
to the terms of the Lease the reference in the Lease to the "Premises" shall
thereafter not include the "Recaptured Premises".
8. TENANT'S REPAIRS AND MAINTENANCE
8.1. Tenant will not in any manner deface or injure the Building, and will
pay the cost of repairing any damage or injury done to the Building or any part
thereof by Tenant or Tenant's agents, employees or invitees. Except for the
roof, Tenant shall maintain, repair and take good care of the Premises whether
interior or exterior, structural or non-structural or whether capital or
non-capital and keep the Premises free from debris, waste and nuisance of any
kind, at its cost and expense in accordance with the Repair and Maintenance
schedule attached hereto as Exhibit C. Tenant shall keep the Premises, including
but not limited to, all mechanical systems, the heating and air conditioning
system, plumbing, electrical systems, overhead doors, loading docks and related
mechanisms, equipment and fixtures in good condition and working order,
reasonable wear and tear excepted.
Tenant shall be responsible for the removal of all garbage from the
Premises in accordance with law. Tenant shall store its garbage pending removal
in a neat and orderly manner.
The performance by Tenant of its obligations to maintain and to make
repairs or replacements shall only be performed by
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contractors and subcontractors of Tenant reasonably approved in writing in
advance by Landlord, it being understood that Tenant shall procure and maintain,
and shall cause contractors and subcontractors engaged by or on behalf of Tenant
to procure and maintain, insurance coverage against such risks, in compliance
with Article 23 hereto.
If Tenant fails to perform such maintenance and/or to make such repairs or
replacements or to take steps to have defective or damaged condition(s)
corrected within fifteen (15) days after the occurrence of damage or injury, or
detection of such condition(s), Landlord may at its option make such maintenance
and/or repair or replacement, and Tenant, shall upon demand therefor, pay
Landlord for the cost thereof as additional rent. At the end or other
termination of this Lease, Tenant shall deliver up the Premises with all
improvements located thereon (except as otherwise herein provided) in good
repair and condition, reasonable wear and tear excepted, and shall deliver to
Landlord all keys to the Premises.
8.2 Within in twelve (12) months of the Commencement Date Tenant shall
pave at its sole cost and expense the parking lot in accordance with a paving
plan attached hereto as Exhibit C.
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9. MECHANICS' LIENS
As a condition precedent to Landlord giving advance written consent to
Tenant's use of outside contractors and subcontractors for repairs and/or
maintenance of the Premises or replacements ("Repairs"), Tenant shall obtain and
deliver to Landlord, on Landlord's written demand therefor, a list of all
contractors, subcontractors, materialmen and laborers involved or to become
involved in such work. If any mechanic's or materialmen's lien is filed against
the Premises, for work claimed to have been done for, or materials claimed to
have been furnished to Tenant, such lien shall be discharged by Tenant within
thirty (30) days thereafter, at Tenant's sole cost and expense, by the payment
thereof or by filing any bond required by law or by making a deposit of funds as
necessary to cause discharge of the lien under the Construction Lien Law
(N.J.S.A. 2A:44A-1 et seq. also known as P.L. 1993 c.318) or other applicable
lien law. If Tenant shall fail to discharge any such mechanic's or materialmen's
lien, Landlord may, at its option, after five (5) days written notice to the
Tenant, discharge the same and treat the cost thereof as Additional Rent payable
with the monthly installment of Base Rent next becoming due. Such discharge by
Landlord shall not be deemed to waive, or release or excuse the default of
Tenant in not discharging the same. Any such Repairs shall be conducted on
behalf of Tenant. In the event Landlord shall give its written consent to the
making of any such Repairs by Tenant, such written consent shall not be deemed
to be an agreement or consent by Landlord to subject the Landlord's interest in
the Premises, the Building or the land to any mechanic's or materialmen's liens
which may be filed in respect of any such Repairs made by or on behalf of
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Tenant.
10. SIGNS
Tenant may erect, install or display any sign or advertising material
without the prior written consent of Landlord subject to applicable laws and
ordinances.
11. TENANT'S EQUIPMENT
11.1 Tenant shall not install any equipment of any kind or nature
whatsoever which will or may necessitate any material changes, replacements or
additions to, or in the use of, the water system, heating system, plumbing
system, air conditioning system, or electrical system of the Premises, without
first obtaining the prior written consent of Landlord.
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12. INDEMNIFICATION
Landlord shall not be liable for, and Tenant will indemnify and save
harmless Landlord of and from, all fines, suits, claims, demands, losses and
actions (including attorneys' fees) for any injury to persons or damage to or
loss of property on or about the Premises unless proximately caused by the
negligence of Landlord or third parties over whom Tenant has no control. Without
limiting the generality of the foregoing, Landlord shall not be liable or
responsible for any loss or damage to any property or death or injury to any
person occasioned by theft, fire, act of God, public enemy, criminal conduct of
third parties, injunction, riot, strike, insurrection, war, court order,
requisition or other Governmental or by other tenants of the Building or any
other matter beyond the reasonable control of Landlord, or for any injury or
damage or inconvenience which may arise through repair or alteration of any part
of the Building and the Premises or failure to make repairs (it being recognized
that Landlord has no obligation to make repairs, or from any cause whatsoever
except Landlord's negligence, willful misconduct or as may be imposed by law.
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13. SUBORDINATION
13.1 Provided Landlord shall furnish a subordination and nondisturbance
agreement as provided herein, this Lease shall not be a lien against the
Premises in respect to any mortgages that may have heretofore been placed or
which may hereafter be placed upon the Premises or any part thereof. Provided
Landlord shall furnish a subordination and nondisturbance agreement as provided
herein, the recording of such mortgage or mortgages shall have preference and
precedence and be superior and prior in lien to this Lease by virtue of this
Article 13, irrespective of the dates of recording. Tenant shall execute any
instruments, without cost to Landlord, which further effect the subordination of
this Lease to any such mortgage or mortgages. A refusal by Tenant to execute
such instruments within fifteen (15) days from receipt of such request shall
entitle Landlord to the option of canceling this Lease, or for such other relief
as Landlord may elect.
Landlord shall obtain a subordination and nondisturbance agreement from
any current or future mortgagee providing that for so long as Tenant complies in
full with all terms and conditions of this Lease, Tenant's possession,
occupation and use of the premises shall not be disturbed or interfered with due
to any non-compliance of Landlord under any mortgage.
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14. ASSIGNMENT AND SUBLETTING
14.1 Tenant may with the Landlord's prior written consent, assign this
Lease or sublet the Premises which consent shall not be unreasonably withheld.
Landlord shall only be entitled to refuse consent if the proposed subtenant or
assignee will use the Premises in such manner as to cause environmental
contamination thereof. Tenant may at any time sublease up to 36,000 square feet
of rentable space to a subtenant including but not limited to Stern's Rental
Corp. without Landlord's consent. Tenant may also assign this Lease or sublease
the Premises without Landlord's consent (a) to a corporation or other entity, a
majority of whose voting stock is owned by Tenant; or (b) to a corporation or
entity in which or with which Tenant, its corporate successors or assigns, is
merged or consolidated so long as the liabilities of the corporation or entity
participating in such merger or consolidation are assumed by the corporation or
entity surviving such merger or created by such consolidation; or (c) any
corporation or entity acquiring a substantial portion of Tenant's assets so long
as the successor has a net worth no less than Tenant's net worth immediately
prior to such merger, consolidation, acquisition or assumption as evidenced by
the most recent year end audited financial statements. If Tenant becomes a
subsidiary of a corporation, Tenant shall remain as the Tenant under this Lease
and if Tenant shall be merged into another entity, then such entity shall become
the Tenant under this Lease.
14.2 Tenant shall reimburse and pay Landlord for all out-of-pocket
reasonable expenses, including but not limited to, architectural fees,
engineering fees, and attorney's fees
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incurred by Landlord in connection with any permitted or attempted subletting or
assignment of the Premises.
15. RULES AND REGULATIONS
Tenant and Tenant's agents, employees, and invitees will comply fully with
all reasonable rules and regulations of the Landlord relating to the Premises.
Landlord shall at all times have the right to change such rules and regulations
or to promulgate other reasonable rules and regulations in such manner as may be
deemed advisable for the safety, care, or cleanliness of the Premises and for
preservation of good order therein, all of which rules and regulations will be
forwarded to Tenant in writing and shall be complied with and observed by
Tenant. Tenant shall further be responsible for the compliance with such rules
and regulations by the employees, servants, agents, visitors and invitees of
Tenant.
16. INSPECTION
Landlord (and its officers, employees and representatives) shall have the
right to enter into and upon any and all parts of the Premises upon reasonable
notice at all reasonable hours to:
16.1 Inspect (including but not limited to inspection of fire and
sprinkler systems in the Premises which shall be at Landlord's option at least
weekly) or conduct tests in same for any purpose that the Landlord may deem
necessary (but without any obligation to do so, except as expressly provided for
herein); and
16.2 Show the Premises to prospective tenants within nine months prior to
the expiration of the Lease Term and to show at any time during the Term the
Premises to contractors, purchasers or lenders.
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16.3 Landlord will give advance notice of at least 24 hours of entry and
with opportunity for Tenant's representative to be present, and will minimize
interference with Tenant's operations during such entry.
17. CONDEMNATION
17.1 If Tenant's use of the Premises is materially adversely affected due
to the taking by eminent domain of the Premises (or any part thereof or any
estate therein) then, in either event, this Lease shall terminate on the date
when title vests pursuant to such taking or when a declaration of taking is
filed pursuant to such taking, whichever shall first occur. In the event that
Landlord shall elect to convey the premises in lieu of a taking by eminent
domain, this Lease shall terminate on the date of the delivery of such deed.
Rent shall be apportioned as of such termination date and any Rent paid for any
period beyond said date shall be repaid to Tenant.
17.2 Tenant shall not be entitled to any part of the award for such taking
or any payment in lieu thereof, but Tenant may file a separate claim for any
taking of fixtures owned by Tenant which have not become Landlord's property,
and for moving expenses, provided the same shall in no way affect or diminish
Landlord's award.
17.3 In the event of a partial taking which does not effect a termination
of this Lease but does deprive Tenant of the use of a portion of the Premises,
there shall either be an abatement or an equitable reduction of the Rent for the
period for which and the extent to which the Premises so taken are not
reasonably usable for the purpose for which they are leased hereunder.
Notwithstanding the foregoing, if only land
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is taken, access to the Premises is not affected, and Tenant's ability to add to
the existing Building or construct another building pursuant to Article 7.3 is
not affected, then there shall not be an abatement of or an equitable reduction
of the Rent.
18. FIRE OR OTHER CASUALTY
18.1 Tenant is liable for its actions, omissions to act and/or negligence
and the actions, omissions to act and/or negligence of Tenant's employees,
agents or invitees with respect to the Premises and the property of which the
Premises are a part.
18.2 Tenant shall notify the Landlord at once of any fire or other
casualty in the Building or on the Premises. Tenant is not required to pay Rent
when the Premises are destroyed in part or in whole by a casualty not due to
Tenant's actions or negligence. If part of the Premises can be used by Tenant
for the purposes set forth in this Lease, Tenant must pay Rent pro rata for the
usable part.
18.3 If the Building or the Premises are partially damaged by fire or
other casualty, Tenant shall repair it as soon as reasonably possible following
the actual receipt of and to the extent of the insurance proceeds received by
Tenant.
19. HOLDING OVER
If Tenant does not vacate the Premises at the end of the Term, Tenant
shall become a tenant-at-will and the Base Rent shall automatically become 150%
of the Base Rent set forth in the Fundamental Lease Provisions plus additional
rent and charges due by Tenant under the Lease.
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20. EVENTS OF DEFAULT
20.1 The Tenant shall be in default under this Lease whenever any of the
following shall have occurred or shall be continuing:
(a) Non-payment of Rent:
If any payment of Rent or any other lawful and proper charge upon the
Lease is not paid within ten (10) business days after it shall become due and
payable provided in no event shall Tenant be in default until written notice
from Landlord of the failure to pay Rent and failure to pay Rent within two (2)
business days after receipt of such notice from Landlord or ten (10) business
days after the date such Rent was due, whichever is later.
(b) Misrepresentation or Breach of Warranty:
(i) Breach of Warranty: If any warranty or representation made by
the Tenant to the Landlord in connection with any transaction contemplated by
this Lease shall be knowingly breached and such breach shall continue for thirty
(30) Business Days after notice thereof shall have been given by the Landlord to
the Tenant.
(c) Breach of Other Covenants:
If the Tenant shall knowingly breach or fail to perform any material term,
covenant or condition of this Lease other than as referred to in Article 20.1(a)
and such breach or failure to perform shall continue for thirty (30) days after
notice thereof shall have been given by the Landlord to the Tenant; provided,
however, that if the nature of such breach or failure of performance is such
that it cannot reasonably be cured within said period of thirty (30) days, the
Tenant shall not be in default under this Section 20.1 if the Tenant shall
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promptly (but in any event within said period of thirty (30) days) commence
efforts to cure said breach or failure of performance and shall thereafter (in
the reasonable opinion of the Landlord) diligently prosecute such efforts to a
successful conclusion.
(d) Any statements made by Tenant shall be deemed to be to the best of
Tenant's knowledge.
20.2 Upon any termination of this Lease, Tenant shall quit and peacefully
surrender the Demised Premises to Landlord, and Landlord, upon or at any time
after such termination, may without further notice, enter upon and re-enter the
Demised Premises and possess and repossess himself thereof, by force, summary
proceedings, ejectment or otherwise, and may dispossess Tenant and remove Tenant
and all other persons and property from the Demised Premises including but not
limited to any subtenant or assignee of Tenant and the property of such
subtenant or assignee, and may have, hold and enjoy the Demised Premises and the
right to receive all rental income of and from the same.
20.3 At all times, from time to time after any such termination, Landlord
may relet the Demised Premises or any part thereof for such term or terms (which
may be greater or less than the period which would otherwise have constituted
the balance of the term of this Lease) and on such conditions (which may include
concessions or free rent or alterations of the Demised Premises) as Landlord in
his reasonable discretion may determine and may collect and receive the rents
therefor. Landlord shall in no way be responsible or liable for any failure to
relet the Demised Premises or any part thereof, or for any failure to collect
any rent due upon any such re-
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letting but Landlord shall make good faith efforts to mitigate damages.
20.4 No such termination of this Lease shall relieve Tenant of its
liability and obligations under this Lease, and such liability and obligation
shall survive such termination. In the event of any such termination, whether or
not the Demised Premises or any part thereof shall have been relet, Tenant shall
pay to Landlord the net rent and all other charges required to be paid by Tenant
up to the time of such termination of this Lease, and thereafter Tenant, until
the end of what would have been the term of this Lease in the absence of such
termination, shall be liable to Landlord for, and shall pay to Landlord, the
equivalent of the amount of net rent and the other rent and charges which would
be payable under this Lease by Tenant if this Lease were still in effect, less
the net proceeds of any reletting effective pursuant hereto, after deducting all
Landlord's reasonable expenses in connection with such reletting including,
without limitation, all repossession costs, brokerage and management
commissions, operating expenses, legal expenses, reasonable attorney's fees,
alteration costs, and the expenses of preparation for such reletting. Tenant
shall pay such current damages to Landlord monthly on the date on which the net
rent would have been payable under this Lease as if the Lease were still in
effect and Landlord shall be entitled to recover from Tenant each monthly
deficiency as same shall arise.
20.5 No failure by Landlord or Tenant to insist upon the strict
performance of any agreement, term, covenant or condition hereof or to exercise
any right or remedy consequent upon a breach thereof and no acceptance of full
or partial
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rent during the continuance of any such breach, shall constitute a waiver of any
such breach or such agreement, term, covenant or condition. No agreement, term,
covenant or condition hereof to be performed or complied with by Tenant or
Landlord, and no breach thereof, shall be waived, altered or modified except by
written instrument executed by Landlord and Tenant. No waiver of any breach
shall affect or alter this Lease, but each and every agreement, term, covenant
and condition hereof shall continue in full force and effect with respect to any
other then existing or subsequent breach thereof.
20.6 In the event of any breach or threatened breach by Tenant of any of
the agreements, terms, covenants or conditions contained in this Lease, Landlord
shall be entitled to enjoin such breach or threatened breach and shall have the
right to invoke any right and remedy allowed at law or in equity or by statute
or otherwise as though re-entry, summary proceedings and other remedies were not
provided for in this Lease.
20.7 Each right and remedy provided for in this Lease shall be cumulative
and shall be in addition to every other right or remedy provided for in this
Lease or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Landlord or Tenant
of any one or more of the rights or remedies provided for in this Lease or now
or hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the party in question of any or
all other rights or remedies provided for in this Lease or now or hereafter
existing at law or in equity or by statute or
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otherwise.
21. SURRENDER OF PREMISES
No act or thing done by Landlord or its agents during the Term shall be
deemed an acceptance of a surrender of the Premises, and no agreement to accept
a surrender of the Premises shall be valid unless the same is made in writing
and signed by Landlord.
22. LANDLORD'S LIENS
Landlord shall have, at all times, and Tenant hereby grants to Landlord, a
valid security interest to secure payment of all rentals and other sums of money
becoming due hereunder from Tenant, and to secure payment of any damages or loss
which Landlord may suffer by reason of the breach of Tenant of any covenant,
agreement or condition herein, upon all goods, wares, equipment, fixtures,
furniture, improvements and other personal property owed by Tenant presently or
which may hereafter be situated on the Premises, and such property shall not be
removed therefrom without the consent of Landlord until all arrearages in Rent
as well as any and all other sums of money then due to Landlord hereunder shall
first have been paid and discharged and all the covenants, agreements, and
conditions hereof have been fully complied with and performed by Tenant.
23. INSURANCE
23.1 Tenant shall maintain insurance in the form of its certificate of
insurance attached hereto as Exhibit D. Tenant shall name Landlord's mortgagee
as an additional insured.
23.2 Tenant shall cause its contractors and subcontractors to comply with
the insurance requirements reasonably required by Landlord.
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23.3 Tenant shall furnish a certificate of insurance and such other
evidence reasonably satisfactory to Landlord of the maintenance of all insurance
coverages required hereunder upon the earlier of its entry upon the Premises or
the Commencement Date of this Lease.
24. BROKERAGE
Each party warrants that it has had no dealings with any broker or agent
in connection with the negotiations or execution of this Lease and a party who
falsely so warrants shall indemnify the other party against all costs, claims,
expenses, attorney's fees or other liability for commissions or other
compensation or charges claimed by any broker or agent claiming the same by,
through or under said party.
25. ESTOPPEL CERTIFICATES
Tenant agrees to furnish from time to time when requested by Landlord or
the holder of any mortgage on the Building, an estoppel certificate signed by
Tenant confirming and containing such factual certifications and representations
deemed appropriate by Landlord or the holder of any mortgage on the Building.
Tenant shall, within fifteen (15) days following receipt of said certificate
from Landlord, return a fully executed copy of said certificate to Landlord
within the foregoing fifteen (15) day period, failing which Tenant shall be
deemed to have approved and confirmed all of the terms, certifications and
representations contained in such certificate.
26. NOTICES
Each provision of this Lease, or of any applicable governmental laws,
ordinances, regulations, and other requirements with reference to the sending,
mailing or delivery of
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any notice, or with reference to the making of any payment by Tenant to
Landlord, shall be deemed to be complied with when and if the following steps
are taken.
26.1. All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address set forth in the
Fundamental Lease Provisions or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith.
26.2 Any notice or document required to be delivered hereunder shall be
deemed to be delivered as and when actually received. Notice by the United
States Mail shall be postage prepaid, certified or registered mail, (with return
receipt requested) addressed to the party at the address set forth at the head
of this Lease and to such other addresses as either of said parties shall have
specified by written notice delivered in accordance herewith.
27. FORCE MAJEURE
Whenever a period of time is herein prescribed for action to be taken by
Landlord, Landlord shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time, any delays due to
strikes, riots, acts of God, war, governmental laws, regulations or restrictions
or any other causes of any kind whatsoever which are beyond the reasonable
control of Landlord.
28. SEPARABILITY
If any clause or provision of this Lease is held by any court of competent
jurisdiction to be illegal, invalid, or unenforceable under present or future
laws in effect during the Term hereof, then and in that event, the remainder of
this
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Lease shall not be affected thereby. In lieu of each clause or provision of this
Lease that is illegal, invalid or unenforceable, there shall be added as a part
of this Lease a clause or provision as similar in terms to such illegal, invalid
or unenforceable clause or provision as may be possible which is legal, valid
and enforceable.
29. AMENDMENTS: BINDING EFFECT
This Lease may not be altered, changed or amended, except by instrument in
writing signed by both parties hereto. No provision of this Lease shall be
deemed to have been waived unless such waiver be in writing signed by the
waiving party and addressed to the other party, nor shall any custom or practice
which may evolve between the parties in the administration of the terms hereof
be construed to waive or lessen the right of either party to insist upon the
performance in strict accordance with the terms hereof. The terms and conditions
contained in this Lease shall apply to, inure to the benefit of, and be binding
upon the parties hereto, and upon their respective successors in interest and
legal representatives, except as otherwise herein expressly provided.
30. QUIET ENJOYMENT
Provided Tenant has performed all of the terms and conditions of this
Lease, including the payment of Rent, to be performed by Tenant, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Lease Term, without
hinderance from Landlord, subject to the terms and conditions of this Lease.
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31. GENDER
Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
32. LIABILITY
The liability of Landlord to Tenant for any default by Landlord under the
terms of this Lease shall be limited to the interest of Landlord in the Building
and the Land. Landlord shall not be liable for any deficiency.
33. NOTICE TO LENDER
If the Premises or the Building or any part thereof are at any time
subject to any first mortgage or other similar instrument and this Lease or the
Rent hereof is assigned to such mortgagee, and Tenant is given written notice
thereof, including the post office address of such assignee, then Tenant shall
not terminate this Lease or abate any Rent for any default on the part of
Landlord without first giving written notice by certified or registered mail,
return receipt requested, to such assignee, specifying the default in reasonable
detail, and affording such assignee a reasonable opportunity to make
performance, at its election, for and on behalf of the Landlord.
34. CAPTIONS
The captions contained in this Lease are for the convenience of reference
only, and in no way limit or enlarge the terms and conditions of this Lease.
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35. NO PARTNERSHIP
Nothing contained in this Lease shall be deemed or construed to create a
partnership or joint venture of or between Landlord and Tenant, nor to create
any other relationship between the parties hereto other than that of Landlord
and Tenant.
36. SALE
In the event Landlord shall sell or convey the Building, all liabilities
and obligations on the part of Landlord under this Lease accruing thereafter
shall terminate provided the new landlord acknowledges and agrees in writing to
assume the duties and obligations under the Lease, and thereupon all such
liabilities and obligations shall be binding upon the new landlord. Tenant
agrees to attorn to such new landlord.
37. BENEFIT AND BURDEN
The provisions of this Lease shall be binding upon, and shall
inure to the benefit of, the parties hereto and to the extent permitted
under this Lease to each of their respective representatives, successors
and assigns.
38. ENTIRE AGREEMENT
This Lease, together with the Exhibits attached hereto and Riders (if
any), contain and embodies the entire agreement of the parties hereto, and no
representations, inducements or agreements, oral or otherwise, between the
parties not contained in this Lease, the Exhibits and the Rider (if any), shall
be of any force or effect.
39. APPLICABLE LAW
This Lease and the rights and obligations of both parties hereto hereunder
shall be governed by the laws of the State of New Jersey.
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40. MISCELLANEOUS
40.1 There shall be no merger of this Lease or of the leasehold estate
hereby created with the fee estate in the Premises or any part thereof by reason
of the fact that the same person may acquire or hold, directly or indirectly,
this Lease or the leasehold estate hereby created or any interest in this Lease
or in such leasehold estate as well as the fee estate in the leasehold premises
or any interest in such fee estate.
40.2 Neither Landlord or Landlord's agents or brokers have made any
representations or promises with respect to the Premises or the Building except
as herein expressly set forth and no rights, easements or licenses are acquired
by Tenant by implication or otherwise except as expressly set forth in the
provisions of this Lease.
40.3 The submission of this Lease to Tenant shall not be construed as an
offer, nor shall Tenant have any rights with respect thereto unless and until
Landlord shall execute a copy of this Lease and deliver the same to Tenant.
40.4 If Tenant signs as a corporation, each of the persons executing this
Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly
authorized and existing corporation, qualified to do business in New Jersey,
that the corporation has full right and authority to enter into this Lease, and
that each and both of the persons signing on behalf of the corporation were
authorized to do so.
40.5 Tenant shall furnish to Landlord copies of its 10K and 10Q Reports as
they are filed with the Securities and Exchange Commission. Tenant shall furnish
copies of its press releases to Landlord when they are disseminated to the
public.
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41. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS:
In addition to and not in limitation of all other warranties and
representations contained in this Lease, the Tenant represents and warrants to
Landlord, after due inquiry and investigation, and hereby covenants with the
Landlord as follows:
(a) Compliance with Laws:
Tenant's use of the Premises (including any and all use of the Premises by
any tenant, subtenant or licensee of the Tenant) does not and will not knowingly
violate federal, state and local environmental laws, including (but not limited
to) the New Jersey Spill Compensation and Control Act, (being N.J.S..
58:10-23.11, et seq. and commonly called the "Spill Act") and the Industrial
Site Recovery Act (being N.J.S.. 131K-6 et seq. and commonly called "ISRA").
(1) Storage of Hazardous Substances:
To the best of the Tenant's knowledge, information and belief, and
except as set forth in the "Final Report, ECRA/ISRA Compliance, Capscan Cable
Company, Freehold, Monmouth County, ISRA Case No. 89100" dated March 1994 and
prepared by ENVIRON Corporation, the Premises have not been used by Tenant, any
tenant, subtenant or licensee of the Tenant or any prior owner, tenant,
subtenant or licensee of the Premises to refine, produce, store, handle,
transfer, process or transport "Hazardous Substances", as such term is defined
in N.J.S. 58:10-23.11b(k), except in accordance any and all applicable state and
federal law. Tenant will not knowingly in the future use nor suffer or permit
the Premises to be used for the foregoing purposes unless done (a) in full
compliance with any and all applicable state and federal law.
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(2) Notice of Alleged Violation:
The Tenant shall promptly notify the Landlord and furnish the
Landlord with a copy of any and all summonses, citations, directives, letters or
other communications concerning any violation or alleged violation of any
environmental law, rule or regulation on, about or respecting the Premises,
including (but not limited to) any violation or alleged violation of the Spill
Act.
(3) Notification of Spill:
The Tenant shall immediately notify the Landlord of any spill, leak,
or discharge of hazardous substances on the Premises not authorized by a permit
issued by a governmental agency having jurisdiction to issue such permits.
(4) Payment of Lien:
In the event a Lien shall be filed against the Premises pursuant to
the Spill Act, the Tenant shall within thirty (30) days from the date that it is
given notice that such a Lien has been placed against the Premises or, in the
event that the State of New Jersey has commenced steps to cause the Premises to
be sold pursuant to the Lien, within such shorter period of time as may be
necessary to prevent such sale, either (a) pay such sum as shall be necessary to
remove the Lien from the Premises, (b) provide a bond, cash deposit, or other
security in an amount sufficient to discharge the claim out of which the Lien
arises, or (c) take such other steps or make such other arrangements with the
lienor which result in a stay of execution, or forbearance in executing, upon
the lien.
(5) Notification with Respect to ISRA:
The Tenant shall promptly notify the Landlord of
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any termination of any lease or the closing or cessation of any operation at the
Premises or any other event which would require or trigger any action pursuant
to ISRA (including, but not limited to the events described in N.J.A.C.
7:26B-3.2, but Tenant shall not be required to take any action pursuant to ISRA
upon any of the events or operations described in N.J.A.C. 7:26B-2.1. If
required pursuant to the foregoing sentence, the Tenant shall provide evidence
to the Landlord of compliance by tenants and users with the provisions of ISRA
upon receipt by the Tenant of such evidence, including (but not limited to) any
"negative declaration" from the New Jersey Department of Environmental
Protection.
(6) Indemnification:
The Tenant shall indemnify and save harmless the Landlord from any
and all damages, remedial orders, judgments or decrees, and all costs and
expenses related thereto or arising therefrom, including but not limited to,
attorneys fees, cleanup, removal, repair and restoration costs, and lost rentals
(if any) arising out of the violation of any federal, state or local
environmental laws committed by Tenant, its subtenants or licensees. The
foregoing indemnification and hold harmless obligation shall remain in effect
and shall survive the expiration or other termination of this Lease, and shall
apply to all claims or proceedings arising out of the Landlord's interest in the
Premises as owner of the Premises.
(7) Additional Event of Default:
Failure to comply with the provision of this Article shall
constitute an Event of Default. A default under this Article shall be in
addition to and not in limitation of any other Events of Default specified in
this Lease.
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(8) Environmental Testing:
The Landlord shall have the right on prior notice to Tenant of at
least forty-eight (48) hours to engage in any environmental testing and sampling
of the Premises that the Landlord may reasonably deem necessary to protect its
interests whenever either (1) an Event of Default shall have occurred or shall
be continuing or (2) the Landlord shall deem such environmental testing and
sampling necessary to protect the Landlord, the Premises or any other collateral
which is security for the Loan from the effects of ISRA or the Spill Act. The
Tenant shall be liable for the costs of such environmental testing and sampling,
which shall be payable on demand, if the results of such testing and sampling
reveals a violation of ISRA or the Spill Act by Tenant, its subtenants or
licensees.
42. SECURITY DEPOSIT
The Landlord hereby acknowledges the receipt of $100,000.00 as a Security
Deposit which it is to retain as security for the faithful performance of all of
the covenants, conditions and agreements to this lease. The security deposit
shall not bear interest. Tenant may apply same to the last three (3) months
rent. Any portion of the Security Deposit not utilized to cure Tenant's default
under this Lease and not applied to rent shall be returned to Tenant within ten
(10) days following lease expiration or termination.
In the event of a bona fide sale of the Premises, the Landlord shall on
notice to Tenant have the right to transfer the Security Deposit to the vendee
for the benefit of Tenant but Landlord shall provide to Tenant the name and
address of any vendee to whom the Security Deposit is transferred.
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Landlord shall remain responsible for the return of the Security Deposit
notwithstanding any transfer to a vendee.
43. EXHIBITS AND ATTACHMENTS
All Exhibits listed hereinbelow are incorporated into this Lease and made
a part hereof for all intents and purposes:
Exhibit A. Description of the Premises
Exhibit A-1 Portion of Premises subject to Recapture by Landlord
Exhibit B. List of Items Remaining Tenant's Property
Exhibit C. Remedial and Maintenance Schedule
Exhibit D. Insurance Policy of Landlord
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44. RENEWAL TERM
Provided Tenant shall not be in default hereunder either at the time of
the exercise of the options herein accorded or at any time thereafter prior to
commencement of the Renewal Term's as herein described, Tenant shall have the
right to renew the term for two successive five (5) year periods which Renewal
Terms shall commence on the first day following expiration of the term ("Renewal
Term") and on the first day following the First Renewal Term. All of the terms
and conditions for the demise of the Premises for the Renewal Terms shall be
identical to those herein contained, except with respect to the Base Rent. The
Base Rent in the First Renewal Term shall be as follows: the Base Rent in the
first and second lease year shall be $585,000 per annum ($48,750 per month) and
in the third, fourth and fifth lease years, the Base Rent shall be $617,500 per
annum ($51,458.33 per month). The Base Rent in the first and second lease years
of the Second Renewal Term shall be $650,000.00 per annum ($54,166.67 per month)
and in the third, fourth and fifth lease years, the Base Rent shall be $715,000
per annum ($59,583.33 per month).
The time for Tenant's exercise of each option is of the essence. Tenant's
right to renew this Lease as set forth above shall be voidable by Landlord if:
(1) the written notice exercising the option of renewal to Landlord is not
received by Landlord on or before the date which is six (6) months prior
to the expiration date of the Term or six (6) months prior to the
expiration date of the First Renewal Term, as the case may be; or
(2) prior to the first day of any Renewal Term there
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occurs a default under this Lease; or
(3) Tenant is not in possession of the Premises pursuant to the terms
hereof at the time of the exercise of the option and at all times
thereafter during the term or First Renewal Term, as the case may be.
45. FIRST RIGHT TO NEGOTIATE PURCHASE
If Landlord desires to sell the Recaptured Premises as described in
Article 7.3 or the Premises or any portion thereof, before entering into an
agreement to sell to anyone else, Landlord will notify Tenant of its desire to
sell the Recaptured Premises and/or the Premises or portion thereof and the
price and basic terms Landlord is asking. If, within ten (10) business days
after receipt of the notice, Tenant gives Landlord written notice of its
interest in purchasing the Recaptured Premises and/or the Premises or portion
thereof at the price and upon the terms contained in Landlord's notice to
Tenant, Landlord and Tenant agree to negotiate a legally binding agreement to
carry out their previously expressed intent promptly and in good faith. If
Tenant fails to give such notice to Landlord within said ten (10) business days
period, Landlord will be free to sell the Premises and/or Recaptured Premises or
portion thereof subject to this Lease to anyone else upon the same terms offered
to Tenant and without any further obligation hereunder to Tenant.
46. RIGHT OF FIRST REFUSAL
46.1. If at any time during the term, Landlord desires to sell the
Premises or if Landlord recaptures a portion of the Premises pursuant to Article
7.3 and thereafter desires to lease or sell the Recaptured Premises or any
portion thereof and receives an acceptable bona fide offer of lease or
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purchase therefor, Landlord shall give Tenant written notice (the "Landlord's
Notice") of its intention to lease or sell in accordance with that offer, which
Landlord's Notice shall contain the terms and conditions of the offer to lease
or purchase as well as the name and address of the prospective tenant or
purchaser.
Upon the receipt of the Landlord's Notice, Tenant shall have the
right to lease the Recaptured Premises or purchase the Premises and/or the
Recaptured Premises or any designated portion thereof upon the same terms and
conditions contained in the bona fide offer to lease or purchase. Said right
shall be deemed exercised if Landlord receives written notice from Tenant,
within ten (10) business days of the receipt by Tenant of the Landlord's Notice,
stating that Tenant is willing and able to purchase the Premises and/or lease or
purchase the Recaptured Premises or such designated portion thereof upon the
same terms and conditions as were contained in the bona fide offer. If Tenant
does not exercise its right to lease the Recaptured Premises or purchase the
Premises and/or the Recaptured Premises or such designated portion thereof
within said ten (10) business day period, Landlord may convey the Premises
and/or lease or convey the Recaptured Premises or such designated portion
thereof within six (6) months after the end of said ten (10) business day
period, provided such lease of the Recaptured Premises or conveyance of the
Premises or Recaptured Premises is to the tenant or designated purchaser at the
same rent or price and upon substantially the same terms set forth in the
Landlord's Notice, and further provided that any lease or conveyance shall be
subject to this Lease. The right of first refusal
-42-
<PAGE>
provided herein shall be a continuing option and shall apply to any and all
future sales of the Premises or any portion thereof and/or to lease or sale of
the Recaptured Premises during the term of the Lease. No sale of the Premises or
sale or use of the Recaptured Premises by Landlord or its tenants and successors
shall interfere with the right of Tenant to use the Premises or the Recaptured
Premises pursuant to the terms of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal
the day and year first above written,
WITNESS: LANDLORD:
569 HALLS MILL ROAD, L.L.C.
/s/ Edward McCrossin BY: /s/ Donald J. Levine
- ---------------------- ----------------------------
ATTEST: TENANT:
IVC INDUSTRIES INC.
/s/ Martin A. Pickus BY: /s/ I. Alan Hirschfeld
- ---------------------- ----------------------------
-43-
<PAGE>
EXHIBIT B
1. Pallet Racking
2. Sprinkler System (In rack sprinkler system)
3. Telephone System
4. Building Signage
5. Alarm System
<PAGE>
EXHIBIT D
Insurance Policy of Tenant (Rent Insurance and Environmental Insurance to be
supplied)
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT, dated as of February 1, 1998, between IVC INDUSTRIES,
INC. (the "Company"), a Delaware corporation, and E. JOSEPH EDELL ("Edell"),
amending the Employment Agreement, dated April 28, 1995 (the "Employment
Agreement").
The Company and Edell agree that the Employment Agreement is hereby
amended as follows:
1. The first two sentences of Section 2 are amended to read in their
entirety as follows:
Edell's "term of employment," as such phrase is used throughout this
Agreement, shall mean the period beginning on February 1, 1998 and
ending on January 31, 2000, inclusive of these dates, unless
extended pursuant to the next sentence or terminated as provided in
Section 4 hereof. The term of employment shall be automatically
extended without further action by the parties for additional,
successive one-year periods, beginning on the anniversary date
hereof and ending on the day preceding the next anniversary date
hereof, unless earlier terminated by either party upon 3 months'
notice to the other party.
2. Section 3 is amended to read in its entirety as follows:
(a) the Company shall pay Edell a base salary for each year of
his term of employment, payable in accordance with the Company's
customary payroll practices, equal to the following per annum
amounts:
2/1/98 - 1/31/99: $312,500
2/1/99 - 1/31/00: $343,750
It is understood that the Company may only increase such annual base
salary, at the discretion of its Board of Directors, subsequent to
August 31, 1999. Edell's base salary for any subsequent one-year
extension period is to be determined by good faith negotiations
between Edell and the Company.
(b) In addition to the base salary provided for in Section
3(a) hereof, on each January 31 during his term of employment, Edell
shall be entitled to performance-based bonus compensation in an
amount equal to the sum of (i) his base salary on such January 31
multiplied by (ii) the percentage increase, if any, in the income
before income taxes of the Company for the 12-month period ended on
such January 31 over the income before income taxes of the Company
for the
1
<PAGE>
12-month period ended the prior January 31, in each case calculated
in accordance with the financial statements included in the
Company's Forms 10-Q and 10-K filed with the U.S. Securities and
Exchange Commission (the "Financial Statements"). Such
performance-based bonus compensation, if any, shall be payable (x)
with respect to the 12-month period ended January 31, 1999, on
September 1, 1999, and (y) with respect to subsequent 12-month
periods ended January 31, 30 days subsequent to the filing of the
Company's Form 10-Q with the U.S. Securities and Exchange Commission
for the quarterly period ended such January 31; provided, however,
that no such performance based bonus compensation shall be payable
if, at the time of a proposed payment, an Event of Default exists
under the Company's financing arrangements with its banks.
(c) The Company may, in its discretion, from time to time,
grant Edell options ("Options") to purchase shares of the Company's
common stock pursuant to the Company's 1995 Stock Option Plan (the
"Plan"), which Options shall have the terms set forth in the Plan.
3. Except as expressly amended hereby, no other changes, additions
or deletions are intended to be made to the Employment Agreement, and as hereby
amended the Employment Agreement remains in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
----------------------
Name:
Title:
/s/ E. Joseph Edell
--------------------------
E. Joseph Edell
3
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT, dated as of February 1, 1998, between IVC INDUSTRIES,
INC. (the "Company"), a Delaware corporation, and I. ALAN HIRSCHFELD
("Hirschfeld"), amending the Employment Agreement, dated April 28, 1995 (the
"Employment Agreement").
The Company and Hirschfeld agree that the Employment Agreement is
hereby amended as follows:
1. The first two sentences of Section 2 are amended to read in their
entirety as follows:
Hirschfeld's "term of employment," as such phrase is used throughout
this Agreement, shall mean the period beginning on February 1, 1998
and ending on January 31, 2000, inclusive of these dates, unless
extended pursuant to the next sentence or terminated as provided in
Section 4 hereof. The term of employment shall be automatically
extended without further action by the parties for additional,
successive one-year periods, beginning on the anniversary date
hereof and ending on the day preceding the next anniversary date
hereof, unless earlier terminated by either party upon 3 months'
notice to the other party.
2. Section 3 is amended to read in its entirety as follows:
(a) the Company shall pay Hirschfeld a base salary for each
year of his term of employment, payable in accordance with the
Company's customary payroll practices, equal to the following per
annum amounts:
2/1/98 - 1/31/99: $156,250
2/1/99 - 1/31/00: $171,875
It is understood that the Company may only increase such annual base
salary, at the discretion of its Board of Directors, subsequent to
August 31, 1999. Hirschfeld's base salary for any subsequent
one-year extension period is to be determined by good faith
negotiations between Hirschfeld and the Company.
(b) In addition to the base salary provided for in Section
3(a) hereof, on each January 31 during his term of employment,
Hirschfeld shall be entitled to performance-based bonus compensation
in an amount equal to the sum of (i) his base salary on such January
31 multiplied by (ii) the percentage increase, if any, in the income
before income taxes of the Company for the 12-month period ended
1
<PAGE>
on such January 31 over the income before income taxes of the
Company for the 12-month period ended the prior January 31, in each
case calculated in accordance with the financial statements included
in the Company's Forms 10-Q and 10-K filed with the U.S. Securities
and Exchange Commission (the "Financial Statements"). Such
performance-based bonus compensation, if any, shall be payable (x)
with respect to the 12-month period ended January 31, 1999, on
September 1, 1999, and (y) with respect to subsequent 12-month
periods ended January 31, 30 days subsequent to the filing of the
Company's Form 10-Q with the U.S. Securities and Exchange Commission
for the quarterly period ended such January 31; provided, however,
that no such performance based bonus compensation shall be payable
if, at the time of a proposed payment, an Event of Default exists
under the Company's financing arrangements with its banks.
(c) The Company may, in its discretion, from time to time,
grant Hirschfeld options ("Options") to purchase shares of the
Company's common stock pursuant to the Company's 1995 Stock Option
Plan (the "Plan"), which Options shall have the terms set forth in
the Plan.
3. Except as expressly amended hereby, no other changes, additions
or deletions are intended to be made to the Employment Agreement, and as hereby
amended the Employment Agreement remains in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
IVC INDUSTRIES, INC.
By: /s/ E. Joseph Edell
--------------------
Name:
Title:
/s/ I. Alan Hirschfeld
----------------------
I. Alan Hirschfeld
3
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT, dated as of February 1, 1998, between IVC INDUSTRIES,
INC. (the "Company"), a Delaware corporation, and ANDREW M. PINKOWSKI
("Pinkowski"), amending the Employment Agreement, dated April 30, 1996 (the
"Employment Agreement").
The Company and Pinkowski agree that the Employment Agreement is
hereby amended as follows:
1. The first two sentences of Section 2 are amended to read in their
entirety as follows:
Pinkowski's "term of employment," as such phrase is used throughout
this Agreement, shall mean the period beginning on February 1, 1998
and ending on April 30, 1999, inclusive of these dates, unless
earlier terminated as provided in Section 4 hereof.
2. Section 3 is amended to read in its entirety as follows:
(a) the Company shall pay Pinkowski a base salary for his term
of employment, payable in accordance with the Company's customary
payroll practices, equal to $112,500.
(b) In addition to the base salary provided for in Section
3(a) hereof, on January 31, 1999, Pinkowski shall be entitled to
performance-based bonus compensation in an amount equal to the sum
of (i) his base salary on such January 31 multiplied by (ii) the
percentage increase, if any, in the income before income taxes of
the Company for the 12-month period ended on such January 31 over
the income before income taxes of the Company for the 12-month
period ended the prior January 31, in each case calculated in
accordance with the financial statements included in the Company's
Forms 10-Q and 10-K filed with the U.S. Securities and Exchange
Commission (the "Financial Statements"). Such performance-based
bonus compensation, if any, shall be payable on September 1, 1999;
provided, however, that no such performance based bonus compensation
shall be payable if, at the time of the proposed payment, an Event
of Default exists under the Company's financing arrangements with
its banks.
(c) The Company may, in its discretion, from time to time,
grant Pinkowski options ("Options") to purchase shares of the
Company's common stock pursuant to the Company's 1995 Stock Option
Plan (the "Plan"), which Options shall have the terms set forth in
the Plan.
1
<PAGE>
3. Except as expressly amended hereby, no other changes, additions
or deletions are intended to be made to the Employment Agreement, and as hereby
amended the Employment Agreement remains in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first above written.
IVC INDUSTRIES, INC.
By: /s/ I. Alan Hirschfeld
----------------------
Name:
Title:
/s/ Andrew M. Pinkowski
--------------------------
Andrew M. Pinkowski
3
SEVERANCE AGREEMENT AND RELEASE, dated as of June 1, 1998, between
Arthur S. Edell ("Edell") and IVC Industries, Inc. ("IVC").
1. Edell and IVC agree that, effective June 1, 1998 (the "Effective
Date"), Edell's employment by IVC under the Employment Agreement, effective as
of January 1, 1993, between Edell and IVC (the "Employment Agreement"),
including his tenure as President of IVC, has terminated as a result of his
resignation. Edell agrees that, subsequent to the Effective Date, he shall not
be or hold himself out as an officer or employee of IVC or any of its
subsidiaries. IVC agrees that Edell's resignation shall be considered a
"retirement" under IVC's stock option plans.
2. Edell hereby resigns as a director of Vitamin Specialties Corp.,
a wholly owned subsidiary of IVC.
3. Edell and IVC agree that from the Effective Date through the
third anniversary of the Effective Date (the "Severance Period"), in
consideration of his past services as President of IVC, IVC shall pay Edell a
severance payment (the "Severance Payment") of $85,000 per annum in equal
bi-weekly installments. In the event of Edell's death during the Severance
Period, IVC shall pay the Severance Payment during the balance of the Severance
Period to Edell's wife.
4. During the Severance Period, Edell may accept new employment
outside of IVC on a full-time or part-time basis or as a consultant. In
addition, so long as Edell serves as a director of IVC, he shall receive the
standard compensation granted to non-employee directors of IVC.
5. During the Severance Period, Edell shall be entitled to
participate and shall be included in IVC's Group Medical Insurance Plan, which
includes medical, dental, prescription drug and vision coverage, but only if
IVC's stop-loss insurance provider agrees that Edell may be covered under IVC's
stop-loss insurance plan for no more than a nominal additional fee. If IVC's
stop-loss insurance provider does not so agree, and if Edell elects COBRA
continuation coverage, IVC agrees to reimburse Edell for any payments required
to be made by him during the Severance Period for said COBRA continuation
coverage.
6. From the Effective Date through the first anniversary of the
Effective Date, IVC shall reimburse Edell for his expenses associated with his
use of a car and driver, in an amount not to exceed $1,200 per month.
7. If Edell desires to sell all or a portion of his shares of IVC
Common Stock, IVC agrees to register the sale of such shares on Form S-3, at
IVC's expense, provided that Form S-3 may be used for the registration of such
shares.
8. Subject to the approval of IVC's lenders, IVC agrees to lend
Edell $300,000 for the sole purpose of allowing Edell to exercise his option to
purchase 200,000 shares of IVC Common Stock at an exercise price of $1.50 per
share (the "Option"), which Option was granted to Edell on October 13, 1993, and
which Option expires on October 14, 1998. Said loan shall be represented by a
full-recourse note (the "Note"), in a form agreeable to IVC and its counsel,
<PAGE>
which shall (a) bear interest at a rate equal to the interest rate of IVC's
loans with its principal bank, (b) be due and payable, with respect to both
principal and interest, 3 years from the date of the Note or upon Edell's sale
of the shares of IVC Common Stock purchased by Edell with the proceeds of said
loan (the "Shares"), and (c) provide that the Shares be pledged to IVC to secure
the payment by Edell to IVC of all amounts of principal and interest due and
owing under the Note. Edell understands that he will recognize ordinary income
for income tax purposes on any gain he realizes upon exercise of the Option, and
IVC will be entitled to a corresponding deduction. Edell agrees that, upon his
exercise of the Option, he will pay to IVC an amount equal to all amounts that
IVC is required by law to pay over to governmental taxing authorities, including
wage withholding, in respect of Edell's exercise of the Option. Edell further
agrees that if for any reason payment is not made by him in accordance with the
preceding sentence, IVC shall be entitled to withhold from any amounts due
Edell, including, without limitation, his Severance Payment, all amounts owed by
Edell pursuant to the preceding sentence.
9. Edell acknowledges that all the payments and benefits described
in Paragraphs 3 through 8 above are not required by IVC's policies and/or
procedures, but constitute special severance benefits and/or settlement of all
disputes.
10. Edell agrees to cooperate fully with IVC after the Effective
Date in connection with any litigations, arbitrations and governmental or other
proceedings to which IVC is from time to time a party, all without any
additional compensation. IVC agrees to reimburse Edell for any reasonable
expenses, including attorney's fees, actually incurred by Edell in connection
with any such cooperation.
11. As a material inducement to IVC to enter into this Agreement and
in consideration for the benefits received hereunder and of IVC's agreement to
settle all outstanding disputes, Edell, for himself, his heirs, executors,
administrators, successors and assigns, hereby fully releases, discharges and
acquits IVC, its affiliated and related entities, subsidiary corporations,
present and former officers and directors, employees, agents, attorneys,
representatives, shareholders, successors and assigns (collectively "IVC
Releasees"), from any and all claims, charges, demands, sums of money, actions,
rights, causes of action, obligations and liabilities of any kind or nature
whatsoever, at law or in equity, which Edell may have, had, claim to have had,
now has, or claim to have, which are or may be based upon facts, acts, conduct,
representations, omissions, contracts, claims, events, causes, matters or things
of any conceivable kind or character, whether known or unknown, existing or
occurring at any time on or before the date of this Agreement based upon Edell's
employment with IVC, the terms of his employment by IVC and the termination of
his employment with IVC, except any rights or claims arising solely out of
Edell's status as a shareholder of IVC and any right to be indemnified by IVC
for his past service as an officer of IVC and his past and continuing service as
a director of IVC, including, without limitation, Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act, the Equal Pay Act, the Age
Discrimination in Employment Act of 1967, as amended, any claims arising under
any federal, state or other governmental statutes, ordinances or regulations,
any defamation, fraud, negligence or other tort or common law claims, claims
arising under any implied or express contracts or agreements, including without
limitation, the Employment Agreement, any claims for adjusted compensation,
bonus, severance or vacation pay or any other form of compensation or benefit
relating to his employment and the
2
<PAGE>
termination thereof, any claims for intentional torts, emotional distress and
pain and suffering and any claims for compensatory and punitive damages.
12. As a material inducement to Edell to enter into this Agreement
and in consideration of Edell's agreement to settle all outstanding disputes,
IVC hereby fully releases and discharges Edell from any and all claims, charges,
demands, sums of money, actions, rights, causes of action, obligations and
liabilities of any kind or nature whatsoever, at law or in equity, which IVC may
have, had, claim to have had, now has, or claim to have, which are or may be
based upon facts, acts, conduct, representations, omissions, contracts, claims,
events, causes, matters or things of any conceivable kind or character, whether
known or unknown, existing or occurring at any time on or before the date of
this Agreement based upon Edell's employment with IVC, the terms of his
employment by IVC and the termination of his employment with IVC.
13. Edell, for himself, his heirs, executors, administrators,
successors and assigns, hereby represents and covenants that he has not
instituted, and will not institute, any complaints, claims, charges or lawsuits,
with any governmental agency or any court against IVC by reason of any claim,
present or future, known or unknown, arising from or related in any way to his
employment with IVC or the termination of such employment, or any relationship,
association, or transaction to date between the parties hereto or any of their
predecessors or their respective agents, employees or officers. This covenant
shall not apply to actions for breach by IVC of this Agreement or to any rights
or claims arising solely out of Edell's status as a shareholder of IVC or any
right to be indemnified by IVC for his past service as an officer of IVC or his
past and continuing service as a director of IVC.
14. This Agreement shall not in any way be construed as an admission
by IVC that it has acted wrongfully with respect to Edell or any other person,
or that Edell has any rights whatsoever against IVC, and IVC specifically
disclaims any liability to or wrongful acts against Edell or any other person,
on the part of itself, its employees or its agents. This Agreement also shall
not in any way be construed as an admission by Edell that he has acted
wrongfully with respect to IVC or any other person.
15. The provisions of this Agreement are severable, and if any part
of it is found to be unenforceable, the other portions shall remain fully valid
and enforceable. This Agreement shall survive the termination of any
arrangements contained herein.
16. Edell has returned to IVC all Company Information and related
reports, files, memoranda and records, cardkey passes, door and file keys,
computer access codes, credit cards, software, new product information,
blueprints, drawings, sketches, notebooks, computer programs, formulas, data,
listings specifications and other physical or personal property which he
received or prepared in connection with his employment with IVC, and Edell has
not retained and will not retain any copies, duplicates, reproductions or
excerpts thereof. The term "Company Information" as used in this Agreement
means, in addition to the items set forth in the first sentence of this
Paragraph 16, (a) confidential information received from third parties under
confidential conditions and (b) the technical, business and financial
information of IVC that IVC has treated as proprietary or confidential.
3
<PAGE>
17. Edell acknowledges that in the course of his employment with IVC
he has acquired Company Information. Edell understands and agrees that such
Company Information has been disclosed to him in confidence and for use by him
in connection with his work for IVC. Edell understands and agrees that he (a)
will keep such Company Information confidential at all times after his
employment with IVC, (b) will not disclose or communicate Company Information to
any third party, and (c) will not make use of Company Information on his own
behalf or on behalf of any third party. When Company Information becomes
generally available to the public other than by Edell's acts or omissions, it
shall no longer be subject to the restrictions of this Paragraph 17; provided,
however, that Company Information shall not be deemed to come under this
exception merely because it is embraced by more general information which is or
becomes generally available to the public. The undertaking set forth in this
paragraph shall survive the termination of this Agreement and other arrangements
contained in this Agreement.
18. Edell acknowledges that he was advised by IVC to consult with an
attorney of Edell's own choosing concerning the waivers contained in this
Agreement, that Edell has done so and that the waivers Edell has made herein are
knowing, conscious and with full appreciation that Edell is forever foreclosed
from pursuing any of the rights so waived.
19. Edell agrees not to disparage IVC, its reputation, its business,
and its officers, directors and employees to any person. IVC similarly agrees
not to disparage Edell, his reputation, his business expertise and his job
performance at IVC to any person. For the purposes of this Paragraph 19, the
term "disparage" shall mean the making of any false statement, or the rendering
of any subjective opinion, whether written or oral, that belittles another
person in rank or esteem. Upon a party's first violation of this Paragraph 19,
the other party shall provide written notice to the violating party of such
violation, which the violating party shall use its best efforts to cure. Any
subsequent violation by such violating party shall be considered a breach of
this Agreement. The prohibitions of this Paragraph 19 shall not apply to any
statements made during a meeting of the Board of Directors of IVC.
20. No waiver or modification of this Agreement or any term hereof
shall be binding unless it is in writing and signed by the parties hereto or
their expressly authorized representatives. No failure to insist upon compliance
with any term, provision or condition to this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
waiver of any such term, provision or condition, or as a waiver of any other
term, provision or condition of this Agreement. This Agreement shall be
construed in accordance with the laws of the State of New Jersey without regard
to the choice-of-law principles thereof.
21. It is agreed and understood that the general rule that
ambiguities are to be construed against the drafter shall not apply to this
Agreement. In the event that any language in this Agreement is found or claimed
to be ambiguous, each party shall have the same opportunity to present evidence
as to the actual intent of the parties with respect to any such ambiguous
language without any inference or presumption being drawn against the drafter.
4
<PAGE>
22. The parties agree not to disclose to anyone the existence of
this Agreement, the circumstances surrounding it, its terms, conditions, or
negotiations, including the dollar amounts set forth, except as required by law.
23. Edell represents and acknowledges that in executing this
Agreement, Edell does not rely and has not relied upon any representation or
statement not set forth herein.
24. This Agreement sets forth the entire agreement between the
parties hereto, and fully supersedes any and all prior agreements or
understandings between the parties hereto pertaining to the subject matter
hereof, including the Employment Agreement, which prior agreements and
understandings shall be of no further force or effect.
25. Edell has a period of 21 days from the date on which a copy of
this Agreement has been delivered to Edell to consider whether to sign it. In
addition, in the event that Edell elects to sign and return to IVC a copy of
this Agreement, Edell has a period of seven days (the "Revocation Period")
following the date of such return to IVC of a signed copy, to revoke this
Agreement, which revocation must be in writing and delivered to IVC within the
Revocation Period. This Agreement will not be effective or enforceable until the
expiration of the Revocation Period.
26. Edell hereby acknowledges that he has read and that he
understands the foregoing agreement and that he has affixed his signature hereto
voluntarily and without coercion.
5
<PAGE>
PLEASE READ CAREFULLY. THIS SEVERANCE AGREEMENT AND RELEASE INCLUDES
A RELEASE OF CERTAIN KNOWN AND UNKNOWN CLAIMS.
Executed September __, 1998
-------------------------------
Arthur S. Edell
Executed September 2, 1998
IVC INDUSTRIES, INC.
By: /s/ E. Joseph Edell
---------------------------
Name:
Title:
6
EXHIBIT 11
IVC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996
(Dollars in Thousands, Except as Noted or Per Share Information)
<TABLE>
<CAPTION>
Years Ended
July 31,
--------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $ 1,147 $ 1,346 $ 296
Less - preferred stock dividends -- -- --
----------- ----------- -----------
Net income for basic income per common share $ 1,147 $ 1,346 $ 296
=========== =========== ===========
Weighted average number of common shares
outstanding during the year - Basic 17,145,530 17,091,159 17,084,726
Add - common equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon exercise
of employee stock options and incentive
performance shares 89,390 39,618 133,663
----------- ----------- -----------
Weighted average number of common shares -
Diluted 17,234,920 17,130,777 17,218,389
=========== =========== ===========
Income per common share - Diluted $ 0.07 $ 0.08 $ 0.02
=========== =========== ===========
</TABLE>
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10K and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 1,604
<SECURITIES> 0
<RECEIVABLES> 11,725
<ALLOWANCES> 0
<INVENTORY> 37,389
<CURRENT-ASSETS> 56,036
<PP&E> 20,766
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,254
<CURRENT-LIABILITIES> 51,487
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 17,588
<TOTAL-LIABILITY-AND-EQUITY> 81,254
<SALES> 119,775
<TOTAL-REVENUES> 0
<CGS> 91,256
<TOTAL-COSTS> 25,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,346
<INCOME-PRETAX> 1,912
<INCOME-TAX> 765
<INCOME-CONTINUING> 1,147
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,147
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
