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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TWIN LABORATORIES INC.
(Exact name of registrant as specified in its charter)
UTAH 2833 87-0467271
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
2120 SMITHTOWN AVENUE
RONKONKOMA, NEW YORK 11779
(516) 467-3140
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
SEE TABLE OF ADDITIONAL REGISTRANTS
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COPY TO:
PHILIP M. KAZIN, ESQ. HOWARD A. SOBEL, ESQ.
GENERAL COUNSEL KRAMER, LEVIN, NAFTALIS & FRANKEL
TWIN LABORATORIES INC. 919 THIRD AVENUE
2120 SMITHTOWN AVENUE NEW YORK, NEW YORK 10022
RONKONKOMA, NEW YORK 11779 (212) 715-9100
(516) 467-3140
(Name, Address, Including Zip Code, and
Telephone
Number, Including Area Code, of Agent For
Service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the registration statement becomes effective and all other
conditions to the exchange offer (the "Exchange Offer") pursuant to the
registration rights agreement (the "Registration Rights Agreement") described in
the enclosed Prospectus have been satisfied or waived.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE
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10 1/4% Senior
Subordinated Notes Due
2006.................. $100,000,000 100%(1) $100,000,000(1) $34,482.76
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Guarantees of the
10 1/4% Senior
Subordinated Notes due
2006.................. $100,000,000 -- (2) -- --
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate
consideration is payable for the Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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OTHER REGISTRANTS
PRIMARY
STANDARD ADDRESS, INCLUDING ZIP CODE
INDUSTRIAL IRS EMPLOYER AND TELEPHONE NUMBER
JURISDICTION OF CLASSIFICATION IDENTIFICATION INCLUDING AREA CODE, OF
NAME OF CORPORATION INCORPORATION CODE NUMBER NUMBER PRINCIPAL EXECUTIVE OFFICE
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Twinlab Corporation.............. Delaware 2833 11-3317986 2120 Smithtown Avenue
Ronkonkoma, NY 11779
(516) 467-3140
Advanced Research Press, Inc..... New York 2721/2731 11-2727629 2120 Smithtown Avenue
Ronkonkoma, NY 11779
(516) 467-3140
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TWIN LABORATORIES INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K AND RULE 404(A)
SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN FORM S-4
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus............... Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Available Information; Table of Contents;
Inside Front Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Prospectus Summary; Risk Factors; The Exchange
Offer, Summary Historical and Pro Forma
Financial Data; Unaudited Pro Forma Condensed
Consolidated Financial Data
4. Terms of the Transaction....................... Prospectus Summary; The Exchange Offer;
Description of New Notes; Incorporation of
Certain Documents by Reference
5. Pro Forma Financial Information................ Unaudited Pro Forma Condensed Consolidated
Financial Data
6. Material Contacts with the Company
Being Acquired............................... Not Applicable
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................. Not Applicable
8. Interests of Named Experts and Counsel......... Legal Matters; Independent Auditors
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
10. Information With Respect to S-3 Registrants.... Not Applicable
11. Incorporation of Certain Information by
Reference.................................... Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3
Registrants.................................. Not Applicable
13. Incorporation of Certain Information by
Reference.................................... Not Applicable
14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants.................. Prospectus Cover Page; Available Information;
Prospectus Summary; Selected Historical
Financial Data; Unaudited Pro Forma Condensed
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Index to Consolidated Financial
Statements
15. Information with Respect to S-3 Companies...... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................... Not Applicable
17. Information with Respect to Companies Other
than S-2 or S-3 Companies.................... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................ Management; Certain Relationships and Related
Transactions; Principal Stockholders
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 25, 1996
TWIN LABORATORIES INC.
OFFER TO EXCHANGE
ANY AND ALL OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
GUARANTEED BY TWINLAB CORPORATION ("TLC")
AND BY ADVANCED RESEARCH PRESS, INC. ("ARP")
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York
City time, on , 1996 (as such date may be extended, the "Expiration
Date").
Twin Laboratories Inc. (the "Company") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal amount of its 10 1/4% Senior
Subordinated Notes due 2006 (the "New Notes") for each $1,000 in principal
amount of its outstanding 10 1/4% Senior Subordinated Notes due 2006 (the "Old
Notes") (the Old Notes and the New Notes are sometimes collectively referred to
herein as the "Notes") held by Eligible Holders. An aggregate principal amount
of $100,000,000 of Old Notes is outstanding. See "The Exchange Offer." For
purposes of the Exchange Offer, "Eligible Holder" shall mean the registered
owner of any Old Notes that remain Transfer Restricted Securities as reflected
on the records of Fleet National Bank, as registrar for the Old Notes (in such
capacity, the "Registrar"), or any person whose Old Notes are held of record by
the depository of the Old Notes. For purposes of the Exchange Offer, "Transfer
Restricted Securities" means each Old Note until the earliest to occur of (i)
the date on which such Old Note has been exchanged for a New Note in the
Exchange Offer, (ii) the date on which such Old Note is registered under the
Securities Act of 1933, as amended (the "Securities Act"), and disposed of in
accordance with a registration statement or (iii) the date on which such Old
Note is distributed to the public pursuant to Rule 144 under the Securities Act.
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain customary conditions, which may be
waived by the Company, and to the terms and provisions of the Registration
Rights Agreement dated as of May 7, 1996 (the "Registration Rights Agreement")
among the Company, TLC and ARP, each of which has guaranteed the Old Notes and
has agreed to guarantee the New Notes (collectively, the "Guarantors"), and
Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc.
(collectively, the "Initial Purchasers"). The Old Notes may be tendered only in
multiples of $1,000. See "The Exchange Offer."
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 16 HEREIN FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is June 25, 1996.
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The Old Notes were issued in a transaction (the "Offering") pursuant to
which the Company issued an aggregate of $100,000,000 principal amount of the
Old Notes to the Initial Purchasers on May 7, 1996 (the "Closing Date") pursuant
to a Purchase Agreement dated May 1, 1996 (the "Purchase Agreement") among the
Company, the Guarantors and the Initial Purchasers. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A and certain other
exemptions under the Securities Act. The Company and the Initial Purchasers also
entered into the Registration Rights Agreement, pursuant to which the Company
granted certain registration rights for the benefit of the holders of the Old
Notes. The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement with respect to the Old
Notes. See "The Exchange Offer -- Purpose and Effect."
The Old Notes were issued under an indenture, dated as of May 7, 1996 (the
"Indenture"), among the Company, the Guarantors and Fleet National Bank as
trustee (in such capacity, the "Trustee"). The New Notes will be issued under
the Indenture as it relates to the New Notes. The form and terms of the New
Notes will be identical in all material respects to the form and terms of the
Old Notes, except that (i) the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, (ii) holders of New Notes will not be entitled to the liquidated
damages of $0.05 per week per $1,000 principal amount of the Old Notes (up to a
maximum amount of $0.30 per week per $1,000 principal amount) otherwise payable
under the terms of the Registration Rights Agreement in respect of Old Notes
constituting Transfer Restricted Securities held by such holders during any
period in which a Registration Default (as defined) is continuing (the
"Liquidated Damages") and (iii) holders of New Notes will not be, and upon the
consummation of the Exchange Offer, Eligible Holders of Old Notes will no longer
be, entitled to certain rights under the Registration Rights Agreement intended
for the holders of unregistered securities. The Exchange Offer shall be deemed
consummated upon the delivery by the Company to the Registrar under the
Indenture of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes that are validly tendered by holders thereof
pursuant to the Exchange Offer. See "The Exchange Offer -- Termination of
Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description of
New Notes."
The New Notes will bear interest at a rate equal to 10 1/4% per annum from
and including their date of issuance. Interest on the New Notes is payable
semiannually on May 15 and November 15 of each year (each, an "Interest Payment
Date"). Eligible Holders whose Old Notes are accepted for exchange will have the
right to receive interest accrued thereon from the date of their original
issuance or the last Interest Payment Date, as applicable, to, but not
including, the date of issuance of the New Notes, such interest to be payable
with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue on the day prior to the issuance of
the New Notes. The New Notes will mature on May 15, 2006. See "Description of
New Notes."
The New Notes will not be redeemable, in whole or in part, prior to May 15,
2001. Thereafter, the New Notes will be redeemable at the redemption prices set
forth herein, plus interest accrued thereon to the redemption date.
Notwithstanding the foregoing, at any time on or before May 15, 1999, the
Company may redeem up to 35% of the original aggregate principal amount of the
New Notes, in whole or in part, with the net proceeds of one or more Equity
Offerings (as defined herein) at a redemption price equal to 109 1/2% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption. Upon the occurrence of a Change of Control (as defined herein),
the Company will be required to make an offer to repurchase all outstanding
Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. See "Description of New
Notes -- Certain Covenants -- Repurchase of Notes at the Option of the Holder
Upon a Change of Control."
The New Notes will be general unsecured obligations of the Company
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company, including borrowings under the New Credit
Facility (as defined herein). The payment of the principal of, premium, if any,
and interest on the New Notes will be guaranteed by the Guarantors. The
Guarantees will be subordinated in right of payment to all existing and future
Senior Debt of the Guarantors. See "Description of New Notes." See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and
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Capital Resources." The Indenture permits the Company and its subsidiaries to
incur additional indebtedness, including additional Senior Debt.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer to an Eligible Holder in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by such Eligible Holder (other than a
broker-dealer who purchased Old Notes directly from the Company for resale
pursuant to Rule 144A under the Securities Act or any other available exemption
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the Eligible
Holder is not an affiliate of the Company, is acquiring the New Notes in the
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes. Eligible Holders wishing to accept the Exchange Offer must represent to
the Company, as required by the Registration Rights Agreement, that such
conditions have been met. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "The Exchange
Offer -- Resales of the New Notes." This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities.
As of , 1996, Cede & Co. ("Cede"), as nominee for The
Depository Trust Company, New York, New York ("DTC"), was the registered holder
of $ aggregate principal amount of the Old Notes and held such Old Notes for
of its participants. The Company believes that no such participant is an
affiliate (as such term is defined in Rule 405 of the Securities Act) of the
Company. There has previously been only a limited secondary market, and no
public market, for the Old Notes. The Old Notes are eligible for trading in the
Private Offering, Resales and Trading through Automatic Linkages ("PORTAL")
market. There can be no assurance as to the liquidity of the trading market for
either the New Notes or the Old Notes. The New Notes constitute securities for
which there is no established trading market, and the Company does not currently
intend to list the Notes on any securities exchange. If such a trading market
develops for the New Notes, future trading prices will depend on many factors,
including, among other things, prevailing interest rates, the Company's results
of operations and the market for similar securities. Depending on such factors,
the New Notes may trade at a discount from their face value. See "Risk
Factors -- Absence of Public Markets."
The Company will not receive any proceeds from this Exchange Offer.
Pursuant to the Registration Rights Agreement, the Company will bear all
expenses incident to the Company's consummation of the Exchange Offer and
compliance with the Registration Rights Agreement.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
$ aggregate principal amount of the Old Notes were issued originally in
global form (the "Global Old Note"). The Global Old Note was deposited with, or
on behalf of, DTC, as the initial depository with respect to the Old Notes (in
such capacity, the "Depository"). The Global Old Note is registered in the name
of Cede, as nominee of DTC, and beneficial interests in the Global Old Note are
shown on, and transfers thereof are effected only through, records maintained by
the Depository and its participants. The use of the Global Old Note to represent
certain of the Old Notes permits the Depository's participants, and anyone
holding a beneficial interest in an Old Note registered in the name of such a
participant, to transfer interests in the Old Notes electronically in accordance
with the Depository's established procedures without the need to transfer a
physical certificate. Except as provided below, the New Notes will also be
issued initially as a note in global form (the "Global New Note", and together
with the Global Old Note, the "Global Notes") and deposited with, or on behalf
of, the Depository. Notwithstanding the foregoing, holders of Old Notes that are
held, at any time, by a person that is not a qualified institutional buyer under
Rule 144A (a "Qualified
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Institutional Buyer"), and any Eligible Holder that is not a Qualified
Institutional Buyer that exchanges Old Notes in the Exchange Offer, will receive
the New Notes in certificated form and is not, and will not be, able to trade
such securities through the Depository unless the New Notes are resold to a
Qualified Institutional Buyer. After the initial issuance of the Global New
Note, New Notes in certificated form will be issued in exchange for a holder's
proportionate interest in the Global New Note only as set forth in the
Indenture.
TABLE OF CONTENTS
PAGE
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Available Information................................................................. 5
Prospectus Summary.................................................................... 6
Risk Factors.......................................................................... 16
The Exchange Offer.................................................................... 22
Capitalization........................................................................ 30
Unaudited Pro Forma Condensed Consolidated Financial Data............................. 31
Selected Historical Financial Data.................................................... 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 40
Business.............................................................................. 44
Management............................................................................ 57
Certain Relationships and Related Transactions........................................ 60
Principal Stockholders................................................................ 62
Description of New Notes.............................................................. 64
Description of New Credit Facility.................................................... 90
Description of Capital Stock of TLC................................................... 92
Certain Federal Income Tax Consequences of an Investment in the New Notes............. 93
Plan of Distribution.................................................................. 96
Incorporation of Certain Documents By Reference....................................... 96
Legal Matters......................................................................... 97
Experts............................................................................... 97
Index to Consolidated Financial Statements............................................ F-1
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-4 under the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Each statement made in
this Prospectus referring to a document filed as an exhibit or schedule to the
Registration Statement is not necessarily complete and is qualified in its
entirety by reference to the exhibit or schedule for a complete statement of its
terms and conditions. In addition, upon the effectiveness of the Registration
Statement filed with the Commission, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith, the Company will file
periodic reports and other information with the Commission relating to its
business, financial statements and other matters. Any interested parties may
inspect and/or copy the Registration Statement, its schedules and exhibits, and
the periodic reports and other information filed in connection therewith, at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates by
addressing written requests for such copies to the Public Reference Section of
the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The obligations of the Company under
the Exchange Act to file periodic reports and other information with the
Commission may be suspended, under certain circumstances, if the New Notes are
held of record by fewer than 300 holders at the beginning of any fiscal year and
are not listed on a national securities exchange. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will furnish
to the holders of the Notes and file with the Commission (unless the Commission
will not accept such a filing) all annual, quarterly and current reports that
the Company is or would be required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act. In addition, for so long as any of
the Old Notes remain outstanding, the Company has agreed to make available to
any prospective purchaser of the Old Notes or beneficial owner of the Old Notes
in connection with any sale thereof the information required by Rule 144A(d) (4)
under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENT
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS FILED BY THE COMPANY,
INCLUDING EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE TO ANY REGISTERED HOLDER OR
BENEFICIAL OWNER OF THE OLD NOTES UPON WRITTEN OR ORAL REQUEST AND WITHOUT
CHARGE FROM TWIN LABORATORIES INC., 2120 SMITHTOWN AVENUE, RONKONKOMA, NEW YORK
11779, ATTENTION: GENERAL COUNSEL. TELEPHONE REQUESTS MAY BE DIRECTED TO THE
COMPANY AT (516) 467-3140. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY SUCH REQUEST SHOULD BE MADE BY , 1996.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION WITH RESPECT TO ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, the term "Continuing Stockholders" collectively refers to
Brian, Dean, Neil, Ross and Steve Blechman and Stephen Welling, and the term
"Stockholders" collectively refers to the Continuing Stockholders together with
David and Jean Blechman. Unless the context otherwise requires, the term
"Company" refers to (a) Twin Laboratories Inc. and, unless otherwise indicated
and as applicable, each of its subsidiary, Advanced Research Press, Inc.
("ARP"), and its parent, Twinlab Corporation when used with respect to
information about events occurring upon completion of or after the Acquisition
(as defined herein) or when giving pro forma effect thereto and (b) collectively
Natur-Pharma Inc., Twin Laboratories Inc., Alvita Products, Inc., Twinlab Export
Corp., Twinlab Specialty Corporation, B. Bros. Realty Corporation and Advanced
Research Press, Inc., all of which were affiliated entities, as such entities
existed prior to the consummation of the Acquisition, when used with respect to
historical information contained herein. The term "TLC" means Twinlab
Corporation excluding its direct and indirect subsidiaries.
THE COMPANY
The Company is the leading manufacturer and marketer of brand name
nutritional supplements sold through domestic independent health food stores.
Since the Company's founding in 1968 by David and Jean Blechman, the Company has
emphasized the development and introduction of high-quality, unique products in
response to emerging trends in the nutritional supplement industry. The Company
produces a full line of nutritional supplements and offers the broadest product
line in the industry with more than 800 products and 1,500 stockkeeping units
(SKU's). The Company's product line includes vitamins, minerals, amino acids,
fish and marine oils, sports nutrition products and special formulas marketed
under the TWINLAB(R) trademark and a full line of herbal supplements and
phytonutrients and herb teas marketed under the Nature's Herbs(R) and Alvita(R)
trademarks, respectively. None of the Company's products individually accounted
for more than 7% of total net sales in 1995. The Company's broad product line,
strong history of new product introductions and innovations, superior marketing
and advertising programs and premium product quality have established TWINLAB,
Nature's Herbs and Alvita as leading brands in the nutritional supplement
industry.
Under the management of Mr. and Mrs. Blechman's five sons, the Company has
diversified its product line through internal growth, product development and
selected acquisitions, including the acquisition in 1989 of Natur-Pharma Inc., a
leading manufacturer and marketer of herbal supplements and phytonutrients under
the Nature's Herbs brand name, and the acquisition in 1991 of Alvita Products,
Inc., a leading marketer of herb teas. The Company has achieved increased net
sales and EBITDA every year since 1990. In particular, during the three-year
period from 1993 through 1995, the Company achieved a compound annual growth
rate in net sales and EBITDA of 22.0% and 38.6%, respectively. For the fiscal
year ended December 31, 1995, the Company achieved net sales growth of 26.8% to
$148.7 million and EBITDA growth of 33.9% to $33.5 million, as compared to
fiscal year 1994. For the quarter ended March 31, 1996, the Company achieved net
sales of $44.0 million and EBITDA of $11.1 million, representing an increase of
21.7% and 66.4%, respectively, as compared to the quarter ended March 31, 1995.
The Company's products target consumers who utilize nutritional supplements
in their daily diet and who demand premium quality ingredients in a broad
variety of dosages and delivery methods. The Company's products compete
primarily in the health food store market, where the dominant competitive
factors include product attributes such as quality, potency and the uniqueness
of the product formulation. The Company sells its products domestically through
a network of approximately 60 distributors, who service approximately 11,000
health food stores and other selected retail outlets. The Company believes that
its products are available in over 90% of the health food stores in the United
States. The health food store channel of distribution has expanded significantly
in recent years and is expected to grow further as national chains such as
General Nutrition Companies, Inc. ("GNC"), Whole Foods Market, Wild Oats
Markets, Fresh Fields and other industry participants continue to add stores in
new and existing markets. The health food store market differs significantly
from the mass market for vitamin and other nutritional supplements where price
and
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convenience constitute the primary bases of competition. The nutritional
supplement products sold in grocery stores, drug stores and mass merchandisers
are typically manufactured by large pharmaceutical companies and private label
manufacturers. The Company's products are also offered in Europe, Asia, South
America and other international markets through arrangements with overseas
distributors.
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplement market. Based on estimates in a 1994 survey conducted
by Packaged Facts (the "Packaged Facts Survey"), an independent consumer market
research firm, the retail market for vitamins, minerals and other nutritional
supplements has grown at a compound annual rate of greater than 12% from $3.3
billion in 1991 to over $4.6 billion in 1994. Furthermore, the Company's rate of
sales growth has exceeded the industry's growth rate for each year during this
period. Packaged Facts forecasts approximately 7% annual industry growth through
the end of the decade in vitamins, minerals and other supplements, which
management believes will be fueled by (i) favorable demographic trends towards
older Americans, who are more likely to consume nutritional supplements; (ii)
product introductions in response to new scientific research findings; (iii) the
nationwide trend toward preventive medicine in response to rising health care
costs; and (iv) the heightened understanding and awareness of the connection
between diet and health. Moreover, although the industry has grown dramatically
in recent years, there is still a large untapped domestic market as only an
estimated 50% of Americans currently consume vitamins, minerals and herbal
supplements on a regular basis.
Twin Laboratories Inc. is incorporated under the laws of the State of Utah
and maintains its principal executive offices at 2120 Smithtown Avenue,
Ronkonkoma, New York 11779. Its telephone number is (516) 467-3140.
BUSINESS STRATEGY
The Company's strategy is to continue to enhance its leadership position in
the domestic sale of vitamins, minerals and other nutritional supplements in
health food stores and to increase its market share and sales while continuing
to improve its overall operating efficiency and financial performance. The
Company intends to capitalize on the TWINLAB brand name by growing market share
domestically, increasing penetration of the Company's other brands, continuing
to introduce new products and product extensions, and expanding internationally.
Specifically, the Company seeks to:
Capitalize on Powerful Brand Name Recognition. The Company's recognized
product quality, broad product line, strong history of new product introductions
and innovations, and superior marketing and advertising programs have
established TWINLAB, Nature's Herbs and Alvita as leading brands in the
nutritional supplement industry. Each of the Company's product categories,
including vitamins, minerals and amino acids; sports nutrition; special
formulas; herbal supplements and phytonutrients; and herb teas, have posted
double digit sales growth in each of the last three years. The Company's
extensive marketing and advertising programs have been critical components of
its products' strong brand name recognition, and management believes that the
Company offers its customers the strongest marketing and advertising support
programs in the industry. In fiscal 1995, the Company invested $11.1 million, an
increase of 27% over fiscal 1994, in marketing and advertising to promote its
products. Furthermore, since quality is a critical factor in consumer purchase
decisions, the Company believes that its premium quality ingredients, modern
manufacturing facilities and comprehensive quality control procedures have
enabled the Company to establish a competitive advantage based on the quality of
its products.
Increase Penetration in the Growing Health Food Market. Management
believes that the expansion of retail distribution channels and the strong
growth characteristics of the nutritional supplement industry provide the
Company with significant opportunities to increase sales. Management further
believes that the established brand name recognition of the Company's products
positions it to increase its penetration of shelf space as health food retailers
seek to align themselves with companies who possess strong brand names, offer a
wide range of products, demonstrate continued marketing and advertising support
and provide consistently high levels of customer service. Since Nature's Herbs
and Alvita products currently are available in only an estimated 60% and 50%,
respectively, of domestic health food stores, compared to an estimated 90% for
TWINLAB products, the Company believes that it will be able to capitalize on
health food retailers' success
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11
with the TWINLAB product line in order to significantly increase shelf space for
the Company's herbal supplements, phytonutrients and herb teas.
Continue to Introduce New Products and Product Innovations. A cornerstone
of the Company's success has been its ability to rapidly utilize recent
scientific and medical findings in its new product development efforts. The
Company has consistently been among the first in its industry to introduce new
products and product innovations which anticipate and meet customer demands for
newly identified nutritional supplement benefits. Furthermore, the Company's
geographically diverse network of more than 60 distributors allows the Company
to achieve immediate and broad distribution for new product launches. As part of
its ongoing research and development effort, the Company maintains an extensive
database and actively researches and monitors a wide variety of publications
containing scientific and medical research. From 1991 through 1995, the Company
introduced over 350 products, with over 90 new products introduced in 1995
alone. Gross sales during 1995 from new products introduced in 1995 were $18.4
million, or approximately 11% of gross sales. The Company intends to build upon
its historical success by continuing to introduce new and innovative products
not previously available in health food stores.
Build Upon Established Customer Relationships. The Company's established
relationships with distributors and health food store retailers are based upon
the Company's long-standing commitment to a high level of customer service. In
order to ensure that its customers receive prompt and reliable service, the
Company has designed a flexible and responsive manufacturing process and has
achieved a 98% fill rate for customer orders. In addition, the Company's sales
force consists of 30 dedicated sales professionals who operate in sales
territories which cover the entire continental United States and Alaska. The
primary functions of the Company's sales force are to gain better placement and
additional shelf space for the Company's products and to stay abreast of
customer needs. The sales force personnel work with direct accounts,
distributors and individual retailers to enhance knowledge of TWINLAB, Nature's
Herbs and Alvita products and to achieve maximum exposure for these products.
Increase Penetration of Foreign Markets. Management believes that there
are substantial opportunities for the Company to expand its presence in foreign
markets. The Company has a department, headed by a senior sales professional,
dedicated to increasing sales in such markets. The Company's foreign marketing
effort is primarily focused on establishing additional relationships with
leading overseas distributor organizations as a cost-effective method of
increasing international sales. The Company presently has distribution
agreements covering over 45 foreign countries and has agreements for another
seven countries currently in negotiation. In 1995, the Company had net sales of
$8.3 million to foreign markets.
Supplement Internal Growth Through Strategic Acquisitions. As the
nutritional supplement industry is highly fragmented with many companies
producing only a single product line or single product, the Company believes
that it is strategically positioned to participate in the consolidation of the
industry due to its established brand name, broad distribution capabilities and
proven ability to generate sales of its products through successful marketing
programs. Since 1989 the Company has acquired two businesses, Natur-Pharma Inc.
(Nature's Herbs) and Alvita Products, Inc. (Alvita), and in each case has
embarked on successful expansion programs which resulted in substantially higher
sales and EBITDA for the acquired companies. Net sales for Natur-Pharma Inc.
increased from $5.2 million in 1990 (the first full year after its acquisition)
to $17.9 million in 1995, and net sales for Alvita Products, Inc. increased from
$1.7 million in 1992 (the first full year after its acquisition) to $5.6 million
in 1995. The Company regularly evaluates acquisition opportunities, including
product line acquisitions, that complement its existing products or are
compatible with its business philosophy and strategic goals.
ISSUANCE OF THE OLD NOTES
The outstanding $100.0 million principal amount of 10 1/4% Senior
Subordinated Notes due 2006 (the "Old Notes") were sold by the Company to
Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc.
(the "Initial Purchasers"), on May 7, 1996 (the "Closing Date") pursuant to a
Purchase Agreement, dated May 1, 1996 (the "Purchase Agreement"), among the
Company, TLC and ARP (collectively the "Guarantors") and the Initial Purchasers.
The Initial Purchasers subsequently resold the Old
8
12
Notes in reliance on Rule 144A under the Securities Act and other available
exemptions under the Securities Act (the "Offering"). The Company also entered
into the Registration Rights Agreement, dated as of the Closing Date (the
"Registration Rights Agreement"), among the Company, the Guarantors and the
Initial Purchasers, pursuant to which the Company granted certain registration
rights for the benefit of the holders of the Old Notes. The Exchange Offer is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement with respect to the Old Notes. See "-- The Exchange Offer" and
"The Exchange Offer -- Purpose and Effect."
THE ACQUISITION
The Stockholders, TLC, Natur-Pharma Inc. and Green Equity Investors II,
L.P. ("GEI") entered into a Stock Purchase and Sale Agreement, dated as of March
5, 1996, as amended (the "Acquisition Agreement"), pursuant to which, among
other things, on the Closing Date (i) GEI acquired 48% of the common stock of
TLC for aggregate consideration of $4.8 million and shares of non-voting junior
redeemable preferred stock of TLC (the "Junior Preferred Stock") for aggregate
consideration of $37.0 million, (ii) certain other investors acquired 7% of the
common stock of TLC for aggregate consideration of $0.7 million and shares of
non-voting senior redeemable preferred stock of TLC (the "Senior Preferred
Stock," and, together with the Junior Preferred Stock, the "Preferred Stock")
for aggregate consideration of $30.0 million, (iii) the Continuing Stockholders
exchanged certain of their shares of common stock of Natur-Pharma Inc. for 45%
of the outstanding shares of common stock of TLC, valued at $4.5 million, (iv)
TLC purchased all of the remaining shares of common stock of Natur-Pharma Inc.
from the Stockholders for cash, resulting in Natur-Pharma Inc. becoming a wholly
owned subsidiary of TLC, (v) Twin Laboratories Inc., Alvita Products, Inc.,
Twinlab Export Corp., Twinlab Specialty Corporation and B. Bros. Realty
Corporation merged into Natur-Pharma Inc. (the "Natur-Pharma Merger"); and
Advanced Research Press, Inc. merged with Natur-Pharma II Inc., a wholly owned
subsidiary of Natur-Pharma Inc. (together with the Natur-Pharma Merger, the
"Mergers"; the surviving entity in such merger is referred to herein as "ARP")
and (vi) in connection with such mergers the Stockholders received cash in
consideration for all of their shares of capital stock of Twin Laboratories
Inc., Alvita Products, Inc., Twinlab Export Corp., Twinlab Specialty
Corporation, B. Bros. Realty Corporation and Advanced Research Press, Inc. The
total cash consideration that the Stockholders received was approximately $212.5
million, the majority of which was paid to David and Jean Blechman. Of the total
cash consideration to the Stockholders, approximately $15 million represented
consideration for the Non-Competition Agreements (as defined herein). See
"Management -- Employment Agreements." The transactions described above are
hereinafter referred to as the "Acquisition." Concurrently with the consummation
of the Acquisition, the Company consummated the Offering and entered into the
New Credit Facility (which provides for a term facility in the amount of $53.0
million and a revolving credit facility in the amount of $15.0 million) (the
"New Credit Facility," and, collectively with the Acquisition and the Offering,
the "Transactions"). The net cash proceeds of the Offering were used, together
with borrowings under the New Credit Facility, the proceeds from the issuance of
the common stock and Preferred Stock of TLC and available cash of the Company,
to finance the Acquisition, to refinance approximately $7.9 million aggregate
principal amount of debt of the Company and to pay related fees and expenses.
See "Description of New Notes," "Description of New Credit Facility" and
"Description of Capital Stock of TLC." In connection with the Acquisition,
Natur-Pharma Inc.'s name was changed to Twin Laboratories Inc.
The consolidated financial statements of TLC contained in this Prospectus
include the financial statements of Twin Laboratories Inc. and TLC's indirect
wholly owned subsidiary, ARP, after giving retroactive effect, in a manner
similar to a pooling of interests, to the Mergers pursuant to the Acquisition.
The Old Notes are, and the New Notes will be, jointly and severally guaranteed
by TLC and ARP on a full and unconditional basis. TLC has no separate operations
and no significant assets other than TLC's investment in Twin Laboratories Inc.
and, through Twin Laboratories Inc., in ARP. Accordingly, separate financial
statements of Twin Laboratories Inc. or ARP are not included herein.
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13
THE EXCHANGE OFFER
The Exchange Offer......... The Company is offering, upon the terms and subject
to the conditions set forth herein and in the
accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal
amount of its 10 1/4% Senior Subordinated Notes due
2006 (the "New Notes," with the Old Notes and the
New Notes sometimes collectively referred to herein
as the "Notes") for each $1,000 in principal amount
of the outstanding Old Notes (the "Exchange
Offer"). As of the date of this Prospectus, $100.0
million in aggregate principal amount of the Old
Notes is outstanding, the maximum amount authorized
by the Indenture for all Notes. As of ,
1996, there were two registered holders of the Old
Notes, including Cede & Co. ("Cede") which held
$ of aggregate principal amount of the Old
Notes for of its participants. See "The
Exchange Offer -- Terms of the Exchange Offer."
Expiration Date............ 5:00 p.m., New York City time, on ,
1996, as the same may be extended. See "The
Exchange Offer -- Expiration Date; Extensions;
Amendments."
Conditions of the Exchange
Offer.................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange Offer
is subject to the condition that it does not
violate any applicable law or interpretation of the
staff of the Commission. See "The Exchange
Offer -- Conditions of the Exchange Offer."
Termination of Certain
Rights..................... Pursuant to the Registration Rights Agreement and
the Old Notes, Eligible Holders of Old Notes (i)
have rights to receive the Liquidated Damages and
(ii) have certain rights intended for the holders
of unregistered securities. "Liquidated Damages"
means damages of $0.05 per week per $1,000
principal amount of Old Notes constituting Transfer
Restricted Securities (up to a maximum of $0.30 per
week per $1,000 principal amount) during the period
in which a Registration Default is continuing
pursuant to the terms of the Registration Rights
Agreement. Holders of New Notes generally will not
be and, upon consummation of the Exchange Offer,
Eligible Holders of Old Notes will no longer be,
entitled to (i) the right to receive the Liquidated
Damages or (ii) certain other rights under the
Registration Rights Agreement intended for holders
of unregistered securities. See "The Exchange
Offer -- Termination of Certain Rights" and
"-- Procedures for Tendering Old Notes."
Accrued Interest on the Old
Notes.................... The New Notes will bear interest at a rate equal to
10 1/4% per annum from and including their date of
issuance. Eligible Holders whose Old Notes are
accepted for exchange will have the right to
receive interest accrued thereon from the date of
original issuance of the Old Notes or the last
Interest Payment Date, as applicable, to, but not
including, the date of issuance of the New Notes,
such interest to be payable with the first interest
payment on the New Notes. Interest on the Old Notes
accepted for exchange, which accrues at the rate of
10 1/4% per annum, will cease to accrue on the day
prior to the issuance of the New Notes.
Procedures for Tendering
Old Notes.................. Unless a tender of Old Notes is effected pursuant
to the procedures for book-entry transfer as
provided herein, each Eligible Holder desiring to
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14
accept the Exchange Offer must complete and sign
the Letter of Transmittal, have the signature
thereon guaranteed if required by the Letter of
Transmittal, and mail or deliver the Letter of
Transmittal, together with the Old Notes or a
Notice of Guaranteed Delivery and any other
required documents (such as evidence of authority
to act, if the Letter of Transmittal is signed by
someone acting in a fiduciary or representative
capacity), to the Exchange Agent (as defined) at
the address set forth on the back cover page of
this Prospectus prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Beneficial Owner
(as defined) of the Old Notes whose Old Notes are
registered in the name of a nominee, such as a
broker, dealer, commercial bank or trust company
and who wishes to tender Old Notes in the Exchange
Offer, should instruct such entity or person to
promptly tender on such Beneficial Owner's behalf.
See "The Exchange Offer -- Procedures for Tendering
Old Notes."
Guaranteed Delivery
Procedures............... Eligible Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date (or complete the
procedure for book-entry transfer on a timely
basis), may tender their Old Notes according to the
guaranteed delivery procedures set forth in the
Letter of Transmittal. See "The Exchange Offer --
Procedures for Tendering Old Notes -- Guaranteed
Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes.... Upon satisfaction or waiver of all conditions of
the Exchange Offer, the Company will accept any and
all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly after acceptance of the Old Notes. See
"The Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer -- Withdrawal Rights."
The Exchange Agent......... Fleet National Bank is the exchange agent (in such
capacity, the "Exchange Agent"). The address and
telephone number of the Exchange Agent are set
forth in "The Exchange Offer -- The Exchange Agent;
Assistance."
Fees and Expenses.......... All expenses incident to the Company's consummation
of the Exchange Offer and compliance with the
Registration Rights Agreement will be borne by the
Company. The Company will also pay certain transfer
taxes applicable to the Exchange Offer. See "The
Exchange Offer -- Fees and Expenses."
Resales of the New Notes... Based on interpretations by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer to an
Eligible Holder in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by such Eligible Holder (other than (i)
a broker-dealer who
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purchased the Old Notes directly from the Company
for resale pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act or (ii) a person that is
an affiliate of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that the Eligible Holder is acquiring the New Notes
in the ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in a
distribution of the New Notes. Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker as a result of market
making or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See
"The Exchange Offer -- Resales of the New Notes"
and "Plan of Distribution."
DESCRIPTION OF NEW NOTES
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of the New Notes will not
be entitled to Liquidated Damages and (iii) holders of the New Notes will not
be, and upon consummation of the Exchange Offer, Eligible Holders of the Old
Notes will no longer be, entitled to certain rights under the Registration
Rights Agreement intended for the holders of unregistered securities, except in
limited circumstances. See "Exchange Offer -- Termination of Certain Rights."
The Exchange Offer shall be deemed consummated upon the occurrence of the
delivery by the Company to the Registrar under the Indenture of the New Notes in
the same aggregate principal amount as the aggregate principal amount of Old
Notes that are tendered by holders thereof pursuant to the Exchange Offer. See
"The Exchange Offer -- Termination of Certain Rights" and "-- Procedures for
Tendering Old Notes" and "Description of New Notes."
Maturity................... May 15, 2006.
Interest................... 10 1/4% payable in cash semi-annually in arrears,
calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Interest Payment Dates..... May 15 and November 15, commencing on November 15,
1996.
Optional Redemption........ The New Notes will be redeemable at the option of
the Company, in whole or in part, on or after May
15, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any,
to the date of redemption. Notwithstanding the
foregoing, prior to May 15, 1999, the Company may
redeem from time to time up to 35% of the aggregate
principal amount of the Notes originally
outstanding at a redemption price equal to 109 1/2%
of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date,
with the net proceeds of one or more Equity
Offerings (as defined herein); provided, that at
least 65% of the aggregate principal amount of the
Notes originally outstanding remains outstanding
immediately after the occurrence of such
redemption. See "Description of Notes -- Optional
Redemption."
Guarantees................. The New Notes will be guaranteed (the "Guarantees")
on an unsecured senior subordinated basis by TLC,
ARP, the Company's only existing subsidiary, and
all of the Company's future subsidiaries (other
than Unrestricted Subsidiaries) (ARP and such
future subsidiaries are collec-
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tively referred to as the "Subsidiary Guarantors"
and, together with TLC, collectively, as the
"Guarantors").
Ranking.................... The New Notes and the Guarantees will be general
unsecured obligations of the Company and the
Guarantors, respectively, subordinated in right of
payment to all existing and future Senior Debt of
the Company and the Guarantors, as applicable,
including borrowings under the New Credit Facility.
On a pro forma basis after giving effect to the
Transactions, as of March 31, 1996, the Company
would have had approximately $53.4 million of
outstanding Senior Debt, substantially all of which
would have been secured.
Change of Control Offer.... Upon a Change of Control, the Company will be
required to offer to repurchase all outstanding New
Notes at 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any,
to the date of repurchase. See "Description of
Notes -- Certain Covenants -- Repurchase of Notes
at the Option of the Holder Upon a Change of
Control."
Certain Covenants.......... The Indenture contains certain covenants with
respect to the Company and the Subsidiary
Guarantors that limit the ability of the Company
and the Subsidiary Guarantors to, among other
things, (i) incur additional Indebtedness (as
defined herein) and issue certain preferred stock,
(ii) pay dividends or make other distributions,
(iii) layer Indebtedness, (iv) create certain
liens, (v) sell certain assets, (vi) enter into
certain transactions with affiliates, or (vii)
enter into certain mergers or consolidations
involving the Company. See "Description of
Notes -- Certain Covenants."
Absence of a Public Market
for the New Notes.......... The New Notes are a new issue of securities with no
established market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the New Notes. The Initial Purchasers
have advised the Company that they currently intend
to make a market in the New Notes. However, none of
the Initial Purchasers is obligated to do so, and
any market making with respect to the New Notes may
be discontinued at any time without notice. The
Company does not intend to apply for listing of the
New Notes on a securities exchange.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS IN CONNECTION WITH AN INVESTMENT IN THE NOTES, SEE "RISK
FACTORS."
RECENT DEVELOPMENTS
On June 4, 1996, TLC filed with the Commission a registration statement on
Form S-1 (as amended, the "TLC Registration Statement") in respect of an
offering by TLC for the sale to the public (the "IPO") of shares of its common
stock, $1.00 par value. The TLC Registration Statement states that the maximum
aggregate offering price of the securities to be registered is $130,000,000.
Subsequent to the filing of the TLC Registration Statement, the name of TLC was
changed from TLG Laboratories Holding Corp. to Twinlab Corporation.
The TLC Registration Statement states that the expected use of the net
proceeds of the IPO will be to redeem all of the outstanding shares of Senior
Preferred Stock and all of the outstanding shares of Junior Preferred Stock,
which together have an aggregate liquidation preference of $67.0 million (plus
accrued and unpaid dividends thereon), and to prepay in full the $50.0 million
of remaining outstanding indebtedness under the term loan facility contained in
the New Credit Facility, plus accrued and unpaid interest thereon. The balance
of the net proceeds of the IPO will be used for general corporate purposes. See
"Description of New Credit Facility" and "Description of Capital Stock of TLC."
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The consummation of the proposed IPO will constitute a Public Offering
Event (as defined herein) under the terms of the Employment Agreements, the
Stockholders Agreement and the Secondary Stockholders Agreement (as defined
herein). See "Management -- Employment Agreements" and "Principal
Stockholders -- Terms of the Stockholders Agreement."
Following the consummation of the IPO, GEI and the Blechman Brothers will
together continue to control a majority of the voting control of TLC and will
thus be able to exercise significant influence over the composition of TLC's
board of directors and matters requiring the approval of the shareholders of
TLC. See "Risk Factors -- Ownership of the Company" and "Principal
Stockholders."
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary information below presents historical consolidated financial
data and unaudited pro forma condensed consolidated financial data for the
periods indicated which have been derived from audited and unaudited financial
statements of the Company. The results for the interim periods are not
necessarily indicative of the results for the full fiscal year. The summary
unaudited pro forma condensed consolidated operating data for the year ended
December 31, 1995 and the latest twelve months ("LTM") ended March 31, 1996 give
effect to the Transactions as if each of the Transactions had been consummated
as of January 1, 1995. The pro forma balance sheet data give effect to the
Transactions as if each of the Transactions had been consummated on March 31,
1996. See "Unaudited Pro Forma Condensed Consolidated Financial Data" and the
notes thereto. The pro forma financial data set forth below may not necessarily
be indicative of the results that would have been achieved had the Transactions
been consummated as of the dates indicated or that may be achieved in the
future. The summary historical and pro forma financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Selected Historical Financial Data" and the
Consolidated Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus.
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS)
OPERATING DATA:
Net sales................... $70,165 $83,014 $99,897 $117,342 $148,735 $36,128 $43,984
Gross profit................ 25,501 31,800 37,766 47,095 58,803 13,970 17,622
Operating expenses.......... 14,570 17,463 21,125 23,022 27,191 7,501 7,299
Income from operations...... 10,931 14,337 16,641 24,073 31,612 6,469 10,323
Net income.................. 10,162 13,435 16,676 21,693 30,224 6,338 9,779
PRO FORMA:(A)
Historical income before
provision for income
taxes.................... $10,331 $14,010 $16,906 $ 21,938 $ 30,464 $ 6,388 $ 9,865
Pro forma provision for
income taxes............. 4,017 5,436 6,644 9,087 12,060 2,529 3,906
------- ------- ------- -------- -------- ------- -------
Pro forma net income........ $ 6,314 $ 8,574 $10,262 $ 12,851 $ 18,404 $ 3,859 $ 5,959
======= ======= ======= ======== ======== ======= =======
OTHER DATA:
EBITDA(b)................... $11,734 $15,229 $17,446 $ 25,023 $ 33,516 $ 6,684 $11,125
Capital expenditures........ 1,472 1,304 4,904 1,786 2,641 489 224
Depreciation................ 783 806 710 851 909 194 271
Amortization................ 20 86 95 99 102 21 31
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YEAR ENDED LTM ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
(IN THOUSANDS, EXCEPT RATIOS)
PRO FORMA DATA:
Net sales................................................. $ 148,735 $156,591
EBITDA(b)................................................. 33,516 37,957
Income from operations.................................... 31,212 35,066
Cash interest expense(c).................................. 14,735 14,733
Ratio of EBITDA to cash interest expense.................. -- 2.6x
Ratio of EBITDA less capital expenditures to cash interest
expense................................................ -- 2.4x
Ratio of net debt to EBITDA(d)............................ -- 3.9x
AS OF MARCH 31, 1996
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities.................. $ 15,273 $ 4,429
Net working capital (excluding cash and cash equivalents, marketable
securities and current debt)....................................... 39,236 42,703
Total assets......................................................... 85,151 140,626
Total debt (including current debt).................................. 8,673 153,773
Senior redeemable cumulative Preferred Stock......................... -- 30,000
Junior redeemable cumulative Preferred Stock......................... -- 37,000
Shareholders' equity (deficit)....................................... 62,456 (95,733)
- ---------------
(a) The Company consisted of S corporations and, accordingly, federal and state
taxes were generally paid at the shareholder level only. Upon consummation
of the Transactions, the Company eliminated its S corporation status and,
accordingly, became subject to federal and state income taxes.
(b) EBITDA represents income from operations before depreciation and
amortization expense, and certain other charges related to legal
settlements, increases in inventory reserves, a tax settlement relating to
a limited partnership interest, which interest is expected to be divested,
and, for pro forma purposes, the LGP Management Fee (as defined herein).
While EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles ("GAAP") and should not
be considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(c) Represents total interest expense less amortization of deferred financing
fees.
(d) Net debt represents total debt less cash and cash equivalents and
marketable securities.
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RISK FACTORS
Holders of Notes should carefully consider the following risk factors, as
well as other information contained, and incorporated by reference, in this
Prospectus, affecting the business of the Company. Information contained or
incorporated by reference in this Prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. See, e.g., "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Prospectus Summary -- Business
Strategy" and "Business -- Business Strategy." No assurance can be given that
the future results covered by the forward-looking statements will be achieved.
The following matters constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain risks
and uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered in
such forward-looking statements.
LEVERAGE
The Company is highly leveraged. On a pro forma basis after giving effect
to the Transactions, as of March 31, 1996, the Company would have had (i)
approximately $153.8 million of outstanding debt, of which approximately $53.4
million would have been Senior Debt, substantially all of which Senior Debt
would have been secured and (ii) shareholders' deficit of $95.7 million. See
"Capitalization." This leverage, together with restrictions in the New Credit
Facility and the Indenture, may limit the Company's ability to obtain additional
debt financing in the future and to respond to changing business and economic
conditions and could adversely affect its ability to effect its business
strategies. See "Description of New Notes" and "Description of New Credit
Facility." Required payments of principal and interest on the Company's
long-term debt are expected to be financed from operating cash flow, thus
limiting the availability of such cash flow for other corporate purposes. The
Company's ability to generate sufficient cash to meet its obligations is subject
to many factors, certain of which are beyond its control, including economic
conditions, regulatory factors and competition. While the Company believes that,
based on current levels of operations and anticipated growth, its cash flow from
operations, together with other sources of liquidity, will be adequate to meet
its obligations, there can be no assurance that its actual cash flow will in
fact be sufficient to service its debt. The Company's ability to grow is
dependent on prevailing economic conditions and financial, business and other
factors beyond its control. In the event the Company's operating cash flow and
working capital are not sufficient to fund the Company's expenditures or to
service its debt, including the Notes, the Company would be required to raise
additional funds through capital contributions, the refinancing of all or part
of its debt or the sale of assets. There can be no assurance that any of these
sources of funds would be available in amounts sufficient for the Company to
meet its obligations.
SUBORDINATION OF THE NOTES
The Notes are subordinated in right of payment to all Senior Debt of the
Company, including indebtedness under the New Credit Facility. Further, the New
Credit Facility is secured by substantially all of the assets of the Company and
its subsidiaries as well as by TLC's interest in the capital stock of the
Company. In addition, the Guarantees are subordinated in right of payment to all
Senior Debt of the Guarantors, including the guarantee of indebtedness under the
New Credit Facility. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company or the Guarantors, the assets
of the Company and the Guarantors will be available to pay obligations on the
Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding. On a pro forma basis after giving effect to the Transactions, the
aggregate principal amount of Senior Debt to which the Notes would have been
subordinated as of March 31, 1996 would have been approximately $53.4 million.
Additional Senior Debt may be incurred by the Company and the Guarantors from
time to time, subject to certain restrictions. See "Description of New Credit
Facility" and "Description of New Notes -- Subordination."
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FRAUDULENT CONVEYANCE CONSIDERATIONS
The obligations of the Company under the Notes may be subject to review
under relevant federal and state fraudulent conveyance laws if a bankruptcy case
or a lawsuit (including in circumstances where bankruptcy is not involved) is
commenced by or on behalf of any unpaid creditor of the Company or a
representative of the Company's creditors. If a court in such a lawsuit were to
find that, at the time the Company issued the Notes, or as a consequence of the
Acquisition, the Company (i) intended to hinder, delay or defraud any existing
or future creditor or contemplated insolvency with a design to prefer one or
more creditors to the exclusion in whole or in part of others or (ii) did not
receive fair consideration or reasonably equivalent value for issuing such Notes
and the Company (a) was insolvent, (b) was rendered insolvent, (c) was engaged
or about to engage in a business or transaction for which its remaining assets
constituted unreasonably small capital to carry on its business or (d) intended
to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, such court could void the Notes and the Company's
obligations thereunder, and direct the return of any amounts paid thereunder to
the Company or to a fund for the benefit of its creditors. Alternatively, in
such event, claims of the holders of such Notes could be subordinated to claims
of the other creditors of the Company. The Company's obligations under the Notes
will be guaranteed by the Guarantors, and the Guarantees may also be subject to
review under federal and state fraudulent transfer laws. If a court were to
determine that at the time a Guarantor became liable under its Guarantee, it
satisfied either of clauses (i) or (ii) in the foregoing paragraph, the court
could void the Guarantee and direct the repayment of amounts paid thereunder.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction that is being applied. Generally, however, a
company would be considered insolvent if the sum of its debts, including
contingent liabilities, is greater than all of its property at a fair valuation
or if the present fair saleable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and mature. The obligations of each Guarantor under its
guarantee, however, will be limited in a manner intended to avoid it being
deemed a fraudulent conveyance under applicable law. See "Description of New
Notes."
The Company believes that based upon forecasts and other financial
information, including the pro forma financial statements reflecting the
Transactions, the Company is and will continue to be solvent, that it will have
sufficient capital to carry on its business and will be and will continue to be
able to pay its debts as they mature.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture and the New Credit Facility impose upon the Company certain
financial and operating covenants, including, among others, requirements that
the Company maintain certain financial ratios and satisfy certain financial
tests, limitations on capital expenditures and restrictions on the ability of
the Company to incur debt, pay dividends or take certain other corporate
actions, all of which may restrict the Company's ability to expand or to pursue
its business strategies. Changes in economic or business conditions, results of
operations or other factors could in the future cause a violation of one or more
covenants in the Company's debt instruments. See "Description of New
Notes -- Certain Covenants" and "Description of New Credit Facility."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success depends to a significant
extent on the management and other skills of Brian Blechman, Dean Blechman, Neil
Blechman, Ross Blechman and Steve Blechman (the "Blechman Brothers"), as well as
its ability to retain other key employees and to attract skilled personnel in
the future to manage the growth of the Company. The loss or unavailability of
the services of one or more of the Blechman Brothers could have a material
adverse effect on the Company. The Company has entered into long-term employment
agreements with each of the Blechman Brothers and, as of June 15, 1996, each of
the Blechman Brothers owns approximately 9% of the outstanding common stock of
TLC. See "Management" and "Prospectus Summary -- The Acquisition."
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LEGAL MATTERS
The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that the use of its products results in injury.
The Company currently has $75 million of product liability insurance (which does
not cover matters relating to L-Tryptophan) with a $25,000 self-insurance
retention per occurrence and $100,000 self-insurance retention in the aggregate.
However, there can be no assurance that such insurance will continue to be
available at a reasonable cost or if available will be adequate to cover
liabilities.
Twin Laboratories Inc. and other encapsulators, and various manufacturers,
distributors, suppliers, importers and retailers of manufactured L-Tryptophan or
products containing manufactured L-Tryptophan are or were defendants in various
legal actions brought in federal and state courts seeking compensatory and, in
some cases, punitive damages for alleged personal injuries resulting from the
ingestion of certain products containing manufactured L-Tryptophan. As of June
1, 1996, Twin Laboratories Inc. was a named defendant in three of these actions.
Although the Company believes that few new lawsuits are likely to be brought
because of applicable statutes of limitations, the possibility of future such
actions cannot be excluded. Twin Laboratories Inc. and certain other companies
in the industry (the "Indemnified Group") have each entered into a Defense and
Indemnification Agreement with Showa Denko America, Inc. ("SDA") (the
"Indemnification Agreement"), under which SDA has agreed to assume the defense
of all claims against any of the Indemnified Group arising out of the ingestion
of L-Tryptophan products and to pay all legal fees incurred and indemnify the
Company against liability in any action if it is determined that a proximate
cause of the injury sustained by the plaintiff was a constituent of the raw
material sold by SDA to Twin Laboratories Inc. or was a factor for which SDA or
any of its affiliates was responsible, except to the extent that action by Twin
Laboratories Inc. proximately contributed to the injury, and except for certain
claims relating to punitive damages. SDA appears to have been the supplier of
all of the allegedly contaminated L-Tryptophan. SDA has posted a revolving
irrevocable letter of credit for the benefit of the Indemnified Group if SDA is
unable or unwilling to satisfy any claims or judgments. Showa Denko, K.K.
("SDK"), the Japanese parent of SDA and manufacturer of the relevant
L-Tryptophan, has unconditionally guaranteed the payment obligations of SDA
under the Indemnification Agreement. As of June 1, 1996, 129 lawsuits in which
the Company was a named defendant had been dismissed or settled by SDA at no
cost to the Company.
The total of all damages alleged in the L-Tryptophan actions, if fully
awarded against the Company alone and ignoring the existence of the
Indemnification Agreement, would exceed the Company's available product
liability insurance coverage of $3 million for L-Tryptophan matters in respect
of claims made prior to December 31, 1993, and would have a material adverse
effect on the Company's results of operations and financial condition. However,
the Indemnification Agreement, the defense and resolution to date of numerous
lawsuits by SDA without cost to the Company, the multitude of defendants and the
possibility that liability could be assessed against or paid by other parties or
by insurance carriers have led management of the Company, after consultation
with outside legal counsel, to believe that the prospect for a material adverse
effect on the Company's results of operations or financial condition is remote
and no provision in the Company's financial statements has been made for any
loss that may result from these actions.
The Company and others are defendants in a wrongful death action originally
commenced in July 1995 with respect to one of the Company's products containing
Ma Huang and with respect to a product that does not contain Ma Huang
manufactured by another defendant. See "-- Government Regulation" and
"Business -- Regulatory Matters."
The Company is presently engaged in various other legal actions, and,
although ultimate liability cannot be determined at the present time, the
Company is currently of the opinion that the amount of any such liability from
these other actions and the lawsuit described in the preceding paragraph, after
taking into consideration the Company's insurance coverage, will not have a
material adverse effect on its results of operations and financial condition.
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GOVERNMENT REGULATION
The manufacturing, processing, formulating, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the United States Food and Drug Administration (the
"FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product Safety
Commission (the "CPSC"), the United States Department of Agriculture (the
"USDA") and the Environmental Protection Agency (the "EPA"). The Company's
activities are also regulated by various agencies of the states, localities and
foreign countries to which the Company distributes its products and in which the
Company's products are sold.
On October 25, 1994, the President signed into law the Dietary Supplement
Health and Education Act of 1994 ("DSHEA"). This new law revises the provisions
of the Federal Food, Drug, and Cosmetic Act ("FFDC Act") concerning the
composition and labeling of dietary supplements and, in the judgment of the
Company, is favorable to the dietary supplement industry. The legislation
creates a new statutory class of "dietary supplements." This new class includes
vitamins, minerals, herbs, amino acids and other dietary substances for human
use to supplement the diet, and the legislation grandfathers, with certain
limitations, dietary ingredients on the market before October 15, 1994. A
dietary supplement which contains a new dietary ingredient, one not on the
market before October 15, 1994, will require evidence of a history of use or
other evidence of safety establishing that it will reasonably be expected to be
safe, such evidence to be provided by the manufacturer or distributor to the FDA
before it may be marketed. The DSHEA also invalidates the FDA's prior
enforcement theory that dietary supplements are food additives requiring
pre-market approval.
The Nutritional Labeling and Education Act of 1990 ("NLEA") prohibits the
use of any health claim for foods, including dietary supplements, unless the
health claim is supported by significant scientific agreement and is
pre-approved by the FDA. To date, the FDA has approved the use of health claims
for dietary supplements only in connection with calcium for osteoporosis, and
folic acid for neural tube defects. However, among other things, the DSHEA
amends, for dietary supplements, the NLEA by providing that "statements of
nutritional support" may be used in labeling for dietary supplements without FDA
pre-approval if certain requirements, including prominent disclosure on the
label of the lack of FDA review of the relevant statement, possession by the
marketer of substantiating evidence for the statement and post-use notification
to the FDA, are met. Such statements may describe how particular nutritional
supplements affect the structure, function, or general well-being of the body
(e.g. "promotes your cardiovascular health").
In December 1995, the FDA issued proposed regulations to govern the
labeling of dietary supplements. These regulations, which are subject to
revision in response to comments from interested parties, are expected to become
final later in 1996 and would require the Company to revise the labels for all
of its dietary supplement products before 1997. The FDA has proposed, subject to
its receipt of comments from the public, to withhold enforcement of the
relabeling regulations until January 1, 1998.
In 1989, Twin Laboratories Inc. received an informal inquiry from the New
York Regional Office of the FTC seeking substantiation for certain advertising
claims made for a segment of its "Fuel" bodybuilding/sports nutrition lines of
products. In response, Twin Laboratories Inc. submitted scientific
substantiation and financial information to the FTC. The Company is currently
negotiating this matter with the FTC and has received from the FTC a revised
proposed Complaint and Consent Decree (the "Decree") seeking, among other
things, injunctive relief restricting certain muscle building, fat loss and
other marketing claims in connection with the sale of the Company's weight
control, bodybuilding and sports nutrition products. In addition, the Decree
seeks payment of $200,000. The Company believes that it has adequate scientific
substantiation for the claims at issue and intends to vigorously defend the
matter if a settlement is not reached. There can be no assurance that the
injunctive provisions of any eventual resolution of this matter will not have a
material adverse effect on the Company or that any eventual monetary payment
will be limited to the amount sought in the Decree.
Certain of the Company's products include a Chinese herb known as "Ma
Huang," which contains naturally-occurring ephedrine. Ma Huang has been the
subject of certain adverse publicity in the United States and other countries
relating to alleged harmful effects, including the deaths of several
individuals. To the Company's knowledge, a number of states and local
governmental entities have instituted bans on sales of
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Ma Huang-containing products that are portrayed as apparent alternatives to
illegal street drugs. There are proposals in other states and local
jurisdictions to broaden the regulation of, or otherwise limit or prohibit, the
sale of products containing ephedrine. Ma Huang is also subject to laws or
regulation in other states and foreign jurisdictions which limit ephedrine
levels and require appropriate warnings on product labels or which prohibit the
sales of products which contain Ma Huang other than by licensed pharmacists. On
April 10, 1996, the FDA issued a statement warning consumers not to purchase or
consume dietary supplements containing ephedrine with labels that portray the
products as apparent alternatives to illegal street drugs because these products
pose significant health risks to consumers. None of the Company's products which
contain Ma Huang are marketed for such purpose. The FDA, through a National Food
Advisory Committee, is currently considering whether the FDA should prohibit,
limit potencies or place other restrictions on the sale of products containing
Ma Huang. There can be no assurance that the FDA will not seek to impose
additional regulations on products which contain Ma Huang, including those
marketed by the Company.
There is a risk that the Company's products containing Ma Huang may become
subject to further federal, state, local or foreign laws or regulation, which
could require the Company to: (i) reformulate its products with reduced
ephedrine levels or with a substitute for Ma Huang and/or (ii) relabel its
products with different warnings or revised directions for use. Even in the
absence of further laws or regulation, the Company may elect to reformulate
and/or relabel its products which contain Ma Huang. While the Company believes
that its Ma Huang products could be reformulated and relabeled, there can be no
assurance in that regard or that reformulation and/or relabeling would not have
an adverse effect on sales of such products. The Company and others are
defendants in a wrongful death action originally commenced in July 1995 with
respect to one of the Company's products containing Ma Huang and with respect to
a product that does not contain Ma Huang manufactured by another defendant.
There can be no assurance that the Company will not be subject to further
private civil actions with respect to its products which contain Ma Huang.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into the market or prevent
or delay the introduction, or require the reformulation, of certain of the
Company's products. Compliance with such foreign governmental regulations is
generally the responsibility of the Company's distributors for those countries.
These distributors are independent contractors over whom the Company has limited
control.
The Company cannot determine what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on its
business in the future. They could, however, require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain
products not able to be reformulated, additional recordkeeping, expanded
documentation of the properties of certain products, expanded or different
labeling and/or scientific substantiation. Any or all of such requirements could
have a material adverse effect on the Company's results of operations and
financial condition.
COMPETITION
The business of developing, manufacturing and selling vitamins, minerals,
sports nutrition products and other nutritional supplements is highly
competitive. Certain of the Company's competitors are substantially larger and
have greater financial resources than the Company. See
"Business -- Competition."
ABSENCE OF CLINICAL STUDIES AND SCIENTIFIC REVIEW; EFFECT OF PUBLICITY
The Company generally does not conduct or sponsor clinical studies on its
products. The Company's products consist of vitamins, minerals, herbs and other
ingredients that the Company regards as safe when taken as suggested by the
Company. However, because the Company is highly dependent upon consumers'
perception of the safety and quality of its products as well as similar products
distributed by other companies (which may not adhere to the same quality
standards as the Company), the Company could be adversely affected in the event
any of the Company's products or any similar products distributed by other
companies should prove or be asserted to be harmful to consumers. In addition,
because of the Company's dependence upon consumer perceptions, adverse publicity
associated with illness or other adverse effects resulting from consumers'
failure to consume the Company's products as suggested by the Company or other
misuse or abuse
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of the Company's products or any similar products distributed by other companies
could have a material adverse effect on the Company's results of operations and
financial condition.
Furthermore, the Company believes the recent growth experienced by the
nutritional supplement market is based in part on national media attention
regarding recent scientific research suggesting potential health benefits from
regular consumption of certain vitamins and other nutritional products. Such
research has been described in major medical journals, magazines, newspapers and
television programs. The scientific research to date is preliminary, and there
can be no assurance of future favorable scientific results and media attention
or of the absence of unfavorable or inconsistent findings.
DEPENDENCE ON DISTRIBUTORS AND SIGNIFICANT CUSTOMER
The Company's success depends in part upon its ability to attract, retain
and motivate a large base of distributors, and its ability to maintain a
satisfactory relationship with GNC. Tree of Life, the Company's largest
distributor, and GNC accounted for approximately 28% and 22%, respectively, of
the Company's net sales in 1995. The loss of Tree of Life as a distributor or
GNC as a customer, or the loss of a significant number of other distributors, or
a significant reduction in purchase volume by Tree of Life, GNC or such other
distributors, for any reason, would have a material adverse effect on the
Company's results of operations and financial condition. See "Business -- Sales
and Distribution."
AVAILABILITY OF RAW MATERIALS
Substantially all of the Company's herbal supplements and herb teas contain
ingredients that are harvested by and obtained from third-party suppliers, and
many of those ingredients are harvested internationally and only once per year
or on a seasonal basis. An unexpected interruption of supply, such as a harvest
failure, could cause the Company's results of operations derived from such
products to be adversely affected. Although the Company has generally been able
to raise its prices in response to significant increases in the cost of such
ingredients, the Company has not always in the past been, and may not in the
future always be, able to raise prices quickly enough to offset the effects of
such increased raw material costs.
INTELLECTUAL PROPERTY PROTECTION
The Company's trademarks are valuable assets which are very important to
the marketing of its products. The Company's policy is to pursue registrations
for all of the trademarks associated with its key products. The Company has
approximately 250 trademark registrations with the United States Patent and
Trademark Office. The Company relies on common law trademark rights to protect
its unregistered trademarks. Common law trademark rights do not provide the
Company with the same level of protection as would U.S. federal registered
trademarks. In addition, common law trademark rights extend only to the
geographic area in which the trademark is actually used, while U.S. federal
registration prohibits the use of the trademark by any third party anywhere in
the United States.
OWNERSHIP OF THE COMPANY
As of June 15, 1996, GEI owns 48%, the Continuing Stockholders own 45% and
other investors own 7% of the common stock of TLC, which in turn owns 100% of
the common stock of the Company. Although the initial board of directors of each
of TLC and the Company consists of the Blechman Brothers and three GEI
representatives, a majority of TLC's stockholders have the ability to effect the
election of a majority of the members of such boards of directors. However,
regardless of the composition of such boards of directors, pursuant to the terms
of the Stockholders Agreement (as defined herein), a wide range of actions to be
taken by TLC will generally require approval of a majority of each of the GEI
and the Blechman director groups. In addition, certain fundamental corporate
actions generally require an affirmative vote of holders of at least 80% of the
issued and outstanding shares of common stock of TLC. These super majority
provisions are generally only effective until the occurrence of a Public
Offering Event (as defined herein). See "Principal Stockholders -- Terms of the
Stockholders Agreement." Thus, if the representatives of GEI and the Blechman
Brothers
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are not able to reach consensus on matters requiring such super majority
approval, the operations and growth of the Company could be adversely affected.
See "Prospectus Summary -- Recent Developments."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
holder which is an "affiliate" of the Company or any Guarantor within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such Notes. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that, by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented form time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the effective date of this Prospectus, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." However, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes will be adversely affected.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are a new issue of securities, have no established trading
market and may not be widely distributed. The Company does not intend to list
the New Notes on any national securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation system. Although the New Notes are expected to be eligible for trading
in the PORTAL market, no assurance can be given that an active public or other
market will develop for the New Notes or as to the liquidity of or the trading
market for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market for the New Notes
develops, any such market may be discontinued at any time. If a public trading
market develops for the New Notes, future trading prices of the New Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other facts, including the financial condition of the Company,
the New Notes may trade at a discount from their principal amount.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchasers on May 7,
1996, pursuant to the Purchase Agreement. The Initial Purchasers subsequently
resold the Old Notes in reliance on Rule 144A
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under the Securities Act and certain other exemptions under the Securities Act.
The Company and the Initial Purchasers also entered into the Registration Rights
Agreement, pursuant to which the Company agreed, with respect to the Old Notes
and subject to the Company's determination that the Exchange Offer is permitted
under applicable law, to (i) cause to be filed, on or prior to July 6, 1996, a
registration statement with the Commission under the Securities Act concerning
the Exchange Offer, (ii) use its reasonable best efforts to cause such
registration statement to be declared effective by the Commission on or prior to
September 19, 1996 and (iii) to cause the Exchange Offer to remain open for a
period of not less than 30 days. This Exchange Offer is intended to satisfy the
Company's exchange offer obligations under the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the New Notes for each $1,000 in principal amount of the
outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to the conditions, terms
and provisions of the Registration Rights Agreement. See "Conditions of the
Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Eligible Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $100.0 million in aggregate principal
amount of the Old Notes is outstanding, the maximum amount authorized by the
Indenture for all Notes. As of , 1996, there were two registered
holders of the Old Notes, including Cede, which held $ of aggregate
principal amount of the Old Notes for of its participants. Solely for
reasons of administration (and for no other purpose), the Company has fixed the
close of business on , 1996, as the record date (the "Record Date")
for purposes of determining the persons to whom this Prospectus and the Letter
of Transmittal will be mailed initially. Only an Eligible Holder of the Old
Notes (or such Eligible Holder's legal representative or attorney-in-fact) may
participate in the Exchange Offer. There will be no fixed record date for
determining Eligible Holders of the Old Notes entitled to participate in the
Exchange Offer. The Company believes that, as of the date of this Prospectus, no
such Eligible Holder is an affiliate (as defined in Rule 405 under the
Securities Act) of the Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Eligible
Holders of Old Notes and for the purposes of receiving the New Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Eligible Holder thereof as promptly as
practicable after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1996 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
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In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent and (iv)
to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, notwithstanding any other
provisions of the Exchange Offer, the Company shall not be required to accept
for exchange, or to issue the New Notes in exchange for, any Old Notes, if the
Exchange Offer violates any applicable law or interpretation of the staff of the
Commission. The Company expects that the foregoing conditions will be satisfied.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), Eligible
Holders of Old Notes are entitled to receive Liquidated Damages of $0.05 per
week per $1,000 principal amount of Old Notes held by such holders (up to a
maximum of $0.30 per week per $1,000 principal amount of Old Notes). A
"Registration Default" with respect to the Exchange Offer shall generally occur
if: (i) the registration statement concerning the exchange offer (the
"Registration Statement") has not been filed with the Commission on or prior to
July 6, 1996; (ii) the Registration Statement is not declared effective on or
prior to September 19, 1996 (the "Effectiveness Target Date") or (iii) the
Exchange Offer is not consummated within 45 days after the earlier of the
effectiveness of the Registration Statement and the Effectiveness Target Date.
Holders of New Notes will not be and, upon consummation of the Exchange Offer,
Eligible Holders of Old Notes will no longer be, entitled to (i) the right to
receive the Liquidated Damages or (ii) certain other rights under the
Registration Rights Agreement intended for holders of Transfer Restricted
Securities. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Company to the Registrar under the Indenture of New Notes
in the same aggregate principal amount as the aggregate principal amount of Old
Notes that are tendered by holders thereof pursuant to the Exchange Offer.
ACCRUED INTEREST ON THE OLD NOTES
The New Notes will bear interest at a rate equal to 10 1/4% per annum from
and including their date of issuance. Eligible Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereon
from the date of their original issuance or the last Interest Payment Date, as
applicable, to, but not including, the date of issuance of the New Notes, such
interest to be payable with the first interest payment on the New Notes.
Interest on the Old Notes accepted for exchange, which interest accrued at the
rate of 10 1/4% per annum, will cease to accrue on the day prior to the issuance
of the New Notes. See "Description of New Notes -- Principal, Maturity and
Interest."
PROCEDURES FOR TENDERING OLD NOTES
The tender of an Eligible Holder's Old Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering Eligible Holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, an Eligible Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit such Old
Notes, together with a properly completed and duly
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28
executed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set forth on the
back cover page of this Prospectus prior to 5:00 p.m., New York City time, on
the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal or (ii) by
an Eligible Institution (as defined). In the event that a signature on a Letter
of Transmittal or a notice of withdrawal, as the case may be, is required to be
guaranteed, such guarantee must be by a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If the Letter of Transmittal is signed by a person other than
the registered holder of the Old Notes, the Old Notes surrendered for exchange
must either (i) be endorsed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution or (ii) be accompanied by a bond power, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution. The term "registered holder" as used herein with respect
to the Old Notes means any person in whose name the Old Notes are registered on
the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
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By tendering, each registered holder will represent to the Company that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the Eligible Holder and each Beneficial Owner of the Old Notes
are being acquired by the Eligible Holder and each Beneficial Owner in the
ordinary course of business of the Eligible Holder and each Beneficial Owner,
(ii) the Eligible Holder and each Beneficial Owner are not participating, do not
intend to participate, and have no arrangement or understanding with any person
to participate, in the distribution of the New Notes, (iii) the Eligible Holder
and each Beneficial Owner acknowledge and agree that any person participating in
the Exchange Offer for the purpose of distributing the New Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the New Notes acquired by
such person and cannot rely on the position of the staff of the Commission set
forth in no-action letters that are discussed herein under "Resales of New
Notes," (iv) that if the Eligible Holder is a broker-dealer that acquired Old
Notes as a result of market making or other trading activities, it will deliver
a prospectus in connection with any resale of New Notes acquired in the Exchange
Offer, (v) the Eligible Holder and each Beneficial Owner understand that a
secondary resale transaction described in clause (iii) above should be covered
by an effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Commission and (vi)
neither the Eligible Holder nor any Beneficial Owner is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing. In connection with a book-entry transfer,
each participant will confirm that it makes the representations and warranties
contained in the Letter of Transmittal.
Guaranteed Delivery Procedures. Eligible Holders who wish to tender their
Old Notes and (i) whose Old Notes are not immediately available or (ii) who
cannot deliver their Old Notes or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date (or complete the
procedure for book-entry transfer on a timely basis), may tender their Old Notes
according to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution and a Notice of Guaranteed Delivery (as defined
in the Letter of Transmittal) must be signed by such Eligible Holder, (ii) on or
prior to the Expiration Date, the Exchange Agent must have received from the
Eligible Holder and the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Eligible Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within three (3) business days after the date of delivery of
the Notice of Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent and (iii) such properly completed
and executed documents required by the Letter of Transmittal and the tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC) must be received by
the Exchange Agent within three (3) business days after the Expiration Date. Any
Eligible Holder who wishes to tender Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
Book-Entry Delivery. The Exchange Agent will establish an account with
respect to the Old Notes at the DTC ("Book-Entry Transfer Facility") for
purposes of the Exchange Offer promptly after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Old Notes by causing such
facility to transfer Old Notes into the Exchange Agent's account in accordance
with such facility's procedure for such transfer. Even though delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof), with
any required signature guarantees, or an Agent's Message (as defined below) in
connection with a book-entry transfer, and other documents required by the
Letter of Transmittal, must, in any case, be transmitted to and received by the
Exchange Agent at one of its addresses set forth on the back cover of this
Prospectus before the Expiration Date, or the guaranteed delivery procedure set
forth above must be followed. Delivery of the Letter of Transmittal and any
other required documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent. The term "Agent's Message" means a
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30
message transmitted by the Book-Entry Transfer Facility to, and received by, the
Exchange Agent and forming a part of a book-entry Confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the Old
Notes that such participant has received and agrees to be bound by the terms of
the Letter of Transmittal and that the Company may enforce such agreement
against such participant.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes, when, as,
and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Eligible Holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
to the Exchange Agent, at its address set forth on the back cover page of this
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the Eligible Holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by a bond power in the name of
the person withdrawing the tender, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture, and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the Depositor,
pursuant to such documents of transfer. Any questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, in its sole discretion. The Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are withdrawn will be returned to the Eligible Holder thereof without cost to
such Eligible Holder as soon as practicable after withdrawal. Properly withdrawn
Old Notes may be retendered by following one of the procedures described under
"The Exchange Offer -- Procedures for Tendering Old Notes" at any time on or
prior to the Expiration Date.
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THE EXCHANGE AGENT; ASSISTANCE
Fleet National Bank is the Exchange Agent. All tendered Old Notes, executed
Letters of Transmittal and other related documents should be directed to the
Exchange Agent. Questions and requests for assistance and requests for
additional copies of the Prospectus, the Letter of Transmittal and other related
documents should be addressed to the Exchange Agent as follows:
By Mail: By Hand/Overnight Express: Facsimile Transmission:
Fleet National Bank Fleet National Bank (860) 986-7908
777 Main Street 777 Main Street To confirm receipt:
MSN CT/MO/0224 MSN CT/MO/0224 Tel. (860) 986-1271
Hartford, Connecticut 06115 Hartford, Connecticut 06115
Attention: Corporate Trust Attention: Corporate Trust
Operations Operations
SOLICITATION OF TENDERS; FEES AND EXPENSES
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will offers be
accepted from or on behalf of) holders of Notes in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Notes in
such jurisdiction.
All expenses incident to the Company's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Company, including, without limitation: (i) all registration and filing fees
(including, without limitation, fees and expenses of compliance with state
securities or Blue Sky laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for the New Notes in a form
eligible for deposit with DTC and of printing Prospectuses), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and the Guarantors, (v) fees and disbursements of independent certified
public accountants, (vi) rating agency fees, (vii) internal expenses of the
Company and the Guarantors (including, without limitation, all salaries and
expenses of officers and employees of the Company and the Guarantors performing
legal or accounting duties), and (ix) fees and expenses, if any, incurred in
connection with the listing of the New Notes on a securities exchange.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Company for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
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RESALES OF THE NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
such Eligible Holder (other than (i) a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act, or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the Eligible Holder is acquiring
the New Notes in the ordinary course of business and is not participating, and
has no arrangement or understanding with any person to participate, in the
distribution of the New Notes. The Company has not requested or obtained an
interpretive letter from the Commission staff with respect to this Exchange
Offer, and the Company and the Eligible Holders are not entitled to rely on
interpretive advice provided by the staff to other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any Eligible Holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such Eligible Holder cannot
rely on the position of the staff of the Commission enunciated in Morgan Stanley
& Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), or interpreted in the Commission's letters
to Shearman and Sterling (available July 2, 1993) and K-III Communications
Corporation (available May 14, 1993), or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
CONSEQUENCE OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exception from, or in a transaction not subject to, the
Securities Act and applicable states securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. See "Risk Factors -- Consequences of Failure to Exchange."
OTHER
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisers in making their own decisions
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Notes and will be entitled to all the
rights, and limitations applicable thereto, under the Indenture, except for any
such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. See "Description of New Notes." All untendered Old Notes
will continue to be subject to the restrictions on transfer set forth in the
Indenture. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered Old Notes could be adversely
affected.
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Old Notes which are
not tendered in the Exchange Offer.
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CAPITALIZATION
The following tables set forth the actual capitalization of TLC and its
direct and indirect subsidiaries as of March 31, 1996 and the capitalization of
Twin Laboratories Inc. and its subsidiary, ARP, at that date after giving effect
to: (i) the issuance and sale of the Old Notes and the application of the net
proceeds therefrom, (ii) the effectiveness of the New Credit Facility
(consisting of a six-year term loan facility in the amount of $53.0 million and
a six-year revolving credit facility in the amount of $15.0 million) and the
application of the proceeds therefrom, and (iii) the consummation of the
Acquisition, including the Company's conversion of tax status from an "S"
corporation to a "C" corporation and other tax consequences related to the
Acquisition. This table should be read in conjunction with "Unaudited Pro Forma
Condensed Consolidated Financial Data" and the Consolidated Financial Statements
of the Company and the notes thereto included elsewhere in this Prospectus.
CAPITALIZATION OF TLC
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
Cash and cash equivalents and marketable securities.................... $15,273 $ 4,429
======= =========
Long-term debt (including current portion)
New Credit Facility.................................................. $ -- $ 53,000
Notes................................................................ -- 100,000
Existing debt........................................................ 8,267 367
Capital lease obligations............................................ 406 406
------- -----------
Total long-term debt......................................... 8,673 153,773
------- -----------
Senior redeemable cumulative Preferred Stock........................... -- 30,000
------- -----------
Junior redeemable cumulative Preferred Stock........................... -- 37,000
------- -----------
Shareholders' equity (deficit)
Capital stock........................................................ 450 1,000
Additional paid-in capital........................................... 68 82,063
Retained earnings (deficit).......................................... 61,938 (178,796)
------- -----------
Total shareholders' equity (deficit)......................... 62,456 (95,733)
------- -----------
Total capitalization......................................... $71,129 $ 125,040
======= =========
CAPITALIZATION OF TWIN LABORATORIES INC.
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
Cash and cash equivalents and marketable securities.................... $15,273 $ 4,429
======= =========
Long-term debt (including current portion)
New Credit Facility.................................................. $ -- $ 53,000
Notes................................................................ -- 100,000
Existing debt........................................................ 8,267 367
Capital lease obligations............................................ 406 406
------- -----------
Total long-term debt......................................... 8,673 153,773
------- -----------
Shareholders' equity (deficit)
Capital stock........................................................ 432 253
Additional paid-in capital........................................... 86 130,370
Retained earnings (deficit).......................................... 61,938 (159,356)
------- -----------
Total shareholders' equity (deficit)......................... 62,456 (28,733)
------- -----------
Total capitalization......................................... $71,129 $ 125,040
======= =========
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma financial data have been prepared by the
Company's management from the Consolidated Financial Statements of the Company
and the notes thereto included elsewhere in this Prospectus. The unaudited pro
forma condensed consolidated statements of income for the year ended December
31, 1995, the three months ended March 31, 1995 and 1996 and the latest twelve
months ended March 31, 1996 reflect adjustments as if the Transactions had been
consummated and were effective as of January 1, 1995. The unaudited pro forma
condensed consolidated balance sheet as of March 31, 1996 gives effect to the
Transactions as if each had occurred on such date. See "Prospectus
Summary -- The Acquisition."
The financial effects of the Transactions as presented in the pro forma
financial data are not necessarily indicative of either the Company's financial
position or the results of its operations which would have been obtained had the
Transactions actually occurred on the dates described above, nor are they
necessarily indicative of the results of future operations. The pro forma
financial data should be read in conjunction with the notes thereto, which are
an integral part thereof, and with the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LATEST TWELVE MONTHS ENDED MARCH 31, 1996
PRO
HISTORICAL ADJUSTMENTS FORMA
-------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
Net sales.................................................. $156,591 $ -- $156,591
Cost of sales.............................................. 94,136 -- 94,136
-------- -------- --------
Gross profit............................................... 62,455 -- 62,455
Operating expenses......................................... 26,989 400(a) 27,389
-------- -------- --------
Income from operations..................................... 35,466 (400) 35,066
-------- -------- --------
Other (expense) income:
Interest income.......................................... 398 (398)(b) --
Interest expense......................................... (922) (15,086)(c) (16,008)
Transaction expenses..................................... (1,056) 1,056(d) --
Other.................................................... 55 -- 55
-------- -------- --------
(1,525) (14,428) (15,953)
-------- -------- --------
Income before provision for income taxes................... 33,941 (14,828) 19,113
Provision for income taxes................................. 276 7,300(e) 7,576
-------- -------- --------
Net income................................................. $ 33,665 $(22,128) $ 11,537
======== ======== ========
EBITDA(f).................................................. $ 37,957 $ -- $ 37,957
Ratio of earnings to fixed charges(g)...................... 25.6x 2.2x
YEAR ENDED DECEMBER 31, 1995
PRO
HISTORICAL ADJUSTMENTS FORMA
-------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
Net sales.................................................. $148,735 $ -- $148,735
Cost of sales.............................................. 89,932 -- 89,932
-------- -------- --------
Gross profit............................................... 58,803 -- 58,803
Operating expenses......................................... 27,191 400(a) 27,591
-------- -------- --------
Income from operations..................................... 31,612 (400) 31,212
-------- -------- --------
Other (expense) income:
Interest income.......................................... 313 (313)(b) --
Interest expense......................................... (866) (15,144)(c) (16,010)
Transaction expenses..................................... (656) 656(d) --
Other.................................................... 61 -- 61
-------- -------- --------
(1,148) (14,801) (15,949)
-------- -------- --------
Income before provision for income taxes................... 30,464 (15,201) 15,263
Provision for income taxes................................. 240 5,812(e) 6,052
-------- -------- --------
Net income................................................. $ 30,224 $(21,013) $ 9,211
======== ======== ========
EBITDA(f).................................................. $ 33,516 $ -- $ 33,516
Ratio of earnings to fixed charges(g)...................... 24.1x 1.9x
32
36
THREE MONTHS ENDED MARCH 31, 1996
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT RATIOS)
Net sales.................................................. $ 43,984 $ -- $43,984
Cost of sales.............................................. 26,362 -- 26,362
---------- ----------- ---------
Gross profit............................................... 17,622 -- 17,622
Operating expenses......................................... 7,299 100(a) 7,399
---------- ----------- ---------
Income from operations..................................... 10,323 (100) 10,223
---------- ----------- ---------
Other (expense) income:
Interest income.......................................... 167 (167)(b) --
Interest expense......................................... (224) (3,778)(c) (4,002)
Transaction expenses..................................... (400) 400(d) --
Other.................................................... (1) -- (1)
---------- ----------- ---------
(458) (3,545) (4,003)
---------- ----------- ---------
Income before provision for income taxes................... 9,865 (3,645) 6,220
Provision for income taxes................................. 86 2,380(e) 2,466
---------- ----------- ---------
Net income................................................. $ 9,779 $(6,025) $ 3,754
======= ========= ========
EBITDA(f).................................................. $ 11,125 $ -- $11,125
Ratio of earnings to fixed charges(g)...................... 29.2x 2.5x
THREE MONTHS ENDED MARCH 31, 1995
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT RATIOS)
Net sales.................................................. $ 36,128 $ -- $36,128
Cost of sales.............................................. 22,158 -- 22,158
---------- ----------- ---------
Gross profit............................................... 13,970 -- 13,970
Operating expenses......................................... 7,501 100(a) 7,601
---------- ----------- ---------
Income from operations..................................... 6,469 (100) 6,369
---------- ----------- ---------
Other (expense) income:
Interest income.......................................... 82 (82)(b) --
Interest expense......................................... (168) (3,836)(c) (4,004)
Other.................................................... 5 -- 5
---------- ----------- ---------
(81) (3,918) (3,999)
---------- ----------- ---------
Income before provision for income taxes................... 6,388 (4,018) 2,370
Provision for income taxes................................. 50 892(e) 942
---------- ----------- ---------
Net income................................................. $ 6,338 $(4,910) $ 1,428
======= ========= ========
EBITDA(f).................................................. $ 6,684 $ -- $ 6,684
Ratio of earnings to fixed charges(g)...................... 23.0x 1.6x
33
37
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
- ---------------
(a) Represents the LGP Management Fee (as defined herein). See "Certain
Relationships and Related Transactions -- Transactions with LGP."
(b) Represents a reduction in interest income on cash and cash equivalents.
(c) The interest expense adjustment is as follows:
THREE MONTHS LTM
YEAR ENDED ENDED MARCH 31, ENDED
DECEMBER 31, --------------- MARCH 31,
1995 1995 1996 1996
------------ ------ ------ ---------
(IN THOUSANDS)
Interest expense on the Notes and the New Credit
Facility at a composite interest rate of 9.5%,
including revolving credit commitment and
administration fees........................... $ 14,676 $3,669 $3,669 $14,676
Interest expense on refinanced debt............. (807) (152) (210) (865)
------------ ------ ------ ---------
13,869 3,517 3,459 13,811
Amortization of deferred financing costs........ 1,275 319 319 1,275
------------ ------ ------ ---------
Interest expense adjustment..................... $ 15,144 $3,836 $3,778 $15,086
========== ====== ====== =======
(d) Represents a reduction in nonrecurring expenses incurred which are directly
attributable to the Transactions.
(e) Reflects (i) the net increase in the provision for income taxes assuming the
Company was a "C" corporation, and (ii) the increase in net expenses
described in notes a, b, c and d above.
(f) EBITDA represents income from operations before depreciation and
amortization expense, and certain other charges related to legal
settlements, increases in inventory reserves, a tax settlement relating to a
limited partnership interest, which interest is expected to be divested,
and, for pro forma purposes, the LGP Management Fee. While EBITDA is not
intended to represent cash flow from operations as defined by GAAP and
should not be considered as an indicator of operating performance or an
alternative to cash flow (as measured by GAAP) as a measure of liquidity, it
is included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital expenditures
and working capital requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(g) The ratio of earnings to fixed charges is computed by adding fixed charges
(interest and one-third of rental expenses, representing that portion of
rental expenses attributable to interest) to income before provision for
income taxes and dividing that sum by the sum of the fixed charges.
34
38
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
AS OF MARCH 31, 1996
---------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................... $15,049 $ (10,844) $ 4,205
Marketable securities....................................... 224 -- 224
Accounts receivable, net of allowance for bad debts......... 23,669 -- 23,669
Inventories................................................. 28,110 -- 28,110
Prepaid expenses and other current assets................... 1,479 -- 1,479
Deferred tax assets......................................... -- 5,031 5,031
------- ----------- ---------
Total current assets................................ 68,531 (5,813) 62,718
Property, plant and equipment, net............................ 12,989 -- 12,989
Deferred tax assets........................................... -- 52,969 52,969
Other assets.................................................. 3,631 8,319 11,950
------- ----------- ---------
Total assets........................................ $85,151 $ 55,475 $ 140,626
======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of term loan facility....................... $ -- $ 2,915 $ 2,915
Current portion of long-term debt........................... 1,471 (1,384) 87
Current portion of capital lease obligations................ 138 -- 138
Loan payable -- bank........................................ 660 (660) --
Notes payable -- shareholders............................... 846 (846) --
Accounts payable............................................ 9,814 -- 9,814
Accrued expenses and other current liabilities.............. 4,208 1,564 5,772
------- ----------- ---------
Total current liabilities........................... 17,137 1,589 18,726
Term loan facility............................................ -- 50,085 50,085
Notes......................................................... -- 100,000 100,000
Long-term debt, less current portion.......................... 5,290 (5,010) 280
Capital lease obligations, less current portion............... 268 -- 268
------- ----------- ---------
Total liabilities................................... 22,695 146,664 169,359
------- ----------- ---------
Senior redeemable cumulative Preferred Stock.................. -- 30,000 30,000
------- ----------- ---------
Junior redeemable cumulative Preferred Stock.................. -- 37,000 37,000
------- ----------- ---------
Shareholders' equity (deficit):
Common stock................................................ 450 550 1,000
Additional paid-in capital.................................. 68 81,995 82,063
Retained earnings (deficit)................................. 61,938 (240,734) (178,796)
------- ----------- ---------
Total shareholders' equity (deficit)................ 62,456 (158,189) (95,733)
------- ----------- ---------
Total liabilities and shareholders' equity
(deficit)......................................... $85,151 $ 55,475 $ 140,626
======= ========= =========
35
39
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
Pro forma adjustments to the Unaudited Pro Forma Consolidated Balance Sheet
Data are summarized (in thousands) in the following table and are fully
described in the notes that follow:
REPURCHASE
OF THE CONVERSION
STOCKHOLDERS' OF TAX
COMMON STOCK PAYMENT OF STATUS FROM TERMINATION
DEBT AND TRANSACTION INCOME "S" TO "C" OF INSURANCE
FINANCING REFINANCED RECAPITALIZATION FEES TAXES CORPORATION POLICY NET
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- ---------- ---------------- ----------- ------- ----------- ------------- ------------
Cash and cash
equivalents..... $ 225,500 $ (7,900) $ (212,500) $ (12,330) $(5,400) $ 1,786 $ (10,844)
Current deferred
tax asset....... 5,031 5,031
Long-term deferred
tax assets...... 52,969 52,969
Other assets...... 10,105 (1,786) 8,319
Current portion of
term loan
facility........ 2,915 2,915
Current portion of
long-term
debt............ (1,384) (1,384)
Loan
payable -- bank... (660) (660)
Notes payable --
shareholders.... (846) (846)
Accrued expenses
and other
current
liabilities..... 500 (236) 1,300 1,564
Term loan
facility........ 50,085 50,085
Notes............. 100,000 100,000
Long-term debt,
less current
portion......... (5,010) (5,010)
Senior redeemable
cumulative
Preferred
Stock........... 30,000 30,000
Junior redeemable
cumulative
Preferred
Stock........... 37,000 37,000
Common stock...... 550 550
Additional paid-in
capital......... 4,950 (27,380) (1,989) 56,700 $ 49,714 81,995
Retained
earnings........ (185,620) (5,400) (49,714) (240,734)
- ---------------
(a) The sources of financing to effect the Acquisition are as follows:
Gross proceeds of the Offering............................................ $100,000
Borrowings under the New Credit Facility.................................. 53,000
Issuance of Preferred Stock............................................... 67,000
Issuance of Common Stock.................................................. 5,500
--------
Total sources of financing...................................... $225,500
========
(b) Represents the amount of debt refinanced by the Company in connection with
the Transactions.
(c) Represents the purchase price for the Stockholders' common stock in the
Company. The total purchase price includes approximately $15,000,
representing consideration for the Non-Competition Agreements, which was
recognized as a non-recurring expense upon the consummation of the
Acquisition.
(d) Represents allocation of fees paid in connection with the issuance of the
Notes, the New Credit Facility and the issuance of the Preferred Stock and
the common stock of TLC.
36
40
(e) The Natur-Pharma Merger was treated as taxable asset purchases for federal
and state income tax purposes and as a recapitalization for financial
accounting purposes. For federal and state income tax purposes, the purchase
price was allocated among the various corporations and their respective
assets and liabilities based on the respective fair values as of the closing
of the Acquisition. This resulted in different book and tax asset bases for
the assets of these companies, which will result in deferred tax assets of
approximately $58,000. The calculation of the deferred tax asset and the
classification of such asset between current and long-term are preliminary
and subject to change based upon the final determination of fair values as
of the closing of the Acquisition.
As the Natur-Pharma Merger was treated as taxable asset purchases for
federal and state income tax purposes, New York State imposes an
entity-level tax on the related gain. Such tax, which is estimated to be
$1,300, will be paid by the Company.
Also represents a distribution of approximately $5,400 to the Stockholders
for income taxes paid for "S" corporation earnings through March 31, 1996.
(f) Represents a constructive distribution of undistributed "S" corporation
earnings and subsequent contribution to the capital of the Company in
connection with the termination of "S" corporation status.
(g) Represents the termination of the split dollar life insurance policy on the
lives of certain of the Stockholders and collection of the receivable from
the trust related thereto.
37
41
SELECTED HISTORICAL FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1991
and for the year then ended and as of March 31, 1995 and 1996 and for the three
month periods ended March 31, 1995 and 1996 are derived from the unaudited
consolidated financial statements of the Company. In the opinion of management,
the unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for such
periods. The results for the interim periods are not necessarily indicative of
the results for the related full fiscal year. The selected consolidated
financial data as of December 31, 1992, 1993, 1994 and 1995 and for each of the
years then ended has been derived from the audited consolidated financial
statements of the Company. The report of Deloitte & Touche LLP, independent
auditors, on the consolidated financial statements as of December 31, 1994 and
1995, and for each of the three years in the period ended December 31, 1995 is
included elsewhere herein. The selected consolidated financial data should be
read in conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements of the Company and the notes thereto and the other
financial information included elsewhere in this Prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales.................... $70,165 $83,014 $99,897 $117,342 $148,735 $36,128 $43,984
Cost of sales................ 44,664 51,214 62,131 70,247 89,932 22,158 26,362
------- ------- ------- -------- -------- ------- -------
Gross profit................. 25,501 31,800 37,766 47,095 58,803 13,970 17,622
Operating expenses........... 14,570 17,463 21,125 23,022 27,191 7,501 7,299
------- ------- ------- -------- -------- ------- -------
Income from operations....... 10,931 14,337 16,641 24,073 31,612 6,469 10,323
------- ------- ------- -------- -------- ------- -------
Other (expense) income:
Interest income........... 375 302 242 254 313 82 167
Interest expense.......... (461) (494) (487) (761) (866) (168) (224)
Transaction expenses...... -- -- -- -- (656) -- (400)
Other..................... (514) (135) 510 354 61 5 (1)
------- ------- ------- -------- -------- ------- -------
(600) (327) 265 (153) (1,148) (81) (458)
------- ------- ------- -------- -------- ------- -------
Income before unusual item,
provision for income taxes
and extraordinary item.... 10,331 14,010 16,906 23,920 30,464 6,388 9,865
Unusual item -- nonrecurring
charge for prior years'
income tax assessment..... -- -- -- 1,982 -- -- --
Provision for income taxes... 169 651 230 245 240 50 86
------- ------- ------- -------- -------- ------- -------
Income before extraordinary
item...................... 10,162 13,359 16,676 21,693 30,224 6,338 9,779
Extraordinary item........... -- 76 -- -- -- -- --
------- ------- ------- -------- -------- ------- -------
Net income................... $10,162 $13,435 $16,676 $ 21,693 $ 30,224 $ 6,338 $ 9,779
======= ======= ======= ======== ======== ======= =======
PRO FORMA:(A)
Historical income before
provision for income
taxes..................... $10,331 $14,010 $16,906 $ 21,938 $ 30,464 $ 6,388 $ 9,865
Pro forma provision for
income taxes.............. 4,017 5,436 6,644 9,087 12,060 2,529 3,906
------- ------- ------- -------- -------- ------- -------
Pro forma net income......... $ 6,314 $ 8,574 $10,262 $ 12,851 $ 18,404 $ 3,859 $ 5,959
======= ======= ======= ======== ======== ======= =======
38
42
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT RATIOS)
OTHER DATA:
EBITDA(b).................... $11,734 $15,229 $17,446 $ 25,023 $ 33,516 $ 6,684 $11,125
Capital expenditures......... 1,472 1,304 4,904 1,786 2,641 489 224
Depreciation................. 783 806 710 851 909 194 271
Amortization................. 20 86 95 99 102 21 31
Ratio of earnings to fixed
charges(c)................ 13.7x 16.6x 19.8x 21.2x 24.1x 23.0x 29.2x
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS)
BALANCE SHEET DATA:
Net working capital
(excluding cash and cash
equivalents, marketable
securities and current
debt)..................... $14,097 $18,575 $25,437 $ 35,056 $ 39,405 $32,019 $39,236
Property, plant and
equipment, net............ 7,645 7,863 10,732 12,071 13,036 12,367 12,989
Total assets................. 36,878 44,368 55,587 64,706 75,309 66,711 85,151
Total debt (including current
debt)..................... 6,100 6,066 8,039 9,288 8,792 8,674 8,673
Shareholders' equity......... 26,587 33,180 40,543 48,671 55,405 47,816 62,456
- ---------------
(a) The Company consisted of S corporations and, accordingly, federal and state
taxes were generally paid at the shareholder level only. Upon consummation
of the Transactions, the Company eliminated its S corporation status and,
accordingly, will be subject to federal and state income taxes.
(b) EBITDA represents income from operations before depreciation and
amortization expense, and certain other charges related to legal
settlements, increases in inventory reserves, a tax settlement relating to
a limited partnership interest, which interest is expected to be divested,
and, for pro forma purposes, the LGP Management Fee. While EBITDA is not
intended to represent cash flow from operations as defined by GAAP and
should not be considered as an indicator of operating performance or an
alternative to cash flow (as measured by GAAP) as a measure of liquidity,
it is included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital expenditure
and working capital requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(c) The ratio of earnings to fixed charges is computed by adding fixed charges
(interest and one-third of rental expenses, representing that portion of
rental expenses attributable to interest) to income before unusual item,
provision for income taxes and extraordinary item, and dividing that sum by
the sum of the fixed charges.
39
43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial Data" and the audited Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus. The Company consisted of "S" corporations for the three months ended
March 31, 1996 and years ended December 31, 1995, 1994 and 1993. Accordingly,
federal and state taxes were generally paid at the shareholder level only. The
provision for income taxes for the three months ended March 31, 1996 and years
ended December 31, 1995, 1994 and 1993 represented state taxes for New York,
which imposes a corporate tax for all income in excess of $0.2 million. Upon
consummation of the Transactions, the Company eliminated its "S" corporation
status and, accordingly, is subject to federal and state income taxes.
The following table sets forth, for the periods indicated, certain
historical income statement and other data for the Company and also sets forth
certain of such data as a percentage of net sales.
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
$ % $ % $ % $ % $ %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
Vitamins, Minerals & Amino Acids............. $ 29.1 29.1% $ 32.3 27.5% $ 37.1 24.9% $ 9.8 27.1% $ 10.1 23.0%
Sports Nutrition............................. 34.7 34.7 39.9 34.0 53.9 36.2 11.8 32.7 14.5 32.9
Special Formulas............................. 23.6 23.7 31.0 26.4 41.2 27.7 8.8 24.5 12.4 28.1
Herbal Supplements & Phytonutrients.......... 12.0 12.0 14.5 12.3 19.8 13.3 4.9 13.6 6.6 15.0
Herb Teas.................................... 3.0 3.0 4.2 3.6 5.8 3.9 2.1 5.7 2.2 5.0
Publishing................................... 2.7 2.7 3.4 3.0 4.8 3.3 1.2 3.3 1.3 3.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross Sales................................ 105.1 105.2 125.3 106.8 162.6 109.3 38.6 106.9 47.1 107.0
Discounts & Allowances..................... (5.2) (5.2) (8.0) (6.8) (13.9) (9.3) (2.5) (6.9) (3.1) (7.0)
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net Sales.................................. $ 99.9 100.0% $117.3 100.0% $148.7 100.0% $ 36.1 100.0% $ 44.0 100.0%
Gross Profit................................. 37.8 37.8 47.1 40.1 58.8 39.5 14.0 38.7 17.6 40.1
Operating Expenses........................... 21.1 21.1 23.0 19.6 27.2 18.3 7.5 20.8 7.3 16.6
Income From Operations....................... 16.6 16.7 24.1 20.5 31.6 21.3 6.5 17.9 10.3 23.5
EBITDA....................................... 17.4 17.5 25.0 21.3 33.5 22.5 6.7 18.5 11.1 25.3
THREE MONTHS ENDED MARCH 31, 1996 ("FIRST QUARTER 1996") COMPARED TO
THREE MONTHS ENDED MARCH 31, 1995 ("FIRST QUARTER 1995")
Net Sales. Net sales for first quarter 1996 was $44.0 million, an increase
of $7.9 million, or 21.7%, as compared to net sales of $36.1 million in first
quarter 1995. The 21.7% increase was attributable to increases in gross sales in
each of the Company's six product categories, partially offset by an increase in
discounts and allowances which was due to the Company's increased sales volume.
Vitamins, minerals and amino acids contributed $10.1 million, an increase of
$0.3 million, or 3.1%, as compared to $9.8 million in first quarter 1995. The
increase in gross sales of vitamins, minerals and amino acids was primarily due
to continued strong consumer interest in these products. Sports nutrition
products contributed $14.5 million, an increase of $2.7 million, or 22.3%, as
compared to $11.8 million in first quarter 1995, primarily due to the increased
demand for a variety of these products. Special formulas contributed $12.4
million, an increase of $3.6 million, or 40.1%, as compared to $8.8 million in
first quarter 1995. The increase in gross sales of special formulas was
primarily due to the successful introduction of a variety of new product
formulations. Herbal supplements and phytonutrients contributed $6.6 million, an
increase of $1.7 million, or 34.1%, as compared to $4.9 million in first quarter
1995, and herb teas contributed $2.2 million, an increase of $0.1 million, or
7.0%, as compared to $2.1 million in first quarter 1995. The gross sales
increase in both herbal supplements and phytonutrients and herb teas is
primarily due to new product introductions, continued strong consumer interest
in existing products and increased penetration of Nature's Herbs and Alvita
products into domestic health food stores.
40
44
Publishing contributed $1.3 million, an increase of $0.1 million, or 9.5%, as
compared to $1.2 million in first quarter 1995.
Gross Profit. Gross profit for first quarter 1996 was $17.6 million, which
represented an increase of $3.6 million, or 26.1%, as compared to $14.0 million
for first quarter 1995. Gross profit margin was 40.1% for first quarter 1996 as
compared to 38.7% for first quarter 1995. The overall increase in gross profit
dollars was attributable to the Company's higher sales volume in first quarter
1996. The increase in gross profit margin in first quarter 1996 as compared to
first quarter 1995 was due primarily to a more favorable product mix and to
higher gross profit margins on recently introduced new product formulations and
product line extensions.
Operating Expenses. Operating expenses were $7.3 million for first quarter
1996, representing a decrease of $0.2 million, or 2.7%, as compared to $7.5
million for first quarter 1995. As a percent of net sales, operating expenses
declined from 20.8% in first quarter 1995 to 16.6% in first quarter 1996. The
decrease in operating expenses was primarily attributable to advertising
expenses which were lower by approximately $1.0 million than the Company's
advertising expenses in first quarter 1995 due to reduced television advertising
pending completion of new television commercials and reduced print advertising.
The Company expects that its advertising expenses in respect of fiscal 1996 will
exceed its advertising expenditures in fiscal 1995. The decline in operating
expenses as a percent of net sales is due to the Company's ability to maintain
its expenditures at approximately the same level as in first quarter 1995, while
substantially increasing the Company's sales volume.
EBITDA. EBITDA was $11.1 million in first quarter 1996, representing an
increase of $4.4 million, or 66.4%, as compared to $6.7 million for first
quarter 1995. EBITDA margin increased to 25.3% of net sales in first quarter
1996 as compared to 18.5% of net sales in first quarter 1995. The increase in
EBITDA and EBITDA margin was primarily due to the Company's higher sales volume
in first quarter 1996 and a reduction in the Company's operating expenses as a
percent of net sales.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales for fiscal 1995 was $148.7 million, an increase of
$31.4 million, or 26.8%, as compared to net sales of $117.3 million in fiscal
1994. The 26.8% increase was attributable to increases in gross sales in each of
the Company's six product categories, partially offset by an increase in
discounts and allowances due to the Company's increased sales volume. Vitamins,
minerals and amino acids contributed $37.1 million, an increase of $4.8 million,
or 14.7%, as compared to $32.3 million in fiscal 1994, primarily due to
continued strong consumer interest in these products. Sports nutrition
contributed $53.9 million, an increase of $14.0 million, or 34.9%, as compared
to $39.9 million in fiscal 1994, primarily due to the increased demand for a
variety of these products. Special formulas contributed $41.2 million, an
increase of $10.2 million, or 33.2%, as compared to $31.0 million in fiscal
1994, primarily due to the successful introduction of new product formulations
and strong growth in existing product lines. Herbal supplements and
phytonutrients contributed $19.8 million, an increase of $5.3 million, or 37.2%,
as compared to $14.5 million in fiscal 1994, and herb teas contributed $5.8
million, an increase of $1.6 million, or 37.4%, as compared to $4.2 million in
fiscal 1994. The gross sales increase in both herbal supplements and
phytonutrients and herb teas is primarily due to new product introductions,
continued strong consumer interest in existing products and increased
penetration of Alvita and Nature's Herbs products into domestic health food
stores. Publishing contributed $4.8 million, an increase of $1.4 million, or
39.1%, as compared to $3.4 million in fiscal 1994.
Gross Profit. Gross profit for fiscal 1995 was $58.8 million, which
represented an increase of $11.7 million or 24.9%, as compared to $47.1 million
for fiscal 1994. Gross margin was 39.5% for fiscal 1995 as compared to 40.1% for
fiscal 1994. The overall increase in gross profit dollars was attributable to
the Company's higher sales volume in fiscal 1995. The decrease in gross margin
for fiscal 1995 as compared to fiscal 1994 was due primarily to lower gross
margins on the Company's Nature's Herbs products due to certain raw materials
price increases and an increase in sales discounts and allowances offered on
certain TWINLAB and Nature's Herbs products under certain sales incentive
programs introduced in 1995, which programs are expected to be continued in
1996. Such decreases in gross margin were partially offset by increased sales
from
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a more favorable product mix and increases in the Company's gross margins for
TWINLAB sports nutrition products, special formulas and Alvita herb tea
products.
Operating Expenses. Operating expenses were $27.2 million for fiscal 1995,
representing an increase of $4.2 million, as compared to $23.0 million for
fiscal 1994. As a percent of net sales, operating expenses declined from 19.6%
in fiscal 1994 to 18.3% in fiscal 1995. The increase in operating expenses was
primarily attributable to increased selling and advertising expenses and higher
operating expenses resulting from the Company's increased level of sales in
fiscal 1995. The decline in operating expenses as a percent of net sales is due
to the Company's ability to maintain its expenditures for research and
development and certain general and administrative functions at approximately
the same level as in fiscal 1994, while substantially increasing the Company's
sales volume.
EBITDA. EBITDA was $33.5 million in fiscal 1995, representing an increase
of $8.5 million, or 33.9%, compared to $25.0 million for fiscal 1994. EBITDA
margin increased to 22.5% of net sales in fiscal 1995, as compared to 21.3% of
net sales in fiscal 1994. The increase in EBITDA was primarily due to the
Company's higher sales volume in fiscal 1995 and a reduction in the Company's
operating expenses as a percent of net sales.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales. Net sales for fiscal 1994 was $117.3 million, an increase of
$17.4 million, or 17.5%, as compared to net sales of $99.9 million in fiscal
1993. The 17.5% increase was attributable to increases in gross sales in each of
the Company's six product categories, partially offset by an increase in
discounts and allowances due to the Company's increased sales volume. Vitamins,
minerals and amino acids contributed $32.3 million, an increase of $3.2 million,
or 11.2%, as compared to $29.1 million in fiscal 1993, primarily due to
continued strong consumer interest in these products. Sports nutrition
contributed $39.9 million, an increase of $5.2 million, or 15.2%, as compared to
$34.7 million in fiscal 1993, primarily due to the increased demand for a
variety of these products. Special formulas contributed $31.0 million, an
increase of $7.4 million, or 30.9%, as compared to $23.6 million in fiscal 1993,
primarily due to the successful introduction of 18 new product formulations and
strong growth of existing product lines. Herbal supplements and phytonutrients
contributed $14.5 million, an increase of $2.5 million, or 20.8%, as compared to
$12.0 million in fiscal 1993 and herb teas contributed $4.2 million, an increase
of $1.2 million, or 40.6%, as compared to $3.0 million in fiscal 1993. The gross
sales increase in both herbal supplements and phytonutrients and herb teas is
primarily due to new product introductions, continued strong consumer interest
in existing products and increased penetration of Nature's Herbs and Alvita
products into domestic health food stores. Publishing contributed $3.4 million,
an increase of $0.7 million, or 27.4%, as compared to $2.7 million in fiscal
1993.
Gross Profit. Gross profit for fiscal 1994 was $47.1 million compared to
$37.8 million in fiscal 1993. As a percent of net sales, gross profit was 40.1%
for fiscal 1994 compared to 37.8% for fiscal 1993. The gross profit dollar
increase in fiscal 1994 compared to fiscal 1993 was due to the Company's higher
sales volumes and higher gross margins in fiscal 1994. The increase in gross
margin in fiscal 1994 compared to fiscal 1993 was attributable to a more
favorable product sales mix and higher gross margins on certain of the Company's
TWINLAB vitamins, minerals, amino acids, sports nutrition products and special
formulas. This increase in gross margin was partially offset by lower gross
margins for certain of the Company's Alvita herb tea products, which was due to
the relocation of Alvita Products, Inc.'s operations from Ronkonkoma, New York
to American Fork, Utah.
Operating Expenses. Operating expenses increased by $1.9 million, or 9.0%,
from $21.1 million in fiscal 1993 to $23.0 million in fiscal 1994. As a percent
of net sales, operating expenses declined to 19.6% in fiscal 1994 from 21.1% in
fiscal 1993. The dollar increase in operating expenses is primarily due to
higher selling, advertising and delivery expenses. The decline in operating
expenses as a percent of net sales is due partially to the Company's ability to
limit the increase in general and administrative expenses while achieving a
higher level of sales volume.
EBITDA. EBITDA was $25.0 million in fiscal 1994, an increase of $7.6
million, or 43.4%, compared to $17.4 million for fiscal 1993. EBITDA margin
increased to 21.3% of net sales in 1994 as compared to 17.5% of
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net sales in fiscal 1993. The increase in EBITDA and EBITDA margin was due to
increased sales volumes together with higher gross margins and lower operating
expenses as a percent of net sales.
LIQUIDITY AND CAPITAL RESOURCES
For first quarter 1996, cash provided by operating activities was $10.3
million, and during fiscal 1995 cash provided by operating activities was $26.8
million, compared to $12.9 million in fiscal 1994 and $10.6 million in fiscal
1993. The increase in fiscal 1995 compared to fiscal 1994 and fiscal 1993 was
primarily due to higher net income and reflects higher levels of accounts
payable and accrued liabilities, partially offset by higher accounts receivable
and inventory balances due to higher levels of sales volume at the Company. Cash
used in financing activities was $2.8 million in first quarter 1996, $24.0
million in fiscal 1995, $13.0 million in fiscal 1994 and $7.3 million in fiscal
1993 and primarily consisted of distributions to shareholders of $2.7 million,
$23.5 million, $13.6 million and $9.4 million for first quarter 1996, fiscal
1995, fiscal 1994 and fiscal 1993, respectively.
Capital expenditures, including purchases under capital leases, were $0.2
million, $2.6 million, $2.5 million and $4.9 million for first quarter 1996,
fiscal 1995, fiscal 1994 and fiscal 1993, respectively. The higher level of
capital expenditures in fiscal 1993 reflects the construction of the Company's
manufacturing facility in American Fork, Utah, which commenced operations in the
last quarter of fiscal 1993. Historical capital expenditures were primarily used
to purchase production equipment, expand capacity and improve manufacturing
efficiency. Capital expenditures are expected to be approximately $3.4 million
in fiscal 1996 and will be used to purchase manufacturing equipment and fund
plant expansion to support the Company's future growth. The Company estimates
that its historical level of maintenance capital expenditures has been
approximately $0.5 million per fiscal year. See "Business."
Management believes that the Company has adequate capital resources and
liquidity to meet its borrowing obligations, fund all required capital
expenditures and pursue its business strategy. The Company's capital resources
and liquidity are expected to be provided by the Company's cash flow from
operations and borrowings under the revolving credit facility contained in the
New Credit Facility.
From time to time, the Company evaluates acquisitions which complement the
business of the Company. Depending on the cash requirements of potential
transactions, the Company may finance transactions with its cash flow from
operations, or the Company may raise additional funds by pursuing various
financing vehicles such as additional bank financing or offerings of the
Company's securities. The Company, however, has no present understanding,
commitment or agreement with respect to any acquisition, and there can be no
assurance that funds to finance an acquisition will be available or permitted
under the Company's financing instruments. See "Description of New Credit
Facility" and "Description of New Notes -- Certain Covenants."
IMPACT OF INFLATION
Generally, the Company has been able to pass on inflation-related cost
increases; consequently, inflation has not had a material impact on the
Company's historical operations or profitability.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted at this date, include 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" and SFAS No. 123,
"Accounting for Stock Based Compensation." These pronouncements are not expected
to have a material impact on the Company's financial statements.
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BUSINESS
GENERAL
The Company is the leading manufacturer and marketer of brand name
nutritional supplements sold through domestic independent health food stores.
Since the Company's founding in 1968 by David and Jean Blechman, the Company has
emphasized the development and introduction of high-quality, unique products in
response to emerging trends in the nutritional supplement industry. The Company
produces a full line of nutritional supplements and offers the broadest product
line in the industry with more than 800 products and 1,500 SKU's. The Company's
product line includes vitamins, minerals, amino acids, fish and marine oils,
sports nutrition products and special formulas marketed under the TWINLAB(R)
trademark and a full line of herbal supplements and phytonutrients and herb teas
marketed under the Nature's Herbs(R) and Alvita(R) trademarks, respectively.
None of the Company's products individually accounted for more than 7% of total
net sales in 1995. The Company's broad product line, strong history of new
product introductions and innovations, superior marketing and advertising
programs and premium product quality have established TWINLAB, Nature's Herbs
and Alvita as leading brands in the nutritional supplement industry.
Under the management of Mr. and Mrs. Blechman's five sons, the Company has
diversified its product line through internal growth, product development and
selected acquisitions, including the acquisition in 1989 of Natur-Pharma Inc., a
leading manufacturer and marketer of herbal supplements and phytonutrients under
the Nature's Herbs brand name, and the acquisition in 1991 of Alvita Products,
Inc., a leading marketer of herb teas. The Company has achieved increased net
sales and EBITDA every year since 1990. In particular, during the three-year
period from 1993 through 1995, the Company achieved a compound annual growth
rate in net sales and EBITDA of 22.0% and 38.6%, respectively. For the fiscal
year ended December 31, 1995, the Company achieved net sales growth of 26.8% to
$148.7 million and EBITDA growth of 33.9% to $33.5 million, as compared to
fiscal year 1994. For the quarter ended March 31, 1996, the Company achieved net
sales of $44.0 million and EBITDA of $11.1 million, representing an increase of
21.7% and 66.4%, respectively, as compared to the quarter ended March 31, 1995.
The Company's products target consumers who utilize nutritional supplements
in their daily diet and who demand premium quality ingredients in a broad
variety of dosages and delivery methods. The Company's products compete
primarily in the health food store market, where the dominant competitive
factors include product attributes such as quality, potency and the uniqueness
of the product formulation. The Company sells its products domestically through
a network of approximately 60 distributors, who service approximately 11,000
health food stores and other selected retail outlets. The Company believes that
its products are available in over 90% of the health food stores in the United
States. The health food store channel of distribution has expanded significantly
in recent years and is expected to grow further as national chains such as GNC,
Whole Foods Market, Wild Oats Markets, Fresh Fields and other industry
participants continue to add stores in new and existing markets. The health food
store market differs significantly from the mass market for vitamin and other
nutritional supplements where price and convenience constitute the primary bases
of competition. The nutritional supplement products sold in grocery stores, drug
stores and mass merchandisers are typically manufactured by large pharmaceutical
companies and private label manufacturers. The Company's products are also
offered in Europe, Asia, South America and other international markets through
arrangements with overseas distributors.
The Company believes it is well positioned to capitalize on the growth of
the nutritional supplement market. Based on estimates contained in the Packaged
Facts Survey, the retail market for vitamins, minerals and other nutritional
supplements has grown at a compound annual rate of greater than 12% from $3.3
billion in 1991 to over $4.6 billion in 1994. Furthermore, the Company's rate of
sales growth has exceeded the industry's growth rate for each year during this
period. Packaged Facts forecasts approximately 7% annual industry growth through
the end of the decade in vitamins, minerals and supplements, which management
believes will be fueled by (i) favorable demographic trends towards older
Americans, who are more likely to consume nutritional supplements; (ii) product
introductions in response to new scientific research findings; (iii) the
nationwide trend toward preventive medicine in response to rising health care
costs; and (iv) the heightened understanding and awareness of the connection
between diet and health. Moreover, although the
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industry has grown dramatically in recent years, there is still a large untapped
domestic market as only an estimated 50% of Americans currently consume
vitamins, minerals and herbal supplements on a regular basis.
Twin Laboratories Inc. was incorporated in 1989 under the laws of the State
of Utah and maintains its principal executive offices at 2120 Smithtown Avenue,
Ronkonkoma, New York 11779. Its telephone number is (516) 467-3140. In
connection with the consummation of the Acquisition, the name of the Company was
changed from Natur-Pharma Inc. to Twin Laboratories Inc.
BUSINESS STRATEGY
The Company's strategy is to continue to enhance its leadership position in
the domestic sale of vitamins, minerals and other nutritional supplements in
health food stores and to increase its market share and sales while continuing
to improve its overall operating efficiency and financial performance. The
Company intends to capitalize on the TWINLAB brand name by growing market share
domestically, increasing penetration of the Company's other brands, continuing
to introduce new products and product extensions, and expanding internationally.
Specifically, the Company seeks to:
Capitalize on Powerful Brand Name Recognition. The Company's recognized
product quality, broad product line, strong history of new product introductions
and innovations, and superior marketing and advertising programs have
established TWINLAB, Nature's Herbs and Alvita as leading brands in the
nutritional supplement industry. Each of the Company's product categories,
including vitamins, minerals and amino acids; sports nutrition; special
formulas; herbal supplements and phytonutrients; and herb teas, have posted
double digit sales growth in each of the last three years. The Company's
extensive marketing and advertising programs have been critical components of
its products' strong brand name recognition, and management believes that the
Company offers its customers the strongest marketing and advertising support
programs in the industry. In fiscal 1995 the Company invested $11.1 million, an
increase of 27% over fiscal 1994, on marketing and advertising to promote its
products. Furthermore, since quality is a critical factor in consumer purchase
decisions, the Company believes that its premium quality ingredients, modern
manufacturing facilities and comprehensive quality control procedures have
enabled the Company to establish a competitive advantage based on the quality of
its products.
Increase Penetration in the Growing Health Food Market. Management
believes that the expansion of retail distribution channels and the strong
growth characteristics of the nutritional supplement industry provide the
Company with significant opportunities to increase sales. Management further
believes that the established brand name recognition of the Company's products
positions it to increase its penetration of shelf space as health food retailers
seek to align themselves with companies who possess strong brand names, offer a
wide range of products, demonstrate continued marketing and advertising support
and provide consistently high levels of customer service. Since Nature's Herbs
and Alvita products currently are available in only an estimated 60% and 50%,
respectively, of domestic health food stores, compared to an estimated 90% for
TWINLAB products, the Company believes that it will be able to capitalize on
health food retailers' success with the TWINLAB product line in order to
significantly increase shelf space for the Company's herbal supplements,
phytonutrients and herb teas.
Continue to Introduce New Products and Product Innovations. A cornerstone
of the Company's success has been its ability to rapidly utilize recent
scientific and medical findings in its new product development efforts. The
Company has consistently been among the first in its industry to introduce new
products and product innovations which anticipate and meet customer demands for
newly identified nutritional supplement benefits. Furthermore, the Company's
geographically diverse network of more than 60 distributors allows the Company
to achieve immediate and broad distribution for new product launches. As part of
its ongoing research and development effort, the Company maintains an extensive
database and actively researches and monitors a wide variety of publications
containing scientific and medical research. From 1991 through 1995, the Company
introduced over 350 products, with over 90 new products introduced in 1995
alone. Gross sales during 1995 from new products introduced in 1995 were $18.4
million, or approximately 11% of gross sales. The Company intends to build upon
its historical success by continuing to introduce new and innovative products
not previously available in health food stores.
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Build Upon Established Customer Relationships. The Company's established
relationships with distributors and health food store retailers are based upon
the Company's long-standing commitment to a high level of customer service. In
order to ensure that its customers receive prompt and reliable service, the
Company has designed a flexible and responsive manufacturing process and has
achieved a 98% fill rate for customer orders. In addition, the Company's sales
force consists of 30 dedicated sales professionals who operate in sales
territories which cover the entire continental United States and Alaska. The
primary functions of the Company's sales force are to gain better placement and
additional shelf space for the Company's products and to stay abreast of
customer needs. The sales force personnel work with direct accounts,
distributors and individual retailers to enhance knowledge of TWINLAB, Nature's
Herbs and Alvita products and to achieve maximum exposure for these products.
Increase Penetration of Foreign Markets. Management believes that there
are substantial opportunities for the Company to expand its presence in foreign
markets. The Company has a department, headed by a senior sales professional,
dedicated to increasing sales in such markets. The Company's foreign marketing
effort is primarily focused on establishing additional relationships with
leading overseas distributor organizations as a cost-effective method of
increasing international sales. The Company presently has distribution
agreements covering over 45 foreign countries and has agreements for another
seven countries currently in negotiation. In 1995, the Company had net sales of
$8.3 million to foreign markets.
Supplement Internal Growth Through Strategic Acquisitions. As the
nutritional supplement industry is highly fragmented with many companies
producing only a single product line or single product, the Company believes
that it is strategically positioned to participate in the consolidation of the
industry due to its established brand name, broad distribution capabilities and
proven ability to generate sales of its products through successful marketing
programs. Since 1989 the Company has acquired two businesses, Natur-Pharma Inc.
(Nature's Herbs) and Alvita Products, Inc., and in each case has embarked on
successful expansion programs which resulted in substantially higher sales and
EBITDA for the acquired companies. Net sales for Natur-Pharma Inc. increased
from $5.2 million in 1990 (the first full year after its acquisition) to $17.9
million in 1995, and net sales for Alvita Products, Inc. increased from $1.7
million in 1992 (the first full year after its acquisition) to $5.6 million in
1995. The Company regularly evaluates acquisition opportunities, including
product line acquisitions, that complement its existing products or are
compatible with its business philosophy and strategic goals.
INDUSTRY
Based on estimates in the Packaged Facts Survey, the retail market for
vitamins, minerals and other supplements has grown over 12% annually from $3.3
billion in 1991 to $4.6 billion in 1994. The herbal supplements and herb tea
market has grown at a compound annual growth rate of over 10% since 1991 to
approximately $1.1 billion in 1995. Sports nutrition products have grown 9%
annually since 1991 to over $1.2 billion in 1994. The Company believes that
these market segments will continue to experience strong growth due to recent
scientific research suggesting potential health benefits from regular
consumption of vitamins and other nutritional supplement products, increasing
national interest in preventive health measures and favorable demographic trends
that indicate increased usage of vitamins and other nutritional supplements.
Packaged Facts estimates compound annual growth rates in the market for
vitamins, minerals and other supplements of approximately 7% from 1994 through
1999. The market for herbal supplements and herb teas is projected to grow over
11% annually from 1994 through 1999, while sports nutrition sales are projected
to increase 8% annually from 1994 through 1999.
The Company expects that the aging of the United States population,
together with a corresponding increased focus on preventive health measures,
will result in increased demand for nutritional supplement products. According
to Congressional findings that accompanied the Dietary Supplement Health and
Education Act of 1994, national surveys reveal that almost 50% of Americans
regularly consume vitamins, minerals and herbal supplements. The 35-and-older
age group of consumers, which represent 78% of regular users of vitamin and
mineral supplements, is expected to grow dramatically over the next two decades.
Specifically, based on data provided by the U.S. Bureau of the Census, from 1990
to 2010, the 35-44 and 45-and-older age groups are projected to grow at rates
175% and 225% faster than the general U.S. population, respectively. In
addition, the "baby boom echo" (the children of baby boomers) is projected to
result in
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substantial growth in the 16-21 age group, the largest segment of consumers of
sports nutrition products. The Company expects that growth in this age group
will result in increased demand for its sports nutrition products.
Vitamins and other nutritional supplements are sold primarily through six
channels of distribution: health food stores, drug stores, supermarkets and
other grocery stores, discount stores, mail order and direct sales
organizations. Mass market retailers (drug stores, grocery stores and discount
stores) account for approximately 60% of sales, while health food stores, mail
order and direct selling account for approximately 40% of sales.
The United States health food store market is comprised of approximately
11,000 stores, which are generally either independently owned or associated with
one of several regional or national chains, including GNC and Whole Foods
Market. According to a 1994 retail survey, nutritional supplements account for
over 41% of a typical health food store's sales. Moreover, 54% of health food
retailers state that these products are their primary product. The health food
store channel of distribution has grown significantly in recent years and is
expected to continue to grow as GNC, Whole Foods Market, Wild Oats Markets,
Fresh Fields and other industry participants continue to add stores in new and
existing markets. The growth in the health food channel of distribution is
partially attributable to the general growth in natural product sales. Natural
products are defined as products that are minimally processed, environmentally
friendly, largely or wholly free from artificial chemicals and, in general, as
close to their natural states as possible. Natural product industry sales have
consistently grown at nearly 10% per year since 1988, even during the recession
of the early 1990s. During 1994, natural products industry sales rose 23% to
$7.6 billion. The rate of growth accelerated from 7% in 1990 to 10%, 14% and 18%
in 1991, 1992 and 1993, respectively.
PRODUCTS
The Company has a highly diversified array of products and product
categories, each of which achieves strong gross margins. The Company
manufactures and markets over 800 products and over 1,500 SKU's in five product
categories: vitamins, minerals and amino acids; sports nutrition; special
formulas; herbal supplements and phytonutrients; and herb teas. The Company also
operates a subsidiary which publishes health, fitness and nutrition-related
publications.
The following table sets forth certain information concerning each of the
Company's product categories in fiscal 1995.
THREE-YEAR
COMPOUND ANNUAL
NUMBER OF PERCENTAGE OF GROSS SALES
PRODUCT CATEGORY SKU'S TOTAL GROSS SALES GROWTH
--------------------------------------------- --------- ----------------- ---------------
Vitamins, Minerals and Amino Acids........... 315 22.8% 12.9%
Sports Nutrition............................. 285 33.1 24.6
Special Formulas............................. 309 25.4 32.0
Herbal Supplements and Phytonutrients........ 465 12.2 28.7
Herb Teas.................................... 143 3.5 39.0
Publishing................................... N/A 3.0 33.1
----- ----- ----
1,517 100.0% 24.4%
===== ===== ====
Vitamins, Minerals and Amino Acids. The vitamins, minerals and amino acids
category is comprised of a complete line of vitamins, minerals and amino acids
marketed under the TWINLAB brand name, including multivitamins and single-entity
vitamins (such as B-complex, C and E), minerals (such as calcium and magnesium)
and amino acids (such as glutamine and carnitine). These products are available
in a variety of delivery forms, including liquid, powder, capsule and tablet to
accommodate a variety of consumer preferences. This category targets a broad
array of health conscious consumers, with particular emphasis on consumers who
utilize nutritional supplements in their daily diet and who demand premium
quality ingredients in a broad variety of dosages and delivery methods.
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Sports Nutrition. The sports nutrition category includes a wide variety of
nutritional supplements designed for and targeted to athletes. Sports nutrition
products include Hydra Fuel and Ultra Fuel drinks, which replenish glucose and
electrolytes depleted during strenuous exercise; and DietFuel, RxFuel, and
Ripped Fuel, which are marketed, as part of a low fat diet and exercise program,
for the preservation of lean body mass and the building of muscle mass. The
Company's sports nutrition products are utilized by both amateur and
professional athletes in a variety of competitive sports. The Company believes
that its strong sports nutrition business serves to increase the Company's brand
awareness among customers who, as they grow older, will shift their buying
patterns to include vitamins, minerals and herbal products, and who, based on
their positive experiences with the Company's brand name, are more likely to
purchase products from the Company's other product categories.
Special Formulas. The special formulas category consists of a broad
assortment of products formulated with specific health conditions or objectives
in mind. Special formulas are primarily targeted to sophisticated users of
health related products, including regular customers of health food stores.
Examples include OcuGuard, which is formulated for nutritional support of the
eyes, MaxiLIFE, which offers an advanced antioxidant formula, and Coenzyme
Q(10), which is designed for cardiovascular health. In addition, the Company
sells a variety of fish and marine oils in a number of different delivery forms
which offer a multitude of nutritional benefits, including favorable effects on
cardiovascular health.
Herbal Supplements and Phytonutrients. Herbal supplements and
phytonutrients (nutrients from botanical sources that are considered to have
medicinal properties) have become increasingly important categories in health
food stores. Through its Nature's Herbs product line, the Company produces a
full line of herbal supplements and phytonutrients which offer natural
alternatives to over-the-counter ("OTC") medications. The Company manufactures
and markets approximately 400 herbal and botanical supplements which are
produced at Natur-Pharma Inc.'s modern FDA registered manufacturing facility in
American Fork, Utah and sold under the Nature's Herbs brand name. Nature's Herbs
products include single herbs, such as saw palmetto, garlic, gingko, ginseng and
golden seal; traditional combinations, such as echinacea-golden seal;
standardized extracts, such as Bilberry Power and Milk Thistle Power sold under
the POWER HERBS(R) brand name; and natural HealthCare product formulations, such
as Allerin and Coldrin. Nature's Herbs products are packaged using the
innovative FRESH CARE(R) System developed by the Company. The FRESH CARE System
is the first all-glass and antioxidant-protected herbal packaging system that
helps remove oxygen while locking out air, moisture and light in order to
maintain potency and to extend freshness. Management believes that the
association of the Nature's Herbs product line with TWINLAB's strong name brand
recognition and reputation for premium quality and service, combined with the
increased penetration of herbal supplements and phytonutrients in the growing
health food store channel of distribution, have contributed to the rapid growth
experienced by this product line.
Herb Teas. Through its Alvita Products, Inc. ("Alvita") product line, the
Company offers approximately 100 herb teas in both single use bags and bulk.
Alvita is a leading brand of herb teas and is one of the most recognizable tea
brands sold through health food stores. Alvita was founded in 1922 and is one of
the nation's oldest herb tea companies. Alvita purchases tea in bulk form,
formulates blends of natural herb teas and designs the packaging for its
products. Alvita's teas are currently blended and packaged by an independent
contractor. Representative Alvita teas include Peppermint Leaf, Chamomile,
Echinacea, Golden Seal, Ginger and Senna Leaf, as well as new-age blends such as
Chinese Green Tea, available in a choice of citrus flavors, and TrimTime
Thermogenic Diet Tea. Alvita markets its products with an environmentally
conscious theme by packaging bulk tea and tea bags in paper and by not utilizing
shrink wrap for either its outer boxes or tea bags. Alvita recently launched a
new line of herbal tea blends named Herbal Remeteas, including Highland Lullaby,
Manchurian Brain Blend, Jamaica Digesti Brew, and Canadian Natur-Tussin. The
Company believes that significant opportunities for product line expansion exist
in combining Alvita teas and other nutritional supplements to create a new
delivery form for traditional herbal supplements and phytonutrients.
Publishing. Through Advanced Research Press, Inc., the Company publishes
Muscular Development, Fitness & Health, a high-quality bodybuilding and fitness
magazine featuring a scientific advisory board and contributors considered to be
among the most accomplished and knowledgeable in their respective fields. The
magazine covers recent developments and provides innovative information in the
fields of training and
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nutrition research, supplements, health, fitness and diet. This publication
serves as a useful vehicle to increase public awareness of the Company's
products and as an outlet for a portion of the Company's advertising program.
Muscular Development, Fitness & Health currently has a monthly paid circulation
of approximately 113,000 readers. The Company also publishes health and fitness
related books and is exploring the introduction of new health and fitness
related products.
PRODUCT DEVELOPMENT
The Company is recognized as an industry leader in new product development.
The Company closely monitors consumer trends and scientific research, and has
consistently introduced innovative products and programs in response thereto.
The Company's product development staff regularly studies over 50 different
health and nutrition periodicals, including the New England Journal of Medicine
and the Journal of the American Medical Association, in order to generate ideas
for new product formulations. Management believes that the Company's
introduction of new products has increased market share for both the Company and
its retail customers, and the Company intends to continue developing new
products and programs in the future. The Company was the first major nutritional
supplement manufacturer to introduce such industry-wide innovations as: an
all-capsule vitamin and mineral line that is well tolerated by allergy-prone
individuals; a complete line of amino acids and fish and marine oils; the most
advanced and complete array of antioxidants, including beta carotene,
L-glutathione, L-cysteine, N-acetyl cysteine (NAC) and an entirely new class of
antioxidants, including polyphenols, flavonoids and isoflavones; concentrated
Coenzyme Q(10); high potency phosphatidyl choline and patented GTF Chromium;
pioneering thermogenic products; standardized herbal extracts guaranteeing
potency (Certified Potency); the FRESH CARE packaging system, designed to
preserve potency and freshness; a full line of Ayurvedic Indian herbal products;
and a complete line of herb teas in single use bag and bulk form. From 1991
through 1995, the Company introduced over 350 products with over 90 new products
introduced in 1995 alone.
The Company's research and development expenses were $1.1 million in 1995,
$1.0 million in 1994 and $0.9 million in 1993, including the support of
scientific research at independent research centers located at major
universities and medical centers.
SALES AND DISTRIBUTION
The Company believes that its TWINLAB products are available in
approximately 90% of domestic health food stores. The Company sells its products
primarily through a network of approximately 60 distributors, which service
approximately 11,000 health food stores throughout the country and selected
retail outlets. Sales to domestic distributors represented approximately 88% of
the Company's gross sales in 1995. The Company's distributor customers include
GNC, Tree of Life, Cornucopia, Stow Mills, Nature's Best and other distributors
that supply retailers of vitamins, minerals and other nutritional supplements.
Management believes that it sells its products to every major nutritional
supplement distributor servicing health food stores and is generally the largest
independent supplier of nutritional supplements to each such distributor. The
Company is also currently expanding distribution into domestic military
exchanges.
Several of the Company's distributors, such as GNC, Cornucopia and Tree of
Life, are national in scope, but most are regional in nature and operate one or
more localized distribution centers. Generally, the Company enters into
nonexclusive area rights agreements with its domestic distributors, who are also
responsible for new account development. Retailers typically place orders with
and are supplied directly by the Company's distributors. In the past ten years,
the Company has not lost a major distributor customer other than through
consolidation with an existing customer of the Company. The breadth and depth of
the products manufactured and the ability to manufacture with minimal throughput
times enables the Company to maintain extremely high order fill rates, which
management believes are among the highest in the industry, with its customer
base.
Tree of Life and GNC accounted for approximately 28% and 22%, respectively,
of the Company's net sales in 1995. No other single customer accounted for more
than 10% of the Company's net sales in 1995. The
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largest retail organization which sells the Company's products is GNC, which
operates approximately 2,400 stores.
Approximately 6%, or $8.3 million, of the Company's net sales in 1995 were
derived from international sales which originate from overseas distributor
organizations. The Company presently has distribution agreements for fifteen
European countries, including Great Britain, The Benelux Countries and the
Scandinavian countries; fourteen Latin American countries, including Mexico,
Brazil and Paraguay; eight Middle Eastern countries, including Israel and Saudi
Arabia; and various other countries in the Far East and the Caribbean. The
Company also has agreements for another seven countries currently in
negotiation.
MARKETING AND CUSTOMER SALES SUPPORT
The Company's marketing strategy, which centers around an extensive
advertising and promotion program, together with the Company's customer sales
support services have been critical components of the Company's growth, strong
brand name recognition and leading position within the nutritional supplement
industry. Management believes that the levels of its advertising and promotional
support and of its customer service rank among the highest in the industry.
The Company's marketing and advertising expenditures were approximately
$11.1 million in 1995, $8.7 million in 1994 and $7.1 million in 1993. Of the
Company's $8.4 million in 1995 advertising expenditures, approximately $5.5
million, or 65%, was spent on print advertising, approximately $2.0 million, or
24%, was spent on television and radio advertising and approximately $0.9
million, or 11%, was spent on production of advertising materials. As the
Company's customers align themselves with fewer vendors of brand name products,
the Company believes that its strong commitment to advertising and promotion
will continue to constitute a significant competitive advantage. The Company's
advertising strategy stresses brand awareness of the Company's various product
segments in order to generate purchases by customers and also communicates the
points-of-difference between the Company's products and those of its
competitors.
A significant portion of the Company's advertising budget is focused on
advertisements in magazines. The Company regularly advertises in consumer
magazines such as Better Nutrition, Delicious, Vegetarian Times, Let's Live,
Natural Health, New Age Journal, Bicycling, VeloNews, Triathlete, Runner's
World, Muscle & Fitness, Flex, and Ironman, as well as trade magazines such as
Natural Foods Merchandiser, Vitamin Retailer, Nutrition Science News, Health
Foods Business and Whole Foods.
Other marketing and advertising programs conducted by the Company include
participation in or sponsorship of sporting events such as running competitions,
including the Boston Marathon and the Los Angeles Marathon, and bodybuilding
competitions, including the Arnold Classic and the NPC National Bodybuilding
Championships, and sponsorship of health-oriented television and radio programs.
In addition, the Company promotes its products at major industry trade shows and
through in-store point of sale materials. The Company also engages elite
athletes, including Shelly Beattie, Michael Mentzer and John Romano, and
nutritional experts such as Dr. James Duke, to communicate on the Company's
behalf with the trade and the public and to promote the Company's products.
The Company's established customer relationships are based upon the
Company's long-standing commitment to a high level of customer service. The
Company's sales force currently consists of 30 dedicated sales professionals
whose primary functions are to gain better placement and additional shelf space
for TWINLAB, Nature's Herbs and Alvita products and to stay abreast of customer
needs. These sales representatives are assigned to specific territories covering
the entire continental United States and Alaska. These personnel work with
direct accounts, distributors and individual retailers to enhance knowledge of
the Company's products and to maximize exposure for TWINLAB, Nature's Herbs and
Alvita products. An additional three person sales and marketing staff supports
Nature's Herbs products and the servicing of customer needs. The Company also
designs and supplies marketing literature to help educate retailers and
consumers as to the benefits of the Company's products.
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The Company operates an in-house customer service department to respond to
inquiries requesting information concerning product applications, background
data, ingredient compositions and the efficacy of products. The department is
currently staffed by three nutrition experts.
MANUFACTURING AND PRODUCT QUALITY
Virtually all of the Company's TWINLAB products are manufactured at the
Company's 80,000 square foot manufacturing facility located in Ronkonkoma, New
York. Herbal supplements and phytonutrients are manufactured at the Company's
48,000 square foot FDA registered manufacturing facility in American Fork, Utah.
Herb teas are currently packaged by an independent contractor and are warehoused
at the American Fork, Utah, facility. The Company's two modern manufacturing
facilities provide the Company with the capability to meet customers' sales
demands with a prompt response time and to maintain the highest level of quality
control. The Company is continuously upgrading its facilities and enhancing its
manufacturing capabilities through new equipment purchases and technological
improvements. Management believes that the Company's manufacturing facilities
are among the most advanced in the nutritional supplement industry. In 1995, the
Company acquired additional property adjacent to its American Fork, Utah,
facility to provide additional plant capacity for the operations of the
Natur-Pharma (Nature's Herbs) and the Alvita Divisions of the Company. The
Company is constructing an 8,500 square foot addition to its Utah facility at a
cost of approximately $700,000. Management believes that the Company's Utah
facility will be sufficient to enable the Company to meet sales demand for the
foreseeable future and that its New York facility will be sufficient to meet
sales demand for TWINLAB products for approximately three years. Management
believes that it will have the option to lease additional space or to construct
a new facility at such time.
The Company's modern manufacturing operations feature pharmaceutical
quality blending, filling and packaging capabilities, which enable the Company
to offer quality and consistency in formulation and delivery. The Company
operates flexible manufacturing lines which enables it to efficiently and
effectively shift output among various products as dictated by customer demand.
The Company is capable of producing over 25 million capsules and tablets, over
100,000 pounds of blended powder and up to 2,500 gallons of liquid preparations
per day. The Company has six high-speed capsule and tablet packaging lines, two
high-speed liquid filling lines, two powder filling lines and one chewable
tablet packaging line which are capable of operating simultaneously, at its
Ronkonkoma, New York, and American Fork, Utah, facilities. The Company
manufactures the powders used in its line of single-serving sports drink
products but utilizes a contract bottler for the hydration and bottling of these
products. The Company operates on a 24-hour work day that includes two
production shifts and a third shift dedicated solely to cleaning, maintenance
and equipment set-up.
The Company sources its raw material needs from over 200 different
suppliers, including some of the largest pharmaceutical and chemical companies
in the world. The Company's raw materials and packaging supplies are readily
available from multiple suppliers, and the Company is not dependent on any
single supplier for its needs. No single supplier accounted for more than 10% of
the Company's total purchases in 1995.
The Company's quality standards are a critical factor in consumer purchase
decisions, and the Company believes it has established a competitive advantage
based on the quality of its products. All of the Company's capsule and tablet
products are visually inspected before being packaged in virtually light-proof
amber glass for better product freshness and stability. Moreover, each of the
Company's products undergoes comprehensive quality control testing procedures
from the receipt of raw materials to the release of the packaged product. The
Company utilizes real-time computerized monitoring of its manufacturing
processes to ensure proper product weights and measures. In addition, the
Company maintains two in-house laboratories with state-of-the-art testing and
analysis equipment where the Company performs most of its testing, including
stability tests, active component characterization utilizing thin-layer and
high-pressure liquid chromatography, and UV visible and infrared spectrometry.
The Company contracts with independent laboratories to perform the balance of
its testing requirements. A team of 50 full-time quality assurance professionals
regularly conducts a wide variety of visual and scientific tests on all
manufactured products, and samples of raw materials and finished products are
retained for quality control purposes for up to four years.
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The Company has a strong commitment to maintaining the quality of the
environment. All of the Company's plastic containers are recyclable and,
wherever possible, the Company uses recyclable glass. The Company was also one
of the first companies in the industry to use biodegradable starch pellets for
packing materials. In addition, the Company has removed most solvents from its
production processes (using natural, environmentally-safe alternatives) and
helped develop a special glue, for manufacturing purposes, that contains
virtually no harmful hydrocarbons. The Company believes it is in material
compliance with all applicable environmental regulations.
COMPETITION
Within the nutritional supplement industry, suppliers can be divided into
three major categories: specialty firms, like the Company, which focus on
vitamins, minerals and other nutritional supplements targeted to health food
store retailers; major pharmaceutical companies and private label contractors,
which sell vitamins and other nutritional supplements that are targeted to mass
market retailers; and direct sale and mail order companies.
The domestic nutritional supplement industry that targets products to the
health food store market is highly fragmented, with a number of small
competitors involved in manufacturing and marketing vitamin and other
nutritional supplement products to health food retailers and distributors. Most
of these companies are relatively small businesses operating on a local or
regional level. Although most companies are privately held, resulting in the
Company's inability to precisely assess the size of its competitors, management
believes that the Company is substantially larger than the next largest firm
that targets independently-owned health food stores and that, among competitors
which sell through independent distributors, it is the largest company which
manufactures a majority of its own products.
The Company's principal competitors in the health food store market include
Nutraceuticals, Weider/ Schiff, Nature's Way, Solgar and Nature's Plus. Private
label products of the Company's customers also provide competition to the
Company's products. For example, a substantial portion of GNC's vitamin and
mineral supplement offerings are products offered under GNC's own brand names.
Many of the Company's competitors in markets other than the health food store
market, including the major pharmaceutical companies, have substantially greater
financial and other resources than the Company.
The Company believes that the growing number of health food retailers are
increasingly likely to align themselves with those companies which offer a wide
variety of high quality products, have a loyal customer base, support their
brands with strong marketing and advertising programs and provide consistently
high levels of customer service. The Company believes that it competes favorably
with other nutritional supplement companies because of its comprehensive line of
products, premium brand names, commitment to quality, ability to rapidly
introduce innovative products, competitive pricing, high customer-order fill
rate, strong and effective sales force and distribution network, and
sophisticated advertising and promotional support. The wide variety and
diversity of the forms, potencies and categories of the Company's products are
important points of differentiation between the Company and many of its
competitors.
REGULATORY MATTERS
The manufacturing, processing, formulating, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the FDA, the FTC, the CPSC, the USDA and the EPA.
These activities are also regulated by various agencies of the states,
localities and foreign countries to which the Company distributes its products
and in which the Company's products are sold. The FDA, in particular, regulates
the formulation, manufacture, and labeling of vitamin and other nutritional
supplements.
On October 25, 1994, the President signed into law the DSHEA. This new law
revises the provisions of the FFDC Act concerning the composition and labeling
of dietary supplements and, in the judgment of the Company, is favorable to the
dietary supplement industry. The legislation creates a new statutory class of
"dietary supplements." This new class includes vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet, and the
legislation grandfathers, with certain limitations,
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dietary ingredients on the market before October 15, 1994. A dietary supplement
which contains a new dietary ingredient, one not on the market before October
15, 1994, will require evidence of a history of use or other evidence of safety
establishing that it will reasonably be expected to be safe, such evidence to be
provided by the manufacturer or distributor to the FDA before it may be
marketed. The DSHEA also invalidates the FDA's prior enforcement theory that
dietary supplements are food additives requiring pre-market approval.
The NLEA prohibits the use of any health claim for foods, including dietary
supplements, unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA. To date, the FDA has approved the use
of health claims for dietary supplements only in connection with calcium for
osteoporosis, and folic acid for neural tube defects. However, among other
things, the DSHEA amends, for dietary supplements, the NLEA by providing that
"statements of nutritional support" may be used in labeling for dietary
supplements without FDA pre-approval if certain requirements, including
prominent disclosure on the label of the lack of FDA review of the relevant
statement, possession by the marketer of substantiating evidence for the
statement and post-use notification to the FDA, are met. Such statements may
describe how particular nutritional supplements affect the structure, function,
or general well-being of the body (e.g. "promotes your cardiovascular health").
In December 1995, the FDA issued proposed regulations to govern the
labeling of dietary supplements. These regulations, which are subject to
revision in response to comments from interested parties, are expected to become
final later in 1996 and would require the Company to revise the labels for all
of its dietary supplement products before 1997. The FDA has proposed, subject to
its receipt of comments from the public, to withhold enforcement of the
relabeling regulations until January 1, 1998.
In 1989, Twin Laboratories Inc. received an informal inquiry from the New
York Regional Office of the FTC seeking substantiation for certain advertising
claims made for a segment of its "Fuel" bodybuilding/sports nutrition lines of
products. In response, Twin Laboratories Inc. submitted scientific
substantiation and financial information to the FTC. The Company is currently
negotiating this matter with the FTC and has received from the FTC a revised
proposed Complaint and Consent Decree (the "Decree") seeking, among other
things, injunctive relief restricting certain muscle building, fat loss and
other marketing claims in connection with the sale of the Company's weight
control, bodybuilding and sports nutrition products. In addition, the Decree
seeks payment of $200,000. The Company believes that it has adequate scientific
substantiation for the claims at issue and intends to vigorously defend the
matter if a settlement is not reached. There can be no assurance that the
injunctive provisions of any eventual resolution of this matter will not have a
material adverse effect on the Company or that any eventual monetary payment
will be limited to the amount sought in the Decree.
Certain of the Company's products include a Chinese herb known as "Ma
Huang," which contains naturally-occurring ephedrine. Ma Huang has been the
subject of certain adverse publicity in the United States and other countries
relating to alleged harmful effects, including the deaths of several
individuals. To the Company's knowledge, a number of states and local
governmental entities have instituted a ban on sales of Ma Huang-containing
products that are portrayed as apparent alternatives to illegal street drugs.
There are also proposals in other states and local jurisdictions to broaden the
regulation of, or otherwise limit or prohibit, the sale of products containing
ephedrine. Ma Huang is also subject to laws or regulation in states and foreign
jurisdictions which limit ephedrine levels and require appropriate warnings on
product labels or which prohibit the sales of products which contain Ma Huang
other than by licensed pharmacists. On April 10, 1996, the FDA issued a
statement warning consumers not to purchase or consume dietary supplements
containing ephedrine with labels that portray the products as apparent
alternatives to illegal street drugs because these products pose significant
health risks to consumers. None of the Company's products which contain Ma Huang
are marketed for such purpose. The FDA, through a National Food Advisory
Committee, is currently considering whether the FDA should prohibit, limit
potencies or place other restrictions on the sale of products containing Ma
Huang. There can be no assurance that the FDA will not seek to impose additional
regulations on products which contain Ma Huang, including those marketed by the
Company.
There is a risk that the Company's products containing Ma Huang may become
subject to further federal, state, local or foreign laws or regulation, which
could require the Company to: (i) reformulate its products
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with reduced ephedrine levels or with a substitute for Ma Huang and/or (ii)
relabel its products with different warnings or revised directions for use. Even
in the absence of further laws or regulation, the Company may elect to
reformulate and/or relabel its products which contain Ma Huang. While the
Company believes that its Ma Huang products could be reformulated and relabeled,
there can be no assurance in that regard or that reformulation and/or relabeling
would not have an adverse effect on sales of such products. The Company and
others are defendants in a wrongful death action originally commenced in July
1995 with respect to one of the Company's products containing Ma Huang and with
respect to a product that does not contain Ma Huang manufactured by another
defendant. There can be no assurance that the Company will not be subject to
further private civil actions with respect to its products which contain Ma
Huang.
Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into the market or prevent
or delay the introduction, or require the reformulation, of certain of the
Company's products. Compliance with such foreign governmental regulations is
generally the responsibility of the Company's distributors for those countries.
These distributors are independent contractors over whom the Company has limited
control.
As a result of the Company's efforts to comply with applicable statutes and
regulations, the Company has from time to time reformulated, eliminated or
relabeled certain of its products and revised certain provisions of its sales
and marketing program. Compliance with the provisions of national, state and
local environmental laws and regulations has not had a material adverse effect
upon the capital expenditures, earnings, financial position, liquidity or
competitive position of the Company.
The Company cannot determine what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on its
business in the future. They could, however, require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain
products not capable of reformulation, additional recordkeeping, expanded
documentation of the properties of certain products, expanded or different
labeling, and/or scientific substantiation. Any or all of such requirements
could have a material adverse effect on the Company's results of operations and
financial condition.
The Company's American Fork, Utah, facility is registered with the FDA as a
manufacturer of OTC drugs and is subject to periodic inspection by the FDA.
EMPLOYEES
At March 31, 1996, the Company employed 546 persons, of which 112 were
involved in executive, sales and administrative activities. The balance of the
Company's employees were engaged in production, packaging and shipping
activities. None of the Company's employees are covered by a collective
bargaining agreement, and management considers relations with its employees to
be good.
PROPERTIES
The Company owns a modern vitamin, mineral and nutritional supplement
manufacturing facility in Ronkonkoma, New York. This 80,000 square foot facility
also houses the Company's executive offices. The Company leases 26,300 square
feet of warehouse space in Ronkonkoma, 50,000 square feet of warehouse space in
Hauppauge, New York, and 5,000 square feet of office space in Ronkonkoma. In
addition, the Company owns a modern FDA-registered 48,000 square foot
manufacturing facility in American Fork, Utah. This facility, which was
constructed in 1993, houses office, manufacturing and warehousing facilities for
the operations of the Natur-Pharma (Nature's Herbs) Division of the Company, and
office and warehousing facilities for the operations of the Alvita Division of
the Company.
The Company believes that its facilities and equipment generally are well
maintained and in good operating condition. In 1995, the Company acquired
additional property adjacent to its American Fork, Utah, facility to provide
additional plant capacity for the operations of the Natur-Pharma and the Alvita
Divisions of the Company. The Company is constructing an 8,500 square foot
addition to its Utah facility at a cost of approximately $700,000. Management
believes that the Company's Utah facility will be sufficient to enable the
Company to meet sales demand for the foreseeable future and that its New York
facility will be sufficient to meet sales demand for TWINLAB products for
approximately three years. Management believes that it will have the option to
lease additional space or to construct a new facility at such time.
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TRADEMARKS
The Company owns trademarks registered with the United States Patent and
Trademark Office and/or similar regulatory authorities in many other countries
for its TWINLAB, Nature's Herbs, Alvita and Fuel family of trademarks, and has
rights to use other names material to its business. In addition, the Company has
obtained trademarks for various of its products and has approximately 250
trademark registrations with the United States Patent and Trademark Office for
TWINLAB, Nature's Herbs and Alvita brands. Federally registered trademarks have
perpetual life, provided 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. The Company regards its trademarks and other proprietary rights as
valuable assets and believes that they have significant value in the marketing
of its products. The Company vigorously protects its trademarks against
infringement.
LEGAL MATTERS
Twin Laboratories Inc. and other encapsulators, and various distributors,
manufacturers, and retailers of manufactured L-Tryptophan are defendants in
actions in federal and state courts seeking compensatory and, in some cases,
punitive damages for alleged personal injuries resulting from the ingestion of
products containing manufactured L-Tryptophan. As of June 1, 1996, Twin
Laboratories Inc. was a named defendant in three of these actions. The Company
believes that few new lawsuits are likely to be brought in view of the statutes
of limitations. Twin Laboratories Inc. has entered into the Indemnification
Agreement with SDA, a U.S. subsidiary of a Japanese corporation, SDK. Under the
Indemnification Agreement, SDA agrees to assume the defense of all claims
arising out of the ingestion of L-Tryptophan products and to pay all legal fees
and indemnify Twin Laboratories Inc. against liability in any action if it is
determined that a proximate cause of the injury sustained by the plaintiff in
the action was a constituent of the raw material sold by SDA to Twin
Laboratories Inc. or was a factor for which SDA or any of its affiliates was
responsible, except to the extent that action by Twin Laboratories Inc.
proximately contributed to the injury, and except for certain claims relating to
punitive damages. SDA appears to have been the supplier of all the allegedly
contaminated L-Tryptophan. SDA has posted a revolving irrevocable letter of
credit for the benefit of the Indemnified Group if SDA is unable or unwilling to
satisfy any claims or judgement. SDK has unconditionally guaranteed the payment
obligations of SDA under the Indemnification Agreement. As of June 1, 1996, 129
suits in which the Company was a named defendant have been dismissed or settled
by SDA at no cost to the Company.
The total of all damages alleged in the L-Tryptophan actions, if fully
awarded against the Company alone and ignoring the existence of the
Indemnification Agreement, would exceed the Company's available product
liability insurance coverage of $3 million for L-Tryptophan matters in respect
of claims made prior to December 31, 1993, and would have a material adverse
impact upon the financial condition and results of operations of the Company.
However, the Indemnification Agreement, the defense and resolution to date of
numerous lawsuits by SDA without cost to the Company, the multitude of
defendants and the possibility that liability could be assessed against or paid
by other parties or by insurance carriers, have led management of the Company,
after consultation with outside legal counsel, to believe that the prospect for
a material adverse effect on the Company's results of operations or financial
condition is remote and no provision in the Company's financial statements has
been made for any loss that may result from these actions.
The Company, like other retailers, distributors and manufacturers of
products that are ingested, faces an inherent risk of exposure to product
liability claims in the event that, among other things, the use of its products
results in injury. With respect to product liability insurance coverage, the
Company currently has $75 million of product liability insurance (which does not
cover matters relating to L-Tryptophan) with a $25,000 self-insurance retention
per occurrence and $100,000 self-insurance retention in the aggregate. There can
be no assurance that such insurance will continue to be available at a
reasonable cost, or if available will be adequate to cover liabilities.
The Company and others are defendants in a wrongful death action originally
commenced in July 1995 with respect to one of the Company's products containing
Ma Huang and with respect to a product that does not contain Ma Huang
manufactured by another defendant. See "Risk Factors -- Government Regulation"
and "-- Regulatory Matters."
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The Company is presently engaged in various other legal actions, and
although ultimate liability cannot be determined at the present time, the
Company is currently of the opinion that the amount of any such liability from
these other actions and the lawsuit described in the preceding paragraph, after
taking into consideration the Company's insurance coverage, will not have a
material adverse effect on its results of operations and financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
NAME AGE POSITION
--------------------------------- --- ----------------------------------------------------
Brian Blechman................... 45 Executive Vice President, Treasurer and Director
Dean Blechman.................... 39 Executive Vice President and Director
Neil Blechman.................... 45 Executive Vice President, Secretary and Director
Ross Blechman.................... 43 Chairman of the Board, Chief Executive Officer and
President
Steve Blechman................... 43 Executive Vice President and Director; Chairman of
the Board, Chief Executive Officer and President of
ARP
Stephen Welling.................. 42 President of Natur-Pharma Division of Twin
Laboratories Inc.
John G. Danhakl.................. 40 Director
Jennifer Holden Dunbar........... 33 Director
Jonathan D. Sokoloff............. 38 Director
Brian Blechman, became an Executive Vice President of the Company upon
consummation of the Acquisition. Mr. Blechman joined Twin Laboratories Inc. in
1972 and served as Vice President, Purchasing & Quality Control of the Company
prior to the Acquisition. He is responsible for the purchasing of all raw
materials and has final responsibility for all quality control and management of
the plant facilities. He is also responsible for capital expenditures for plant
and equipment and for product formulations.
Dean Blechman, became an Executive Vice President of the Company upon
consummation of the Acquisition. Mr. Blechman joined Twin Laboratories Inc. in
1979 and served as Vice President, Sales of the Company prior to the
Acquisition. He has responsibility for overseeing the national sales force and
distributor network. Mr. Blechman is on the board of directors of the National
Nutritional Foods Association, a leading trade organization that governs the
industry's retailers, distributors and manufacturers.
Neil Blechman, became an Executive Vice President of the Company upon
consummation of the Acquisition. Mr. Blechman joined Twin Laboratories Inc. in
1972 and served as Vice President, Marketing & Advertising of the Company prior
to the Acquisition. He is primarily responsible for directing marketing and
advertising strategies, the design of product packaging and point of sale
materials, the production and creation of merchandising displays, advertising,
promotional activities and trade show activities.
Ross Blechman, became Chairman of the Board, Chief Executive Officer and
President of the Company upon consummation of the Acquisition. Mr. Blechman
jointed Twin Laboratories Inc. in 1974 and served as Vice President, Production
of the Company prior to the Acquisition. He is primarily responsible for plant
operations, shipping, warehouse management, and for assuring that quality
standards are maintained. He is also responsible for MIS and human resource
functions. Mr. Blechman also directs the operations of the Alvita Products
division of Twin Laboratories Inc.
Steve Blechman, became an Executive Vice President of the Company and
Chairman of the Board, Chief Executive Officer and President of ARP upon
consummation of the Acquisition. Mr. Blechman joined Twin Laboratories Inc. in
1974 and served as Vice President, Product Development & Marketing of the
Company prior to the Acquisition. He is involved in product development and
marketing, and is primarily responsible for developing new products for the
TWINLAB, Nature's Herbs and Alvita brands. Mr. Blechman also directs the
operations of ARP and the customer service department of Twin Laboratories Inc.
Stephen Welling, became the President of the Natur-Pharma Division of Twin
Laboratories Inc. upon consummation of the Acquisition. Mr. Welling joined
Natur-Pharma Inc. in 1977 as the controller and served
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as President of Natur-Pharma Inc. prior to the Acquisition. Prior to his
promotion to President, Mr. Welling served as Vice President of Operations with
responsibility for manufacturing, personnel, quality management, legal affairs
and finance.
John G. Danhakl became a director of the Company upon consummation of the
Acquisition. He has been an executive officer and an equity owner of Leonard
Green & Partners, L.P. ("LGP"), a merchant banking firm which manages GEI, since
1995. Mr. Danhakl had previously been a Managing Director at Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and had been with DLJ since 1990. Prior
to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert
Incorporated. Mr. Danhakl is also a director of The Arden Group, Inc. and Kash
n' Karry Food Stores, Inc.
Jennifer Holden Dunbar became a director of the Company upon consummation
of the Acquisition. She joined Leonard Green & Associates, L.P. ("LGA"), a
merchant banking firm, as an associate in 1989, became a principal in 1993, and
through a corporation became a partner in 1994. Since 1994, Ms. Holden Dunbar
has also been an executive officer and equity owner of LGP. Ms. Holden Dunbar
previously was an associate with the merchant banking firm of Gibbons, Green,
van Amerongen and a financial analyst in mergers and acquisitions with Morgan
Stanley & Co. Ms. Holden Dunbar is also a director of Thrifty PayLess Holdings,
Inc., Thrifty PayLess, Inc., Kash n' Karry Food Stores, Inc. and several private
companies.
Jonathan D. Sokoloff became a director of the Company upon consummation of
the Acquisition. He joined LGA as a partner in 1990. Mr. Sokoloff has also been
an executive officer and equity owner of LGP since its formation in 1994. Mr.
Sokoloff was previously a Managing Director at Drexel Burnham Lambert
Incorporated. Mr. Sokoloff is also a director of Thrifty PayLess Holdings, Inc.,
Thrifty PayLess, Inc., Carr-Gottstein Foods Co. and several private companies.
The Company's By-laws and Certificate of Incorporation provide for the
Company's Board of Directors to be comprised of between eight and eleven
members, as determined from time to time by the stockholders. The Board is
currently comprised of eight members. Each Director holds office until the next
annual meeting of stockholders and until his successor is duty elected and
qualified, or until his earlier death, resignation or removal.
All of the Company's current Directors were nominated and elected to the
Company's Board of Directors in accordance with the Stockholder Agreement (as
hereinafter defined) as designees of GEI and the Continuing Stockholders,
respectively. See "Principal Stockholders -- Terms of the Stockholders
Agreement." Executive officers of the Company are appointed by, and serve at the
discretion of, the Board of Directors. Except for the Blechman Brothers'
familial relationships, there are no family relationships among the executive
officers or Directors of the Company.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table shows the compensation
paid by the Company during the year ended December 31, 1995 ("Fiscal Year 1995")
to the five most highly compensated executive officers of the Company, who
collectively acted in a similar capacity to a chief executive officer, serving
as such at the end of Fiscal Year 1995 (the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
FISCAL ----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(A) COMPENSATION($)(B)
- ------------------------------------------------- ------ --------- ----------- ------------------
Ross Blechman.................................... 1995 402,461 368,145 9,527
Vice President
Brian Blechman................................... 1995 401,523 368,145 9,822
Vice President
Dean Blechman.................................... 1995 402,545 368,145 9,235
Vice President
Neil Blechman.................................... 1995 402,545 368,145 9,822
Vice President
Steve Blechman................................... 1995 402,548 368,145 9,527
Vice President
- ---------------
(a) Bonuses are reported in the fiscal year earned and paid.
(b) (i) payment of premiums for term life insurance policies of $1,365 for Ross
Blechman; $1,660 for Brian Blechman; $1,073 for Dean Blechman; $1,660 for
Neil Blechman and $1,365 for Steve Blechman, for 1995; (ii) payment of
premiums for executive medical insurance policies for each of Ross
Blechman, Brian Blechman, Dean Blechman, Neil Blechman and Steve Blechman,
of $1,250 for 1995 and (iii) payments under the Company's Profit Sharing
Plan of $6,912 for each of Ross Blechman, Brian Blechman, Dean Blechman,
Neil Blechman and Steve Blechman, for 1995. The amount set forth in this
column does not include "S" corporation dividend distributions sufficient
to pay income taxes on the earnings of the Company that were treated as
having been earned by the individual as a shareholder of the Company.
EMPLOYMENT AGREEMENTS
Upon consummation of the Acquisition, the Company entered into employment
agreements with each of the Blechman Brothers (each an "Employment Agreement").
The Employment Agreement provides that, unless a Public Offering Event (as
defined below, see "Principal Stockholders -- Terms of the Stockholders
Agreement") has occurred, the relevant individual will be employed as an
executive of the Company for a term of five years, renewable for terms of one
year thereafter. From and after the occurrence of a Public Offering Event, the
employment term is deemed to end on the third anniversary of such event;
provided that, the employment term will be automatically extended so as to
establish a three year remaining term of employment upon a termination of
employment for the purposes of the noncompetition and severance provisions of
the Employment Agreement. The Employment Agreement provides for a base salary of
$400,000 (as adjusted for inflation), in addition to other customary perquisites
and benefits. In addition to receiving a base salary, the executive is also
eligible to participate in the TLC's Bonus Plan which entitles such individual
to a bonus payment of up to 128% of his base salary for the relevant calendar
year based on annual increases in EBITDA (as defined therein) realized by the
Company for each year of the employment term. The Employment Agreement also
provides, subject to certain exceptions, that upon a termination of the
individual's employment during the term thereof (other than for "cause" as
defined therein), the Company is generally obligated to pay the individual an
amount equal to his base salary for the remaining term under the Employment
Agreement.
Upon consummation of the Acquisition, the Company entered into an
employment agreement with Stephen Welling to serve as President of the
Natur-Pharma Division of the Company (the "Division") (the "Welling Employment
Agreement"). The Welling Employment Agreement provides that Mr. Welling will be
employed as an executive of the Company for a term of three years, renewable for
terms of one year thereafter. The Welling Employment Agreement provides for a
base salary of $135,000 (as adjusted for inflation), in addition to other
customary perquisites and benefits. In addition to receiving a base salary, Mr.
Welling is also eligible to participate in the Division Bonus Plan which
entitles him to a bonus payment up to 202.5% of his base salary for the relevant
calendar year based on annual increases in EBITDA (as defined therein) realized
by the Division for each year of the employment term. The Welling Employment
Agreement also provides, subject to certain exceptions, that upon a termination
of Mr. Welling's employment during the term thereof
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(other than for "cause" as defined therein), the Company is generally obligated
to pay Mr. Welling an amount equal to his base salary for the remaining term
under the Welling Employment Agreement.
Upon consummation of the Acquisition, the Company entered into consulting
agreements with each of David and Jean Blechman (each a "Consulting Agreement").
The Consulting Agreement provides that the relevant individual be engaged as an
independent consultant to the Company for a term of five years. As consideration
for such consulting services, the Company is obligated to pay the individual an
annual consulting fee of $100,000, in addition to certain limited perquisites
and benefits.
Upon consummation of the Acquisition, the Company and TLC also entered into
non-competition agreements with each of the Stockholders (each a
"Non-Competition Agreement"). The term of the Non-Competition Agreement is equal
to the initial term of the relevant individual's employment or consulting
agreement, as the case may be. The Non-Competition Agreement generally prevents
the individual from participating in any manner in the management, operation
and/or ownership of any entity, anywhere in the world, which is engaged in
similar lines of business to those of the Company.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation for
serving on the Board of Directors. Non-employee directors are reimbursed for
their out-of-pocket expenses in attending Board meetings. Messrs. Danhakl and
Sokoloff and Ms. Holden Dunbar receive no fees in their capacities as directors,
but see "Certain Relationships and Related Transactions -- Transactions with
LGP" for a description of certain other arrangements pursuant to which LGP, of
which they (or corporations owned by them) are partners, receives compensation
from the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE ACQUISITION
The Acquisition Agreement contains provisions customary for transactions of
similar size and type, including representations and warranties, which generally
will expire at the end of the fourteenth month following the month in which the
Acquisition Agreement was consummated. However, those representations and
warranties that are related to tax and environmental matters will expire,
respectively, at the date on which the applicable statute of limitations has
expired and the third anniversary of the consummation of the Acquisition
Agreement. Subject to the limitations set forth in the Acquisition Agreement
(which include, subject to certain exceptions, a $2,000,000 deductible on
liability and a maximum liability of $25,000,000), the Stockholders have agreed
to indemnify GEI, its permitted assigns and the Company against any liabilities
arising out of the breach of such representations and warranties while such
representations and warranties are still in effect. Pursuant to the Acquisition
Agreement, the Stockholders received, in addition to certain payments described
elsewhere in this Prospectus, a payment in respect of their estimated liability
for taxes on the Company's income prior to the consummation of the Transactions,
when the Company had "S" corporation status for federal income tax purposes.
This payment is subject to adjustment based on the actual tax liability as
calculated for the relevant period. In addition, certain fees, taxes and
expenses of parties to the Acquisition Agreement were or will be paid by the
Company in connection with the consummation of the Acquisition. See "Prospectus
Summary -- The Acquisition."
EMPLOYMENT AND CONSULTING AGREEMENTS
Upon consummation of the Acquisition, the Company entered into employment
agreements with each of the Continuing Stockholders and consulting agreements
with each of David and Jean Blechman. See "Management -- Employment Agreements."
TRANSACTIONS WITH DAVID BLECHMAN AND JEAN BLECHMAN
During the period from 1989 to 1992, Twin Laboratories Inc. assigned to
David and Jean Blechman
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certain promissory notes of Natur-Pharma Inc., representing inter-company
payables, in the aggregate principal amount of $1,500,000. These promissory
notes bore interest at a rate of 10% per annum, and $1,000,000 of the principal
was repaid in 1994 and the remainder was repaid on May 2, 1996. In June and July
of 1991, Alvita Products, Inc. issued four promissory notes payable to David
Blechman and Jean Blechman in the aggregate principal amount of $250,000. Such
promissory notes bore interest at a rate of 9% per annum and were repaid in
April 1994. In 1988 and 1989, ARP borrowed funds from David Blechman and Jean
Blechman in the aggregate principal amount of $545,500. These loans were
non-interest bearing, and $200,000 of the principal was repaid in 1994 and the
remainder was repaid on May 3, 1996.
TRANSACTIONS WITH LGP
LGP is the investment advisor to and an affiliate of the general partner of
GEI, which after consummation of the Acquisition owns 48% of the outstanding
shares of common stock of TLC. Following consummation of the Acquisition,
Messrs. Danhakl and Sokoloff and Ms. Holden Dunbar, stockholders and directors
of the general partner of LGP, became directors of the Company. See
"Management -- Directors and Executive Officers."
Upon the consummation of the Acquisition, LGP received a fee of $1 million
for its services in arranging and structuring the Acquisition, including, among
other things, structuring and negotiating the Acquisition Agreement and the
Stockholders Agreement, arranging and negotiating the terms of the New Credit
Facility and related documents, assistance with the Offering, financial and
market analyses, and other similar consulting and investment banking services.
The majority of such services were performed on behalf of LGP by Messrs. Danhakl
and Sokoloff and Ms. Holden Dunbar.
In connection with the Acquisition, the Company entered into a Management
Services Agreement with LGP pursuant to which LGP will receive an annual
retainer fee of up to $400,000 plus reasonable expenses for providing certain
management, consulting and financial planning services (the "LGP Management
Fee"). The Company believes that the contacts and expertise provided by LGP in
these areas enhance the Company's opportunities and management's expertise in
these matters and that the fees to be paid to LGP fairly reflect the value of
the services to be provided by LGP. The specialized consulting services provided
by LGP overlap to some extent with the role of Messrs. Danhakl and Sokoloff and
Ms. Holden Dunbar as directors of the Company, for which they do not receive any
additional compensation. See "Management -- Director Compensation." In addition
to the LGP Management Fee, the Management Services Agreement provides that LGP
may receive reasonable and customary fees and reasonable expenses from time to
time for providing financial advisory and investment banking services in
connection with major financial transactions that may be undertaken in the
future; provided, however, that if the Continuing Stockholders maintain
ownership of more than 30% of the shares of common stock of TLC, then the
retention of LGP in connection with such major financial transactions is subject
to the approval of a majority of the Blechman Brothers then serving as directors
of the Company. The Management Services Agreement will terminate on the earlier
of its seventh anniversary or such time as GEI no longer owns two-thirds of the
shares of common stock of TLC issued to GEI pursuant to the Acquisition
Agreement.
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PRINCIPAL STOCKHOLDERS
The shares of common stock of the Company are wholly owned by TLC.
The information in the following table sets forth certain information with
respect to the beneficial ownership of the common stock of TLC as of May 31,
1996 by (i) each person who beneficially owns more than 5% of the outstanding
shares of TLC's common stock, (ii) each executive officer of the Company, (iii)
each director of the Company and (iv) all directors and executive officers of
the Company as a group. Except as noted below, each person or entity has sole
voting and investment power with respect to the shares shown.
PERCENT
NUMBER OF OF
NAME AND ADDRESS SHARES OWNERSHIP
- ------------------------------------ --------- ---------
Green Equity Investors II, L.P. ......................................... 480,000 48%
c/o Leonard Green & Partners, L.P.
333 South Grand Avenue, Suite 5400
Los Angeles, CA 90071
John G. Danhakl(a)....................................................... 480,000 48%
c/o Leonard Green & Partners, L.P.
333 South Grand Avenue, Suite 5400
Los Angeles, CA 90071
Jennifer Holden Dunbar(a)................................................ 480,000 48%
c/o Leonard Green & Partners, L.P.
333 South Grand Avenue, Suite 5400
Los Angeles, CA 90071
Jonathan D. Sokoloff(a).................................................. 480,000 48%
c/o Leonard Green & Partners, L.P.
333 South Grand Avenue, Suite 5400
Los Angeles, CA 90071
Brian Blechman........................................................... 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
Dean Blechman............................................................ 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
Neil Blechman............................................................ 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
Ross Blechman............................................................ 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
Steve Blechman........................................................... 89,689 9%
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
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PERCENT
NUMBER OF OF
NAME AND ADDRESS SHARES OWNERSHIP
- ------------------------------------ --------- ---------
Stephen Welling.......................................................... 1,555 *
c/o Twin Laboratories Inc.
2120 Smithtown Avenue
Ronkonkoma, NY 11779
All directors and executive officers as a group (9 persons)(b)........... 930,000 93%
- ---------------
(a) The shares shown as beneficially owned by Messrs. Danhakl and Sokoloff and
Ms. Holden Dunbar represent 480,000 shares owned of record by GEI. GEI is a
Delaware limited partnership managed by LGP, which is an affiliate of the
general partner of GEI. Each of Leonard I. Green, Jonathan D. Sokoloff,
John G. Danhakl, Gregory J. Annick and Jennifer Holden Dunbar, either
directly (whether through ownership interest or position) or through one or
more intermediaries, may be deemed to control LGP and such general partner.
LGP and such general partner may be deemed to control the voting and
disposition of the shares of common stock of TLC owned by GEI. As such,
Messrs. Sokoloff and Danhakl and Ms. Holden Dunbar may be deemed to have
shared voting and investment power with respect to all shares held by GEI.
However, such individuals disclaim beneficial ownership of the securities
held by GEI except to the extent of their respective pecuniary interests
therein.
(b) Includes the shares referred to in Note (a) above.
* Less than 1%.
TERMS OF THE STOCKHOLDERS AGREEMENT
Upon consummation of the Acquisition, GEI, the Continuing Stockholders and
TLC entered into a Stockholders Agreement (the "Stockholders Agreement") in
respect of their holdings of shares of common stock of TLC. Pursuant to such
Stockholders Agreement, certain transfers of such stock by the parties to the
agreement are subject to tag-along rights of the other party and, for the five
years subsequent to the date of the agreement, the reasonable consent of the
other party. Such rights are generally effective until such time as the common
stock of TLC is publicly held (a "Public Offering Event"). In addition, such
consent rights of each party are contingent upon that party maintaining
ownership of two-thirds of the shares of common stock of TLC issued to such
party pursuant to the Acquisition Agreement.
Pursuant to the Stockholders Agreement, each of GEI and the Continuing
Stockholders is granted certain demand registration rights which commence on the
earlier of nine months after a Public Offering Event and the second anniversary
of the date of the agreement. The Stockholders Agreement also contains certain
"piggyback" registration rights arising in the event that TLC registers its
securities under the Securities Act.
Under the Stockholders Agreement, each of GEI and the Continuing
Stockholders are granted certain preemptive rights in the event that TLC issues
to the other party any equity or debt securities of TLC. These rights are
generally effective (i) until a Public Offering Event and (ii) provided that the
preempting party maintains ownership of two-thirds of the shares of common stock
of TLC issued to such party pursuant to the Acquisition Agreement.
Pursuant to the Stockholders Agreement, each of GEI and the Continuing
Stockholders agreed to vote their shares in favor of five nominees of the
Continuing Stockholders and three nominees of GEI to the Board of Directors of
TLC and the Company. The agreement provides that a wide range of actions to be
taken by TLC, including but not limited to the payment of certain dividends,
engagement in new businesses, and the acquisition of other businesses, require
the affirmative approval of a majority of each of the Continuing Stockholders
nominees and the GEI nominees to the Board of Directors. Generally, such rights
of each party are contingent upon that party maintaining ownership of two-thirds
of the shares of common stock of TLC issued to such party pursuant to the
Acquisition Agreement. Certain fundamental corporate actions, including but not
limited to, amendments to the Certificate of Incorporation, the sale of
substantially all of the assets of the Company, and the merger or combination of
the Company with another entity, additionally require an affirmative vote of
holders of at least 80% of the issued and outstanding common stock of TLC.
Generally,
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such requirements for a super-majority stockholder vote are contingent upon the
Continuing Stockholders maintaining ownership of two-thirds of the shares of
common stock of TLC issued to them pursuant to the Acquisition Agreement. In
addition, all of these rights and requirements are generally only effective
until the occurrence of a Public Offering Event. See "Risk Factors -- Ownership
of the Company."
Subject to the early termination of certain provisions of the Stockholders
Agreement upon the occurrence of a Public Offering Event, the Stockholders
Agreement terminates on the tenth anniversary of the date thereof.
Shares of common stock and Preferred Stock of TLC were issued to various
institutional investors (the "Senior Preferred Holders") pursuant to a Stock
Subscription Agreement among each such investor and TLC.
Upon consummation of the Acquisition, GEI, the Continuing Stockholders, the
Senior Preferred Holders and TLC entered into a secondary stockholders agreement
(the "Secondary Stockholders Agreement") in respect of their holdings of shares
of stock of TLC. Pursuant to such Secondary Stockholders Agreement, the Senior
Preferred Holders will have tag-along rights with respect to certain transfers
of common stock of TLC by GEI and/or the Continuing Stockholders. In addition,
on a sale of all or substantially all of the common stock of TLC by GEI and/or
the Continuing Stockholders, such sellers will have drag-along rights with
respect to shares of common stock of TLC held by the Senior Preferred Holders.
Further, GEI, the Company and the other Senior Preferred Holders will have
certain first option rights on sales by a Senior Preferred Holder of shares of
common stock of TLC. All of the above rights will terminate on the occurrence of
a Public Offering Event.
In addition, commencing on the fifth anniversary of the Secondary
Stockholders Agreement, the Senior Preferred Holders will be entitled to
exercise one demand registration right with respect to their shares of common
stock of TLC. Finally, the Senior Preferred Holders will have certain
"piggyback" registration rights on other registrations of equity securities of
TLC.
Subject to the early termination of certain provisions of the Secondary
Stockholders Agreement upon the occurrence of a Public Offering Event, the
Secondary Stockholders Agreement terminates on the tenth anniversary of the date
thereof.
DESCRIPTION OF NEW NOTES
Set forth below is a summary of certain provisions of the New Notes. The
New Notes will be issued pursuant to an indenture dated May 7, 1996, by and
among the Company, TLC, the Subsidiary Guarantors (as defined below) and Fleet
National Bank as trustee (the "Trustee"). Except as otherwise indicated below,
the following summary applies to both the Old Notes and the New Notes. As used
herein, the term "Notes" shall mean the Old Notes and the New Notes, unless
otherwise indicated.
The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the New Notes (i) will be registered
under the Securities Act, (ii) will not provide for payment of penalty interest
as Liquidated Damages, which terminate upon consummation of the Exchange Offer,
and (iii) will not bear any legends restricting transfer thereof. The New Notes
will be issued solely in exchange for an equal principal amount of Old Notes. As
of the date hereof, $100 million aggregate principal amount of Old Notes is
outstanding. See "The Exchange Offer."
The following summaries of certain provisions of the New Notes, the
Indenture and the Registration Rights Agreement are summaries only, do not
purport to be complete and are qualified in their entirety by reference to all
of the provisions of the Indenture and the Registration Rights Agreement,
including the definitions therein. Copies of the Indenture and the Registration
Rights Agreement can be obtained from the Initial Purchasers upon request.
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to them in the Indenture or the Registration Rights Agreement, as
appropriate. As used in this section, the "Company" refers to the entity which
survived the Natur-Pharma Merger, and shall not refer to the subsidiaries of the
Company. Wherever particular provisions of the Indenture are referred to in this
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summary, such provisions are incorporated by reference as a part of the
statements made and such statements are qualified in their entirety by such
reference.
GENERAL
The New Notes will be unsecured, general obligations of the Company,
subordinate in right of payment to all Senior Debt of the Company, and senior or
pari passu in right of payment to all existing and future subordinated
Indebtedness of the Company. The New Notes will be limited in aggregate
principal amount to $100 million. The Notes will be jointly and severally
guaranteed (the "Guarantees") on a senior subordinated basis by ARP, the
Company's sole existing Subsidiary, and by each of the Company's future
Subsidiaries (the "Subsidiary Guarantors") and by TLC (together with the
Subsidiary Guarantors, the "Guarantors"). The obligations of each Guarantor
under its guarantee, however, will be limited in a manner intended to avoid it
being deemed a fraudulent conveyance under applicable law. The term
"Subsidiaries" as used herein or in the Indenture, however, does not include any
Unrestricted Subsidiaries. The New Notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof.
The Notes will mature on May 15, 2006. The Notes will bear interest at
10 1/4% per annum from the date of issuance or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semi-annually on May 15 and November 15 of each year, commencing November 15,
1996, to the persons in whose names such Notes are registered at the close of
business on the May 1 or November 1 immediately preceding such Interest Payment
Date. Interest will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be presented for registration of transfer or exchange, at the
office or agency of the Company maintained for such purpose, which office or
agency shall be maintained in the Borough of Manhattan, The City of New York. At
the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at the addresses set forth upon the registry books of
the Company. No service charge will be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Until otherwise designated by the Company, the Company's office or agency will
be the corporate trust office of the Trustee presently located at 14 Wall
Street, New York, New York 10005.
SUBORDINATION
The New Notes and the Guarantees will be general, unsecured obligations of
the Company and the Guarantors, respectively, subordinated in right of payment
to all Senior Debt of the Company and the Guarantors, as applicable. On a pro
forma basis, as of March 31, 1996, after giving effect to the Transactions, the
Company would have had approximately $53.4 million of outstanding Senior Debt,
substantially all of which would have been secured.
The Indenture provides that no payment (by set-off or otherwise) may be
made by or on behalf of the Company or a Guarantor, as applicable, on account of
the principal of, premium, if any, or interest on the Notes (including any
repurchases of Notes), or on account of the redemption provisions of the Notes
or any Obligation in respect of the Notes, for cash or property, (i) upon the
maturity of any Senior Debt of the Company or such Guarantor, as applicable, by
lapse of time, acceleration (unless waived) or otherwise, unless and until all
principal of, premium, if any, and the interest on and fees in respect of such
Senior Debt are first paid in full in cash or Cash Equivalents (or such payment
is duly provided for) or otherwise to the extent holders of Senior Debt accept
satisfaction of amounts due by settlement in other than cash or Cash
Equivalents, or (ii) in the event of default in the payment of any principal of,
premium, if any, or interest on or fee in respect of Senior Debt of the Company
or such Guarantor, as applicable, when it becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Senior Debt to declare such Senior Debt to
be due and payable and (ii) written notice of such event of
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default is given to the Company and the Trustee by the Senior Bank
Representative or the holders of an aggregate of at least $20 million principal
amount outstanding of any other Senior Debt or their representative (a "Payment
Notice"), then, unless and until such event of default has been cured or waived
or otherwise has ceased to exist, no payment (by set-off or otherwise) may be
made by or on behalf of the Company, if the Company is an obligor on such Senior
Debt, or any Guarantor which is an obligor under such Senior Debt on account of
the principal of, premium, if any, or interest on the Notes (including any
repurchases of any of the New Notes), or on account of the redemption provisions
of the Notes or any Obligation in respect of the Notes, in any such case.
Notwithstanding the foregoing, unless the Senior Debt in respect of which such
event of default exists has been declared due and payable in its entirety within
179 days after the Payment Notice is delivered as set forth above (the "Payment
Blockage Period") (and such declaration has not been rescinded or waived), at
the end of the Payment Blockage Period, the Company and the Guarantors shall be
required to pay all sums not paid to the Holders of the Notes during the Payment
Blockage Period due to the foregoing prohibitions and to resume all other
payments as and when due on the Notes. Any number of Payment Notices may be
given; provided, however, that (i) not more than one Payment Notice shall be
given within a period of any 360 consecutive days, and (ii) no default that
existed upon the date of such Payment Notice or the commencement of such Payment
Blockage Period (whether or not such event of default is on the same issue of
Senior Debt) shall be made the basis for the commencement of any other Payment
Blockage Period.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company or any Guarantor shall be received by the
Trustee or the Holders at a time when such payment or distribution is prohibited
by the foregoing provisions, such payment or distribution shall be held in trust
for the benefit of the holders of such Senior Debt, and shall be paid or
delivered by the Trustee or such Holders, as the case may be, to the holders of
such Senior Debt remaining unpaid or unprovided for or to their representative
or representatives, or to the trustee or trustees under any indenture pursuant
to which any instruments evidencing any of such Senior Debt may have been
issued, ratably according to the aggregate principal amounts remaining unpaid on
account of such Senior Debt held or represented by each, for application to the
payment of all such Senior Debt remaining unpaid, to the extent necessary to pay
or to provide for the payment of all such Senior Debt in full in cash or Cash
Equivalents or otherwise to the extent holders of Senior Debt accept
satisfaction of amounts due by settlement in other than cash or Cash Equivalents
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
Upon any distribution of assets of the Company or any Guarantor upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Company or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities, (i) the
holders of all Senior Debt of the Company or such Guarantor, as applicable, will
first be entitled to receive payment in full in cash or Cash Equivalents (or
have such payment duly provided for) or otherwise to the extent holders of
Senior Debt accept satisfaction of amounts due by settlement in other than cash
or Cash Equivalents before the Holders are entitled to receive any payment on
account of the principal of, premium, if any, and interest on the Notes or any
Obligation in respect of the Notes (other than Junior Securities) and (ii) any
payment or distribution of assets of the Company or such Guarantor of any kind
or character from any source, whether in cash, property or securities (other
than Junior Securities) to which the Holders or the Trustee on behalf of the
Holders would be entitled (by set-off or otherwise), except for the
subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of such Senior Debt or their representative
to the extent necessary to make payment in full (or have such payment duly
provided for) on all such Senior Debt remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Senior Debt.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company and the Guarantors, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest on
the New Notes. The subordination provisions of the Indenture and the Notes will
not prevent the occurrence of any Default or Event of Default under the
Indenture or limit the rights of the Trustee or any Holder, subject to the four
immediately preceding paragraphs, to pursue any other rights or remedies with
respect to the New Notes.
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As a result of the subordination provisions contained in the Indenture, in
the event of the liquidation, bankruptcy, reorganization, insolvency,
receivership or similar proceeding or an assignment for the benefit of the
creditors of the Company or a marshalling of assets or liabilities of the
Company, Holders of the New Notes may receive less, ratably, and holders of
Senior Debt may receive more, ratably, than other creditors of the Company or
the Guarantors.
OPTIONAL REDEMPTION
The Company will not have the right to redeem any Notes prior to May 15,
2001, except as provided in the immediately following paragraph. The Notes will
be redeemable at the option of the Company, in whole or in part, at any time on
or after May 15, 2001, upon not less than 30 days nor more than 60 days notice
to each Holder of Notes, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the 12-month period
commencing May 15, of the years indicated below, together with accrued and
unpaid interest thereon to the Redemption Date (subject to the right of Holders
of record on a Record Date to receive interest due on an Interest Payment Date
that is on or prior to such Redemption Date):
YEAR PERCENTAGE
---- ----------
2001...................................................................... 105.125%
2002...................................................................... 102.562%
2003...................................................................... 101.281%
2004 and thereafter....................................................... 100.000%
Notwithstanding the foregoing, prior to May 15, 1999, the Company may
redeem from time to time up to 35% of the aggregate principal amount of the
Notes originally outstanding at a redemption price of 109 1/2% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date, with the net proceeds of one or more Equity Offerings;
provided, that at least 65% of the aggregate principal amount of the New Notes
originally outstanding remain outstanding immediately after the occurrence of
such redemption; provided, further, that such notice of redemption shall be sent
within 30 days after the date of closing of any such Equity Offering, and such
redemption shall occur within 60 days after the date such notice is sent.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The New Notes may be redeemed in part in
multiples of $1,000 only.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a different Note or New Notes in a
principal amount equal to the unredeemed portion thereof will be issued. On and
after the date of redemption, interest will cease to accrue on the Notes or
portions thereof called for redemption.
The Notes will not have the benefit of any sinking fund.
The New Credit Facility limits, and any agreements governing Senior Debt
incurred after the closing of the Acquisition (the "Closing Date") may limit or
prohibit, the optional redemption of the Notes until all such Senior Debt has
been paid in full.
CERTAIN COVENANTS
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such holder's option,
pursuant to an irrevocable and unconditional offer by the Company (the "Change
of Control Offer"), to require the Company to repurchase all or any part of such
Holder's Notes
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(provided, that the principal amount of such Notes must be $1,000 or an integral
multiple thereof) on a date (the "Change of Control Purchase Date") that is no
later than 45 Business Days after the occurrence of such Change of Control, at a
cash price (the "Change of Control Purchase Price") equal to 101% of the
principal amount thereof, together with accrued interest to the Change of
Control Purchase Date. The Change of Control Offer shall be made within 15
Business Days following a Change of Control and shall remain open for not less
than 20 Business Days following its commencement (the "Change of Control Offer
Period"). Upon expiration of the Change of Control Offer Period, the Company
shall purchase all Notes properly tendered in response to the Change of Control
Offer.
As used herein, a "Change of Control" means (i) any merger or consolidation
of the Company or TLC with or into any person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of either the Company or TLC, on a consolidated basis, in one transaction
or a series of related transactions, if, immediately after giving effect to such
transaction, any "person" or "group," (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), whether or not applicable), other than any Excluded Person or Excluded
Persons or TLC, is or becomes the Beneficial Owner, directly or indirectly, of
more than 50% of the total voting power in the aggregate normally entitled to
vote in the election of directors, managers, or trustees, as applicable, of the
transferee or surviving entity, (ii) any "person" or "group," other than any
Excluded Person or Excluded Persons or TLC, is or becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of Capital Stock of the Company then outstanding
normally entitled to vote in elections of directors, provided that any "person"
or "group" will be deemed to be the Beneficial Owner of any Capital Stock of the
Company held by TLC so long as such person or group is the Beneficial Owner of,
directly or indirectly, in the aggregate a majority of the Capital Stock of TLC
then outstanding normally entitled to vote in elections of directors, or (iii)
during any period of 12 consecutive months after May 7, 1996, individuals who at
the beginning of any such 12-month period constituted the Board of Directors of
either the Company or TLC (together, in each case, with any new directors whose
election by such Board or whose nomination for election by the shareholders of
the Company was approved by LGP or a Related Party of LGP or by the Excluded
Persons or by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company or TLC then in
office, as applicable.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all New Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
the Holders of Notes so accepted payment in an amount equal to the Change of
Control Purchase Price (together with accrued and unpaid interest), and the
Trustee will promptly authenticate and mail or deliver to such Holders a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be promptly mailed or delivered by
the Company to the Holder thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Initial Purchasers.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other
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applicable Federal and state securities laws and any provisions of the Indenture
which conflict with such laws shall be deemed to be superseded by the provisions
of such laws.
The New Credit Facility prohibits, and any agreements governing Senior Debt
incurred after the Closing Date may prohibit, the purchase of Notes in response
to a Change in Control Offer, unless all such Senior Debt has been paid in full.
Furthermore, a Change in Control will constitute an event of default under the
New Credit Facility. In addition, the Company's ability to purchase Notes upon a
Change in Control will be limited by its then available financial resources and,
if those resources are insufficient, its ability to arrange financing to effect
those purchases. There can be no assurance that the Company will have sufficient
funds to repurchase the Notes upon a Change in Control or that it will be able
to arrange financing for that purpose. Nevertheless, the Company's failure to
make a Change in Control Offer or to purchase all Notes properly tendered
pursuant to a Change in Control Offer will constitute an Event of Default under
the Indenture.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that the Company and the Subsidiary Guarantors will
not, directly or indirectly, issue, assume, guaranty, incur, become directly or
indirectly liable with respect to (including as a result of an Acquisition), or
otherwise become responsible for, contingently or otherwise (individually and
collectively, to "Incur" or, as appropriate, an "Incurrence"), any Indebtedness
or any Disqualified Capital Stock (including Acquired Indebtedness), except for
Permitted Indebtedness.
Notwithstanding the foregoing, if (i) no Default or Event of Default shall
have occurred and be continuing at the time of, or would occur after giving
effect on a pro forma basis to, such Incurrence of Indebtedness (including
without duplication guarantees of Indebtedness of the Company and the Subsidiary
Guarantors otherwise permitted by the Indenture) or Disqualified Capital Stock
and (ii) on the date of such Incurrence (the "Incurrence Date"), the
Consolidated Interest Coverage Ratio of the Company for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a pro forma
basis to such Incurrence of such Indebtedness (without duplication) or
Disqualified Capital Stock and, to the extent set forth in the definition of
Consolidated Interest Coverage Ratio, the use of proceeds thereof, would be at
least 2.00 to 1 (the "Debt Incurrence Ratio"), then the Company and the
Subsidiary Guarantors may Incur such Indebtedness or Disqualified Capital Stock.
Indebtedness of any Person which is outstanding at the time such Person
becomes a Subsidiary of the Company or is merged with or into or consolidated
with the Company or a Subsidiary of the Company shall be deemed to have been
Incurred at the time such Person becomes such a Subsidiary of the Company or is
merged with or into or consolidated with the Company or a Subsidiary of the
Company, as applicable.
Notwithstanding anything to the contrary contained in the Indenture, the
Subsidiary Guarantors each may guaranty Indebtedness of the Company or any other
Subsidiary Guarantor that is permitted to be Incurred hereunder, either at the
time such Subsidiary Guarantor becomes a Guarantor of the New Notes or if later
the time the Company or such other Subsidiary Guarantor Incurs such
Indebtedness.
Limitation on Restricted Payments
The Indenture provides that the Company and the Subsidiary Guarantors will
not, directly or indirectly, make any Restricted Payment if, after giving effect
to such Restricted Payment on a pro forma basis, (1) a Default or an Event of
Default shall have occurred and be continuing, (2) the Company is not permitted
to Incur at least $1.00 of additional Indebtedness pursuant to the Consolidated
Interest Coverage Ratio in the second paragraph of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock," or (3)
the aggregate amount of all Restricted Payments made by the Company and its
Subsidiaries, including after giving effect to such proposed Restricted Payment,
from and after May 7, 1996, would exceed the sum of (a) 50% of the aggregate
Consolidated Net Income of the Company for the period (taken as one accounting
period), commencing on the first day after May 7, 1996, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) the aggregate Net Cash
Proceeds received by the Company as a capital contribution or from the sale of
its Qualified Capital
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Stock (other than (i) from or to a Subsidiary of the Company, (ii) to the extent
applied in connection with a Qualified Exchange and (iii) to the extent applied
to repurchase Capital Stock pursuant to clause (d) of the definition of
Permitted Payments), after May 7, 1996.
The foregoing provisions will not prohibit or be violated by (A) a
Qualified Exchange; (B) the payment or making of any Restricted Payment within
60 days after the date of declaration thereof or the making of any binding
commitment in respect thereof, if at said date of declaration or commitment,
such Restricted Payment would have complied with the provisions contained in
clauses (1), (2) and (3) of the first paragraph hereof; (C) Permitted Payments;
(D) Restricted Investments, provided, that, after giving pro forma effect to
such Restricted Investment, the aggregate amount of all such Restricted
Investments made on or after May 7, 1996 pursuant to this subclause (D) that are
outstanding (after giving effect to (x) the amount of such Restricted
Investments returned in cash to the Company or a Subsidiary Guarantor, the
payment of cash dividends or the repayment in cash of the principal of loans or
the cash return on any Restricted Investment to the Company or the Subsidiary
Guarantor that made such Restricted Investment and (y) the release of any
guarantee that constituted a Restricted Investment, to the extent it has been
released, in each case on or prior to the date of such calculation) at any time
does not exceed $10 million; and (E) Restricted Payments in an amount not to
exceed $5 million minus (x) the amount of any Restricted Payments made (other
than pursuant to subclauses (A), (C) and (D) above) since May 7, 1996 and (y)
(1) 100% of the amount of any deficit in Consolidated Net Income for the period
(taken as one accounting period) commencing on the first day after May 7, 1996
to the date of such Restricted Payment plus (2) the aggregate Net Cash Proceeds
received by the Company as a capital contribution or from the sale of its
Qualified Capital Stock (other than (i) from or to a Subsidiary of the Company,
(ii) to the extent applied in connection with a Qualified Exchange, and (iii) to
the extent applied to repurchase Capital Stock pursuant to clause (d) of the
definition of Permitted Payments), after May 7, 1996, up to the amount of the
deficit, if any, applied pursuant to clause (y) (1) above. The full amount of
any Restricted Payment made pursuant to the foregoing clauses (B) and (D) (but
not pursuant to clauses (A), (C) or (E)) of the immediately preceding sentence,
however, will be deducted in the calculation of the aggregate amount of
Restricted Payments available to be made referred to in clause (3) of the
immediately preceding paragraph.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company and the Subsidiary Guarantors will
not, directly or indirectly, create, assume or suffer to exist any consensual
restriction on the ability of any Subsidiary of the Company: (i) (a) to pay
dividends or make other distributions to the Company or any of its Subsidiaries
(1) on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) to pay any Indebtedness
owed to the Company or any of its Subsidiaries, (ii) to make loans or advances
to the Company or any of its Subsidiaries or (iii) to transfer any of its
properties or assets to the Company or any of its Subsidiaries, except (a)
restrictions imposed by the Notes or the Indenture, (b) restrictions imposed by
applicable law and regulation, (c) existing restrictions under Indebtedness
outstanding on May 7, 1996 or under any Acquired Indebtedness not incurred in
violation of the Indenture or any agreement relating to any property, asset, or
business acquired by the Company or any of its Subsidiaries, which restrictions
in each case existed at the time of acquisition, were not put in place in
connection with or in anticipation of such acquisition and are not applicable to
any person, other than the person acquired, or to any property, asset or
business, other than the property, assets and business so acquired, (d) any such
restriction or requirement imposed by Indebtedness Incurred under clause (b)
under the definition of "Permitted Indebtedness," provided such restriction or
requirement is not materially more restrictive than that imposed by the Credit
Agreement as of May 7, 1996, (e) restrictions with respect to a Subsidiary of
the Company imposed pursuant to a binding agreement which has been entered into
for the sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary, provided such restrictions apply solely to the
Capital Stock or assets of such Subsidiary which are being sold, (f)
restrictions on transfer contained in Purchase Money Indebtedness Incurred
pursuant to paragraph (e) of the definition of Permitted Indebtedness, provided
such restrictions relate only to the transfer of the property acquired with the
proceeds of such Purchase Money Indebtedness, (g) customary restrictions imposed
on the transfer of copyrighted or patented materials and customary provisions in
agreements that restrict the assignment of such agreements or any rights
thereunder, and (h) in
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connection with and pursuant to permitted Refinancings, replacements of
restrictions imposed pursuant to clause (c) or (f) of this paragraph that are
not materially more restrictive than those being replaced and do not apply to
any other person or assets than those that would have been covered by the
restrictions in the Indebtedness so refinanced. Notwithstanding the foregoing,
neither (a) customary provisions restricting subletting or assignment of any
lease entered into in the ordinary course of business, nor (b) Liens not
prohibited by the terms of the Indenture shall be considered a restriction on
the ability of the applicable Subsidiary to transfer such lease or any assets,
as the case may be.
Limitations on Layering Indebtedness
The Indenture provides that the Company and the Guarantors will not,
directly or indirectly, Incur, or suffer to exist any Indebtedness that is
subordinate in right of payment to any other Indebtedness of the Company or a
Guarantor unless, by its terms, such Indebtedness (i) has a maturity date
subsequent to the Stated Maturity of the Notes and an Average Life longer than
that of the Notes and (ii) is subordinate in right of payment to, or ranks pari
passu with, the New Notes or the Guarantee, as applicable. For purposes of this
provision, no Indebtedness shall be deemed to be subordinated in right of
payment to any other Indebtedness solely by reason of the fact that such other
Indebtedness is secured by any Lien.
Limitation on Liens
The Indenture provides that the Company and the Subsidiary Guarantors will
not, create, incur, assume or suffer to exist, to secure any Indebtedness other
than Senior Debt, any Lien, other than Permitted Liens, upon any of their
respective assets now owned or acquired on or after the date of the Indenture or
upon any income or profits therefrom unless the Company or such Subsidiary
Guarantor provides, concurrently or immediately thereafter, that the Notes are
equally and ratably secured, provided that, if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Notes or the Guarantee, as
applicable, with the same relative priority as such Subordinated Indebtedness
shall have with respect to the Notes or the Guarantee, as applicable, provided,
further, that, in the case of Indebtedness of a Subsidiary Guarantor, if such
Subsidiary Guarantor shall cease to be a Subsidiary Guarantor in accordance with
the provisions of the Indenture, such equal and ratable Lien to secure the Notes
shall, without any further action, cease to exist.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that the Company and the Subsidiary Guarantors will
not, in one transaction or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of their
respective property, business or assets (other than cash or Cash Equivalents),
including by merger or consolidation (in the case of a Subsidiary Guarantor),
and including any sale or other transfer or issuance of any Capital Stock (other
than directors qualifying shares) of any Subsidiary of the Company, whether by
the Company or a Subsidiary (an "Asset Sale"), unless within 360 days following
such Asset Sale (1)(a) the Net Cash Proceeds received from such Asset Sale are
(i) (x) used to purchase one or more businesses or to purchase more than 50% of
the Capital Stock of a person operating one or more businesses, (y) used to make
capital expenditures or (z) used to acquire other long-term assets, in each
case, so long as such business or businesses, capital expenditures or long-term
assets will constitute, be a part of or be used in a Related Business or (ii)
used to retire Senior Debt and to permanently reduce the amount of such
Indebtedness outstanding (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is so permanently
reduced by such amount) and (b) the Net Cash Proceeds of such Asset Sale not
applied as provided in clause (a) (the "Asset Sale Offer Amount") are applied to
the optional redemption of the Notes in accordance with the terms of the
Indenture or to the repurchase of the Notes pursuant to an irrevocable,
unconditional cash offer (the "Asset Sale Offer") to repurchase Notes at a
purchase price (the "Asset Sale Offer Price") of 100% of the principal amount,
plus accrued interest to the date of payment, (2) at least 75% of the
consideration for such Asset Sale consists of cash or Cash Equivalents; provided
that (x) the amount of any liabilities (as shown on the Company's most recent
consolidated balance sheet) of the Company or any Subsidiary that are assumed by
the transferee in such Asset Sale and (y) any notes or other
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obligations received by the Company or any such Subsidiary Guarantor from such
transferee that are immediately (but in no event more than 30 days after
receipt) converted by the Company or such Subsidiary Guarantor into cash or Cash
Equivalents (to the extent of the cash or Cash Equivalents, as the case may be,
received), shall be deemed to be cash or Cash Equivalents, as the case may be,
for purposes of this provision and, provided, further, this clause (2) shall not
apply to the sale or disposition of assets or as a result of a foreclosure (or a
secured party taking ownership of such assets in lieu of foreclosure) or as a
result of an involuntary proceeding in which the Company cannot, directly or
through its Subsidiaries, direct the type of proceeds received; (3) no Default
or Event of Default would occur after giving effect, on a pro forma basis, to,
such Asset Sale, and (4) with respect to any Asset Sale or series of related
Asset Sales, the Net Cash Proceeds of which exceed $500,000, the Board of
Directors of the Company determines in good faith that the Company or such
Subsidiary, as applicable, receives Fair Market Value for such Asset Sale. The
Indenture will provide that an Asset Sale Offer may be deferred until the
accumulated Net Cash Proceeds from Asset Sales not applied to the uses set forth
in clause (l)(a) above exceeds $10 million and that each Asset Sale Offer shall
remain open for not less than 20 Business Days following its commencement (the
"Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the
Company shall apply the Asset Sale Offer Amount plus an amount equal to accrued
interest to the purchase of all Notes properly tendered (on a pro rata basis if
the Asset Sale Offer Amount is insufficient to purchase all Notes so tendered)
at the Asset Sale Offer Price (together with accrued interest). To the extent
Holders of Notes do not tender Notes in connection with any such Asset Sale
Offer, the remaining Net Cash Proceeds may be applied in any manner not
prohibited by the Indenture.
Notwithstanding the foregoing provisions of the prior paragraph, the
following transactions shall not be deemed Asset Sales:
(i) the Company and the Subsidiary Guarantors may in the ordinary
course of business, convey, sell, lease, transfer, assign or otherwise
dispose of property in the ordinary course of business;
(ii) the Company and the Subsidiary Guarantors may (x) convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the limitation on mergers, sales or consolidations
provisions in the Indenture, (y) make Restricted Payments permitted by the
Restricted Payment covenant in the Indenture and (z) engage in Exempted
Affiliate Transactions;
(iii) the Company and the Subsidiary Guarantors may convey, sell,
lease, transfer, assign or otherwise dispose of assets or issue Capital
Stock to the Company or any of the Subsidiary Guarantors;
(iv) the Company and the Subsidiary Guarantors may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Subsidiary Guarantor, as
applicable;
(v) the Company and the Subsidiary Guarantors may exchange assets held
by the Company or a Subsidiary Guarantor for assets held by any person or
entity; provided, that the assets received in such exchange in the good
faith reasonable judgment of the Board will immediately constitute, be a
part of, or be used in, a Related Business; provided, further, that the
Board has determined that the terms of any exchange are fair and
reasonable;
(vi) the Company and the Subsidiary Guarantors may enter into Sale and
Leaseback Transactions with respect to property acquired or completed after
the Issue Date;
(vii) the Company and the Subsidiary Guarantors may liquidate Cash
Equivalents in the ordinary course of business;
(viii) the Company and the Subsidiary Guarantors may create or assume
Liens (or permit any foreclosure thereon) securing Indebtedness to the
extent that such Lien does not violate the "-- Liens" covenant above; and
(ix) the Subsidiary Guarantors may consummate any sale or series of
related sales of assets or properties of the Company and the Subsidiary
Guarantors having an aggregate Fair Market Value of less than $2 million in
any fiscal year.
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Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws, and any provisions of the Indenture which conflict
with such laws shall be deemed to be superseded by the provisions of such laws.
The New Credit Facility prohibits, and any agreements governing Senior
Indebtedness incurred after the Closing Date may prohibit or restrict, the
purchase of Notes in response to an Asset Sale Offer unless all such Senior
Indebtedness has been paid in full.
Limitation on Transactions with Affiliates
The Indenture provides that neither the Company nor any of the Subsidiary
Guarantors will be permitted after May 7, 1996 to enter into any contract,
agreement, arrangement or transaction with any Affiliate (an "Affiliate
Transaction"), or any series of related Affiliate Transactions (other than
Exempted Affiliate Transactions), unless the terms of such Affiliate Transaction
are fair and reasonable to the Company or such Subsidiary, as the case may be,
and are at least as favorable as the terms which could reasonably be expected to
be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's length basis with persons who are not
Affiliates.
Without limiting the foregoing, in connection with any Affiliate
Transaction or series of related Affiliate Transactions (other than Exempted
Affiliate Transactions) (1) involving consideration to either party in excess of
$1 million, the Company must deliver an Officers' Certificate to the Trustee,
stating that the terms of such Affiliate Transaction are fair and reasonable to
the Company, and no less favorable to the Company than could reasonably be
expected to have been obtained in an arm's length transaction with a
non-Affiliate, and (2) involving consideration to either party in excess of $5
million, the Company must also, prior to the consummation thereof, obtain a
written favorable opinion as to the fairness of such transaction to the Company
from a financial point of view from an independent investment banking firm of
national reputation, provided, that this sentence shall not apply to the sale of
the products of the Company or its Subsidiaries to any Affiliate of LGP or any
Related Party thereof, which sale is in the ordinary course of business and in
accordance with industry practice.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company will not directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons or adopt a Plan of Liquidation,
unless (i) either (a) the Company is the continuing entity or (b) the resulting,
surviving or transferee entity or, in the case of a Plan of Liquidation, the
entity which receives the greatest value from such Plan of Liquidation, is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Notes and the Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; (iii) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated Net
Worth of the consolidated surviving or transferee entity or, in the case of a
Plan of Liquidation, the entity which receives the greatest value from such Plan
of Liquidation, is at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and (iv) immediately after giving effect
to such transaction on a pro forma basis, the consolidated resulting, surviving
or transferee entity or, in the case of a Plan of Liquidation, the entity which
receives the greatest value from such Plan of Liquidation, would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio set forth in the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company or consummation of a Plan of Liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a
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Plan of Liquidation, the entity which receives the greatest value from such Plan
of Liquidation, shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under the Indenture with the same effect as if
such successor corporation had been named therein as the Company, and the
Company shall be released from all obligations under the Notes and the
Indenture.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its Subsidiaries
shall directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of the Company, is a Related Business.
Restriction on Sale and Issuance of Subsidiary Stock
The Indenture provides that the Company will not sell, and the Subsidiary
Guarantors will not issue or sell, any shares of Capital Stock (other than
directors qualifying shares) of any Subsidiary of the Company to any person
other than the Company or a wholly owned Subsidiary of the Company, except for
shares of common stock with no preferences or special rights or privileges and
with no redemption or prepayment provisions. Notwithstanding the foregoing, (a)
the Company and the Subsidiary Guarantors may consummate an Asset Sale of all of
the Capital Stock owned by the Company and the Subsidiary Guarantors of any
Subsidiary and (b) the Company or any Subsidiary Guarantor may pledge,
hypothecate or otherwise grant a Lien on any Capital Stock of any Subsidiary to
the extent not prohibited under the "-- Liens" covenant.
Future Subsidiary Guarantors
The Indenture provides that all present and future Subsidiaries of the
Company jointly and severally will guaranty irrevocably and unconditionally all
principal, premium, if any, and interest on the Notes on a senior subordinated
basis. The term Subsidiary does not include Unrestricted Subsidiaries.
Release of Guarantors
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Subsidiary Guarantor (or all or substantially all of the
assets of any such Subsidiary Guarantor or 50% or more of the Capital Stock of
any such Subsidiary Guarantor) to an entity which is not a Subsidiary of the
Company, which transaction is otherwise in compliance with the Indenture, such
Subsidiary Guarantor shall be deemed released from all its obligations under its
guarantee of the Notes; provided, however, that any such termination shall occur
only to the extent that all obligations of such Subsidiary Guarantor under all
of its guarantees of, and under all of its pledges of assets or other security
interests which secure, any Indebtedness of the Company shall also terminate
upon such release, sale or transfer. Upon the release of any Subsidiary
Guarantor from its Guarantee pursuant to the provisions of the Indenture, each
other Subsidiary Guarantor not so released shall remain liable for the full
amount of principal of, and interest on, the Notes as and to the extent provided
in the Indenture.
Limitation on Status as Investment Company
The Indenture prohibits the Company and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended).
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and to each Holder and to
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prospective holders of New Notes identified to the Company by an Initial
Purchaser, within 15 days after it is or would have been required to file such
with the Commission, annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the Commission, if the Company were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by the Company's certified independent public
accountants as such would be required in such reports to the Commission, and, in
each case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required. In addition,
from and after the effectiveness of the Exchange Offer Registration Statement or
the Shelf Registration Statement, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure to pay any
installment of interest on the Notes as and when the same becomes due and
payable and the continuance of any such failure for 30 days, (ii) the failure to
pay all or any part of the principal, or premium, if any, on the Notes when and
as the same becomes due and payable at maturity, redemption, by acceleration or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price, or otherwise, (iii) the failure by
the Company or any Subsidiary Guarantor to observe or perform any other covenant
or agreement on the part of the Company or any Subsidiary Guarantor contained in
the Notes or the Indenture and, subject to certain exceptions, the continuance
of such failure for a period of 30 days after written notice is given to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Notes then outstanding,
specifying such Default and requiring that it be remedied, (iv) certain events
of bankruptcy, insolvency or reorganization in respect of the Company or any of
its Significant Subsidiaries, (v) a default in any Indebtedness of the Company
or any of its Subsidiaries with an aggregate principal amount in excess of $10
million (a) resulting from the failure to pay principal at maturity or (b) as a
result of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity, and (vi) final unsatisfied judgments not covered by
insurance aggregating in excess of $10 million, at any one time rendered against
the Company or any of its Subsidiaries and not stayed, bonded or discharged
within 60 days. The Indenture provides that if an Event of Default occurs and is
continuing, generally the Trustee must, within 90 days after the occurrence of
such default, give to the Holders notice of such Event of Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Company or any
Significant Subsidiary) then in every such case, unless the principal of all of
the Notes shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal and accrued interest thereon
to be due and payable immediately, provided such acceleration shall not be
effective until five (5) Business Days after the Senior Bank Representative
shall have been notified of such acceleration. If an Event of Default specified
in clause (iv), above, relating to the Company or any Significant Subsidiary
occurs, all principal and accrued interest thereon will be immediately due and
payable on all outstanding Notes without any declaration or other act on the
part of Trustee or the Holders. The Holders of a majority in aggregate principal
amount of Notes generally are authorized to rescind such acceleration if all
existing Events of Default (other than the non-payment of the principal of,
premium, if any, and interest on the Notes which have become due solely by such
acceleration) have been cured or waived, except a default with respect to any
provision requiring supermajority approval to amend, which default may only be
waived by such supermajority.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all of the Holders any default, except a
default with respect to any provision requiring supermajority approval to amend,
which default may only be waived by such supermajority, except a default in the
payment of principal of, premium
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on, or interest on any Note not yet cured, and except a default with respect to
any covenant or provision which cannot be modified or amended without the
consent of the Holder of each outstanding Note affected. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable security or indemnity. Subject to
all provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time
elect to have its obligations and the obligations of the Guarantors discharged
with respect to the outstanding Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by, and the Indenture shall cease to be of
further effect as to, all outstanding Notes and Guarantees, except as to (i)
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
funds described below; (ii) the Company's obligations with respect to such Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust; (iii) the rights, powers, trust,
duties, and immunities of the Trustee, and the Company's and the Guarantor's
obligations in connection therewith; and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and the Guarantors released with
respect to certain covenants that are set forth in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, U.S. legal tender, non-callable government
securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such Notes on the
stated date for payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such Notes, and the
Holders of Notes must have a valid, perfected, exclusive security interest in
such trust; (ii) in the case of Legal Defeasance before the date that is one
year prior to the Stated Maturity, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company has received from, or there has been
published by the Internal Revenue Service, a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of such Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance before the date that is one
year prior to the Stated Maturity, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to such
Trustee confirming that the Holders of such Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or, insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is
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bound; (vi) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of such Notes over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; and (vii) the Company shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that the conditions precedent provided for in, in the case of the Officers'
Certificate, clauses (i) through (vi) and, in the case of the opinion of
counsel, clauses (i), (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph have been complied
with. Upon Legal Defeasance as provided in the Indenture, the Guarantee of each
Guarantor shall be fully released and discharged and the Trustee shall promptly
execute and deliver to the Company any documents reasonably requested by the
Company to evidence or effect the foregoing.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company, the Guarantors
and the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. With the consent of the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, the Guarantors and the Trustee are permitted to amend
or supplement the Indenture or any supplemental indenture or modify the rights
of the Holders; except that any amendments or supplements to the provisions
relating to the "Repurchase of Notes at the Option of the Holder Upon a Change
of Control" covenant in a manner adverse to the Holders shall require the
consent of not less than 66 2/3% of the aggregate principal amount of Notes at
the time outstanding; provided, further, that no such modification may, without
the consent of each Holder affected thereby: (i) change the Stated Maturity on
any Note, or reduce the principal amount thereof or the rate (or extend the time
for payment) of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in which,
any Note or any premium or the interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or reduce the Change of Control Purchase Price or Asset Sale Offer Price
or alter the redemption provisions of the Indenture in a manner adverse to the
Holders, (ii) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture, (iii) modify any
of the waiver provisions, except to increase any required percentage or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding Note affected
thereby, or (iv) make the Notes further subordinated in right of payment to any
extent or under any circumstances to any other Indebtedness (it being understood
that amendments to the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" which may have the effect of
increasing the amount of Senior Indebtedness that the Company and the Subsidiary
Guarantors may Incur shall not, for purposes of this clause (iv), be deemed to
make the Notes further subordinated in right of payment to any extent or under
any circumstances to any other Indebtedness).
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Guarantors or any successor entity shall have any personal liability in respect
of the obligations of the Company or the Guarantors under the Indenture or the
New Notes by reason of his or its status as such stockholder, employee, officer
or director.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the Company
or is merged or consolidated into or with the Company or one of its
Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, stock purchase, merger, consolidation, or other transfer, and whether
or not for consideration.
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"Affiliate" means any person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that, a Beneficial Owner of 10% or more of the total
voting power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of (a) the
product of the number of years from the date of determination to the date or
dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" has the meaning attributed to it in Rules 13d-3 and
13d-5 under the Exchange Act (as in effect on May 7, 1996), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Cash Equivalent" means for all purposes of the Indenture other than the
provisions thereof described under the caption "Subordination" above, (a)
securities issued or directly and fully guaranteed or insured by the United
States Government, or any agency or instrumentality thereof, having maturities
of not more than one year from the date of acquisition: (b) marketable general
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition thereof, having a credit rating of "A" or better from either
Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (c)
certificates of deposit, time deposits, eurodollar time deposits, overnight bank
deposits or bankers' acceptances having maturities of not more than one year
from the date of acquisition thereof of any domestic commercial bank, the
long-term debt of which is rated at the time of acquisition thereof at least A
or the equivalent thereof by Standard & Poor's Ratings Group, or A or the
equivalent thereof by Moody's Investors Service, Inc. and having capital and
surplus in excess of $500,000,000; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(a), (b) and (c) above entered into with any bank meeting the qualifications
specified in clause (c) above; (e) commercial paper rated at the time of
acquisition thereof at least A-2 or the equivalent thereof by Standard & Poor's
Ratings Group or P-2 or the equivalent thereof by Moody's Investors Service,
Inc., or carrying an equivalent rating by a nationally recognized rating agency,
if both of the two named rating agencies cease publishing ratings of
investments, and in either case maturing within 270 days after the date of
acquisition thereof, and (f) interests in any investment company which invests
solely in instruments of the type specified in clauses (a) through (e) above.
For purposes of the provisions of the Indenture described under the caption
"Subordination" above, "Cash Equivalent" means (a) securities issued or directly
and fully guaranteed or insured by the United States Government, or any agency
or instrumentality thereof, having maturities of not more than 180 days from the
date of acquisition; (b) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within 180 days from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (c) certificates of deposit, time deposits, eurodollar
time deposits, overnight bank deposits or bankers' acceptances having maturities
of not more than 180 days from the date of acquisition thereof of any domestic
commercial bank the long-term debt of which is rated at the time of acquisition
thereof at least A or the
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equivalent thereof by Standard & Poor's Ratings Group, or A or the equivalent
thereof by Moody's Investors Service, Inc. and having capital and surplus in
excess of $500,000,000; (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (a), (b)
and (c) above entered into with any bank meeting the qualifications specified in
clause (c) above; (e) commercial paper rated at the time of acquisition thereof
at least A-1 or the equivalent thereof by Standard & Poor's Ratings Group or P-1
or the equivalent thereof by Moody's Investors Service, Inc., or carrying an
equivalent rating by a nationally recognized rating agency, if both of the two
named rating agencies cease publishing ratings of investments, and in either
case maturing within 180 days after the date of acquisition thereof; and (f)
interests in any investment company which invests solely in instruments of the
type specified in clauses (a) through (e) above.
"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) Consolidated income tax
expense, (ii) Consolidated depreciation and amortization expense (including
amortization of debt discount and deferred financing costs in connection with
any Indebtedness of such person and its Subsidiaries), provided that
Consolidated depreciation and amortization of a Subsidiary that is less than
wholly owned shall only be added to the extent of the equity interest of the
Company in such Subsidiary, (iii) Consolidated Interest Expense, (iv) all other
non-cash items and (v) up to $13.6 million of fees and expenses actually
incurred in connection with the Transactions.
"Consolidated Interest Coverage Ratio" of any person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(a) the aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Interest Expense of such
person (exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of, but only to the extent that the
obligations giving rise to such Consolidated Interest Expense would no longer be
obligations contributing to such person's Consolidated Interest Expense
subsequent to the Transaction Date) during the Reference Period; provided, that
for purposes of calculating each of Consolidated EBITDA and Consolidated
Interest Expense for this definition, (i) with respect to any Reference Period
commencing prior to May 7, 1996, the Transactions shall be assumed to have
occurred on the first day of such Reference Period, (ii) Acquisitions which
occurred during the Reference Period or subsequent to the Reference Period and
on or prior to the Transaction Date shall be assumed to have occurred on the
first day of the Reference Period, (iii) transactions giving rise to the need to
calculate the Consolidated Interest Coverage Ratio shall be assumed to have
occurred on the first day of the Reference Period, (iv) the incurrence of any
Indebtedness or issuance of any Disqualified Capital Stock during the Reference
Period or subsequent to the Reference Period and on or prior to the Transaction
Date (and the application of the proceeds therefrom to the extent used to
refinance or retire other Indebtedness) shall be assumed to have occurred on the
first day of such Reference Period, and (v) the Consolidated Interest Expense of
such person attributable to interest on any Indebtedness or dividends on any
Disqualified Capital Stock bearing a floating interest (or dividend) rate shall
be computed on a pro forma basis as if the average rate in effect from the
beginning of the Reference Period to the Transaction Date had been the
applicable rate for the entire period, unless such person or any of its
Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall
provide a term including at least the 12-month period immediately following the
Transaction Date) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used.
"Consolidated Interest Expense" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, excluding amortization of debt
issuance costs incurred in connection with the Notes or the New Credit Facility
but including (i) original issue discount and non-cash interest payments or
accruals on any Indebtedness, (ii) the interest portion of all deferred payment
obligations, and (iii) all commissions, discounts
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and other fees and charges owed with respect to bankers' acceptances and letters
of credit financings and currency and Interest Swap and Hedging Obligations, in
each case to the extent attributable to such period and (b) the amount of cash
dividends paid by such person or any of its Consolidated Subsidiaries in respect
of Preferred Stock (other than by Subsidiaries of such person to such person or
such person's wholly owned Subsidiaries). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by the Company to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP, and (y)
interest expense attributable to any Indebtedness represented by the guaranty by
such person or a Subsidiary of such person of an obligation of another person
shall be deemed to be the interest expense attributable to the Indebtedness
guaranteed.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains and losses which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain or loss from the sale or other disposition of
assets outside the ordinary course of business or from the issuance or sale of
any Capital Stock), (b) the net income, if positive, of any person, other than a
Consolidated Subsidiary but including an Unrestricted Subsidiary, in which such
person or any of its Consolidated Subsidiaries has an interest, except to the
extent of the amount of any dividends or distributions actually paid in cash to
such person or a wholly owned Consolidated Subsidiary of such person during such
period, but in any case not in excess of such person's pro rata share of such
person's net income for such period, (c) the net income or loss of any person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries in the event and solely to the extent that the
declaration or payment of dividends or similar distributions is not at the time
permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary, (e) the effects of
changes in accounting principles, (f) any non-cash compensation expense in
connection with the exercise of, grant to or repurchase from officers, directors
and employees of stock, stock options or stock equivalents, (g) any one-time
non-cash charge or expense associated with the write-off of deferred debt
issuance costs associated with the New Credit Facility or the Notes and (h) the
amortization of the consideration for the Non-Competition Agreements entered
into in connection with the Transactions.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
consolidated stockholders' equity), (a) the amount of any such stockholders'
equity attributable to Disqualified Capital Stock or treasury stock of such
person and its Consolidated Subsidiaries and (b) all upward revaluations and
other write-ups in the book value of any asset of such person or a Consolidated
Subsidiary of such person subsequent to May 7, 1996.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"Credit Agreement" means the one or more credit agreements (including,
without limitation, the New Credit Facility) entered into by and among the
Company, certain of its subsidiaries, and certain financial institutions, which
provide for in the aggregate one or more term loans and/or revolving credit
facilities, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
agreement and/or related documents may be amended, restated, supplemented,
renewed, replaced or otherwise modified from time to time whether or not with
the same agent, trustee, representative lenders or holders, and, subject to the
proviso to the next succeeding sentence, irrespective of any changes in the
terms and conditions thereof. Without limiting the generality of the foregoing,
the term "Credit Agreement" shall include any amendment, amendment and
restatement, renewal, extension, restructuring, supplement or modification to
any such credit agreement and all refundings, refinancings and replacements of
any such credit agreement, including any agreement (i) extending the
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maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii)
adding or deleting borrowers or guarantors thereunder, so long as borrowers and
issuers include one or more of the Company and its Subsidiaries and their
respective successors and assigns, (iii) increasing the amount of Indebtedness
Incurred thereunder or available to be borrowed thereunder, provided that on the
date such Indebtedness is Incurred it would not be prohibited by the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," or (iv) otherwise altering the terms and conditions thereof in a manner
not prohibited by the terms hereof.
"Disqualified Capital Stock" means (a) except as set forth in clause (b) of
this paragraph, with respect to any person, Capital Stock of such person that,
by its terms or by the terms of any security into which it is then convertible,
exercisable or exchangeable, is, or upon the happening of an event or the
passage of time would be, required to be redeemed or repurchased (including at
the option of the holder thereof) by such person or any of its Subsidiaries, in
whole or in part, on or prior to the Stated Maturity of the New Notes and (b)
with respect to any Subsidiary of such person (including with respect to any
Subsidiary of the Company), any Capital Stock (i) not held by the Company or a
wholly owned Subsidiary of the Company or (ii) other than any common stock with
no preference, privileges, or redemption or repayment provisions.
"Equity Offering" means an underwritten public offering pursuant to a
registration statement filed with the SEC in accordance with the Securities Act,
the consequence of which is that the common stock of either the Company or TLC
is listed on a national securities exchange or quoted on the national market
system or the SmallCap Market of NASDAQ.
"Excluded Person" means collectively or individually Green Equity Investors
II, L.P., David Blechman, Jean Blechman, Brian Blechman, Dean Blechman, Neil
Blechman, Ross Blechman and Steve Blechman and their respective Related Parties.
"Exempted Affiliate Transaction" means (a) compensation, indemnification
and other benefits paid or made available (x) pursuant to the Employment
Agreements and Consulting Agreements, or (y) for or in connection with services
actually rendered and comparable to those generally paid or made available by
entities engaged in the same or similar businesses (including reimbursement or
advancement of reasonable out-of-pocket expenses, loans to officers, directors
and employees in the ordinary course of business consistent with past practice
and directors' and officers' liability insurance), (b) certain transactions,
expenses and payments pursuant to the terms of or contemplated by the
Stockholders Agreement, the Secondary Stockholders Agreement or the Stock
Purchase Agreement, (c) any Restricted Payments or other payments or
transactions expressly permitted under the covenant discussed above under
"Limitation on Restricted Payments," (d) transactions between the Company and
any of its wholly owned Subsidiaries or among wholly owned Subsidiaries of the
Company, (e) payments to LGP for management services under the Management
Services Agreement in an amount not to exceed $1 million in any fiscal year, (f)
payments to LGP for reasonable and customary fees and expenses for financial
advisory and investment banking services provided to the Company in connection
with major financial transactions; provided, however, that to the extent that
any such Affiliate Transaction referred to in clause (f) involves payments in
excess of $2.5 million, such Affiliate Transaction must be evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
addressed and delivered to the Trustee certifying that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors, and (g) transactions between or among the Company and its
Subsidiaries or between or among Subsidiaries of the Company, provided that any
ownership interest in any such Subsidiary which is not beneficially owned
directly or indirectly by the Company or any of its Subsidiaries is not
beneficially owned by an Affiliate of the Company or TLC other than by virtue of
the direct or indirect ownership interest in such Subsidiary held (in the
aggregate) by the Company and/or one or more of its Subsidiaries.
"Existing Indebtedness" means Indebtedness of the Company or a Subsidiary
Guarantor in existence on May 7, 1996.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
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statements by such other entity as approved by a significant segment of the
accounting profession, as in effect on May 7, 1996.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute a trade payable to trade creditors, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) for the
payment of money relating to a Capitalized Lease Obligation, or (vi) evidenced
by a letter of credit or a reimbursement obligation of such person with respect
to any letter of credit; (b) all net obligations of such person under Interest
Swap and Hedging Obligations; (c) all liabilities and obligations of others of
the kind described in the preceding clause (a) or (b) that such person has
guaranteed or which are secured by a Lien on any assets or property of such
person and all obligations to purchase, redeem or acquire any Capital Stock
which are related to a payment obligation in respect of such Indebtedness;
provided that if the liabilities or obligations which are secured by a Lien have
not been assumed in full by such person or are not such person's legal liability
in full, the amount of such Indebtedness for the purposes of this definition
shall be limited to the lesser of the amount of such Indebtedness secured by
such Lien or the Fair Market Value of the assets or property securing such Lien;
and (d) any and all deferrals, renewals, extensions, refinancing and refundings
(whether direct or indirect) of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a), (b) or
(c), or this clause (d), whether or not between or among the same parties.
"Interest Swap and Hedging Obligation" means any monetary obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
Capital Stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
person of any deposit with, or advance, loan or other extension of credit to,
such other person (including the purchase of property from another person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable or deposits arising in the
ordinary course of business); (c) other than guarantees of Indebtedness of the
Company or any Subsidiary Guarantor to the extent permitted by the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," the entering into by such person of any guarantee of, or other credit
support or contingent obligation with respect to, Indebtedness or other
liability of such other person; (d) the making of any capital contribution by
such person to such other person; and (e) the designation by the Board of
Directors of the Company of any person to be an Unrestricted Subsidiary. The
Company shall be deemed to make an Investment in an amount equal to the fair
market value of the net assets of any Subsidiary (or, if neither the Company nor
any of its Subsidiaries has theretofore made an Investment in such Subsidiary,
in an amount equal to the Investments being made), at the time that such
Subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Company or a Subsidiary shall
be deemed an Investment valued at its fair market value at the time of such
transfer. The amount of any such Investment shall be reduced by any liabilities
or obligations of the Company or any of its Subsidiaries to be assumed or
discharged in connection with such Investment by an entity other than the
Company or any of its Subsidiaries.
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"Junior Security" means, so long as the effect of any exclusion employing
this definition is not to cause the Notes to be treated in any bankruptcy case
or proceeding or similar event as part of the same class of claims as Senior
Debt or any class of claims pari passu with, or senior to, the Senior Debt, for
any payment or distribution, debt or equity securities of the Company or any
successor corporation provided for by a plan of reorganization or readjustment
that are subordinated at least to the same extent that the Notes are
subordinated to the payment of all Senior Debt then outstanding; provided that
(a) if a new corporation results from such reorganization or readjustment, such
corporation assumes any Senior Debt not paid in full in cash or Cash Equivalents
in connection with such reorganization or readjustment and (b) the rights of the
holders of such Senior Debt are not, without the consent of such holders,
altered by such reorganization or readjustment.
"LGP" means Leonard Green & Partners, L.P.
"Management Services Agreement" means the management services agreement,
dated as of the May 7, 1996, between the Company and LGP substantially as in
effect on May 7, 1996.
"Net Cash Proceeds" means the aggregate amount of Cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale plus, in the case
of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible or
exchangeable debt) of the Company that were issued for cash after the Issue
Date, the amount of cash originally received by the Company upon the issuance of
such securities (including options, warrants, rights and convertible or
exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and (in the case of Asset Sales, reasonable and customary) expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less (i) the amount (estimated reasonably and in good faith by the Company) of
income, franchise, sales and other applicable taxes required to be paid by the
Company or any of its respective Subsidiaries in connection with such Asset
Sale, (ii) the amounts of any repayments of Indebtedness secured, directly or
indirectly, by Liens on the assets which are the subject of such Asset Sale or
Indebtedness associated with such assets which is due by reason of such Asset
Sale (i.e., such disposition is permitted by the terms of the instruments
evidencing or applicable to such Indebtedness, or by the terms of a consent
granted thereunder, on the condition that the proceeds (or portion thereof) of
such disposition be applied to such Indebtedness), and other fees, expenses and
other expenditures, in each case, reasonably incurred as a consequence of such
repayment of Indebtedness (whether or not such fees, expenses or expenditures
are then due and payable or made, as the case may be); (iii) all amounts deemed
appropriate by the Company (as evidenced by a signed certificate of the Chief
Financial Officer of the Company delivered to the Trustee) to be provided as a
reserve, in accordance with GAAP ("GAAP Reserves"), against any liabilities
associated with such assets which are the subject of such Asset Sale; and (iv)
with respect to Asset Sales by Subsidiaries of the Company, the portion of such
cash payments attributable to Persons holding a minority interest in such
Subsidiary.
"Obligation" means any principal, premium or interest payment, or monetary
penalty, or damages, or purchase price due by the Company or any Guarantor under
the terms of the New Notes or the Indenture, including any liquidated damages
due pursuant to the terms of the Registration Rights Agreement.
"Permitted Indebtedness" means, without duplication (a) Indebtedness
evidenced by the Notes and represented by the Indenture, (b) Indebtedness of the
Company and the Subsidiary Guarantors (without duplication) Incurred from time
to time under or in respect to the Credit Agreement up to an aggregate amount
outstanding at any time in an aggregate principal amount up to $88 million,
minus the amount of any such Indebtedness permanently reduced with Net Cash
Proceeds from any Asset Sale or assumed by a transferee in an Asset Sale; (c)
Indebtedness incurred by the Company or any Subsidiary Guarantor from time to
time in an aggregate principal amount outstanding at any time of up to $10
million (which may be Incurred pursuant to the Credit Agreement); (d)
Indebtedness incurred by the Company to any Subsidiary Guarantor, and
Indebtedness incurred by any Subsidiary Guarantor to any other Subsidiary
Guarantor or Subsidiary Guarantors or to the Company; provided, that, in the
case of Indebtedness of the Company, such
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obligations shall be unsecured and subordinated in right of payment to the
Company's obligations pursuant to the Notes; (e) Purchase Money Indebtedness
Incurred by the Company or any Subsidiary Guarantor, in an aggregate principal
amount not to exceed $20 million at any time outstanding from time to time; (f)
Indebtedness arising from tender, bid, performance or government contract bonds,
other obligations of like nature, or warranty or contractual service obligations
of like nature, or warranty or contractual service obligations, in any case,
Incurred by the Company or the Subsidiary Guarantors in the ordinary course of
business; (g) Interest Swap and Hedging Obligations that are Incurred for the
purpose of fixing or hedging interest rate or currency risk with respect to any
fixed or floating rate Indebtedness that is permitted by the Indenture to be
outstanding or any receivable or liability the payment of which is determined by
reference to a foreign currency; provided, that the notional amount of any such
Interest Swap and Hedging Obligation does not exceed the principal amount of
Indebtedness or the amount of such receivable or liability to which such
Interest Swap and Hedging Obligation relates; and (h) Indebtedness in respect of
bankers' acceptances and letters of credit, all in the ordinary course of
business in an aggregate amount outstanding at any time of up to $2.5 million;
(i) Existing Indebtedness; and (j) Refinancing Indebtedness that serves to
Refinance, without duplication, in whole or in part, the Indebtedness permitted
by this paragraph or any one or more successive Refinancings of any thereof.
"Permitted Lien" means any of the following:
(a) Liens existing on May 7, 1996;
(b) Liens imposed by governmental authorities for taxes, assessments
or other charges not yet subject to penalty or which are being contested in
good faith and by appropriate proceedings, if adequate reserves with
respect thereto are maintained on the books of the Company in accordance
with GAAP;
(c) statutory liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business provided that (i) the underlying obligations
are not overdue for a period of more than 30 days, or (ii) such Liens are
being contested in good faith and by appropriate proceedings and adequate
reserves with respect thereto are maintained on the books of the Company in
accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other
than borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do
not in any case materially detract from the value of the property, subject
thereto (as such property is used by the Company or any of its
Subsidiaries) or interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments,
only to the extent, for an amount and for a period not resulting in an
Event of Default with respect thereto;
(g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation;
(h) Liens securing the Notes;
(i) Liens securing Indebtedness of a person existing at the time such
person becomes a Subsidiary or is merged with or into the Company or a
Subsidiary or Liens securing Indebtedness incurred in connection with an
Acquisition, provided in each case that such Liens were in existence prior
to the date of such acquisition, merger or consolidation, were not incurred
in anticipation thereof, and do not extend to any other assets;
(j) Liens securing or arising from Purchase Money Indebtedness
permitted to be incurred under clause (e) of the definition of Permitted
Indebtedness, provided such Liens relate to the property (and monetary
proceeds thereof) which was acquired or constructed with such Purchase
Money Indebtedness
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and the Capital Stock of any Person formed to acquire such property and
that does not own any other material property; and
(k) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner not materially more
adverse to the Holders of the Notes than the terms of the Liens securing
such refinanced Indebtedness.
"Permitted Payments" means, without duplication, (a) payments to TLC in an
amount sufficient to permit TLC to pay reasonable and necessary operating
expenses and other general corporate expenses (including any reasonable
professional fees and expenses, but excluding all expenses payable to or to be
paid to or on behalf of an Excluded Person); (b) payments to TLC to enable TLC
to pay foreign, federal, state or local tax liabilities, not to exceed the
amount of any tax liabilities that would be otherwise payable by the Company and
its Subsidiaries and Unrestricted Subsidiaries to the appropriate taxing
authorities if they filed separate tax returns to the extent that TLC has an
obligation to pay such tax liabilities relating to the operations, assets or
capital of the Company or its Subsidiaries and Unrestricted Subsidiaries,
provided any such payment shall either be used by TLC to pay such tax
liabilities within 90 days of TLC's receipt of such payment or refunded to the
payee; (c) payments to TLC to enable TLC to pay, or the payment by the Company
directly of, the payments provided for by clauses (a), (e) and (f) and the
transactions, expenses and payments described in clause (b) of the definition of
"Exempted Affiliated Transaction"); and (d) cash dividends paid to TLC to the
extent necessary to permit TLC to repurchase common stock, stock options and
stock equivalents of TLC held by departing or deceased directors, officers or
employees of TLC, the Company or any of the Subsidiary Guarantors, in an
aggregate amount not to exceed in any fiscal year $1,000,000 plus (x) the
cumulative amount by which (1) the product of $1,000,000 times the number of
preceding fiscal years subsequent to May 7, 1996 exceeds (2) the amount of such
payments made during such fiscal years, plus (y) the aggregate cash
consideration received by TLC, after May 7, 1996 and prior to or substantially
concurrently with the date of such repurchase, from the sale or issuance of
common stock of TLC to directors, officers and employees of TLC, the Company and
the Subsidiary Guarantors (including, to the extent not otherwise included in
the amount of such cash consideration, cash repayments of principal received by
TLC on loans made to such persons to enable them to purchase such stock) to the
extent such cash consideration was contributed, or is substantially concurrently
with such dividend contributed, to the Company as a capital contribution
(provided that the net amount of cash dividends paid under this clause (d) shall
not exceed $7.5 million).
"Purchase Money Indebtedness" means any Indebtedness of such person to any
seller or other person incurred to finance the acquisition or construction
(including in the case of a Capitalized Lease Obligation, the lease) of any
business or real or personal tangible property (or, in each case, any interest
therein) acquired or constructed after May 7, 1996 which, in the reasonable good
faith judgment of the Board of Directors of the Company, is related to a Related
Business of the Company and which is incurred concurrently with, or within 180
days of, such acquisition or the completion of such construction and, if
secured, is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
with the Net Cash Proceeds received by the Company from the substantially
concurrent sale of Qualified Capital Stock or a substantially concurrent capital
contribution to the Company, or any exchange of Qualified Capital Stock for any
Capital Stock or Indebtedness of the Company.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the New Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem,
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defease, refund, refinance, discharge or otherwise retire for value, in whole or
in part, or (b) constituting an amendment, modification or supplement to, or a
deferral or renewal of ((a) and (b) above are, collectively, a "Refinancing"),
any Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of the amount of fees, consents, premiums, prepayment penalties and
reasonable expenses incurred in connection with such Refinancing) the principal
amount of the Indebtedness so refinanced (or if such Indebtedness provides for
an amount less than the principal amount thereof to be due and payable upon the
acceleration thereof, such lesser amount as of the date of the issuance of such
Refinancing Indebtedness) or, in the case of Disqualified Capital Stock, the
liquidation preference of the Disqualified Capital Stock so refinanced, plus, in
the case of the Credit Agreement, additional Indebtedness which on the date of
Incurrence is permitted by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock"; provided, that other than with
respect to a Refinancing of Indebtedness under the Credit Agreement, (A) such
Refinancing Indebtedness of any Subsidiary of the Company shall only be used to
refinance outstanding Indebtedness or Disqualified Capital Stock of such
Subsidiary, (B) Refinancing Indebtedness shall (x) not have an Average Life
shorter than the Indebtedness or Disqualified Capital Stock to be so refinanced
at the time of such Refinancing and (y) in all respects, be no less subordinated
or junior, if applicable, to the rights of Holders of the New Notes than was the
Indebtedness or Disqualified Capital Stock to be refinanced and (C) such
Refinancing Indebtedness shall have no installment of principal (or redemption
payment) scheduled to come due earlier than the scheduled maturity of any
installment of principal of the Indebtedness or Disqualified Capital Stock to be
so refinanced which was scheduled to come due prior to the Stated Maturity.
"Related Business" means the business conducted (or proposed to be
conducted, including the activities referred to in and being contemplated by the
Company, as described or referred to in this Prospectus) by the Company and its
Subsidiaries as of May 7, 1996 and any and all businesses that in the good faith
judgment of the Board of Directors of the Company are reasonably related
businesses, including reasonably related extensions thereof and including,
without limitation, any business related to the manufacturing or marketing of
products sold through health food stores.
"Related Party" means (i) with respect to any Excluded Person, (A) any
controlling stockholder, 80% or more owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Excluded Person or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or more
controlling interest of which consist of such Excluded Person and/or such other
persons referred to in the immediately preceding clause (A), and (ii) only with
respect to Green Equity Investors II, L.P. (and in addition to the persons
described in the foregoing clause (i)) any partnership or corporation which is
managed by or controlled by LGP or any affiliate thereof. For the purposes of
this definition, "control" of any individual, corporation, partnership, trust,
unincorporated organization or a government or any agency or political
subdivision thereof (a "Person"), shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than investments in (a) Cash Equivalents, (b) the Company
or a Subsidiary Guarantor, (c) Investments in or acquisitions of Capital Stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities, including any option or warrant of or in any Person that is or
becomes, at the time of the acquisition thereof, a Subsidiary of the Company and
is or is to be primarily engaged in a Related Business; (d) Investments of such
Person existing as of the date of the Indenture and any extension, modification
or renewal of such Restricted Investment (but not increases thereof, other than
as a result of the accrual or accretion of interest or original issue discount
pursuant to the terms of such Investment), (e) transactions or arrangements with
officers or directors of the Company or any Subsidiary of the Company entered
into in the ordinary course of business (including compensation or employee
benefit arrangements with any officer or director of the Company or any
Subsidiary of the Company permitted under the covenant "Transactions with
Affiliates"); (f) investments in or acquisitions of Capital Stock or similar
interests in Persons (other than Affiliates of the Company) received in the
bankruptcy or reorganization of or by such Person or any exchange of such
investment with the issuer thereof or taken in settlement of or other resolution
of claims or disputes,
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and, in each case, extensions, modifications and renewals thereof; and (g)
Investments in Persons (other than Affiliates of the Company) received by such
Person as consideration from Asset Sales to the extent not prohibited by
"Limitation on Sale of Assets and Subsidiary Stock" covenant or any exchange of
any such Investment with the issuer thereof, and extensions, modifications and
renewals thereof; provided, however, that a merger of another person with or
into the Company or a Subsidiary Guarantor shall not be deemed to be a
Restricted Investment so long as the surviving entity is the Company or a direct
wholly owned Subsidiary Guarantor.
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Capital Stock of
such person, (b) any payment on account of the purchase, redemption or other
acquisition or retirement for value of Capital Stock of such person or, (c)
other than with the proceeds from the substantially concurrent sale of, or in
exchange for, Refinancing Indebtedness, any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such person; provided,
however, that the term "Restricted Payment" does not include (i) any dividend,
distribution or other payment on or with respect to Capital Stock of a person to
the extent payable in shares of Qualified Capital Stock of such person; (ii) any
dividend, distribution or other payment to the Company, or to any of its wholly
owned Subsidiary Guarantors, by the Company or any of its Subsidiaries; or (iii)
the declaration or payment of dividends by any Subsidiary of the Company
provided such distributions are made to the Company (or a Subsidiary of the
Company, as applicable) on a pro rata basis (and in like form) to all
distributions so made to all other stockholders thereof.
"Sale and Leaseback Transaction" means any transaction by which the Company
or a Subsidiary Guarantor, directly or indirectly, becomes liable as a lessee or
as a guarantor or other surety with respect to any lease of any property
(whether real or personal or mixed), whether now owned or hereafter acquired
that the Company or any Subsidiary Guarantor has sold or transferred or is to
sell or transfer to any other Person in a substantially concurrent transaction
with such assumption of liability.
"Senior Bank Representative" means, at any time, the then-acting agent or
agents under the Credit Agreement, which shall initially be Chemical Bank.
"Senior Debt" of the Company or any Subsidiary Guarantor means Indebtedness
(including, without limitation, interest accruing after the commencement of any
bankruptcy case or proceedings whether or not allowed as a claim in such case or
proceeding) of the Company or such Guarantor arising under the Credit Agreement
or any Interest Swap and Hedging Obligation relating to such Indebtedness or
that, by the terms of the instrument creating or evidencing such Indebtedness,
is expressly designated Senior Debt and made senior in right of payment to the
New Notes or the applicable guarantee; provided, that in no event shall Senior
Debt include (a) Indebtedness to any Subsidiary of the Company or any officer,
director or employee of the Company or any Subsidiary of the Company, (b)
Indebtedness incurred in violation of the terms of the Indenture, (c)
Indebtedness to trade creditors, and (d) Disqualified Capital Stock.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X promulgated
pursuant to the Securities Act, as such Regulation S-X is in effect on the Issue
Date.
"Stated Maturity," when used with respect to any New Note, means May 15,
2006.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated by its terms in right of payment to
the New Notes or such Guarantee, as applicable.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances
to elect directors, is at the time, directly or indirectly, owned by such
person, by such person and one or more Subsidiaries of such person or by one or
more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date
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of determination thereof has at least majority equity ownership interest, or
(iii) a partnership in which such person or a Subsidiary of such person is, at
the time, a general partner and in which such person, directly or indirectly, at
the date of determination thereof has at least a majority equity ownership
interest. Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be
a Subsidiary of the Company or of any Subsidiary or Subsidiaries of the Company
for any purpose whatsoever.
"Transactions" means the transactions contemplated by the Stock Purchase
and Sale Agreement, dated as of March 5, 1996, as amended, among TLC, the
Company, Green Equity Investors II, L.P., David Blechman, Jean Blechman, Brian
Blechman, Dean Blechman, Neil Blechman, Ross Blechman, Steve Blechman and
Stephen Welling and the related financings thereof.
"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or hold any Lien on any property of, the Company or
any other Subsidiary Guarantor and that, at the time of determination, shall be
an Unrestricted Subsidiary (as designated by the Board of Directors of the
Company); provided, that (i) neither immediately prior thereto nor after giving
pro forma effect to such designation would there exist a Default or Event of
Default and (ii) immediately after giving pro forma effect thereto, the Company
could incur at least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio
in the second paragraph of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock." The Board of Directors of the
Company may designate any Unrestricted Subsidiary to be a Subsidiary, provided
that (i) no Default or Event of Default is existing or will occur as a
consequence thereof and (ii) immediately after giving effect to such
designation, on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Debt Incurrence Ratio in the second paragraph of
the covenant "Limitation of Incurrence of Additional Indebtedness and
Disqualified Capital Stock." Each such designation shall be evidenced by filing
with the Trustee a certified copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered New Notes in global form (the "Global Notes").
Each Global Note will be deposited on the date of the closing of the sale of the
Notes (the "Closing Date") with, or on behalf of, The Depository Trust Company
(the "Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary. Interests in Global Notes will be available for purchase only by
"qualified institutional buyers," as defined in Rule 144A under the Securities
Act ("QIBs").
Notes that are (i) originally issued to or transferred to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not QIBs or to any other persons who are not QIBs or
(ii) issued as described below under "Certificated Securities," will be issued
in registered form without coupons (the "Certificated Securities"). Upon the
transfer to a QIB of Certificated Securities, such Certificated Securities will,
unless the Global Note has previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global Note representing the
principal amount of New Notes being transferred.
The Depositary has advised the Company that it is (i) a limited-purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depositary was
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. QIBs may elect to hold New
Notes purchased by them through the Depositary. QIBs who are not Participants
may beneficially own securities held by or on behalf of the
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Depositary only through Participants or Indirect Participants. Persons that are
not QIBs may not hold New Notes through the Depositary.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with an interest
in the Global Note and (ii) ownership of the New Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the interests of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer New Notes or to pledge the New Notes as
collateral will be limited to such extent. The New Notes will be subject to
certain other restrictions on transferability.
So long as the Depositary or its nominee is the registered owner of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in New Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depositary's
system, or to otherwise take actions with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must
rely on the procedures of the Depositary and, if such QIB is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such QIB owns its interest, to exercise any rights of a holder under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
New Notes or a QIB that is an owner of a beneficial interest in a Global Note
desires to take any action that the Depositary, as the holder of such Global
Note, is entitled to take, the Depositary would authorize the Participants to
take such action and the Participants would authorize QIBs owning through such
Participants to take such action or would otherwise act upon the instructions of
such QIBs. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of New Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such New Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the
Depositary or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depositary or its nominee in its capacity
as the registered holder of the Global Note representing such New Notes under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of the Depositary. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
Certificated Securities
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of New
Notes in definitive form
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under the Indenture, then, upon surrender by the Depositary of its Global Note,
Certificated Securities will be issued to each person that the Depositary
identifies as the beneficial owner of the New Notes represented by the Global
Note. In addition, subject to certain conditions, any person having a beneficial
interest in a Global Note may, upon request to the Trustee, exchange such
beneficial interest for Certificated Securities. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of such
person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the New Notes to be issued).
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable. The
Company will have no responsibility for the performance by DTC or its
Participants of their respective obligations as described hereunder or under the
rules and procedures governing their respective operations.
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes
represented by the Global Note (including principal, premium, if any, interest
and liquidated damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the registered holder of the Global
Note. With respect to Certificated Securities, the Company will make all
payments of principal, premium, if any, interest and liquidated damages, if any,
by wire transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. Secondary trading in long-term notes and
debentures of corporate issuers is generally settled in clearing-house or
next-day funds. In contrast, the New Notes represented by the Global Note are
expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such New Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Securities will also be settled in
immediately available funds.
DESCRIPTION OF NEW CREDIT FACILITY
The New Credit Facility, agented by Chemical Bank ("Chemical") and The Bank
of New York, provides for (i) a six-year term loan facility, in the amount of
$53.0 million maturing on May 7, 2002 (the "Term Loan"), and (ii) a six-year
revolving credit facility (the "Revolving Credit Facility") of $15.0 million
expiring on May 7, 2002. The Revolving Credit Facility and the Term Loan bear
interest at an annual rate, at the Company's option, equal to the "ABR plus the
Applicable Margin" ("ABR Loans") or the "Eurodollar Rate plus Applicable Margin"
("Eurodollar Loans"). As used herein "ABR" means the highest of (i) the rate of
interest publicly announced by Chemical as its prime rate in effect at its
principal office in New York City, (ii) the secondary market rate for
certificates of deposit (grossed up for maximum statutory reserve requirements)
plus 1% and (iii) the federal funds effective rate from time to time plus 0.5%.
"Eurodollar Rate" means the rate (grossed up for maximum statutory reserve
requirements for eurocurrency liabilities) at which eurodollar deposits for one,
two, three or six months (as selected by the Company) are offered to Chemical in
the interbank eurodollar market in the approximate amount of Chemical's share of
the applicable loan. "Applicable Margin" means (a) 1.25%, in the case of ABR
Loans and (b) 2.50%, in the case of Eurodollar Loans. Interest rates on the
credit facilities are subject to reduction in the event the Company meets
certain financial tests.
The principal amount of the $53.0 million Term Loan is required to be
amortized commencing on October 31, 1996. Scheduled amortization payments under
the Term Loan will be $1.5 million in 1996, $3.8 million in 1997, $5.6 million
in 1998, $7.8 million in 1999, $10.1 million in 2000, $14.9 million in 2001 and
$9.3 million in 2002.
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The proceeds of the Term Loan were used, together with proceeds of the
Offering and the issuance of the common stock and Preferred Stock of TLC and
available cash of the Company, to finance the Acquisition, to refinance certain
debt of the Company and to pay related fees and expenses. The proceeds of the
Revolving Credit Facility can be used to provide for the working capital
requirements of the Company on or after the consummation of the Acquisition and
for general corporate purposes, including, without limitation, the payment of
transaction fees and tax adjustments.
The New Credit Facility is secured by first priority security interests in
all of the tangible and intangible assets of the Company and its direct and
indirect subsidiaries. In addition, the loans under the New Credit Facility are
guaranteed by TLC, ARP and certain of the Company's future subsidiaries.
Additionally, the Company will be required to apply 75% (subject to reduction to
50% if certain financial tests are met) of excess cash flow (as defined in the
New Credit Facility), 100% of the net proceeds of certain dispositions of
material assets (other than inventory in the ordinary course of business), 50%
of the net proceeds of the issuance or sale of the first $60 million of equity
by TLC and 100% of the net proceeds of the incurrence of certain indebtedness,
to the repayment of the New Credit Facility.
The New Credit Facility contains certain financial and operating covenants
including a maximum leverage ratio, a minimum EBITDA and a minimum fixed charge
coverage ratio. In addition, the Company is limited in the amount of annual
capital expenditures and capital lease obligations it may incur.
The operating covenants of the New Credit Facility include limitations on
the ability of the Company to (i) incur additional indebtedness, other than
certain permitted indebtedness, (ii) permit additional liens or encumbrances,
other than certain permitted liens, (iii) make any investments in other persons,
other than certain permitted investments, (iv) become obligated with respect to
contingent obligations, other than certain permitted contingent obligations, and
(v) make restricted junior payments (including dividends on its common stock).
The operating covenants also include restrictions on certain specified
fundamental changes, such as mergers and asset sales, transactions with
shareholders and affiliates, and business outside the ordinary course as
currently conducted and certain extensions thereof, amendments or waivers of
certain specified agreements, and the issuance of guarantees or other credit
enhancements.
If for any reason the Company is unable to comply with the terms of the New
Credit Facility, including the covenants included therein, such noncompliance
would result in an event of default under the New Credit Facility and could
result in acceleration of the payment of the indebtedness outstanding under the
New Credit Facility.
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DESCRIPTION OF CAPITAL STOCK OF TLC
TLC's Certificate of Incorporation authorizes TLC to issue shares of common
stock ("TLC Common Stock") and shares of the Preferred Stock.
TLC COMMON STOCK
Subject to the rights of the holders of any Preferred Stock which may be
outstanding, all shares of TLC Common Stock will participate equally in
dividends payable to holders of TLC Common Stock when, as and if declared by
TLC's Board of Directors and in net assets available for distribution to holders
of TLC Common Stock on liquidation or dissolution, will have one vote per share
on all matters submitted to a vote of TLC's stockholders and will not have
cumulative voting rights in the election of directors. All issued and
outstanding shares of TLC Common Stock will be fully paid and nonassessable, and
the holders thereof will not have preemptive rights, except as provided in the
Stockholders Agreement. Following the consummation of the Acquisition, 48% of
the outstanding shares of TLC Common Stock is owned by GEI, 45% is owned by the
Continuing Stockholders and 7% is owned by certain other investors.
PREFERRED STOCK
The Certificate of Incorporation of TLC authorizes the issuance of shares
of Preferred Stock in two series, the Senior Preferred Stock and the Junior
Preferred Stock, and fixes for each such series the designations, preferences
and relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof. In connection with the
consummation of the Acquisition and the Offering, TLC's Board of Directors
authorized the issuance of Senior Preferred Stock and Junior Preferred Stock,
the terms of which are described below.
SENIOR PREFERRED STOCK
The Certificate of Incorporation limits the number of shares of Senior
Preferred Stock which can be issued to 30,000 plus additional shares of Senior
Preferred Stock which may be issued in payment of dividends on the Senior
Preferred Stock if TLC elects to pay dividends in additional shares of Senior
Preferred Stock. The aggregate liquidation preference of the Senior Preferred
Stock issued upon the consummation of the Acquisition was $30.0 million.
Dividends on the Senior Preferred Stock accrue at the rate of 14% per annum and
will be payable quarterly when, as and if declared by the Board of Directors.
Dividends shall be paid in additional fully paid and non-assessable shares of
Senior Preferred Stock having an aggregate liquidation preference equal to the
amount of such dividends; provided, however, that TLC may, at its option and
upon a majority vote of directors not affiliated with LGP ("Unaffiliated
Directors"), pay dividends in cash.
The Senior Preferred Stock is redeemable at any time, in whole or in part,
at the option of TLC and upon a majority vote of Unaffiliated Directors, at the
amount of the liquidation preference including accrued and unpaid dividends,
except that (i) no partial redemption is allowed unless full cumulative
dividends have been paid on all shares and (ii) no optional redemption is
allowed at any time when TLC is making or required to make an offer to purchase
Preferred Stock upon a change of control. The Senior Preferred Stock will be
subject to mandatory redemption at the amount of the liquidation preference
including accrued and unpaid dividends on May 1, 2007.
In the event of a Change of Control (as defined), TLC will be required to
make an offer to repurchase the outstanding Senior Preferred Stock at a price
equal to 101% of the liquidation preference thereof, plus accrued and unpaid
dividends.
The Senior Preferred Stock ranks junior in right of payment to all
liabilities of TLC and to any preferred stock senior in right of payment to the
Senior Preferred Stock (if consented to by holders of a majority of the shares
of Senior Preferred Stock) and ranks senior in right of payment to the Junior
Preferred Stock and TLC Common Stock.
Holders of the Senior Preferred Stock have no voting rights with respect to
general corporate matters except as provided by law or as set forth in the
Certificate of Incorporation. The Certificate of Incorporation
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provides that the Senior Preferred Stock will have class voting rights with
regard to, among other things, (i) authorization or issuance of stock which is
senior to or on a parity with the Senior Preferred Stock as to dividends and
distributions upon liquidation; (ii) issuance of additional shares of Senior
Preferred Stock other than in payment of dividends on Senior Preferred Stock;
(iii) changes to the Certificate of Incorporation or By-laws of TLC so as to
affect adversely any of the preferences, rights, powers or privileges of the
Senior Preferred Stock or of the holders thereof as such; (iv) mergers,
consolidations or sales of all or substantially all of the assets of TLC (or of
TLC and its subsidiaries, taken as a whole) unless (a) the shares of Senior
Preferred Stock will be redeemed upon consummation of such transaction or (b)
certain other conditions are met; (v) certain transactions with affiliates; and
(vi) subject to certain exceptions (including exceptions relating to the Junior
Preferred Stock), payment of dividends on, or redemption or repurchase of,
junior securities.
JUNIOR PREFERRED STOCK
The Certificate of Incorporation limits the number of shares of Junior
Preferred Stock which can be issued to 37,000, plus additional shares of Junior
Preferred Stock which may be issued in payment of dividends on the Junior
Preferred Stock if TLC elects to pay dividends in additional shares of Junior
Preferred Stock. The aggregate liquidation preference of the Junior Preferred
Stock issued upon the consummation of the Acquisition was $37.0 million.
Dividends on the Junior Preferred Stock accrue at the rate of 11.25% per annum
and will be payable quarterly when, as and if declared by the Board of
Directors. Dividends shall be paid in additional fully paid and non-assessable
shares of Junior Preferred Stock having an aggregate liquidation preference
equal to the amount of such dividends; provided, however, that if dividends are
then being paid in cash on the Senior Preferred Stock, TLC may, at its option
and upon a majority vote of Unaffiliated Directors, pay dividends on the Junior
Preferred Stock in cash.
The Junior Preferred Stock ranks junior in right of payment to all
liabilities of TLC and to the Senior Preferred Stock and any other preferred
stock senior in right of payment to the Junior Preferred Stock (if consented to
by holders of a majority of the shares of Junior Preferred Stock) and ranks
senior in right of payment to any additional preferred stock which does not
expressly provide that it ranks senior to or on a parity with the Junior
Preferred Stock and the TLC Common Stock.
Other than as set forth above with respect to ranking, the powers, rights,
designations and preferences, and qualifications, restrictions and limitations
thereof, of the Junior Preferred Stock are substantially similar to those of the
Senior Preferred Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF AN INVESTMENT IN THE NEW NOTES
The following discussion sets forth a summary of the material anticipated
federal income tax consequences expected to result to holders from the purchase,
ownership and disposition of the New Notes. This summary is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, judicial authority and administrative
pronouncements, all of which are subject to change, possibly with retroactive
effect.
The following summary is for general information only. The tax treatment of
a holder of the New Notes may vary depending upon such holder's particular
situation. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) may be
subject to special rules not discussed below. EACH HOLDER OF OLD NOTES SHOULD
CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF
PURCHASING, HOLDING, EXCHANGING AND DISPOSING OF THE NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
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ORIGINAL ISSUE DISCOUNT AND STATED INTEREST
The New Notes will be issued without original issue discount. Stated
interest on the Old and New Notes will be includable in the holder's income
under such holder's method of accounting.
BOND PREMIUM ON THE NEW NOTES
If a holder purchases the New Notes for an amount in excess of the amount
payable at the maturity date (or a call date, if appropriate) of the New Notes,
the holder may make an election under Section 171 of the Code to deduct such
excess as amortizable bond premium over the term of the New Notes (taking into
account earlier call dates, as appropriate), under a yield-to-maturity formula.
An election under Section 171 is available only if the New Notes are held as
capital assets and is revocable only with the consent of the Internal Revenue
Service (the "Service"). The election applies to all obligations owned or
subsequently acquired by the holder. The holder's adjusted tax basis in the New
Notes will be reduced to the extent of the deduction of amortizable bond
premium. Except as may otherwise be provided in future regulations, under the
Code the amortizable bond premium will be treated as an offset to interest
income on the New Notes rather than as a separate deduction item.
MARKET DISCOUNT ON THE NEW NOTES
Holders of the New Notes should be aware that a disposition of the New
Notes may be affected by the market discount provisions of Sections 1276-1278 of
the Code. These rules generally provide that if a holder acquired the Old Notes
or acquires the New Notes (other than in an original issue, which may not
include the issuance of the New Notes pursuant to the Exchange Offer) at a
market discount which equals or exceeds 1/4 of 1% of the stated redemption price
of the New Notes at maturity multiplied by the number of remaining complete
years to maturity and thereafter recognizes gain upon a disposition (or makes a
gift) of the New Notes, the lesser of (i) such gain (or appreciation, in the
case of a gift) or (ii) the portion of the market discount which accrued while
the Old or New Notes were held by such holder will be treated as ordinary income
at the time of the disposition (or gift). For these purposes, market discount
means the excess (if any) of the stated redemption price at maturity over the
basis of such Old or New Notes immediately after their acquisition by the
holder. A holder of the New Notes may elect to include any market discount
(whether accrued under the Old Notes or the New Notes) in income currently
rather than upon disposition of the New Notes. This election once made applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies, and may not be revoked without the consent of the
Service.
A holder of any New Note who acquired the Old or New Note at a market
discount generally will be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry such
Old or New Note until the market discount is recognized upon a subsequent
disposition of such New Note. Such a deferral is not required, however, if the
holder elects to include accrued market discount in income currently.
REDEMPTION OR SALE OF THE NEW NOTES
Generally, any redemption or sale of the New Notes by a holder would result
in taxable gain or loss equal to the difference between the amount of cash and
the fair market value of property received (except to the extent that such cash
or property received is attributable to accrued, but previously untaxed,
interest) and the holder's tax basis in the New Notes. The tax basis of a holder
of the New Notes will generally be equal to the price paid for such New Notes or
the Old Notes exchanged therefor, plus any accrued market discount on the New
Notes (and the Old Notes exchanged therefor) included in the holder's income
prior to sale or redemption of the New Notes, or reduced by any amortizable bond
premium applied against the holder's income prior to sale or redemption of the
New Notes. Such gain or loss generally would be long-term capital gain or loss
if the holding period exceeded one year and the holder holds the New Notes as
capital assets, except to the extent it constitutes accrued market discount.
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BACKUP WITHHOLDING
A holder of the New Notes may be subject to backup withholding at the rate
of 31% with respect to interest paid or accrued on, and gross proceeds of a sale
of, the New Notes unless (i) such holder is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a correct taxpayer identification number and otherwise complies
with applicable requirements of the backup withholding rules. A holder of the
New Notes who does not provide the Company with his or her correct taxpayer
identification number may be subject to penalties imposed by the Service.
The Company will report to the holders of the New Notes and to the Service
the amount of any "reportable payments" and any amount withheld with respect to
the Old Notes and New Notes during the calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF THE
OLD NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that holds Old Notes that were acquired for its own
account as a result of market making or other trading (other than Old Notes
acquired directly from the Company), may exchange Old Notes for New Notes in the
Exchange Offer. However, any such broker-dealer may be deemed to be an
"underwriter" within the meaning of such term under the Securities Act and must,
therefore, acknowledge that it will deliver a prospectus in connection with any
resale of New Notes received in the Exchange Offer. This prospectus delivery
requirement may be satisfied by the delivery by such broker-dealer of this
Prospectus, as it may be amended or supplemented from time to time. The Company
has agreed that, for a period of 180 days after the effective date of this
Prospectus, it will make this Prospectus, as amended or supplemented, available
to any broker-dealer who receives New Notes in the Exchange Offer for use in
connection with any such sale. The Company will not receive any proceeds from
any sales of New Notes by broker-dealers. New Notes received by broker-dealers
for their own accounts pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
of New Notes by broker-dealers may be made directly to a purchaser or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such New Notes. Any broker-dealer that resells New Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such New Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer other
than commissions or concessions of any brokers or dealers and will indemnify
Eligible Holder (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives New
Notes pursuant to the Exchange Offer hereby agrees to notify the Company prior
to using the Prospectus in connection with the sale or transfer of New Notes,
and acknowledges and agrees that, upon receipt of notice from the Company of the
happening of any event which makes any statement in the Prospectus untrue in any
material respect or which requires the making of any changes in the Prospectus
in order to make the statements herein not misleading (which notice the Company
agrees to deliver promptly to such broker-dealer), such broker-dealer will
suspend use of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented prospectus to such broker-dealer.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference, the following documents filed
with the Commission under the Exchange Act:
All documents and reports subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to termination of the transactions to which this Prospectus
relates, shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded, shall
not be deemed to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the written or oral request of such
person, a copy of any or all of the documents incorporated
96
100
herein by reference, other than exhibits to such documents unless they are
specifically incorporated by reference into such documents. Requests for such
copies should be directed to: Twin Laboratories Inc., 2120 Smithtown Avenue,
Ronkonkoma, New York 11779, Attention: Philip M. Kazin, General Counsel.
LEGAL MATTERS
The validity of the New Notes and the Guarantees offered hereby will be
passed upon for the Company by Kramer, Levin, Naftalis & Frankel, New York, New
York. Kramer, Levin, Naftalis & Frankel will rely on the opinion of Ray, Quinney
& Nebeker, Salt Lake City, Utah, with respect to matters of Utah law.
EXPERTS
The consolidated financial statements of TLC as of December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995 which
are included in this Prospectus and the related financial statement schedule
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
97
101
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.......................................................... F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(unaudited)...................................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and
1995 and the Three Months Ended March 31, 1995 (unaudited) and 1996
(unaudited)...................................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1993, 1994 and 1995 and the Three Months Ended March 31, 1996 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994
and 1995 and the Three Months Ended March 31, 1995 (unaudited) and 1996
(unaudited)...................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Note: The consolidated financial statements of TLC include its wholly owned
subsidiary, Twin Laboratories Inc., and its indirect wholly owned subsidiary,
ARP, after giving retroactive effect, in a manner similar to a pooling of
interests, to the Mergers pursuant to the Acquisition. The assets, results of
operations and shareholders' equity of Twin Laboratories Inc. comprises
substantially all of the assets, results of operations and shareholders' equity
of TLC on a consolidated basis. The New Notes are jointly and severally
guaranteed by TLC and ARP on a full and unconditional basis. TLC has no separate
operations and has no significant assets other than TLC's investment in Twin
Laboratories Inc. and, through Twin Laboratories Inc., in ARP. Twin Laboratories
Inc. has no subsidiaries other than ARP; and neither Twin Laboratories Inc. nor
ARP has any stockholder other than, respectively, TLC and Twin Laboratories Inc.
Accordingly, separate financial statements of Twin Laboratories Inc. or ARP are
not included herein.
F-1
102
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Twinlab Corporation (formerly TLG Laboratories Holding Corp.)
Ronkonkoma, New York
We have audited the accompanying consolidated balance sheets of Twinlab
Corporation (formerly TLG Laboratories Holding Corp.) and subsidiaries as of
December 31, 1994 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1994 and 1995, and the results of their consolidated operations and
their consolidated cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Jericho, New York
February 9, 1996
(May 7, 1996 as to Notes 1 and 16a
and June 4, 1996 as to Note 16b)
F-2
103
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, MARCH 31,
----------------- -----------
1994 1995 1996
------- ------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents (Note 7).......................... $ 5,735 $ 7,945 $15,049
Marketable securities (Note 2).............................. 1,178 201 224
Accounts receivable, net of allowance for bad debts of $63,
$177 and $244, respectively (Notes 7 and 15)............. 17,892 24,372 23,669
Inventories (Notes 3 and 7)................................. 22,732 25,273 28,110
Prepaid expenses and other current assets................... 1,179 872 1,479
------- ------- -------
Total current assets................................ 48,716 58,663 68,531
Marketable securities (Note 2)................................ 201 -- --
Property, plant and equipment, net (Notes 4, 8 and 9)......... 12,071 13,036 12,989
Other assets (Note 5)......................................... 3,718 3,610 3,631
------- ------- -------
Total............................................... $64,706 $75,309 $85,151
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 8).................. $ 1,101 $ 1,479 $ 1,471
Current portion of capital lease obligations (Note 9)....... 126 136 138
Loan payable -- bank (Note 7)............................... 660 660 660
Notes payable -- shareholders (Note 14)..................... 1,846 846 846
Accounts payable............................................ 3,612 6,854 9,814
Accrued expenses and other current liabilities (Note 6)..... 3,135 4,258 4,208
------- ------- -------
Total current liabilities........................... 10,480 14,233 17,137
Long-term debt, less current portion (Note 8)................. 5,116 5,367 5,290
Capital lease obligations, less current portion (Note 9)...... 439 304 268
------- ------- -------
Total liabilities................................... 16,035 19,904 22,695
------- ------- -------
Commitments and contingencies (Notes 12 and 13)
Shareholders' equity:
Common stock, $1 par value; 1,000,000 shares authorized;
450,000 shares issued and outstanding.................... 450 450 450
Additional paid-in capital.................................. 68 68 68
Retained earnings........................................... 48,153 54,887 61,938
------- ------- -------
Total shareholders' equity.......................... 48,671 55,405 62,456
------- ------- -------
Total............................................... $64,706 $75,309 $85,151
======= ======= =======
See notes to consolidated financial statements.
F-3
104
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------------- -----------------
1993 1994 1995 1995 1996
------- -------- -------- ------- -------
(UNAUDITED)
Net sales (Note 15)............................ $99,897 $117,342 $148,735 $36,128 $43,984
Cost of sales.................................. 62,131 70,247 89,932 22,158 26,362
------- -------- -------- ------- -------
Gross profit................................... 37,766 47,095 58,803 13,970 17,622
Operating expenses............................. 21,125 23,022 27,191 7,501 7,299
------- -------- -------- ------- -------
Income from operations......................... 16,641 24,073 31,612 6,469 10,323
------- -------- -------- ------- -------
Other (expense) income:
Interest income.............................. 242 254 313 82 167
Interest expense............................. (487) (761) (866) (168) (224)
Transaction expenses (Note 1)................ -- -- (656) -- (400)
Other........................................ 510 354 61 5 (1)
------- -------- -------- ------- -------
265 (153) (1,148) (81) (458)
------- -------- -------- ------- -------
Income before unusual item and provision for
income taxes................................. 16,906 23,920 30,464 6,388 9,865
Unusual item -- nonrecurring charge for prior
years' income tax assessment (Note 13)....... -- 1,982 -- -- --
Provision for income taxes (Note 10)........... 230 245 240 50 86
------- -------- -------- ------- -------
Net income..................................... $16,676 $ 21,693 $ 30,224 $ 6,338 $ 9,779
======= ======== ======== ======= =======
Pro forma (Note 1)
Historical income before provision for income
taxes........................................ $16,906 $ 21,938 $ 30,464 $ 6,388 $ 9,865
Pro forma provision for income taxes........... 6,644 9,087 12,060 2,529 3,906
------- -------- -------- ------- -------
Pro forma net income........................... $10,262 $ 12,851 $ 18,404 $ 3,859 $ 5,959
======= ======== ======== ======= =======
See notes to consolidated financial statements.
F-4
105
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- --------- --------
Balance at January 1, 1993............................. $442 $ 1 $ 32,737 $ 33,180
Issuance of capital stock -- B. Bros................... 8 67 -- 75
Net income............................................. -- -- 16,676 16,676
Distributions to shareholders.......................... -- -- (9,388) (9,388)
---- --- -------- --------
Balance at December 31, 1993........................... 450 68 40,025 40,543
Net income............................................. -- -- 21,693 21,693
Distributions to shareholders.......................... -- -- (13,565) (13,565)
---- --- -------- --------
Balance at December 31, 1994........................... 450 68 48,153 48,671
Net income............................................. -- -- 30,224 30,224
Distributions to shareholders.......................... -- -- (23,490) (23,490)
---- --- -------- --------
Balance at December 31, 1995........................... 450 68 54,887 55,405
Net income (unaudited)................................. -- -- 9,779 9,779
Distributions to shareholders (unaudited).............. -- -- (2,728) (2,728)
----- --- -------- --------
Balance at March 31, 1996 (unaudited).................. $450 $ 68 $ 61,938 $ 62,456
==== ==== ======== ========
See notes to consolidated financial statements.
F-5
106
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
Cash flows from operating activities:
Net income..................................... $16,676 $21,693 $30,224 $ 6,338 $ 9,779
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 805 950 1,011 215 302
Gain on sale of equipment................... (35) (153) (58) -- --
Bad debt expense............................ -- (59) 169 (2) 144
Other....................................... 8 1 -- -- --
Changes in operating assets and liabilities:
Accounts receivable....................... (3,817) (5,880) (6,649) 2,680 559
Inventories............................... (4,381) (3,717) (2,541) (2,751) (2,837)
Prepaid expenses and other current
assets................................. (547) 295 307 (364) (607)
Accounts payable.......................... 2,354 (752) 3,242 2,587 2,960
Accrued expenses and other current
liabilities............................ (471) 494 1,123 887 (50)
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 10,592 12,872 26,828 9,590 10,250
------- ------- ------- ------- -------
Cash flows from investing activities:
Maturities of marketable securities............ 1,163 1,120 1,178 345 --
Purchases of marketable securities............. (1,767) -- -- -- (23)
Proceeds from sales of property, plant and
equipment................................... 1,358 435 825 -- --
Acquisition of property, plant and equipment... (4,904) (1,786) (2,641) (489) (224)
Decrease (increase) in other assets............ (283) (519) 6 69 (52)
------- ------- ------- ------- -------
Net cash used in investing
activities........................... (4,433) (750) (632) (75) (299)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of debt................. 2,758 6,073 4,685 -- --
Distributions to shareholders.................. (9,388) (13,565) (23,490) (7,194) (2,728)
Payments of debt............................... (785) (5,389) (5,056) (572) (85)
Issuance of capital stock -- B. Bros........... 75 -- -- -- --
Principal payments of capital lease
obligations................................. -- (121) (125) (41) (34)
------- ------- ------- ------- -------
Net cash used in financing
activities........................... (7,340) (13,002) (23,986) (7,807) (2,847)
------- ------- ------- ------- -------
Net (decrease) increase in cash and cash
equivalents.................................... (1,181) (880) 2,210 1,708 7,104
Cash and cash equivalents at beginning of
period......................................... 7,796 6,615 5,735 5,735 7,945
------- ------- ------- ------- -------
Cash and cash equivalents at end of period....... $ 6,615 $ 5,735 $ 7,945 $ 7,443 $15,049
======= ======= ======= ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the periods for:
Interest.................................... $ 466 $ 780 $ 853 $ 190 $ 224
======= ======= ======= ======= =======
Income taxes................................ $ 248 $ 267 $ 216 $ 61 $ 80
======= ======= ======= ======= =======
Supplemental disclosure of non-cash investing
activities -- Assets acquired under capital
lease obligations.............................. $ -- $ 686 $ -- $ -- $ --
======= ======= ======= ======= =======
See notes to consolidated financial statements.
F-6
107
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(INFORMATION AS IT RELATES TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLAR AMOUNTS ARE IN THOUSANDS OF DOLLARS)
1. DESCRIPTION OF ENTITY AND BASIS OF PRESENTATION
Prior to May 7, 1996, Twin Laboratories Inc. ("Twin") and its affiliates,
Twinlab Export Corp. ("Export"), Twinlab Specialty Corporation ("Specialty"),
Alvita Products, Inc. ("Alvita"), Natur-Pharma, Inc. ("Natur-Pharma"), B. Bros.
Realty Corporation ("B Bros.") and Advanced Research Press, Inc. ("ARP")
(collectively the "Companies") operated as separate corporations, all of which
were wholly-owned by the same individuals (with some companies having different
ownership percentages among such individuals) except for Natur-Pharma and B.
Bros. which were only ninety-seven percent owned by such individuals.
In July 1995, the shareholders of the Companies signed a non-binding letter
of intent to sell an interest in the Companies and subsequently entered into a
stock purchase and sale agreement (the "Acquisition Agreement") (see Note 16).
In connection with the transactions contemplated by the Acquisition Agreement,
the Companies incurred $656 of professional expenses as of December 31, 1995
(the "Transaction Expenses").
On February 27, 1996, Twinlab Corporation (formerly TLG Laboratories
Holding Corp. ("TLC")) was incorporated in contemplation of the Acquisition
Agreement. The accompanying consolidated financial statements include the
accounts of TLG and subsidiaries (the "Company") after giving retroactive
effect, in a manner similar to a pooling of interests, to the merger of the
Companies pursuant to the Acquisition Agreement.
The Company's product line includes vitamins, minerals, amino acids, fish
and marine oils, sports nutrition products and special formulas marketed under
the TWINLAB trademark and a full line of herbal supplements and phytonutrients
and herb teas marketed under the Nature's Herbs and Alvita trademarks,
respectively. The Company sells its products through a network of approximately
60 distributors, who service approximately 11,000 health food stores and other
selected retail outlets.
Twin manufactures and markets complete lines in two product categories:
vitamins, minerals and amino acids; and sports nutrition, consisting of a total
of over 400 products.
Export sells Twin's products outside the United States. Specialty markets
innovative and special nutritional supplements, some in unique dosage form.
Alvita Products, Inc., under the brand Alvita, markets over 100 natural single
herb teas and blends in both teabag and bulk form. Natur-Pharma manufactures and
markets approximately 400 herbal and botanical supplements under the Nature's
Herbs brand. Natur-Pharma operates a manufacturing facility registered with the
Food and Drug Administration (FDA).
B. Bros. was incorporated for the purpose of constructing a building to
serve as Natur-Pharma's new office, warehouse and production facility.
ARP is a publisher of sports nutrition books and a body building and
fitness magazine entitled "Muscular Development, Fitness & Health."
The Companies had been S Corporations, pursuant to the Internal Revenue
Code, during the years ended December 31, 1993, 1994 and 1995. Upon completion
of the Acquisition Agreement, the Companies terminated their S Corporation
status. The pro forma income statement information reflects adjustments to the
historical net income had the Companies not elected S Corporation status for
income tax purposes for all periods presented.
F-7
108
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of combination -- All material intercompany accounts and
transactions have been eliminated.
b. Cash equivalents -- Investments with original maturities of three months
or less are considered cash equivalents and consist primarily of money market
funds.
c. Marketable securities -- The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" during the year ended December 31, 1994, which
requires changes in the accounting and reporting of investments in debt and
equity securities. The effect of adopting SFAS No. 115 on the Company's
consolidated financial statements was not material.
The marketable securities portfolio primarily consists of investments in
tax-exempt municipal bonds. Marketable securities are stated at amortized cost
as the Company has the intent and ability to hold these securities to maturity.
The aggregate fair value of the current marketable securities as of December 31,
1994 and 1995 was $1,170 and $201, respectively. The aggregate fair value of the
noncurrent marketable securities was $196 as of December 31, 1994.
d. Inventories -- Inventories are stated at the lower of cost (first-in,
first-out method) or market value.
e. Property, plant and equipment -- Depreciation is computed using the
straight-line method based upon the estimated useful lives of the related assets
which range from three to forty years. Amortization of leasehold improvements is
computed by the straight-line method over the shorter of the estimated useful
lives of the related assets or lease term.
f. Intangible assets -- Trademarks are being amortized on the straight-line
method over their expected lives, not to exceed forty years. Goodwill, which
represents the excess of purchase price over fair value of net assets acquired,
is being amortized on the straight-line method over forty years. Covenants not
to compete are being amortized on the straight-line method over five years.
g. Income taxes -- In February 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", which required significant changes in accounting
for income taxes, including an asset and liability approach to income taxes. The
Company adopted SFAS No. 109 in the year ended December 31, 1993. There was no
cumulative effect to the consolidated financial statements as a result of the
change in accounting, nor did SFAS No. 109 have a material effect on the amount
of income taxes provided in the year ended December 31, 1993.
h. Research and development expenses -- The Company charges research and
development expenses to operations as incurred. Research and development
expenses were $861, $1,030 and $1,140 for the years ended December 31, 1993,
1994 and 1995, respectively.
i. Fair value of financial instruments -- The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:
1) Cash and cash equivalents -- The carrying amounts approximate fair
value because of the short maturity of these instruments.
2) Marketable securities -- Fair value approximates quoted market
value.
3) Receivables -- The carrying amount approximates fair value because
of the short maturity of these instruments.
4) Debt -- The carrying amounts approximate fair value based on
borrowing rates currently available to the Company for bank loans with
similar terms.
F-8
109
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
j. Use of estimates in the preparation of financial statements -- 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.
k. Unaudited interim financial statements -- In the opinion of management,
the unaudited consolidated financial statements for the three months ended March
31, 1995 and 1996 are presented on a basis consistent with the audited
consolidated financial statements and reflect all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of the
results thereof. The results of operation for interim periods are not
necessarily indicative of the results to be expected for the entire year.
l. Reclassifications -- Certain prior year balances have been reclassified
to conform with current year classifications.
3. INVENTORIES
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------- ------- ---------
Inventories consist of the following:
Raw materials........................................... $10,183 $11,006 $12,062
Work in process......................................... 4,720 4,550 6,433
Finished goods.......................................... 7,829 9,717 9,615
------- ------- ---------
Total........................................... $22,732 $25,273 $28,110
======= ======= =======
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
DECEMBER 31,
-------------------
1994 1995
------- -------
Land, building and leasehold improvements........................ $10,039 $11,204
Plant equipment.................................................. 5,883 6,097
Office equipment................................................. 1,776 1,942
Automobiles...................................................... 70 56
------- -------
17,768 19,299
Less: accumulated depreciation and amortization.................. 5,697 6,263
------- -------
Property, plant and equipment -- net........................... $12,071 $13,036
------- -------
Depreciation and amortization expense.......................... $ 851 $ 909
======= =======
F-9
110
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
-----------------
1994 1995
------ ------
Due from related trust(a).......................................... $1,640 $1,786
Trademarks, net of accumulated amortization of $128 and $157,
respectively..................................................... 948 1,063
Goodwill, net of accumulated amortization of $96 and $114,
respectively..................................................... 607 590
Other.............................................................. 523 171
------ ------
Total.................................................... $3,718 $3,610
====== ======
- ---------------
(a) The Company has advanced, to a related party trust, payments for premiums
on a split dollar life insurance policy on the lives of the principal
shareholders. The amounts advanced will be repaid from the benefits or cash
value of the policy and are collateralized by the cash surrender value of
the policy. The principal shareholders are covered by a "second to die"
policy in the face amount of $10,000.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
DECEMBER 31,
-----------------
1994 1995
------ ------
Accrued salaries, employee benefits and payroll taxes.............. $ 839 $ 935
Deferred revenue................................................... 689 787
Accrued professional fees.......................................... 134 700
Other.............................................................. 1,473 1,836
------ ------
Total.................................................... $3,135 $4,258
====== ======
7. LOAN PAYABLE -- BANK
Natur-Pharma has a revolving line of credit arrangement with a bank. A
maximum of $1,000 is available to Natur-Pharma with interest payable monthly at
the bank's variable base rate (8.5 percent at December 31, 1995). Terms of the
agreement include maintaining a $75 compensating balance, achieving quarterly
net income of at least $50 and limitations on repayment of notes payable to
shareholders. Borrowings are secured by inventories, accounts receivable and a
guarantee by Twin. The credit arrangement matures on June 1, 1996 and is subject
to annual review by the bank. Borrowings against such line of credit aggregated
$660 at December 31, 1994 and 1995.
Twin entered into a line of credit arrangement with a bank which is
cancelable by either party at any time and expires on May 31, 1996. A maximum
amount of $10,000 is available with interest charged at the Alternate Base Rate
of the bank, which is the higher of the prime rate (8.5 percent at December 31,
1995) or the Federal Funds rate (6.0 percent at December 31, 1995) plus 1/2
percent. There were no borrowings against such line of credit at December 31,
1994 and 1995.
F-10
111
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
---------------
1994 1995
------ ------
Mortgage payable to a bank collateralized by land and building,
payable in monthly installments of $22, including interest at 9.5
percent plus a $1,737 balloon payment due May 1, 2002.............. $2,282 $2,228
Mortgage payable to a bank collateralized by land and building,
payable in monthly installments of $24, including interest at 9.9
percent, maturing August 2006...................................... 2,171 2,104
Loan payable to a bank, payable in monthly installments of $14,
inclusive of interest at the prime rate plus .5 percent with the
balance due on June 1, 1996........................................ -- 1,121
Note payable to a bank collateralized by equipment, payable in
monthly installments of $10, including interest at 8.43 percent,
maturing August 31, 2001........................................... 584 516
Note payable to a bank, unsecured, payable in monthly installments of
$8, including interest at 7.7 percent, maturing July 1, 2002....... -- 506
Note payable to a power authority, payable in monthly installments of
$2, including interest at 6.38 percent, maturing February 2011..... 296 289
Loan payable to a bank due on August 1, 1995......................... 792 --
Other................................................................ 92 82
------ ------
6,217 6,846
Less: current portion................................................ 1,101 1,479
------ ------
Total...................................................... $5,116 $5,367
====== ======
The mortgages payable to banks provide, among other things, for the
maintenance by certain of the companies of a minimum tangible net worth balance,
certain financial ratios and limitations on additional borrowings.
Maturities of long-term debt are as follows:
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1996................................................................... $1,479
1997................................................................... 315
1998................................................................... 335
1999................................................................... 366
2000................................................................... 396
Thereafter............................................................. 3,955
------
Total............................................................. $6,846
======
9. CAPITAL LEASE OBLIGATIONS
The Company is obligated under leases for equipment, which are treated as
capital leases for financial reporting purposes due to certain provisions in the
lease agreements. Included in plant equipment at December 31, 1994 and 1995 are
assets held under capital leases with a net carrying value of $652 and $583,
respectively. Accumulated amortization on these assets at December 31, 1994 and
1995 was $34 and $103, respectively.
F-11
112
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments, by year and in the aggregate, and the
present value of the future minimum lease payments at December 31, 1995 are as
follows:
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1996................................................................... $164
1997................................................................... 164
1998................................................................... 164
----
Total........................................................... 492
Amount representing interest........................................... 52
----
Present value of the future minimum lease payments (including $136
payable currently).................................................... $440
====
10. INCOME TAXES
Prior to the consummation of the Acquisition Agreement, all of the
Companies were "S" corporations and as such Federal and state taxes were
generally paid at the shareholder level only. However, when corporate taxable
income of any company exceed $200, such company was required to pay New York
State corporate income taxes equal to the difference between the personal and
the corporate tax rate (approximately 2 percent at December 31, 1995) for all
taxable income in excess of $200, except for Natur-Pharma, Alvita and B. Bros.,
which are subject to the tax laws of the State of Utah.
Some of the companies were not "S" corporations since inception. The
following table sets forth the effective date each company elected "S"
corporation status and the "C" corporation retained earnings at the time of "S"
corporation election:
"C" CORPORATION
EFFECTIVE DATE OF "S" RETAINED
COMPANY CORPORATION ELECTION EARNINGS
--------------------------------------------------- --------------------- ----------------
Twin............................................... January 1, 1987 $6,299
Export............................................. At inception None
Specialty.......................................... At inception None
Alvita............................................. January 1, 1992 $ 39
Natur-Pharma....................................... January 1, 1993 $ 575
B. Bros............................................ At inception None
ARP................................................ January 1, 1989 $ (89)
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 represents state taxes.
Twin is undergoing a routine audit of its Federal income tax return for the
year ended December 31, 1993. Management believes that any amounts which might
be assessed will not have a material effect on the consolidated financial
statements.
11. EMPLOYEE BENEFIT PLANS
Twin provides a profit sharing plan for all full-time employees who have
satisfied length of service and minimum age requirements. Profit sharing expense
related to Twin's plan was $250 for the years ended December 31, 1993, 1994 and
1995.
Under the Natur-Pharma, Inc. Employee Savings Plan, eligible participating
employees may elect to contribute up to twenty-five percent of their salaries to
an investment trust. Natur-Pharma may, at its sole discretion, contribute to the
plan. Participants are fully vested in their own contributions and vest in
Natur-
F-12
113
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pharma's contributions at a rate of 20 percent per year beginning one year after
the date of contribution. Natur-Pharma contributed and charged to expense $7,
$11 and $37 under this plan for the years ended December 31, 1993, 1994 and
1995, respectively.
12. COMMITMENTS AND CONTINGENCIES
a. Leases -- The Company leases certain warehouse space and equipment under
operating leases. Generally, the leases carry renewal provisions and require the
payment of maintenance costs. Rental payments may be adjusted for increases in
taxes and other costs above specific amounts. Rental expense charged to
operations for the years ended December 31, 1993, 1994 and 1995 was
approximately $1,254, $1,281 and $1,370, respectively.
Future minimum payments under noncancellable operating leases with initial
or remaining terms of more than one year, are as follows:
YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
1996................................................................. $1,269
1997................................................................. 981
1998................................................................. 866
1999................................................................. 764
2000................................................................. 829
------
Total...................................................... $4,709
======
b. Legal matters -- Twin and other encapsulators, and various
manufacturers, distributors, suppliers, importers and retailers of manufactured
L-Tryptophan or products containing manufactured L-Tryptophan are or were
defendants in various legal actions brought in federal and state courts seeking
compensatory and, in some cases, punitive damages for alleged personal injuries
resulting from the ingestion of certain products containing manufactured
L-Tryptophan. As of January 31, 1996, Twin was a named defendant in three of
these actions. Although Twin believes that few new lawsuits are likely to be
brought because of applicable statutes of limitations, the possibility of future
such actions cannot be excluded. Twin and certain other companies in the
industry (the "Indemnified Group") have each entered into a Defense and
Indemnification Agreement with Showa Denko America, Inc. ("SDA") (the
"Indemnification Agreement"), under which SDA has agreed to assume the defense
of all claims against any of the Indemnified Group arising out of the ingestion
of L-Tryptophan products and to pay all legal fees incurred and indemnify Twin
against liability in any action if it is determined that a proximate cause of
the injury sustained by the plaintiff was a constituent of the raw material sold
by SDA to Twin or was a factor for which SDA or any of its affiliates was
responsible, except to the extent that action by Twin proximately contributed to
the injury, and except for certain claims relating to punitive damages. SDA
appears to have been the supplier of all of the allegedly contaminated
L-Tryptophan. SDA has posted a revolving irrevocable letter of credit for the
benefit of the Indemnified Group if SDA is unable or unwilling to satisfy any
claims or judgments. Showa Denko, K.K. ("SDK"), the Japanese parent of SDA and
manufacturer of the relevant L-Tryptophan, has unconditionally guaranteed the
payment obligations of SDA under the Indemnification Agreement. As of January
31, 1996, 128 lawsuits in which Twin was a named defendant had been dismissed or
settled by SDA at no cost to Twin.
The total of all damages alleged in the L-Tryptophan actions, if fully
awarded against Twin alone and ignoring the existence of the Indemnification
Agreement, would exceed Twin's available product liability insurance coverage of
$3 million for L-Tryptophan matters in respect of claims made prior to December
31, 1993, and would have a material adverse effect on the Company's results of
operations and financial condition. However, the Indemnification Agreement, the
defense and resolution to date of numerous lawsuits by SDA without cost to Twin,
the multitude of defendants and the possibility that liability could be assessed
against or paid by other parties or by insurance carriers have led management,
after consultation with outside legal
F-13
114
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
counsel, to believe that the prospect for a material adverse effect on the
Company's consolidated financial condition or results of operations is remote
and no provision in the consolidated financial statements has been made for any
loss that may result from these actions. During the year ended December 31,
1993, SDA reimbursed Twin approximately $461 primarily for unsalable
L-Tryptophan related merchandise.
In 1989, Twin received an informal inquiry from the New York Regional
Office of the Federal Trade Commission ("FTC") seeking substantiation for
certain advertising claims made for a segment of its "Fuel" bodybuilding/sports
nutrition line of products. In response, Twin submitted scientific
substantiation and financial information to the FTC. Twin is currently
negotiating this matter with the FTC and has received from the FTC a revised
proposed Complaint and Consent Decree (the "Decree") seeking, among other
things, injunctive relief restricting certain muscle building, fat loss and
other marketing claims in connection with the sale of Twin's weight control,
bodybuilding and sports nutrition products. In addition, the Decree seeks
payment of $200. The Company believes that it has adequate scientific
substantiation for the claims at issue, and it intends to vigorously defend the
matter if a settlement is not reached. The Company has reserved $200 for this
matter.
The Company is also engaged in various other litigation in the ordinary
course of business. Management is of the opinion that the amounts which may be
awarded or assessed in connection with these matters, if any, will not have a
material effect on the consolidated financial statements.
13. INVESTMENT IN LIMITED PARTNERSHIP
As a result of investments in certain limited partnerships, Hambrose 3 and
4 ("Partnerships"), Twin entered into an agreement with the Partnerships wherein
Twin subscribed to additional limited interests in the Partnerships. Twin also
agreed to contribute a total of $360 as "Additional Capital Contribution" to the
Partnerships, which consists of a nonrecourse note of $240 and another
noninterest-bearing note due in the year 2010 in the amount of $120. In lieu of
making the Additional Capital Contribution in cash or subscription note, Twin
has assigned 100 percent of certain distribution rights until such time as the
assignee has recovered the full amount of the Additional Capital Contribution.
Twin is contingently liable to the Partnerships in the amount of approximately
$3,450. Management is of the opinion that there will be sufficient income
generated from the Partnerships' leasing operations to repay all the debt due
and Twin will not be required to make any further cash payments. These
investments have not been assigned any value on the accompanying consolidated
balance sheets.
The Hambrose 3 limited partnership has been audited by the Internal Revenue
Service ("IRS") for the years ended December 31, 1985 and 1986, at which time
Twin was a "C" corporation. A settlement was reached during 1995 in which Twin
paid approximately $2,082, including interest. In addition, Twin was responsible
for additional state taxes, inclusive of interest of approximately $28. Twin
recorded an estimated settlement amount during 1994 totaling $1,982 which was
reflected as a nonrecurring charge to operations. An additional $128 of interest
was recorded in 1995, and was included in operating expenses in the accompanying
consolidated statement of income.
14. RELATED PARTY TRANSACTIONS
Natur-Pharma had outstanding notes payable to certain shareholders totaling
$1,500 and $500 as of December 31, 1994 and 1995, respectively. Such notes bear
interest at ten percent per annum, which is payable semi-annually. Interest
expense on such notes was approximately $179, $150 and $100 for the years ended
December 31, 1993, 1994 and 1995, respectively. Alvita had outstanding notes
payable to certain shareholders totaling $250 as of December 31, 1993. Such
notes were repaid in the year ended December 31, 1994. Interest expense on such
notes was approximately $23 and $5 for the years ended December 31, 1993 and
1994, respectively. ARP had outstanding notes payable to certain shareholders
totaling $346 as of December 31, 1994 and 1995. Such notes are non-interest
bearing.
F-14
115
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. MAJOR CUSTOMERS AND CREDIT CONCENTRATIONS
The Company has two significant customers which accounted for approximately
27 and 19 percent, respectively, of net sales for 1993; 28 and 20 percent,
respectively, of net sales for 1994; and 28 and 22 percent, respectively, of net
sales for 1995. No other customer accounted for more than 10 percent of net
sales in any of the three years ended December 31, 1995.
The Company's customers are primarily large independent distributors of
health food products. At December 31, 1994 and 1995, approximately 69 and 73
percent, respectively, of accounts receivable related to two customers.
16. SUBSEQUENT EVENTS
a. Acquisition Agreement and related transactions -- The shareholders of
the Companies entered into the Acquisition Agreement, which is dated as of March
5, 1996 and which was consummated on May 7, 1996, pursuant to which, among other
things, (i) TLC acquired all of the outstanding capital stock of Natur-Pharma,
(ii) Green Equity Investors II L.P. ("GEI") acquired 480,000 shares (48%) of the
common stock of TLC for aggregate consideration of $4,800, and shares of
non-voting junior redeemable preferred stock of TLC for aggregate consideration
of $37,000, (iii) certain other investors acquired 70,000 shares (7%) of the
common stock of TLC (however, each of these other investors own less than 5% of
the common stock of TLC) for aggregate consideration of $700 and shares of
non-voting senior redeemable preferred stock of TLC for aggregate consideration
of $30,000, (iv) certain of the shareholders of the Companies (the "Continuing
Shareholders") received from TLC, in exchange for certain of their shares of
common stock of Natur-Pharma, 450,000 shares (45%) of the outstanding shares of
common stock of TLC, valued at $4,500, and (v) the shareholders of the Companies
received a total of $212,500 in consideration of the balance of their shares of
common stock of Natur-Pharma and for all of their shares of capital stock of
Twin, Alvita, Export, Specialty, B. Bros., and ARP. Of the total cash
consideration to the shareholders, approximately $15,000 represented
consideration for non-competition agreements entered into by the shareholders of
the Companies, which was recognized as a non-recurring expense upon the
consummation of the Acquisition Agreement.
Pursuant to the terms of the Acquisition Agreement, Twin, Alvita, Export,
Specialty, and B. Bros. were merged into Natur-Pharma. ARP was merged with
Natur-Pharma II, Inc., a wholly owned subsidiary of Natur-Pharma, and
Natur-Pharma became a wholly owned subsidiary of TLC. Natur-Pharma changed its
name to Twin Laboratories Inc. ("New Twin"). TLC's initial board of directors
consists of five of the Continuing Shareholders and three designees of GEI. A
majority of TLC's shareholders have the ability to elect a majority of its
directors. However, regardless of the composition of the board of directors,
pursuant to the terms of the TLC shareholders agreement, a wide range of actions
to be taken by TLC require the affirmative approval of both a majority of the
Continuing Shareholder directors and a majority of the GEI designee directors.
These actions include, but are not limited to, payment of certain dividends,
engagement in new businesses, acquisition of other businesses, entering certain
contracts, incurring certain debt or obligations, making certain investments,
relocation of executive offices, selection of location and date of the annual
shareholders meeting, termination or material modification of any employee
benefit plan, selection of auditors or legal counsel, adoption or amendment of
strategic plans or operating budgets, and election or termination of any
executive officers. In addition, certain fundamental corporate actions,
including but not limited to, amendments to the certificate of incorporation,
the sale of substantially all of the assets of the Company, and the merger or
combination of the Company with another entity additionally require an
affirmative vote of holders of at least 80% of the issued and outstanding stock
of TLC. Such voting rights are generally effective until such time as the common
stock of TLC is publicly held. Because the transactions contemplated by the
Acquisition Agreement do not result in a change in control as defined in
Emerging Issues Task Force Issue No. 88-16, "Basis in Leveraged Buyout
Transactions" ("EITF 88-16"), the transactions were accounted for as a
recapitalization under the guidance of EITF 88-16 and the Companies' historical
basis of accounting were
F-15
116
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applied to the consolidated financial statements of TLC. Upon consummation of
the Acquisition Agreement, the Companies terminated their S Corporation status.
Cumulative dividends on the preferred stock accrue at a rate of 14% per
annum (in the case of the senior preferred stock) and 11.25% per annum (in the
case of the junior preferred stock) and are payable quarterly, if declared by
the board of directors. Such dividends are payable in additional shares of
preferred stock (valued at the liquidation preference of $1,000 per share plus
accrued and unpaid dividends) unless the board of directors, upon a majority
vote of directors not affiliated with Leonard Green & Partners, L.P., determines
that any such dividends will be paid in cash.
The redemption price of the preferred stock, as well as the liquidation
preference, is $1,000 per share plus accrued and unpaid dividends. The preferred
stock may be redeemed, in whole or in part, by TLC at any time, except that (1)
no partial redemption can be made by TLC unless all cumulative dividends have
been paid on all shares, (2) TLC may not redeem shares of preferred stock at any
time when it is making, or is required to make, an offer to purchase preferred
stock upon a change of control and (3) so long as any shares of senior preferred
stock are outstanding, no shares of junior preferred stock may be redeemed
without the consent of the holders of a majority of the outstanding shares of
senior preferred stock.
The preferred stock is subject to mandatory redemption, at the redemption
price, including accrued and unpaid dividends, eleven years after the issuance
thereof (in the case of the senior preferred stock) or twelve years after the
issuance thereof (in the case of the junior preferred stock). In addition, upon
a change in control TLC is required to offer to purchase the preferred stock at
101 percent of the liquidation preference thereof, plus accrued and unpaid
dividends.
New Twin obtained additional financing necessary to effect the transactions
contemplated by the Acquisition Agreement, repay certain existing indebtedness
of the Company, and pay the fees and expenses incurred in connection with the
Acquisition Agreement through the incurrence of debt which totalled $153,000.
Such debt included: (1) borrowings of $53,000 under a term loan credit facility
provided by certain banks, financial institutions and other entities, and (2)
gross proceeds of $100,000 from the private placement of subordinated debt. A
six-year $15,000 revolving credit facility was also obtained from the term loan
lenders, to provide for working capital requirements.
The term loan is payable in defined percentages over a six-year period.
Borrowings under the term loan and revolving credit facilities bear interest, at
the borrower's discretion, at either the Alternative Base Rate, as defined, plus
a margin of 1.25 percent, or at the Eurodollar Rate, as defined, plus a margin
of 2.5 percent. Such margins are subject to reduction based upon the achievement
of certain performance targets, as defined. New Twin also must pay a commitment
fee of .5 percent per annum (subject to reduction based on the achievement of
certain performance targets, as defined) on the average daily unused portion of
the revolving credit facility. These credit facilities are secured by all
tangible and intangible assets of New Twin and are subject to certain
restrictive covenants including, among other things, the maintenance of defined
levels of earnings and certain debt coverage rates, as well as restrictions on
additional indebtedness, dividends, investments and certain other significant
transactions.
The subordinated debt matures in ten years and bears interest at a rate of
10 1/4% per annum. The subordinated debt is callable after five years at a
premium to par which will decline to par after eight years. During the first
three years, New Twin has the option to redeem up to 35 percent of the
subordinated debt with the proceeds of a public offering at a redemption price
of 109 1/2%. Upon a change of control, as defined, New Twin is required to offer
to redeem the subordinated debt at 101 percent of the principal amount plus
accrued and unpaid interest. Restrictive covenants on the subordinated debt
include, among other things, limitations on additional indebtedness, investments
and certain other significant transactions.
F-16
117
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The subordinated debt is guaranteed by TLC and ARP. TLC had no assets or
liabilities until the consummation of the Acquisition. Summarized financial
information of New Twin is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
------- -------- --------
Current assets...................................... $40,178 $ 48,716 $ 58,663
Noncurrent assets................................... 15,409 15,990 16,646
Current liabilities................................. 10,481 10,480 14,233
Noncurrent liabilities.............................. 4,563 5,555 5,671
Shareholders' equity................................ 40,543 48,671 55,405
Net sales........................................... 99,897 117,342 148,735
Gross profit........................................ 37,766 47,095 58,803
Net income.......................................... 16,676 21,693 30,224
Summarized financial information of ARP is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
------ ------ ------
Current assets...................................... $ 763 $1,339 $1,266
Noncurrent assets................................... 173 168 168
Current liabilities................................. 1,051 1,155 1,211
Noncurrent liabilities.............................. -- -- --
Total shareholders' equity (deficit)................ (116) 350 222
Net sales........................................... 3,188 3,930 5,200
Gross profit........................................ 68 711 259
Net income (loss)................................... (94) 466 (128)
The following unaudited pro forma results of operations assume the
transactions contemplated by the Acquisition Agreement occurred as of January 1,
1995. The pro forma operations data has been prepared for comparative purposes
only and does not purport to represent what the Company's actual results of
operations would have been had the transactions contemplated by the Acquisition
Agreement in fact occurred at January 1, 1995.
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
Net sales........................................... $ 148,735 $ 43,984
Interest expense.................................... 16,010 4,002
Net income.......................................... 9,211 3,754
F-17
118
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma debt, preferred stock and shareholder's deficit at
March 31, 1996 after giving effect to the transactions contemplated by the
Acquisition Agreement as if they had occurred on March 31, 1996 would be as
follows:
Total current portion of long-term debt and capital lease obligations.... $ 3,140
=========
Total long-term debt and capital lease obligations....................... $ 150,633
=========
Senior redeemable cumulative Preferred Stock............................. $ 30,000
=========
Junior redeemable cumulative Preferred Stock............................. $ 37,000
=========
Shareholders' deficit:
Common stock........................................................... $ 1,000
Additional paid-in capital............................................. 82,063
Accumulated deficit.................................................... (178,796)
---------
Total shareholders' deficit.................................... $ (95,733)
=========
b. Proposed initial public offering -- On June 4, 1996, TLC filed a
registration statement on Form S-1 in respect of an offering by TLC for sale to
the public (the "IPO") of shares of its common stock, $1.00 par value. The
registration statement states that the maximum aggregate offering price of the
securities to be registered is $130,000. The expected use of the net proceeds of
the IPO will be to redeem all of the outstanding shares of senior preferred
stock and all of the outstanding shares of junior preferred stock, which
together have an aggregate liquidation preference of $67,000 (plus accrued and
unpaid dividends thereon); and to prepay in full the $50,000 of remaining
outstanding indebtedness under the term loan facility, plus accrued and unpaid
interest thereon. The balance of the net proceeds of the IPO will be used for
general corporate purposes.
F-18
119
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ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Mail:
FLEET NATIONAL BANK
777 MAIN STREET
MSN CT/MO/0224
HARTFORD, CONNECTICUT 06115
ATTENTION: CORPORATE TRUST OPERATIONS
By Hand/Overnight Express:
FLEET NATIONAL BANK
777 MAIN STREET
MSN CT/MO/0224
HARTFORD, CONNECTICUT 06115
ATTENTION: CORPORATE OPERATIONS
Facsimile Transmission:
(860) 986-7908
To confirm receipt:
TEL. (860) 986-1271
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER OR REGISTERED OR CERTIFIED MAIL)
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
OFFER TO EXCHANGE ALL OUTSTANDING 10 1/4%
SENIOR SUBORDINATED NOTES DUE 2006
($100,000,000 PRINCIPAL AMOUNT) FOR 10 1/4%
SENIOR SUBORDINATED NOTES DUE 2006.
TWIN
LABORATORIES
INC.
------------------------
PROSPECTUS
------------------------
, 1996
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------------------------------------------------------
120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Utah law provides for indemnification of directors and officers as follows:
16-10a-902 AUTHORITY TO INDEMNIFY DIRECTORS
(1) Except as provided in Subsection (4), a corporation may indemnify an
individual made a party to a proceeding because he is or was a director, against
liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not opposed to,
the corporation's best interests; and
(c) in the case of any criminal proceeding, he had no reasonable cause
to believe his conduct was unlawful.
(2) A director's conduct with respect to any employee benefit plan for a
purpose he reasonably believed to be in or not opposed to the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of Subsection (1)(b).
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(4) A corporation may not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation;
or
(b) in connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in
his official capacity, in which proceeding he was adjudged liable on the
basis that he derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
16-10a-903 MANDATORY INDEMNIFICATION OF DIRECTORS.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was successful, on the merits or otherwise, in the
defense of any proceeding, or in the defense of any claim, issue, or matter in
the proceeding, to which he was a party because he is or was a director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
16-10a-907 INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS.
Unless a corporation's articles of incorporation provide otherwise:
(1) an officer of the corporation is entitled to mandatory
indemnification under Section 16-10a-903, and is entitled to apply for
court-ordered indemnification under Section 16-10a-905, in each case to the
same extent as a director;
(2) the corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and
(3) a corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent , if not inconsistent with public policy, and if provided for by its
articles of incorporation, bylaws, general or specific action of its board
of directors, or contract.
II-1
121
16-10a-908 INSURANCE.
A corporation may purchase and maintain liability insurance on behalf of a
person who is or was a director, officer, employee, fiduciary, or agent of the
corporation, or who, while serving as a director, officer, employee, fiduciary,
or agent of the corporation, is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee, fiduciary, or agent of
another foreign or domestic corporation or other person, or of an employee
benefit plan, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, fiduciary,
or agent, whether or not the corporation would have power to indemnify him
against the same liability under Section 16-10a-902, 16-10a-903, or 16-10a-907.
Insurance may be procured from any insurance company designated by the board of
directors, whether the insurance company is formed under the laws of this state
or any other jurisdiction of the United States or elsewhere, including any
insurance company in which the corporation has an equity or any other interest
through stock ownership or otherwise.
16-10a-909 LIMITATIONS OF INDEMNIFICATION OF DIRECTORS.
(1) A provision treating a corporation's indemnification of, or advance for
expenses to, directors that is contained in its articles of incorporation or
bylaws, in a resolution of its shareholders or board of directors, or in a
contract (except an insurance policy) or otherwise, is valid only if and to the
extent the provision is not inconsistent with this part. If the articles of
incorporation limit indemnification or advance of expenses, indemnification and
advance of expenses are valid only to the extent not inconsistent with the
articles of incorporation.
(2) This part does not limit a corporation's power to pay or reimburse
expenses incurred by a director in connection with the director's appearance as
a witness in a proceeding at a time when the director has not been made a named
defendant or respondent to the proceeding.
The Company's Articles of Restatement to the Articles of Incorporation and
its By-laws filed as Exhibit 3.1 and 3.2 respectively, to this Registration
Statement provide for the indemnification of directors and officers of the
Company to the fullest extent permitted by Utah law.
The Company has obtained liability insurance for each director and officer
for certain losses arising from claims or charges made against them while acting
in their capacities as directors or officers of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
2.1 -- Form of Stock Purchase and Sale Agreement, dated as of March 5, 1996, among David
Blechman, Jean Blechman, Brian Blechman, Neil Blechman, Ross Blechman, Steve
Blechman, Dean Blechman, Stephen Welling, TLG Laboratories Holding Corp. ("TLC"),
Natur-Pharma Inc. and Green Equity Investors II, L.P. ("GEI II") (the "Stock
Purchase and Sale Agreement") (incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-1, dated June 4, 1996, filed by TLC, Registration
No. 333-05191; "TLC S-1").
2.1.1 -- Form of Amendment to the Stock Purchase and Sale Agreement, dated May 6, 1996
(incorporated by reference to Exhibit 2.1.1 to TLC S-1).
3.1 -- Form of Articles of Restatement to the Articles of Incorporation of the Company.*
3.2 -- Form of By-laws of the Company.*
3.3 -- Form of Articles of Amendment to Articles of Incorporation of the Company.*
3.4 -- Form of Amended and Restated Certificate of Incorporation of TLC (incorporated by
reference to Exhibit 3.1 to TLC S-1).
3.5 -- Form of By-laws of TLC (incorporated by reference to Exhibit 3.2 to TLC S-1).
3.6 -- Form of Certificate of Amendment of Amended and Restated Certificate of
Incorporation of TLC.*
II-2
122
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
3.7 -- Form of Restated Certificate of Incorporation of Advanced Research Press, Inc.
("ARP").*
3.8 -- Form of By-laws of ARP.*
4.1 -- Indenture, dated May 7, 1996, among Twin Laboratories Inc. ("Twin"), ARP and TLC,
(together, the "Guarantors") and Fleet National Bank, as Trustee, Registrar, Paying
Agent and Securities Agent, regarding Twin's 10 1/4% Senior Subordinated Notes due
2006 ("the Old Notes") and the 10 1/4% Senior Subordinated Notes due 2006 (the
"Exchange Notes") to be issued in exchange therefor (incorporated by reference to
Exhibit 4.2 to TLC S-1).
4.2 -- Form of Registration Rights Agreement dated as of May 7, 1996 among Twin, the
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and Chemical
Securities Inc. (the "Initial Purchasers") (incorporated by reference to Exhibit
10.27 to TLC S-1).
4.3 -- Form of Purchase Agreement, dated May 1, 1996, among Twin, the Guarantors and the
Initial Purchasers.*
4.4 -- Form of Credit and Guarantee Agreement, dated May 7, 1996, among Twin, TLC, the
financial institutions named therein, Chemical Bank as Administrative Agent and The
Bank of New York as Documentation Agent (incorporated by reference to Exhibit 4.3
to TLC S-1).
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel.**
5.2 -- Opinion of Ray, Quinney & Nebeker.**
10.1 -- Form of Guarantee and Collateral Agreement, dated May 7, 1996, among TLC, Twin, and
ARP in favor of Chemical Bank, as Administrative Agent (incorporated by reference
to Exhibit 10.1 to TLC S-1).
10.2 -- Form of Term Note (incorporated by reference to Exhibit 10.2 to TLC S-1).
10.3 -- Form of Revolving Credit Note (incorporated by reference to Exhibit 10.3 to TLC
S-1).
10.4 -- Form of Swing Line Note (incorporated by reference to Exhibit 10.4 to TLC S-1).
10.5 -- Form of Mortgage and Security Agreement, dated May 7, 1996, from TLC to Chemical
Bank, as Administrative Agent (incorporated by reference to Exhibit 10.5 to TLC
S-1).
10.6 -- Form of Deed of Trust, dated May 7, 1996, from Twin to First American Title Company
of Utah, Trustee for the use and benefit of Chemical Bank, as Administrative Agent,
Beneficiary (incorporated by reference to Exhibit 10.6 to TLC S-1).
10.7 -- Intentionally Omitted.
10.8 -- Stockholders Agreement, dated May 7, 1996, among Brian Blechman, Neil Blechman,
Ross Blechman, Steve Blechman, Dean Blechman and Stephen Welling, TLC and GEI
(incorporated by reference to Exhibit 10.8 to TLC S-1).
10.9 -- Secondary Stockholders Agreement among Brian Blechman, Neil Blechman, Ross
Blechman, Steve Blechman, Dean Blechman and Stephen Welling, TLC, GEI, DLJ
Investment Funding, Inc., DLJ Investment Partners, L.P., Chase Equity Associates,
L.P., PMI Mezzanine Fund, L.P. and State Treasurer of the State of Michigan,
Custodian of the Michigan Public School Employees' Retirement System, State
Employees' Retirement System, Michigan State Police Retirement System, and Michigan
Judges Retirement System (incorporated by reference to Exhibit 10.9 to TLC S-1).
10.10 -- Employment Agreement, dated May 7, 1996, between Twin and Brian Blechman
(incorporated by reference to Exhibit 10.10 to TLC S-1).
10.11 -- Employment Agreement, dated May 7, 1996, between Twin and Neil Blechman
(incorporated by reference to Exhibit 10.11 to TLC S-1).
10.12 -- Employment Agreement, dated May 7, 1996, between Twin and Ross Blechman
(incorporated by reference to Exhibit 10.12 to TLC S-1).
10.13 -- Employment Agreement, dated May 7, 1996, between Twin and Steve Blechman
(incorporated by reference to Exhibit 10.13 to TLC S-1).
10.14 -- Employment Agreement, dated May 7, 1996, between Twin and Dean Blechman
(incorporated by reference to Exhibit 10.14 to TLC S-1).
II-3
123
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
10.15 -- Employment Agreement, dated May 7, 1996, between Twin and Stephen Welling
(incorporated by reference to Exhibit 10.15 to TLC S-1).
10.16 -- Consulting Agreement, dated May 7, 1996, between Twin and David Blechman
(incorporated by reference to Exhibit 10.16 to TLC S-1).
10.17 -- Consulting Agreement, dated May 7, 1996, between Twin and Jean Blechman
(incorporated by reference to Exhibit 10.17 to TLC S-1).
10.18 -- Noncompetition Agreement, dated May 7, 1996, between TLC and David Blechman
(incorporated by reference to Exhibit 10.18 to TLC S-1).
10.19 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Jean Blechman
(incorporated by reference to Exhibit 10.19 to TLC S-1).
10.20 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Brian Blechman
(incorporated by reference to Exhibit 10.20 to TLC S-1).
10.21 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Neil Blechman
(incorporated by reference to Exhibit 10.21 to TLC S-1).
10.22 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Ross Blechman
(incorporated by reference to Exhibit 10.22 to Holding's S-1).
10.23 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Steve Blechman
(incorporated by reference to Exhibit 10.23 to TLC S-1).
10.24 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Dean Blechman
(incorporated by reference to Exhibit 10.24 to TLC S-1).
10.25 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Stephen Welling
(incorporated by reference to Exhibit 10.25 to TLC S-1).
10.26 -- Management Services Agreement, dated May 7, 1996, between Twin and Leonard Green &
Partners, L.P. (incorporated by reference to Exhibit 10.26 to TLC S-1).
12 -- Computation of Ratio of Earnings to Fixed Charges.*
21.1 -- List of Twin's Subsidiaries.*
23.1 -- Consent of Deloitte & Touche LLP.*
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the opinion to be
filed as Exhibit 5.1 hereto).
23.3 -- Consent of Ray, Quinney & Nebeker (to be contained in the opinion to be filed as
Exhibit 5.2 hereto).
25 -- Form T-1 Statement of Eligibility and Qualification of Fleet National Bank, as
trustee.*
27 -- Financial Data Schedule (incorporated by reference to Exhibit 27 to Amendment No. 1
to TLC S-1, filed June 7, 1996).
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Exchange Agent Agreement.**
- ---------------
* Filed herewith.
** To be filed by Amendment.
(b) Financial Statement Schedule
(i) Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements or notes therein.
II-4
124
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
125
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on June 25, 1996.
TWINLAB CORPORATION
By: /s/ ROSS BLECHMAN
----------------------------------
Ross Blechman
Chairman of the Board, Chief Executive
Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
--------- -------- ----
/s/ ROSS BLECHMAN Chairman of the Board, Chief June 25, 1996
- --------------------------------------------- Executive Officer, President
Ross Blechman and Director (Principal
Executive Officer)
/s/ NEIL BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Neil Blechman
/s/ BRIAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director (Principal Financial
Brian Blechman and Accounting Officer)
/s/ STEVE BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Steve Blechman
/s/ DEAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Dean Blechman
/s/ JONATHAN D. SOKOLOFF Director June 25, 1996
- ---------------------------------------------
Jonathan D. Sokoloff
/s/ JOHN G. DANHAKL Director June 25, 1996
- ---------------------------------------------
John G. Danhakl
/s/ JENNIFER HOLDEN DUNBAR Director June 25, 1996
- ---------------------------------------------
Jennifer Holden Dunbar
II-6
126
Signatures
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on June 25, 1996.
TWIN LABORATORIES INC.
By: /s/ ROSS BLECHMAN
----------------------------------
Ross Blechman
Chairman of the Board, Chief Executive
Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
--------- -------- ----
/s/ ROSS BLECHMAN Chairman of the Board, Chief June 25, 1996
- --------------------------------------------- Executive Officer, President
Ross Blechman and Director (Principal
Executive Officer)
/s/ NEIL BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Neil Blechman
/s/ BRIAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director (Principal Financial
Brian Blechman and Accounting Officer)
/s/ STEVE BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Steve Blechman
/s/ DEAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Dean Blechman
/s/ JONATHAN D. SOKOLOFF Director June 25, 1996
- ---------------------------------------------
Jonathan D. Sokoloff
/s/ JOHN G. DANHAKL Director June 25, 1996
- ---------------------------------------------
John G. Danhakl
/s/ JENNIFER HOLDEN DUNBAR Director June 25, 1996
- ---------------------------------------------
Jennifer Holden Dunbar
II-7
127
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on June 25, 1996.
ADVANCED RESEARCH PRESS, INC.
By: /s/ STEVE BLECHMAN
----------------------------------
Steve Blechman
Chairman of the Board, Chief Executive
Officer
and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
--------- -------- ----
/s/ STEVE BLECHMAN Chairman of the Board, Chief June 25, 1996
- --------------------------------------------- Executive Officer, President
Steve Blechman and Director (Principal
Executive Officer)
/s/ NEIL BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Neil Blechman
/s/ BRIAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director (Principal Financial
Brian Blechman and Accounting Officer)
/s/ ROSS BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Ross Blechman
/s/ DEAN BLECHMAN Executive Vice President and June 25, 1996
- --------------------------------------------- Director
Dean Blechman
/s/ JONATHAN D. SOKOLOFF Director June 25, 1996
- ---------------------------------------------
Jonathan D. Sokoloff
/s/ JOHN G. DANHAKL Director June 25, 1996
- ---------------------------------------------
John G. Danhakl
/s/ JENNIFER HOLDEN DUNBAR Director June 25, 1996
- ---------------------------------------------
Jennifer Holden Dunbar
II-8
128
SCHEDULE II
TWINLAB CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN C
-----------------------
COLUMN B
-------- ADDITIONS COLUMN E
BALANCE ----------------------- --------
AT CHARGED TO COLUMN D BALANCE
COLUMN A BEGINNING CHARGED TO OTHER -------- AT END
- --------------------------------------- OF COST AND ACCOUNTS DEDUCTIONS OF
DESCRIPTIONS PERIOD EXPENSES -- DESCRIBE -- DESCRIBE PERIOD
- --------------------------------------- -------- ---------- ---------- -------- --------
YEAR ENDED DECEMBER 31, 1995:
Allowance for bad debts................ $ 63 $169 $ -- $ 55(1) $177
========= ======== ======== ========== =========
Reserve for excess and slow moving
inventory............................ $100 $415 $ -- $ -- $515
========= ======== ======== ========== =========
YEAR ENDED DECEMBER 31, 1994:
Allowance for bad debts................ $123 $(59) $ -- $ 1(1) $ 63
========= ======== ======== ========== =========
Reserve for excess and slow moving
inventory............................ $ -- $100 $ -- $ -- $100
========= ======== ======== ========== =========
YEAR ENDED DECEMBER 31, 1993:
Allowance for bad debts................ $126 $ -- $ -- $ 3(1) $123
========= ======== ======== ========== =========
Reserve for excess and slow moving
inventory............................ $ -- $ -- $ -- $ -- $ --
========= ======== ======== ========== =========
- ---------------
(1) Amounts written off.
S-1
129
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
2.1 -- Form of Stock Purchase and Sale Agreement, dated as of March 5, 1996, among David
Blechman, Jean Blechman, Brian Blechman, Neil Blechman, Ross Blechman, Steve
Blechman, Dean Blechman, Stephen Welling, TLG Laboratories Holding Corp. ("TLC"),
Natur-Pharma Inc. and Green Equity Investors II, L.P. ("GEI II") (the "Stock
Purchase and Sale Agreement") (incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-1, dated June 4, 1996, filed by TLC, Registration
No. 333-05191; "TLC S-1").
2.1.1 -- Form of Amendment to the Stock Purchase and Sale Agreement, dated May 6, 1996
(incorporated by reference to Exhibit 2.1.1 to TLC S-1).
3.1 -- Form of Articles of Restatement to the Articles of Incorporation of the Company.*
3.2 -- Form of By-laws of the Company.*
3.3 -- Form of Articles of Amendment to Articles of Incorporation of the Company.*
3.4 -- Form of Amended and Restated Certificate of Incorporation of TLC (incorporated by
reference to Exhibit 3.1 to TLC S-1).
3.5 -- Form of By-laws of TLC (incorporated by reference to Exhibit 3.2 to TLC S-1).
3.6 -- Form of Certificate of Amendment of Amended and Restated Certificate of
Incorporation of TLC.*
3.7 -- Form of Restated Certificate of Incorporation of Advanced Research Press, Inc.
("ARP").*
3.8 -- Form of By-laws of ARP.*
4.1 -- Indenture, dated May 7, 1996, among Twin Laboratories Inc. ("Twin"), ARP and TLC,
(together, the "Guarantors") and Fleet National Bank, as Trustee, Registrar, Paying
Agent and Securities Agent, regarding Twin's 10 1/4% Senior Subordinated Notes due
2006 ("the Old Notes") and the 10 1/4% Senior Subordinated Notes due 2006 (the
"Exchange Notes") to be issued in exchange therefor (incorporated by reference to
Exhibit 4.2 to TLC S-1).
4.2 -- Form of Registration Rights Agreement dated as of May 7, 1996 among Twin, the
Guarantors, Donaldson, Lufkin & Jenrette Securities Corporation and Chemical
Securities Inc. (the "Initial Purchasers") (incorporated by reference to Exhibit
10.27 to TLC S-1).
4.3 -- Form of Purchase Agreement, dated May 1, 1996, among Twin, the Guarantors and the
Initial Purchasers.*
4.4 -- Form of Credit and Guarantee Agreement, dated May 7, 1996, among Twin, TLC, the
financial institutions named therein, Chemical Bank as Administrative Agent and The
Bank of New York as Documentation Agent (incorporated by reference to Exhibit 4.3
to TLC S-1).
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel.**
5.2 -- Opinion of Ray, Quinney & Nebeker.**
10.1 -- Form of Guarantee and Collateral Agreement, dated May 7, 1996, among TLC, Twin, and
ARP in favor of Chemical Bank, as Administrative Agent (incorporated by reference
to Exhibit 10.1 to TLC S-1).
10.2 -- Form of Term Note (incorporated by reference to Exhibit 10.2 to TLC S-1).
10.3 -- Form of Revolving Credit Note (incorporated by reference to Exhibit 10.3 to TLC
S-1).
10.4 -- Form of Swing Line Note (incorporated by reference to Exhibit 10.4 to TLC S-1).
10.5 -- Form of Mortgage and Security Agreement, dated May 7, 1996, from TLC to Chemical
Bank, as Administrative Agent (incorporated by reference to Exhibit 10.5 to TLC
S-1).
130
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
10.6 -- Form of Deed of Trust, dated May 7, 1996, from Twin to First American Title Company
of Utah, Trustee for the use and benefit of Chemical Bank, as Administrative Agent,
Beneficiary (incorporated by reference to Exhibit 10.6 to TLC S-1).
10.7 -- Intentionally Omitted.
10.8 -- Stockholders Agreement, dated May 7, 1996, among Brian Blechman, Neil Blechman,
Ross Blechman, Steve Blechman, Dean Blechman and Stephen Welling, TLC and GEI
(incorporated by reference to Exhibit 10.8 to TLC S-1).
10.9 -- Secondary Stockholders Agreement among Brian Blechman, Neil Blechman, Ross
Blechman, Steve Blechman, Dean Blechman and Stephen Welling, TLC, GEI, DLJ
Investment Funding, Inc., DLJ Investment Partners, L.P., Chase Equity Associates,
L.P., PMI Mezzanine Fund, L.P. and State Treasurer of the State of Michigan,
Custodian of the Michigan Public School Employees' Retirement System, State
Employees' Retirement System, Michigan State Police Retirement System, and Michigan
Judges Retirement System (incorporated by reference to Exhibit 10.9 to TLC S-1).
10.10 -- Employment Agreement, dated May 7, 1996, between Twin and Brian Blechman
(incorporated by reference to Exhibit 10.10 to TLC S-1).
10.11 -- Employment Agreement, dated May 7, 1996, between Twin and Neil Blechman
(incorporated by reference to Exhibit 10.11 to TLC S-1).
10.12 -- Employment Agreement, dated May 7, 1996, between Twin and Ross Blechman
(incorporated by reference to Exhibit 10.12 to TLC S-1).
10.13 -- Employment Agreement, dated May 7, 1996, between Twin and Steve Blechman
(incorporated by reference to Exhibit 10.13 to TLC S-1).
10.14 -- Employment Agreement, dated May 7, 1996, between Twin and Dean Blechman
(incorporated by reference to Exhibit 10.14 to TLC S-1).
10.15 -- Employment Agreement, dated May 7, 1996, between Twin and Stephen Welling
(incorporated by reference to Exhibit 10.15 to TLC S-1).
10.16 -- Consulting Agreement, dated May 7, 1996, between Twin and David Blechman
(incorporated by reference to Exhibit 10.16 to TLC S-1).
10.17 -- Consulting Agreement, dated May 7, 1996, between Twin and Jean Blechman
(incorporated by reference to Exhibit 10.17 to TLC S-1).
10.18 -- Noncompetition Agreement, dated May 7, 1996, between TLC and David Blechman
(incorporated by reference to Exhibit 10.18 to TLC S-1).
10.19 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Jean Blechman
(incorporated by reference to Exhibit 10.19 to TLC S-1).
10.20 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Brian Blechman
(incorporated by reference to Exhibit 10.20 to TLC S-1).
10.21 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Neil Blechman
(incorporated by reference to Exhibit 10.21 to TLC S-1).
10.22 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Ross Blechman
(incorporated by reference to Exhibit 10.22 to Holding's S-1).
10.23 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Steve Blechman
(incorporated by reference to Exhibit 10.23 to TLC S-1).
10.24 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Dean Blechman
(incorporated by reference to Exhibit 10.24 to TLC S-1).
10.25 -- Noncompetition Agreement, dated May 7, 1996, between TLC and Stephen Welling
(incorporated by reference to Exhibit 10.25 to TLC S-1).
131
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
10.26 -- Management Services Agreement, dated May 7, 1996, between Twin and Leonard Green &
Partners, L.P. (incorporated by reference to Exhibit 10.26 to TLC S-1).
12 -- Computation of Ratio of Earnings to Fixed Charges.*
21.1 -- List of Twin's Subsidiaries.*
23.1 -- Consent of Deloitte & Touche LLP.*
23.2 -- Consent of Kramer, Levin, Naftalis & Frankel (to be contained in the opinion to be
filed as Exhibit 5.1 hereto).
23.3 -- Consent of Ray, Quinney & Nebeker (to be contained in the opinion to be filed as
Exhibit 5.2 hereto).
25 -- Form T-1 Statement of Eligibility and Qualification of Fleet National Bank, as
trustee.*
27 -- Financial Data Schedule (incorporated by reference to Exhibit 27 to Amendment No. 1
to TLC S-1, filed June 7, 1996).
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Exchange Agent Agreement.**
- ---------------
* Filed herewith.
** To be filed by Amendment.