EXHIBIT 4.37

 

[EXECUTION COPY]

FOURTH FORBEARANCE AGREEMENT

THIS FOURTH FORBEARANCE AGREEMENT (this “Agreement”) is entered into as of November 2, 2001 among ▇▇▇▇▇▇ HEALTH PRODUCTS INC. (the “U.S. Borrower”), VITA HEALTH PRODUCTS INC. (the “Canadian Borrower,” and together with the U.S. Borrower, the “Borrowers”), THE BANK OF NOVA SCOTIA, as U.S. Agent and as Canadian Agent, and the lenders party to the Credit Agreement referred to below.

RECITALS

A.            Pursuant to that certain Amended and Restated Credit Agreement, dated as of May 15, 1998 (as further amended, supplemented, amended and restated or otherwise modified prior to the date hereof, the “Credit Agreement”; capitalized terms used but not defined herein shall have the meanings given them in the Credit Agreement), the Agents and the Lenders made Loans and other financial accommodations to the Borrowers.

B.            The following Defaults or Events of Default (the “Existing Defaults”) exist under the Credit Agreement:

1.             The failure of the Borrowers to comply with each of the financial covenants set forth in Section 9.2.4 of the Credit Agreement as of or for the Fiscal Quarters ending December 31, 2000, March 31, 2001, June 30, 2001 and September 30, 2001; and

2.             The Borrowers’ breach of the representations, warranties and statements contained in the Loan Documents in connection therewith.

C.            On or about June 29, 2001, the Borrowers, the Agents and the Lenders entered into a forbearance agreement (the “First Forbearance Agreement”) pursuant to which the Agents and the Lenders agreed to forbear with respect to their rights or remedies against the Borrowers based on the Existing Defaults until September 1, 2001 and agreed that the forbearance period would be automatically extended if the Borrowers met certain conditions set forth in Section 1(b) of the First Forbearance Agreement.

D.            On or about August 31, 2001, the Borrowers, the Agents and the Lenders entered into a Second Forbearance Agreement pursuant to which the Agents and the Lenders agreed to extend the Forbearance Period (as defined in the First Forbearance Agreement) until September 28, 2001.

E.             On or about September 28, 2001, the Borrowers, the Agents and the Lenders entered into a Third Forbearance Agreement pursuant to which the Agents and the Lenders agreed to further extend the Forbearance Period (as defined in the First Forbearance Agreement) until November 2, 2001.

F.             The Borrowers, the Agents and the undersigned Lenders have agreed in principle to a restructuring of the Obligations on the terms and conditions set forth in the Term Sheet for Restructuring of Senior Debt (the “Senior Debt Term Sheet”) annexed hereto as Exhibit A, subject among other things to the completion of the Agents’ and the Lenders’ due diligence and all required internal credit approvals and definitive documentation (including financial covenants satisfactory to the Lenders).

G.            The Borrowers have requested that the Required Lenders extend their forbearance on the terms and conditions set forth below to give the Borrowers sufficient time to fully document the restructuring of the Obligations and the recapitalization of the Borrowers.

H.            The Required Lenders are willing to forbear from exercising their rights and remedies in connection with the Existing Defaults on the terms and conditions set forth herein.

AGREEMENT

In consideration of the Recitals and of the mutual promises and covenants contained herein, the Borrowers, the Agents and the Required Lenders agree as follows:

Section 1.  Agreement to Forbear.

(a)           Forbearance.  During the period (the “Forbearance Period”) commencing on the date hereof and ending on the earlier to occur of December 14, 2001 and the date of any Forbearance Default (as defined below), and subject to the satisfaction of the conditions set forth in Section 2 hereof, the Agents and the Lenders will forbear from exercising their rights and remedies under the Credit Agreement and the other Loan Documents solely with respect to the Existing Defaults.  “Forbearance Default” shall mean: (i) an Event of Default (other than the Existing Defaults), (ii) the failure of either Borrower to keep or perform any of the covenants or agreements contained herein providing for a payment or prepayment to the Agents or the Lenders, (iii) the failure of either Borrower to keep or perform any of the covenants or agreements contained herein (other than those referred to in clause (ii) above) two Business Days after the date the Borrowers receive written notice from an Agent of any such failure (the “Notice Period”), provided that in the event any such failure is remedied within the Notice Period, such failure shall not constitute a Forbearance Default, (iv) any representation or warranty of either Borrower herein shall be incorrect when made or deemed made in any material respect, (v) the Borrower and the proposed Investors (the “Investors”) referred to in the Series A Preferred Stock Proposal Summary dated October 3, 2001 (the “Proposal”) do not execute a commitment letter or definitive documentation consistent with the Proposal in form and substance acceptable to the Agents on or before December 10, 2001 and (vi) the U.S. Borrower and the Subordinated Note Holders holding in excess of 66 2/3% in face amount of the Subordinated Notes do not enter into a “lock-up” agreement consistent with the “Term Sheet for Restructuring of Bond Debt” which is Exhibit B to the Senior Debt Term Sheet in form and substance satisfactory to the Agents on or before November 20, 2001.

(b)           Nature of the Forbearance.  The forbearance set forth herein is limited and shall not be deemed (i) a waiver of any Default or Event of Default, including the Existing Defaults, which now exist or may hereafter arise, (ii) a forbearance with respect to any term, condition or obligation of the Borrowers in the Credit Agreement or any other Loan Document other than the Existing Defaults, (iii) a waiver of any of the conditions precedent to Credit Extensions contained in Section 7.2 of the Credit Agreement or (iv) subject to the terms contained herein, to prejudice any right or remedy which any Agent or any Lender may now or in the future have under or in connection with the Credit Agreement or any other Loan Document.

Section 2.  Conditions Precedent to Effectiveness of Agreement.  This Agreement shall not be effective unless and until each of the following conditions shall have been satisfied in the sole discretion of the Agents:

(a)           The Agents shall have received (i) counterparts of this Agreement duly executed by each of the Borrowers and the Required Lenders and (ii) an Affirmation and Consent, in form and substance satisfactory to the Agents, duly executed by each of the Guarantors.

(b)           The Agents shall have received, for the pro rata benefit of the Lenders executing this Agreement on or before November 6, 2001 (the “Consenting Lenders”), a forbearance fee of $175,000, which shall be fully earned when paid and nonrefundable.

(c)           The Agents shall have been reimbursed for the unpaid fees and expenses incurred through the date hereof of its professionals, including the unpaid fees and expenses of Luskin, ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, PricewaterhouseCoopers LLP, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & White, LLC (“CBW”) and Hunton & ▇▇▇▇▇▇▇▇.

Section 3.  Representations and Warranties.  The Borrowers hereby represent and warrant to the Agents and to the Lenders as follows:

(a)           Recitals.  The Recitals in this Agreement are true and correct in all respects.

(b)           Incorporation of Representations and Statements.  All statements of the Borrowers contained in Section 7.2.1 of the Credit Agreement, and all representations and warranties of the Borrowers in the Credit Agreement and the other Loan Documents, are incorporated herein in full by this reference and are, other than with respect to the Existing Defaults, true and correct as of the date hereof in all material respects.

(c)           Power; Authorization.  Each of the Borrowers has the corporate power, and has been duly authorized by all requisite corporate action, to execute and deliver this Agreement and to perform its obligations hereunder.  This Agreement has been duly executed and delivered by the Borrowers.

(d)           Enforceability.  This Agreement is the legal, valid and binding obligation of each of the Borrowers, enforceable against them in accordance with its terms.

(e)           No Violation.  The execution, delivery and performance of this Agreement does not and will not (i) violate any law, rule, regulation or court order to which either of the Borrowers is subject, (ii) conflict with or result in a breach of any Organic Document of the Borrowers or any agreement or instrument to which either of the Borrowers is party or by which it or its properties are bound, or (iii) result in the creation or imposition of any Lien, security interest or encumbrance on any property of either of the Borrowers, whether now owned or hereafter acquired, other than liens in favor of the Agents.

(f)            Obligations.  As of the date hereof the outstanding principal balance of the U.S. Revolving Loans is $90,867,415.83; U.S. Letter of Credit Outstandings is $11,902,372 (of which $1,600,000 is cash collateralized under the terms of a Cash Collateral Agreement dated as of April 16, 2001); Term B Loans is $65,125,196.41; Term C Loans is $62,274,581.93; Term D Loans is $29,254,342.26; Canadian Revolving Loans is Cdn.$28,739,529.87; Canadian Swingline Loans is Cdn.$230,000; and Canadian Term Loans is Cdn.$16,544,824.21.  Interest and fees have accrued thereon as provided in the Credit Agreement and the other Loan Documents.  The obligation of the Borrowers to repay the Loans, together with all interest and fees accrued thereon, and the other Obligations is absolute and unconditional, and there exists no right of set off or recoupment, counterclaim or defense of any nature whatsoever to payment of the Obligations.

Section 4.  Covenants of Borrowers.  The Borrowers agree as follows:

(a)           Forecasts.  By no later than 4:00 p.m. on the second Business Day of each week, the Borrowers will deliver to the Agents updated weekly rolling cash flow forecasts for the following twelve week period, together with an actual to forecast variance analysis for the preceding week, which forecasts shall also include a certification from an Authorized Officer of the U.S. Borrower representing to the information required pursuant to paragraph (c) below.

(b)           U.S. Balance Sheets.  Within 30 days after the end of each month, the Borrowers will deliver to the Agents consolidated and consolidating balance sheets of the U.S. Borrower and its Subsidiaries (including consolidating balance sheets of the Canadian Borrower and its Subsidiaries) as of the end of such month, and consolidated and consolidating statements of earnings and cash flow of the U.S. Borrower and its Subsidiaries (including consolidating statements of earnings and cash flow of the Canadian Borrower and its Subsidiaries) for such month and for the period commencing at the end of the previous Fiscal Year and ending with the last day of such month.

(c)           Disbursements, etc.  The Borrowers will not permit cumulative (from September 1, 2001) disbursements for all applicable months, as set forth in the Borrowers’ September 18, 2001 rolling 13-week forecast, as may be revised with the approval of CBW (the “Forecast”), to exceed 110% of the cumulative (from September 1, 2001) amounts set forth therefor in the Forecast and will not permit the cash balance at the end of any month to be less than 90% of the cash balance set forth in the Forecast for such month.  The Borrowers agree that all payments or disbursements to an Affiliate or employee of a Borrower (including Severance Payments (as defined below)) inconsistent with the Forecast or which are otherwise outside of the ordinary course of business must be approved in advance by ▇▇▇▇▇ ▇▇▇▇▇.

(d)           Cooperation.  The Borrowers agree to cooperate fully with the Agents, the Lenders and their professionals, including in connection with any audit or appraisal of the business, assets or financial condition of the Borrowers and their Subsidiaries, in all cases at the Borrowers’ expense.

(e)           Payment of Fees.  In addition to and not in limitation of the terms of Section 12.3 of the Credit Agreement, the Borrowers agree to pay on demand all reasonable fees and expenses of (i) the Agents and all professionals retained by the Agents or by Luskin, ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP (including special counsel engaged to review various litigation issues), and (ii) each Lender (other than the legal fees of each Lender expressly excepted from payment under Section 12.3 of the Credit Agreement), in each case incurred in connection with the Credit Agreement or this Agreement and the matters contemplated hereby and the restructuring of the Obligations, and whether incurred prior to or subsequent to the date hereof.

(f)            Bank Accounts.  Neither the Borrowers nor any of their Subsidiaries will maintain any checking, savings or other account at any bank or other financial institution, or any other account where money or securities may be deposited or maintained, other than the accounts specified in the Amended and Restated Perfection Certificate dated as of June 15, 2001 and the Control Agreement and First Amendment to Concentration Bank Agreement, dated as of August 20, 2001.

(g)           Suspension of Commitments.  The Commitments are suspended except that before the earlier of (x) the termination of the Forbearance Period or (y) the occurrence of a Default (other than an Existing Default), the U.S. Borrower may deliver a U.S Issuance Request to the U.S Issuer, and the U.S. Issuer shall (subject to the receipt by the U.S. Issuer of proper documentation therefor) issue a U.S. Letter of Credit with respect thereto in a stated amount of not more than $100,000, the beneficiary of which shall be American Express, in its capacity as the U.S. Borrower’s corporate travel vendor (or another corporate travel vendor to the U.S. Borrower), provided that contemporaneously with such issuance, the U.S Borrower shall permanently repay U.S. Revolving Loans to the U.S. Agent for the pro rata benefit of the U.S. Lenders in an amount not less than the stated amount of such U.S. Letter of Credit.

(h)           LIBOR Restrictions.  The outstanding principal amount of the Loans may not be continued as, or converted into, LIBO Rate Loans or Canadian BAs, as applicable.

(i)            Increased Interest.  The Applicable Margin shall in each case be maintained at a rate of 1% over that otherwise in effect in accordance with the terms of the Credit Agreement.

(j)            Restrictions on Indebtedness, Etc.  The Borrowers and their Subsidiaries are prohibited from incurring Indebtedness under clauses (d), (g), (h) or (l) of Section 9.2.2 of the Credit Agreement; making Investments under clauses (f), (i) or (j) of Section 9.2.5 of the Credit Agreement; redeeming shares of Capital Stock under clause (iii) of the proviso to Section 9.2.6 of the Credit Agreement; consummating acquisitions or mergers under clauses (b), (c) or (d) of Section 9.2.10 of the Credit Agreement; or paying any fees under clause (b) of Section 9.2.13 of the Credit Agreement.

(k)           Monthly Payment of Interest and Fees.  All interest for Base Rate Loans and Canadian Prime Rate Loans, and all Letter of Credit fees payable under Section 5.3.3 of the Credit Agreement, shall be payable in arrears on the fifteenth day of each month (instead of the Quarterly Payment Dates).

(l)            Canadian Balance Sheets.  Within 21 days after the end of each month, the Canadian Borrower will deliver to the Canadian Agent consolidated and consolidating balance sheets of the Canadian Borrower and its Subsidiaries as of the end of such month and consolidated statements of earnings and cash flow of the Canadian Borrower and its Subsidiaries for such month and for the period commencing at the end of the previous Fiscal Year and ending with the last day of such month.

(m)          Intercompany Dispositions.  The U.S. Borrower and its U.S. Subsidiaries will not, directly or indirectly, make any Investments (including intercompany loans or capital contributions) in or to the Canadian Borrower or any of the Canadian Borrower’s Subsidiaries, or sell, transfer, lease, contribute or otherwise convey (including by way of merger), or grant options, warrants or other rights (all collectively referred to as a “Disposition”) with respect to all or any part of their assets to the Canadian Borrower or any of the Canadian Borrower’s Subsidiaries other than in the ordinary course of business consistent with past practices.  The Canadian Borrower and its Subsidiaries will not, directly or indirectly, make any Investments (including intercompany loans or capital contributions) in or to (or pay dividends or make distributions to) the U.S. Borrower or any of the U.S. Borrower’s U.S. Subsidiaries, or make any Disposition with respect to all or any part of their assets to the U.S. Borrower or any of the U.S. Borrower’s U.S. Subsidiaries, other than in the ordinary course of business consistent with past practices.

(n)           Restrictions on Reallocation of Commitments.  The Borrowers’ right to reallocate the unused Canadian Revolving Loan Commitment Amount and the unused U.S. Revolving Loan Commitment Amount pursuant to, respectively, Sections 2.2.3 and 3.2.2 of the Credit Agreement is suspended.

(o)           Antitrust Proceeds.  Unless otherwise agreed to by the Required Lenders, including as to amount and application, concurrently with the receipt by either of the Borrowers or any of their Affiliates of any judgment, settlement or other proceeds or amounts, however characterized (with all of the foregoing collectively referred to as the “Proceeds”), arising from or in connection with any antitrust claims (the “Claims”) (including claims pending in (i) the United States District Court for the Central District of California styled ▇▇▇▇▇▇ Health Products Inc. ▇. ▇. ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ Ltd., et al., Case No. 99-09832-JSL and (ii) the United States District Court for the District of Columbia entitled In Re Vitamins Antitrust Litigation, MDL No. 1285, Misc. No. 99-0197, and all facts and circumstances at issue therein), the U.S. Borrower shall make, or cause to be made, a mandatory prepayment of the Loans in the amount of such Proceeds (with such prepayment being applied to the remaining Term Loan amortization payments pro rata in accordance with the amount of each such remaining Term Loan amortization payment) and the cash collateralization of all Letters of Credit and a corresponding reduction of each Revolving Loan Commitment Amount.  The Borrowers reaffirm and ratify the perfected security interest in the Claims and Proceeds of the Agents and the Lenders.

(p)           Restructuring.  The Borrowers will report to the Agents on a weekly basis with respect to the status of the documentation of their agreements with the Investors and the Subordinated Note Holders.  The Borrowers agree to continue to negotiate a restructuring of their indebtedness and liabilities in good faith with the Agents and the Lenders.

(q)           Chief Financial Officer.  The U.S. Borrower agrees to hire a chief financial officer of the U.S. Borrower (the “CFO”) who shall be reasonably satisfactory to the Agents and use good faith efforts to complete such hiring on or before December 31, 2001.  The Borrowers shall provide the Agents and CBW with access to the executive search firm retained in connection with the CFO search process and will direct such firm to fully cooperate with the Agents and CBW regarding all reasonable requests for information or documentation in connection therewith.  The Borrowers will continue to work in good faith with the Agents and their professionals to refine the description of the required qualifications, capabilities, role and authority of the CFO position.

(r)            Severance Agreements.  The Borrowers shall not enter into any severance agreement (a “Severance Agreement”) with, or similar arrangement providing for the payment of money or other consideration (a “Severance Payment”) to, any current or former employee in connection with the termination (under any circumstances) of such employee’s employment with a Borrower without the Agents’ prior written consent, which shall not be unreasonably withheld or delayed, provided that a Borrower may enter into a Severance and Release Agreement (a “Release”) which is contemplated by and executed in connection with a Severance Agreement existing on the date hereof, so long as such Release does not expand the rights of any employee under the related Severance Agreement.  The Borrowers will promptly deliver to the Agents copies of all Releases reasonably requested by the Agents or CBW and will not make any Severance Payments or enter into any Release without first providing 5 Business Days’ prior written notice to the Agents.  The Borrowers will not make any discretionary non-contractual Severance Payments without the Agents’ prior written consent.

(s)           Net Disposition Proceeds.  The Borrowers agree that notwithstanding anything to the contrary contained in the second sentence of the definition of “Net Disposition Proceeds” in the Credit Agreement, Net Disposition Proceeds shall exclude only an aggregate amount equal to $500,000 of proceeds of Permitted Dispositions received on or after July 1, 2001 through and until the termination of the Forbearance Period, provided that the proceeds of (i) any Permitted Disposition resulting in proceeds of less than $50,000 and (ii) the sale of Obsolete Inventory (as defined below), shall also be excluded from Net Disposition Proceeds and shall not be counted toward the $500,000 basket.  “Obsolete Inventory” shall mean inventory for which the U.S. Borrower took an inventory reserve for Fiscal Year 2001 or which comprises part of a discontinued product line, other than inventory transferred in connection with a sale of all of the stock, all or substantially all of the assets, or a division or other similar operating or administrative unit of a Borrower or a Subsidiary or Affiliate of a Borrower.  As part of the second weekly rolling cash flow forecast for any month, the U.S. Borrower shall deliver to the Agents, with respect to the prior month, a report certified by ▇▇▇▇▇ ▇▇▇▇▇, of the sales value, standard cost and inventory reserve associated with the Obsolete Inventory sold in such month.

(t)            Continued Compliance with Loan Documents.  Each of the Borrowers will continue to comply with all of its covenants and other obligations under the Credit Agreement and the other Loan Documents.

(u)           Disclosure Statement and Plan.  The U.S. Borrower shall deliver a draft of its disclosure statement and plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code to the Agents on or before November 20, 2001, and shall use commercially reasonable efforts to complete a disclosure statement and plan in form and substance satisfactory to the Agents by December 10, 2001.

The provisions contained in paragraphs (a), (c), (d), (f), (i), (o), (r), (s) and (u) above shall continue to and including the date of termination of the Forbearance Period (and shall terminate on such date) and the provisions contained in paragraphs (b), (e), (g), (h), (j), (k), (l), (m), (n), (p), (q) and (t) shall survive termination of the Forbearance Period.  Nothing in this Agreement, including paragraph 4(s) or the termination thereof, shall prejudice or otherwise affect the right of any party to argue that the sale of Obsolete Inventory by a Borrower does or does not constitute a Permitted Disposition or that the proceeds of any such sale do or do not constitute Net Disposition Proceeds, and no party shall assert in any proceeding or other context that terms of paragraph 4(s) or the termination thereof are relevant to any such argument.

Section 5.  Effect and Construction of Agreement.  Except as expressly provided herein, the Credit Agreement and the other Loan Documents shall remain in full force and effect in accordance with their respective terms, and this Agreement shall not be construed to:

(a)           impair the validity, perfection or priority of any Lien or security interest securing the Obligations;

(b)           waive or impair any rights, powers or remedies of any Agent or any Lender under the Credit Agreement or any other Loan Document upon termination of the Forbearance Period, with respect to the Existing Defaults or otherwise;

(c)           constitute an agreement by any Agent or any Lender or to require any Agent or any Lender to extend the Forbearance Period, or grant additional forbearance periods, or extend the term of the Credit Agreement or the time for payment of any of the Obligations; or

(d)           require any Lender to make any Loans or other extensions of credit to the Borrower.

In the event of any inconsistency between the terms of this Agreement and the Credit Agreement or any of the other Loan Documents, this Agreement shall govern.  The Borrowers acknowledge that they have consulted with counsel and with such other experts and advisors as they have deemed necessary in connection with the negotiation, execution and delivery of this Agreement.  This Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted.

Section 6.  Reference to and Effect on the Loan Documents.

(a)           Upon the effectiveness hereof, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the Credit Agreement, “thereunder,” “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended hereby.

(b)           This Agreement shall be a Loan Document.

Section 7.  Miscellaneous.

(a)           Further Assurances.  The Borrowers agree to execute such other and further documents and instruments as the Agents may request to implement the provisions of this Agreement.

(b)           Benefit of Agreement.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns.  No other person or entity shall be entitled to claim any right or benefit hereunder, including, without limitation, the status of a third-party beneficiary of this Agreement.

(c)           Integration.  This Agreement, together with the Credit Agreement and the other Loan Documents, constitutes the entire agreement and understanding among the parties relating to the subject matter hereof, and supersedes all prior proposals, negotiations, agreements and understandings relating to such subject matter.  In entering into this Agreement, the Borrowers acknowledge that they are relying on no statement, representation, warranty, covenant or agreement of any kind made by any Agent, any Lender or any employee or agent of any Agent or any Lender, except for the agreements of the Agents and the Lenders set forth herein.

(d)           Severability.  The provisions of this Agreement are intended to be severable.  If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or enforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions of this Agreement in any jurisdiction.

(e)           Counterparts; Telecopied Signatures.  This Agreement may be executed in any number of counterparts and by different parties to this Agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement.  Any signature delivered by a party by facsimile transmission shall be deemed to be, and effective as, an original signature hereto.

(f)            Notices.  Any notices with respect to this Agreement shall be given in the manner provided for in Section 12.2 of the Credit Agreement.

(g)           Survival.  Except as otherwise provided herein, all representations, warranties, covenants, agreements, undertakings, waivers and releases of the Borrowers contained herein shall survive the termination of the Forbearance Period.

(h)           Amendment.  No amendment, modification, rescission, waiver or release of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the Borrowers, the Agents and the Required Lenders.

Section 8.  RELEASE OF CLAIMS.  EACH OF THE BORROWERS HEREBY ACKNOWLEDGES AND AGREES THAT IT DOES NOT HAVE ANY DEFENSES, COUNTERCLAIMS, OFFSETS, CROSS-CLAIMS, CLAIMS OR DEMANDS OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF THE LIABILITY OF THE BORROWERS TO REPAY ANY AGENT OR ANY LENDER AS PROVIDED IN THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM ANY AGENT OR ANY LENDER.  EACH OF THE BORROWERS HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES THE AGENTS AND THE LENDERS, AND EACH AGENT’S AND LENDER’S PREDECESSORS, AGENTS, EMPLOYEES, CONSULTANTS, ADVISORS, ATTORNEYS, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH THE BORROWERS MAY NOW OR HEREAFTER HAVE AGAINST ANY SUCH AGENT OR LENDER, AND SUCH AGENT’S OR LENDER’S PREDECESSORS, AGENTS, EMPLOYEES, CONSULTANTS, ADVISORS, ATTORNEYS, SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE CREDIT AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION AND EXECUTION OF THIS AGREEMENT.

Each of the Borrowers acknowledges and agrees that it understands the meaning and effect of Section 1542 of the California Civil Code which provides:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

EACH OF THE BORROWERS AGREES TO ASSUME THE RISK OF ANY AND ALL UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD DEFENSES, CLAIMS, CONTRACTS, LIABILITIES, INDEBTEDNESS AND OBLIGATIONS WHICH ARE RELEASED, WAIVED AND DISCHARGED BY THIS AGREEMENT.  EACH OF THE BORROWERS HEREBY WAIVES AND RELINQUISHES ALL RIGHTS AND BENEFITS WHICH IT MIGHT OTHERWISE HAVE UNDER THE AFOREMENTIONED SECTION 1542 OF THE CALIFORNIA CIVIL CODE OR ANY SIMILAR LAW, TO THE EXTENT SUCH LAW MAY BE APPLICABLE, WITH REGARD TO THE RELEASE OF SUCH UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD DEFENSES, CLAIMS, CONTRACTS, LIABILITIES, INDEBTEDNESS AND OBLIGATIONS.  TO THE EXTENT THAT SUCH LAWS MAY BE APPLICABLE, EACH OF THE BORROWERS WAIVES AND RELEASES ANY RIGHT OR DEFENSE WHICH IT MIGHT OTHERWISE HAVE UNDER ANY OTHER LAW OF ANY APPLICABLE JURISDICTION WHICH MIGHT LIMIT OR RESTRICT THE EFFECTIVENESS OR SCOPE OF ANY OF THEIR WAIVERS OR RELEASES HEREUNDER.

Section 9.  GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.  THE JURISDICTIONAL, VENUE AND SERVICE OF PROCESS PROVISIONS IN SECTION 12.14 OF THE CREDIT AGREEMENT AND THE JURY TRIAL WAIVER IN SECTION 12.15 OF THE CREDIT AGREEMENT SHALL APPLY TO ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

	▇▇▇▇▇▇ HEALTH PRODUCTS INC.
	By:
		Name:
		Title:
	VITA HEALTH PRODUCTS INC.
	By:
		Name:
		Title:

AGREED TO AND ACCEPTED
AS OF THE DATE FIRST
ABOVE WRITTEN:

THE BANK OF NOVA SCOTIA
As Canadian Agent and a Lender

 

By:
	Name:
	Title:

 

AGREED TO AND ACCEPTED
AS OF THE DATE FIRST
ABOVE WRITTEN:

THE BANK OF NOVA SCOTIA,
as the U.S. Agent and a Lender

 

By:
	Name:
	Title:

PRIVILEGED AND CONFIDENTIAL

10/30/01

▇▇▇▇▇▇ HEALTH PRODUCTS INC.

Term Sheet for Restructuring of Senior Debt

 

This Term Sheet is a draft for discussion purposes only and does not represent a commitment, obligation or understanding on the part of the Agents or any of the Lenders.  Neither the Agents nor any Lender shall be so obligated unless and until all internal credit approvals are sought and obtained, all definitive documentation is negotiated and executed and all conditions precedent are satisfied or waived.  The definitive documentation may contain terms which vary from the terms described herein. Capitalized terms used herein and not otherwise defined herein have the meaning given to them in the Amended and Restated Credit Agreement dated as of May 15, 1998 among ▇▇▇▇▇▇ Health Products Inc., Vita Health Products Inc., the financial institutions from time to time party thereto, the Bank of Nova Scotia as agent for the U.S. Lenders and as agent for the Canadian Lenders, ▇▇▇▇▇▇▇ ▇▇▇▇▇ Capital Corporation, as Documentation Agent and Salomon Brothers Holding Company, Inc. as Syndication Agent (as amended, the “Existing Credit Agreement”).

 

 

I.  RESTRUCTURING OF THE OBLIGATIONS
New Term A Loan
Principal Amount:		US $200,000,000 (to be split pro rata between U.S. Facility and Canadian Facility)
Maturity Date:		March 31, 2004, provided that the Borrower shall have the option to extend the Maturity Date for two one year periods upon payment of the applicable Extension Fee if there is no Event of Default.  The Maturity Date shall in no event extend beyond March 31, 2006.
Extension Fee:		1.25% of the outstanding principal amount of the New Term A Loan for the first one year extension.  2.0% of the outstanding principal amount of the New Term A Loan for the second one year extension.
Interest Rate:		U.S. Alternate Base Rate plus 2.25% (for U.S. Loans) and Canadian Prime Rate plus 2.25% (for Canadian Loans), payable monthly in arrears, subject to the following increases:
		(i)       (ii)	an increase of an additional .50%, if the Leverage Ratio is not equal to or less than (i) 5.00 to 1.00 by the end of 2003 Fiscal Year (March 31, 2003) or (ii) 4.00 to 1.00 by the end of 2004 Fiscal Year (March 31, 2004); and    an additional 1.0% on April 1, 2004.

 

Amortization:		Quarterly principal payments in the following amounts on the last Business Day of the following Fiscal Quarters (assuming the Maturity Date is extended until March 31, 2006):
		Fiscal Quarter Ended June 30, 2002 through March 31, 2003 June 30, 2003 through March 31, 2004 June 30, 2004 through December 31, 2005 March 31, 2006		US$ Amount/Quarter 1,000,000 2,000,000 3,000,000 remaining principal balance
		Payments shall be made pro rata between the U.S. Facility and Canadian Facility.
		Additional amortization payments equal to 50% of Excess Cash Flow (to be defined in the definitive documentation) paid annually in arrears commencing at the end of FY ’03, i.e., March 31, 2003.  Each Excess Cash Flow payment will reduce principal amortization payments in the inverse order of their maturity.
Mandatory Prepayment:		50% of cash generated by any permanent reduction in working capital, which shall be measured monthly.
New Term B Loan
Principal Amount:			US $79,000,000 (to be split pro rata between U.S. Facility and Canadian Facility).
Maturity Date:			September 30, 2003.
Interest:			LIBOR plus .50%, payable in cash, monthly in arrears.  In addition, an amount equal to 10% per annum shall be payable in kind, quarterly in arrears.
Board Rights:			At the closing of the restructuring, the existing stockholders agreement will be amended to provide that if the New Term B Loan is not paid in full on or before September 30, 2003 and the leverage ratio is equal to or greater than 5.5x, the Term B Loan Noteholders will be entitled to nominate a majority of the board of directors of the ultimate parent holding company of the U.S. Borrower (the “Parent”)1.  The stockholders will agree take all action necessary to elect such nominees.  The Term B Loan Noteholders will be express third party beneficiaries of the amended stockholders agreement.

1

The Parent is ▇▇▇▇▇▇ Health Products Group Inc.  The U.S. Borrower is a direct wholly owned subsidiary of PLI Holdings Inc., which in turn is the direct wholly-owned subsidiary of the Parent.

 

New Revolving  Loan			See Exhibit A.
Other Terms
Series B Junior Convertible Preferred:		Amount:  At the Closing of the restructuring, the Lenders will be issued Series B Junior Convertible Preferred Stock of the Parent convertible into common stock of the Parent representing an aggregate of 3% of the fully diluted equity of the Parent.
		Liquidation Preference: Upon the occurrence of any of the events that customarily would entitle the holders of preferred stock to a liquidation preference, including any merger, consolidation or sale of all or substantially all of the assets, or upon any Qualified IPO (as defined below), the holders of the Series B Junior Convertible Preferred will be entitled to receive, prior and in preference to any payment of any consideration to any holder of any equity security of the company junior to the Series B Junior Convertible Preferred and the Series C Junior Preferred (which will be issued to the bondholders as described in Exhibit B), an amount equal to $7.5 million.  A “Qualified IPO” means the closing of a firmly underwritten public offering of the company’s common stock for a total offering of not less than $150 million (after deduction of underwriters’ commissions and expenses).    At Closing and at all times thereafter, the Series B Junior Convertible Preferred will rank senior to any subsequently offered equity securities or other securities convertible or exchangeable into equity securities of the company with respect to liquidation preference, and the company will be prohibited from redeeming any such equity security as long as the Series B Junior Convertible Preferred remains outstanding.

 

		Registration Rights:  The Series B Junior Convertible Preferred and the common stock issuable upon conversion of such Preferred shall be subject to the existing stockholders agreement and the holders of such stock will have unlimited piggyback registration rights as set forth therein.
		Anti-dilution Protection:  Based on below fair market value issuances, with customary exceptions.
		Voting Rights:  On all relevant matters (other than as required by law) the Series B Junior Convertible Preferred will vote with the common and not as a separate class.  Each share of Series B Preferred shall have ____ votes.
Mandatory Prepayments:		The net proceeds from the Anti-trust Litigation will be applied against (i) all accrued but unpaid fees, (ii) accrued but unpaid Term Loan B (current pay) interest, (iii) Term Loan B PIK interest, (iv) Term Loan B principal, (v) accrued but unpaid Term Loan A interest, and (vi) Term Loan A principal.
Restructuring Fee:		1% of total outstanding principal payable at Closing
Continuation Fee:		1% of total outstanding principal payable on the first anniversary of the Closing and 0.75% of total outstanding principal payable annually commencing on the second anniversary of the Closing.
Collateral:		Same as under Existing Credit Agreement.
Covenants:		Covenant package to be negotiated.  Financial condition and operational covenants will be set with reference to the Borrower’s current business plan.
Permitted Dispositions:		Same as Existing Credit Agreement definition, as modified by the waivers and forbearance agreement.  Sales of inventory, including inventory reserved against in 2001 Fiscal Year and obsolete inventory, will constitute Permitted Dispositions but proceeds therefrom will not constitute Net Disposition Proceeds.
Conditions to Restructuring:		To be agreed upon, including (a) the Borrower’s agreement to use its best efforts to hire a CFO on or before December 31, 2001, who shall be reasonably satisfactory to the Agents; (b) the Lenders’ satisfaction with Borrowers’ agreement with other creditors; and (c) the Lenders’ satisfaction with terms of any agreement reached with third party equity source.
New Management Default:		Failure of the U.S. Borrower to replace the CEO, President, COO or CFO of the U.S. Borrower within 180 days of any such person’s termination of employment.  The U.S. Borrower will provide the Agents with access to the executive search firm retained in connection with the replacement search process and will direct such firm to fully cooperate with the Agents regarding all reasonable requests for information or documents in connection therewith.
Miscellaneous:		Other terms and conditions typical of this type of transaction including releases in favor of the Lenders and payment of all fees and expenses (including attorneys’ fees) of the Lenders.

 

II.  TREATMENT OF OTHER CREDITORS
Bondholders:		Outstanding bonds will be purchased for a combination of cash and preferred equity with funds made available by third party investors.  The terms and conditions of such purchase are set forth on Exhibit B.  The definitive documentation regarding of the equity to be issued to the third party investor shall be satisfactory to the Lenders in their sole discretion.  Without limiting the foregoing, any redemption, dividend or other liquidity rights given to the third party investors must be subordinate to the rights of the Lenders in their capacity as holders of the New Term A Loan and New Term B Loan, but not as holders of the Series B Junior Preferred.
Trade Creditors:		Trade will continue to be paid on a current basis, consistent with past practice.

 

III.  GENERAL
Timing:		Execution of mutually satisfactory documentation by December 15, 2001.
Forbearance Agreement		To be extended until December 15, 2001.
Documentation:		Voting Agreement, including: ·         Form of Second Amended and Restated Credit Agreement ·         Form of Series B Preferred Stock Certificate of Designation ·         Form of Amended Stockholders Agreement, including, registration rights ·         Approval of ·         Form of Series C Preferred Stock Certificate of Designation ·         Form of Series A Preferred Stock Purchase Agreement
Implementation:		Prepackaged or pre-arranged Chapter 11 filing.
Non Binding:		This term sheet is not intended to be legally binding on any of the parties hereto.

Exhibit A

 

▇▇▇▇▇▇ HEALTH PRODUCTS INC.

 

Term Sheet for New Revolving Credit Facility
Size:		U.S. $20,000,0002
Interest:		LIBOR plus 3%
Collateral:		Superpriority lien, excluding antitrust litigation proceeds
Maturity Date:		Same as New Term A Loan
Availability:		Borrowing Base less an amount equal to (i) $100,000,000 minus (ii) the aggregate amount of Term A Loan Prepayments that are based on permanent reductions in working capital.
Borrowing Base:		Based upon advance rates as follows:

2

This amount does not include Outstanding Letters of Credit in the amount of US $11,902,372, which shall remain outstanding following the Closing.

 

 

 

Up Front Fee:		2%
Unused Commitment Fee:		0.5%

Exhibit B

 

▇▇▇▇▇▇ HEALTH PRODUCTS INC.

 

Term Sheet for Restructuring of Bond Debt

 

The $85,000,000 of the 9 5/8% Senior Subordinate Notes due June 30, 2007 shall be exchanged for the following consideration: