<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-22018
CELESTIAL SEASONINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1097571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 SLEEPYTIME DRIVE, BOULDER CO 80301-3292
(Address of principal executive offices, including zip code)
(303) 530-5300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of July 31, 1997 the Registrant had 4,058,342 shares of
Common Stock, $0.01 Par Value, outstanding. This report on Form
10-Q contains 62 pages.
<PAGE>
CELESTIAL SEASONINGS, INC.
INDEX
-----
PART I - FINANCIAL INFORMATION
- ------------------------------
PAGE(S)
-------
ITEM 1. FINANCIAL STATEMENTS
Unaudited consolidated statements of operations 3
Unaudited consolidated balance sheets 4
Unaudited consolidated statements of cash flows 5
Notes to unaudited consolidated financial statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-11
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
PAGE 2
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Case volume 656 647 3,586 3,506
Net sales $ 11,589 $ 10,829 $ 63,123 $ 58,411
Cost of goods sold 5,188 4,989 23,129 22,494
-------- -------- -------- -------
Gross profit 6,401 5,840 39,994 35,917
Operating expenses:
Selling and marketing 4,915 4,768 27,195 23,675
General and administrative 945 850 3,064 3,055
Amortization of intangibles 320 361 967 1,103
-------- -------- ------- -------
Total operating expenses 6,180 5,979 31,226 27,833
Operating income (loss) 221 (139) 8,768 8,084
Interest expense 101 203 378 674
------- ------- ------- -------
Income (Loss) before income taxes 120 (342) 8,390 7,410
Income taxes 46 (206) 3,271 2,853
------- -------- ------- -------
Net income (loss) $ 74 $ (136) $ 5,119 $ 4,557
======= ======== ======= =======
Net income (loss) per
common share $ 0.02 $(0.03) $ 1.24 $ 1.11
======= ======= ======= =======
Weighted average common shares 4,135 4,131 4,131 4,116
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 3
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
--------- -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,696 $ 204
Accounts receivable, net of allowance
(June - $153 Sept. - $148) 4,987 8,133
Inventory 8,504 6,808
Deferred income taxes 149 7
Prepaid income taxes - 470
Prepaid expenses 279 889
------- -------
Total current assets 18,615 16,511
Property, plant and equipment, net 16,628 16,871
Intangible assets, net 13,184 13,514
Goodwill, net 6,220 6,430
Deferred income taxes 188 287
Other assets 999 1,290
-------- ------
Total assets $ 55,834 $ 54,903
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,285 $ 3,754
Accrued liabilities and wages 3,896 4,462
Accrued income taxes 712 -
Accrued interest payable 35 52
Current portion of long-term debt 350 361
------- -------
Total current liabilities 7,278 8,629
Long-term debt 6,185 9,057
Commitments
Stockholders' equity:
Common stock, $.01 par value -
authorized 15,000,000 shares;
June - issued 4,060,531 shares,
outstanding 4,051,631 shares
Sept. - issued 4,054,472 shares,
outstanding 4,049,472 shares 41 41
Capital surplus 33,405 33,290
Retained earnings 9,100 3,981
Treasury stock, 8,900 and 5,000 shares of common
stock at cost (175) (95)
------- -------
Total stockholders' equity 42,371 37,217
------- -------
Total liabilities and stockholders' equity $55,834 $54,903
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 4
<PAGE>
CELESTIAL SEASONINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
------------------
1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,119 $ 4,557
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 840 784
Amortization of intangibles 967 1,103
Amortization of financing fees 147 168
Deferred income taxes (43) 309
Changes in operating assets and liabilities:
Accounts receivable 3,146 20
Inventory (1,696) 138
Prepaid expenses 610 (72)
Accounts payable (1,469) (565)
Accrued liabilities and wages (566) (1,111)
Accrued income taxes 1,182 (37)
Accrued interest payable (17) (18)
------- -------
Net cash provided by operating activities 8,220 5,276
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (597) (966)
Increase in intangible assets (427) (485)
Decrease in other assets 144 89
------ -------
Net cash used in investing activities (880) (1,362)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 115 229
Acquisition of treasury stock (80) -
Increase in long-term debt 2,285 8,535
Reduction in long-term debt (5,168) (12,701)
------- --------
Net cash used in financing activities (2,848) (3,937)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,492 (23)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 204 375
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,696 $ 352
======= ========
CASH PAID FOR INTEREST $ 237 $ 492
CASH PAID FOR INCOME TAXES $ 2,132 $ 2,581
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
PAGE 5
<PAGE>
CELESTIAL SEASONINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Basis of Presentation - Each fiscal quarter includes
thirteen weeks. The Company's third fiscal quarter ends on
the last Saturday of June. For presentation purposes,
however, the third fiscal quarter is presented as if it
ended on June 30.
The unaudited consolidated financial statements include
the accounts of the Company and its subsidiaries.
Intercompany balances have been eliminated in consolidation.
Interim Financial Information - The financial
information contained herein is unaudited but includes all
normal and recurring adjustments which, in the opinion of
management, are necessary to present fairly the information
set forth. The unaudited consolidated financial statements
should be read in conjunction with the consolidated
financial statements which are included in the Company's
Annual Report on Form 10-K for the year ended September 30,
1996. The Company's business is seasonal; therefore, results
for interim periods are not necessarily indicative of
results to be expected for the fiscal year of the Company
ending September 30, 1997. The Company believes that the
report filed on Form 10-Q is representative of its financial
position, its results of operations and its cash flows for
the periods ended June 30, 1997 and 1996 covered thereby.
Earnings Per Share - During February 1997, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share." SFAS 128 establishes standards for
computing and presenting earnings per share (EPS), and
supersedes Accounting Principles Board Opinion No. 15 ("APB
15") and its related interpretations. It replaces the
presentation of primary EPS with a presentation of basic
EPS, which excludes dilution, and requires dual presentation
of basic and diluted EPS for all entities with complex
capital structures. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB 15. SFAS 128 is effective
for periods ending after December 15, 1997, including
interim periods, and will require restatement of all prior
period EPS data presented; earlier application is not
permitted. The following table sets forth pro forma earnings
per share in accordance with the requirements of SFAS 128
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic earnings per share
Net income per common share $ 0.02 $ (0.03) $ 1.26 $ 1.13
======= ======== ======= =======
Weighted average common shares 4,053 4,048 4,052 4,042
======= ======== ======= =======
Diluted earnings per share
Net income per common share $ 0.02 $ (0.03) $ 1.24 $ 1.11
======= ======== ======= =======
Weighted average common shares 4,135 4,131 4,131 4,116
</TABLE>
PAGE 6
<PAGE>
2. DETAIL OF INVENTORY ACCOUNTS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
-------- -------------
<S> <C> <C>
Raw materials and supplies $ 5,734 $ 4,486
Work in process 1,369 888
Finished goods 1,878 1,665
-------- -------------
8,981 7,039
Less inventory reserves 477 231
-------- -------------
Total $ 8,504 $ 6,808
======== =============
</TABLE>
3. LEGAL PROCEEDINGS
On May 5, 1995, a purported stockholder of the Company
filed a lawsuit, Schwartz v. Celestial Seasonings, Inc. et.
al., in the United States District Court for the District of
Colorado (Civil Action Number: 95-K-1045), in connection
with disclosures by the Company concerning the Company's
license agreement with Perrier Group of America, Inc. which
was terminated on January 1, 1995. In addition to the
Company, the complaint names as defendants certain of the
Company's present and former directors and officers,
PaineWebber, Inc., Shearson/Lehman Brothers, Inc., and
Vestar/Celestial Investment Limited Partnership. The
complaint, which was pled as a class action on behalf of
persons who acquired the Company's common stock from July
12, 1993 through May 18, 1994, sought money damages from the
Company and the other defendants for the class in the amount
of their loss on their investment in the Company's common
stock, punitive damages, costs and expenses of the action,
and such other relief as the court may order.
On November 6, 1995, the federal district court granted
a motion by the Company and the other defendants to dismiss
the case. The court's order became final on December 11,
1995, after the plaintiff failed to amend the complaint
within the time permitted by the district court. The
plaintiff has appealed the district court's decision to the
United States Court of Appeals for the Tenth Circuit and the
court has not rendered a decision on the appeal. Due to the
uncertainties inherent in the litigation process, the
Company is unable to predict the outcome of this matter.
PAGE 7
<PAGE>
CELESTIAL SEASONINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEASONALITY
The Company's business is seasonal and its quarterly results of
operations reflect the results of increased demand for the Company's
hot tea products in the cooler months of the year. The following
table sets forth selected unaudited quarterly consolidated financial
and operational data for the seven most recent quarters.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
Fiscal 1997 Fiscal 1996
------------------------- -----------------------------------
June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
------- ------- ------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Case sales 656 1,491 1,439 832 647 1,437 1,422
Net sales $11,589 $25,861 $25,673 $14,587 $10,829 $23,950 $23,632
Gross profit 6,401 16,994 16,599 8,536 5,840 15,195 14,882
Operating income
(loss) 221 4,969 3,578 906 (139) 4,929 3,294
Operating margin 1.9% 19.2% 13.9% 6.2% (1.3)% 20.6% 13.9%
Net income
(loss) $ 74 $ 3,007 $ 2,038 $ 466 $ (136) $ 2,841 $ 1,852
Percent of
fiscal year
net sales N/A N/A N/A 20.0% 14.8% 32.8% 32.4%
</TABLE>
The Company has experienced quarterly fluctuations in sales
volume and operating results when compared to previous years due to a
number of factors, including the timing of trade promotions,
advertising and consumer promotional expenditures. The Company, as is
common in the tea industry, offers trade promotions for limited time
periods on specific items in order to provide incentives for the
purchase and promotion of products. The timing and extent of such
trade promotions can have a significant impact on case sales from
period to period.
RESULTS OF OPERATIONS
The following table is derived from the Company's unaudited
consolidated income statements for the periods indicated and presents
(i) the results of operations as a percentage of net sales and (ii)
the percentage change in the dollar amounts of each item from the
prior period.
<TABLE>
<CAPTION>
Period-to-Period
Percentage of Net Sales Percentage Increase/(Decrease)
----------------------- ------------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996 1997 to 1996 1997 to 1996
---- ---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 7.0% 8.1%
Cost of goods
sold 44.8 46.1 36.6 38.5 4.0 2.8
----- ----- ----- -----
Gross profit 55.2 53.9 63.4 61.5 9.6 11.4
Selling and
marketing 42.4 44.0 43.1 40.6 3.1 14.9
General and
administrative 8.1 7.9 4.9 5.2 11.2 0.3
Amortization of
intangibles 2.8 3.3 1.5 1.9 (11.4) (12.3)
----- ----- ----- -----
Operating income
(loss) 1.9 (1.3) 13.9 13.8 N/A 8.5
Interest expense 0.9 1.9 0.6 1.1 (50.2) (43.9)
----- ----- ----- -----
Income (Loss)
before income
taxes 1.0 (3.2) 13.3 12.7 N/A 13.2
Income taxes 0.4 (1.9) 5.2 4.9 N/A 14.7
----- ----- ----- -----
Net income
(loss) 0.6% (1.3)% 8.1% 7.8% N/A 12.3%
===== ===== ===== =====
</TABLE>
PAGE 8
<PAGE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996
Net sales. Net sales for the three months ended June 30, 1997
increased 7.0% to $11.6 million from $10.8 million for the comparable
period in fiscal 1996. Case sales increased 1.4% to 656,000 cases
from 647,000 cases. Net sales and case sales growth was the result of
increased sales of the Company's herb and specialty black hot tea
products. This increase was partially offset by a decrease in sales
of the Company's iced tea products. The Company's nutraceutical
products contributed net sales of $0.9 million during the third
quarter of fiscal 1997, a 60.4% increase from fiscal 1996. This
increase was primarily due to the introduction of a new line of
nutraceutical products, Celestial Herbal Extracts.
Gross profit. Gross profit for the three months ended June 30,
1997 increased 9.6% to $6.4 million from $5.8 million for the
comparable period in fiscal 1996. The Company's gross profit margin
increased to 55.2% from 53.9% for the comparable prior year period.
The increase in gross margin was primarily due to higher gross
margins from the Company's nutraceutical products during fiscal 1997,
as compared to fiscal 1996, due to increased operational efficiencies
and more competitive inventory pricing.
Selling and marketing expenses. Selling and marketing expenses
for the three months ended June 30, 1997 increased 3.1% to $4.9
million from $4.8 million for the comparable period in fiscal 1996,
but decreased as a percentage of net sales to 42.4% from 44.0%. The
increase in selling and marketing expenses primarily was due to
increased trade promotion and advertising expenses. This increase
was partially offset by a decrease in consumer promotion expenses.
General and administrative expenses. General and administrative
expenses for the three months ended June 30, 1997 increased 11.2%
from the comparable period in fiscal 1996, and increased as a
percentage of net sales to 8.1% from 7.9%. This increase was
primarily due to costs incurred for the recruitment of a new
executive officer.
Amortization of intangibles. Amortization of intangibles,
including amortization of goodwill and other intangible assets, for
the three months ended June 30, 1997 decreased 11.4% from fiscal
1996. Amortization of intangibles was lower for fiscal 1997, as
compared to fiscal 1996, as certain intangible assets became fully
amortized or were written off. These reductions were partially offset
by increases in amortization on new additions to artwork and plates
resulting from the Company's continued development of new products
and improved packaging.
Operating income. The Company realized operating income of 1.9%
of net sales for the three months ended June 30, 1997 as compared to
an operating loss of 1.3% of net sales for the third quarter of
fiscal 1996. This increase was primarily due to increased net sales
and improved gross profit margins.
Interest expense. Interest expense for the three months ended
June 30, 1997 declined 50.2% from the comparable period in fiscal
1996 as a result of reduced outstanding borrowings. The Company
extinguished its bank debt during the first quarter of fiscal 1997.
Interest expense for the three months ended June 30, 1997 primarily
relates to Industrial Revenue Bonds which are secured by the
Company's facility and fees relating to continued availability of the
Company's bank credit facility.
Income taxes. The Company's effective income tax rate for the
three months ended June 30, 1997 was 38.3% as compared to 60.2% for
the comparable period in fiscal 1996. The rate decrease was due to
the recognition in 1996 of tax credits for prior years' amended
income tax returns, during a quarter in which the Company also
realized a pre-tax loss.
PAGE 9
<PAGE>
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE NINE MONTHS ENDED
JUNE 30, 1996
Net sales. Net sales for the nine months ended June 30, 1997
increased 8.1% to $63.1 million from $58.4 million for the comparable
period in fiscal 1996. Case sales increased 2.3% to 3,586,000 cases
from 3,506,000 cases. Net sales and case sales growth was the result
of increased sales of the Company's herb and specialty black hot tea
products in the Company's traditional channels of distribution, as
well as expansion in international markets. This increase was
partially offset by a decrease in sales of the Company's iced tea
products. Fiscal 1997 net sales of the Company's dry tea products
also reflect a price increase which was implemented during the third
quarter of fiscal 1996. The Company's nutraceutical products
contributed net sales of $2.4 million for the nine months ended June
30, 1997, a 56.5% increase from the comparable period in fiscal 1996.
Gross profit. Gross profit for the nine months ended June 30,
1997 increased 11.4% to $40.0 million from $35.9 million for the
comparable period in fiscal 1996. The Company's gross profit margin
increased to 63.4% from 61.5% for the comparable prior year period.
The increase in gross margin was primarily due to increased sales of
the Company's higher margin hot herb tea products. In addition, the
Company realized higher gross margins from its nutraceutical products
during fiscal 1997, as compared to fiscal 1996, due to increased
operating efficiencies and more competitive inventory pricing.
Selling and marketing expenses. Selling and marketing expenses
for the nine months ended June 30, 1997 increased 14.9% to $27.2
million from $23.7 million for the comparable period in fiscal 1996,
and increased as a percentage of net sales to 43.1% from 40.6%. The
increase in selling and marketing expenses primarily was due to
increased trade promotion and advertising expenses. This increase was
partially offset by a decrease in consumer promotion expenses.
General and administrative expenses. General and administrative
expenses for the nine months ended June 30, 1997 remained relatively
unchanged from the comparable period in fiscal 1996, and decreased as
a percentage of net sales to 4.9% from 5.2%.
Amortization of intangibles. For the nine months ended June 30,
1997, amortization of intangibles, including amortization of goodwill
and other intangible assets, decreased 12.3% from fiscal 1996.
Amortization of intangibles was lower for fiscal 1997, as compared to
fiscal 1996, as certain intangible assets became fully amortized or
were written off. These reductions were partially offset by increases
in amortization on new additions to artwork and plates resulting from
the Company's continued development of new products and improved
packaging.
Operating income. Operating income for the nine months ended
June 30, 1997 increased 8.5% from the comparable period in fiscal
1996, primarily due to increased net sales and improved gross profit
margins. Operating income as a percentage of net sales remained
relatively unchanged.
Interest expense. Interest expense for the nine months ended
June 30, 1997 declined 43.9% from the comparable period in fiscal
1996 as a result of reduced outstanding borrowings. The Company
extinguished its bank debt during the first quarter of fiscal 1997.
Interest expense for the nine months ended June 30, 1997 primarily
relates to Industrial Revenue Bonds which are secured by the
Company's facility and fees relating to continued availability of the
Company's bank credit facility.
Income taxes. Income tax expense for the nine months ended June
30, 1997 increased 14.7% from the comparable period in fiscal 1996.
The increase in income tax expense primarily was due to increased pre-
tax income.
PAGE 10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The operations of the Company historically have been funded with
a combination of internally generated funds and external borrowings.
Purchases of inventory, marketing expenditures and support of
accounts receivable have historically been, and are expected to
remain, the Company's principal recurring uses of funds for the
foreseeable future. The Company's other principal uses of funds in
the future will be the development of new or existing tea and
nutraceutical products, the possible acquisition of brands, product
lines or other assets and the repurchase of shares of common stock.
The Company expects its primary sources of financing for its future
business activities will be funds from operations plus borrowings
under the Company's credit facility. The Company currently believes
that funds from operations and funds expected to be available under
the Company's credit facility are likely to be sufficient to meet
operating and capital requirements unless a significant acquisition
is made. The Company currently has $20 million available under its
credit facility.
Cash and cash equivalents increased by $4.5 million for the nine
months ended June 30, 1997. Cash provided by operating activities was
$8.2 million for the nine months ended June 30, 1997. The Company's
investing activities used cash of $0.9 million for the nine months
ended June 30, 1997. Investing activities included capital
expenditures of approximately $1.0 million during the nine months
ended June 30, 1997, including $0.6 million primarily for factory and
computer equipment and $0.4 million for the design and development of
new packaging artwork. The Company anticipates making capital
expenditures of approximately $1.75 million in fiscal 1997. Financing
activities of the Company used cash of $2.8 million for the nine
months ended June 30, 1997, principally for the extinguishment of
bank debt.
OTHER DEVELOPMENTS
Effective June 16, 1997, the Company appointed Stephen B. Hughes
to the position of President and CEO. Founder, Mo Siegel, will remain
active with the Company as Chairman. Mr. Hughes comes to the Company
having most recently been Executive Vice President and General
Manager of Tropicana/Dole USA.
The Company incurred legal expenses of approximately $647,000
during the nine months ended June 30, 1997 associated with a lawsuit
against a competitor relating to trade dress infringements and unfair
competition claims. On January 13, 1997, judgment was entered in the
United States District Court for the District of Colorado which
absolved the competitor of any claims, and there were no monetary
damages assessed. The Company did not incur any legal costs
associated with this lawsuit during the quarter ended June 30, 1997.
The statements contained in this Quarterly Report on Form 10-Q
which are not historical facts, including, but not limited to,
statements found under the captions "Results of Operations,"
"Liquidity and Capital Resources" and "Other Developments," above,
are forward-looking statements that involve a number of risks and
uncertainties. The actual results of the future events described in
such forward-looking statements could differ materially from those
stated in such forward-looking statements. Among the factors that
could cause actual results to differ materially are the risks and
uncertainties discussed in this Quarterly Report, including, without
limitation, the portions of such reports under the captions
referenced above, and the uncertainties set forth from time to time
in the Company's filings with the Securities and Exchange Commission,
and other public statements. Such risks and uncertainties include,
without limitation, seasonality, interest in the Company's products,
general economic conditions, consumer trends, costs and availability
of raw materials, competition and the effect of governmental
regulation.
PAGE 11
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The information in Note 3 to the Unaudited Consolidated Financial
Statements included in Part I is incorporated herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
--------
Exhibit
No.
- -------
10.1 - Employment Agreement dated June 16, 1997 between
Registrant and Stephen B. Hughes.
10.2 - Executive Agreement dated June 16, 1997 between
Registrant and Mo Siegel.
10.3 - Stock Option Agreement dated June 16, 1997 between
Registrant and Stephen B. Hughes.
10.4 - Option Agreement dated June 13, 1997 between
Registrant and Mo Siegel.
23.1 - Report of Deloitte & Touche LLP on consolidated
financial statements.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K for the quarter ended June 30,
1997.
PAGE 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CELESTIAL SEASONINGS, INC.
(Registrant)
August 8, 1997 By: /s/ Darrell F. Askey
---------------------
Darrell F. Askey
Vice President - Finance, Secretary and
Treasurer
(Principal Financial Officer)
PAGE 13
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed pursuant to Item 601 of Regulation S-K.
Sequentially
Exhibit Numbered
No. Description Pages
- ------- ----------- ------------
10.1 - Employment Agreement dated June 16, 1997
between Registrant and Stephen B. Hughes. 15-33
10.2 - Executive Agreement dated June 16, 1997 between
Registrant and Mo Siegel. 34-47
10.3 - Stock Option Agreement dated June 16, 1997
between Registrant and Stephen B. Hughes. 48-56
10.4 - Option Agreement dated June 13, 1997 between
Registrant and Mo Siegel. 57-61
23.1 - Report of Deloitte & Touche LLP on consolidated
financial statements. 62
PAGE 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CELESTIAL SEASONINGS, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
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<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT, dated as of June 16, 1997 is entered into by and
between Celestial Seasonings, Inc., a Delaware corporation (the "Company") and
Stephen B. Hughes ("Executive").
TERMS AND CONDITIONS
In consideration of the respective covenants and agreements of the
parties contained in this Agreement, the parties agree as follows:
1. EMPLOYMENT SERVICES. The Company hereby agrees to employ
Executive, and Executive hereby agrees to perform services for the Company, on
the terms and conditions set forth in this Agreement. During the Employment
Period (as defined below), the Company and Executive agree that Executive will
serve as Chief Executive Officer and President of the Company, and Executive
will perform such duties as are customarily performed by chief executive
officers as the Board of Directors of the Company (the "Board") may from time to
time direct (the "Employment Services"). Executive shall report to the Board or
a committee of the Board, as determined by the Board. Executive shall carry out
his duties faithfully, consistent with his fiduciary duties and to the best of
his ability, and shall comply with the Board's established policies, procedures
and rules and with all applicable laws, rules and regulations. The Employment
Services shall commence on June 16, 1997 and terminate as provided in Section 6
(the "Employment Period").
2. PERFORMANCE. Executive shall devote substantially all of his
time and efforts to the performance of his duties as specified in Section 1, and
Executive will not engage in any other business (whether or not pursued for
profit, gain or other advantage) or take any other positions which would, in the
aggregate, require any substantial portion of his time and attention. Nothing
in this Section shall be construed as preventing Executive from (a) investing
his personal assets in businesses which do not compete with the Company or any
of its Affiliates (defined for purposes of this Agreement as any of the
Company s present or future, direct or indirect, majority-owned subsidiaries) in
such form or manner as will not require any services on the part of Executive in
the operation or the affairs of the companies in which such investments are made
and in which his participation is solely that of an investor, or (b) purchasing
securities in any corporation whose securities are publicly traded, provided
that such purchase shall not result in his collectively owning beneficially at
any time three percent (3%) or more of the equity securities of any corporation
PAGE 15
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engaged in a business that competes with the Company or any of its Affiliates,
or (c) serving as a member of the board of directors of other companies.
3. COMPENSATION. During the Employment Period, the Company will
pay Executive for his Employment Services a base salary at the annual rate of
$295,000 during calendar year 1997, and $315,000 commencing January 1, 1998
("Base Salary"), payable in installments in accordance with the Company s
policies. The Base Salary shall be reviewed annually, commencing during the
Company's 1998 - 1999 fiscal year, and may be increased from time to time, by
the Compensation Committee of the Board. In addition, Executive shall be
eligible to participate in a bonus program on terms and conditions set by the
Compensation Committee of the Board and agreed to by Executive, with a target
bonus of 50% of Base Salary and a maximum bonus of 100% of Base Salary.
Executive shall receive (i) nonqualified stock options to purchase 215,000
shares of the Company's common stock, par value $.01 per share, at an exercise
price equal to the closing price of the Company's common stock on the NASDAQ
National Market on the first day of the Employment Period, and (ii) a grant of
15,000 restricted shares. Such options will vest, and restrictions lapse, at
20% after the first year and 20% annually thereafter. Such options and
restrictions will be evidenced by the two option agreements and the restricted
stock agreement attached hereto as Exhibits A, B and C. Subject to the sole
discretion of the Board and the Board's Compensation Committee, Executive shall
be eligible for additional grants of options commencing 24 months after the date
of this Agreement. The Company may withhold from any amounts payable to
Executive such federal, state or local taxes as may be required to be withheld
pursuant to any applicable law or regulation and any amounts required to be
withheld in connection with Executive's receipt of stock based compensation or
participation in benefit plans.
4. REIMBURSEMENT FOR EXPENSES. The Company agrees to pay
reasonable out-of-pocket expenses incurred by Executive in furtherance of or in
connection with the business of the Company and in accordance with the Company's
policies. If such expenses are paid in the first instance by Executive, the
Company will arrange for Executive's reimbursement upon receipt of appropriate
vouchers and receipts in accordance with the Company's policies.
5. BENEFITS.
(a) Executive shall be entitled to receive all fringe benefits
offered by the Company, on the same basis as made available to senior executives
of the Company during the Employment Period. Such fringe benefits shall include
participation in any hospitalization, dental, medical insurance or other benefit
policies or plans maintained for their employees by the Company, and such other
benefits as may from time to time be made available to Executive. In addition,
the Company shall provide Executive with a leased automobile, subject to a
PAGE 16
<PAGE>
maximum expense of $7500. Executive shall receive a $250,000 life insurance
policy in addition to the Company s standard life insurance coverage. Executive
shall be entitled to four (4) weeks of paid vacation at any time during the
first year of the Employment Period and will accrue four (4) weeks of paid
vacation during each succeeding full year of the Employment Period. Executive
may carry over up to four (4) weeks of vacation from one year to the next.
Company policies, restrictions or limitations applicable to fringe benefits
available to the Company's employees shall not apply to Executive to the extent
such policies, restrictions or limitations conflict with the terms of this
Agreement.
(b) In connection with Executive's relocation from Florida to
Colorado, the Company will reimburse Executive in cash for (i) the reasonable
costs of moving Executive s household goods and automobile(s), (ii) reasonable
travel expenses incurred by Executive and his family, (iii) up to sixty (60)
days of temporary housing, subject to increase by the Compensation Committee of
the Board if deemed justified, in the Committee s sole discretion, (iv) up to
two house hunting trips not to exceed seven (7) calendar days per trip, (v)
closing costs and points of up to 2.25% in connection with the purchase of a new
house in Colorado, and (vi) transfer taxes and documentary fees in connection
with Executive's sale of his home in Florida not to exceed 0.7% of the sale
price. If Executive purchases a new home in Colorado prior to sale of
Executive s home in Florida, the Company will provide Executive with an interest
free loan of up to $1,500,000 to be used for the purchase of the home in
Colorado, secured, if requested by Executive or the Company, by Executive's home
in Florida and payable upon the earlier of sale of Executive s home in Florida
or 18 months after the closing of the purchase in Colorado. Executive
acknowledges and understands that the Company will not be obligated to reimburse
Executive for any real estate commissions paid in connection with Executive's
sale of his home in Florida.
6. TERMINATION OF EMPLOYMENT PERIOD.
(a) The Employment Period will continue until the earlier of (i)
the second anniversary of the date of this Agreement, (ii) Executive's death,
(iii) Executive's Disability (as defined in Section 7 of this Agreement),
(iv) Executive's termination by the Board for "Cause" (as defined in Section 7
of this Agreement) or (v) 30 days after Executive gives notice that he desires
to terminate the Employment Period, provided, however, that following the second
anniversary of the date of this Agreement, this Agreement shall automatically be
extended for one year periods unless either the Company or Executive gives
written notice, at least 90 days prior to the end of any scheduled term of this
Agreement, of its or his desire not to so extend this Agreement. If the Company
terminates the Employment Period without Cause, Executive shall be entitled to
the severance payments and benefits set forth in Section 7 as liquidated damages
for such action.
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(b) If either (i) the Company shall terminate Executive for Cause
or (ii) Executive shall resign for Good Reason (as defined in Section 7), then
any such termination shall be communicated by written notice to the other party
to this Agreement. Any such notice shall specify (i) the effective Termination
Date (as defined below), which shall not be more than 30 days after the date the
notice is delivered; and (ii) in reasonable detail the facts and circumstances
underlying a determination that the termination is for Cause or for Good Reason,
as the case may be. If within 15 days after any notice is given, the party
receiving such notice notifies the other party that a good faith dispute exists
concerning the characterization of the termination, the Termination Date shall
be the date on which such dispute is finally resolved either by written
agreement of the parties or by a final arbitration or by a final judicial
determination. Notwithstanding the pendency of any such dispute, until such
dispute is finally resolved, the Company shall continue Executive and his
dependents as participants, on the same basis as before the Termination Date, in
all medical, dental and any other health insurance and similar benefit plans of
the Company in which he and they participated when the notice giving rise to the
dispute was given. Benefits provided under this Section 6 are in addition to
all other amounts due under Section 7 of this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
7. SEVERANCE PROVISIONS.
(a) As used in this Agreement, the following terms shall be
defined as follows:
(i) Prior to a Change of Control, "Cause" shall mean
Executive's refusal or failure to perform his obligations under this
Agreement; acts or omissions by Executive constituting gross neglect or
dereliction of his duties; dishonesty or fraud by Executive in connection
with any dealings with the Board or the Company's Affiliates; dishonesty
or fraud by Executive that is materially injurious to the Company or its
Affiliates; a conviction of any criminal violation involving dishonesty,
fraud or breach of trust or any felony; other acts or omissions by
Executive which are materially injurious to the Company or any of its
Affiliates; or Executive's reaching any mandatory retirement age of at
least 70 which may be established by the Company for all senior
executives. Following a Change of Control, Cause shall mean Executive's
conviction of any criminal violation involving dishonesty, fraud or breach
of trust or any felony, Executive's willful engagement in gross misconduct
in the performance of his duties that materially and adversely affects the
financial condition of the Company, or Executive's reaching any mandatory
retirement age of at least 70 which may be established by the Company for
all senior executives.
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(ii) "Change of Control" shall mean an event involving the
Company of a nature that would be required to be reported in response to
Item 5(f) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), whether or
not the Company is then subject to such reporting requirement; provided
that, without limiting the generality of the foregoing, such an event
shall be deemed to have occurred if:
(A) there shall be consummated a Disposition
Transaction;
(B) the stockholders of the Company approve any plan
or proposal for the liquidation or dissolution of the Company;
(C) as a result of, or in connection with, any cash
tender offer, exchange offer, merger or other business combination,
sale of assets or Substantial Stock Accumulation, the members of the
Board immediately prior to the first public announcement relating to
such event shall thereafter cease to constitute a majority of the
Board; or
(D) as a result of, or in connection with, any proxy
or consent solicitation or contested election, one or more members
of the Board are elected in opposition to the nominees of the Board.
(iii) "Disability" shall be deemed to occur if Executive, by
reason of physical or mental incapacity, becomes unable to perform his
normal duties for more than 180 days in the aggregate (excluding
infrequent and temporary absence due to ordinary transitory illness)
during any 12-month period.
(iv) "Disposition Transaction" shall mean (A) any
consolidation or merger of the Company in which the Company is not the
surviving or continuing corporation or pursuant to which shares of the
Company's common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's common stock immediately prior to the merger have (directly or
indirectly) at least an 80% ownership interest in the outstanding common
stock of the surviving corporation immediately after the merger, (B) the
acquisition by any person of a majority of the outstanding voting
securities of the Company in a single transaction or series of related
transactions, or (C) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all, of the assets of the Company.
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(v) "Good Reason" shall mean the occurrence, following a
Change of Control, of any one of the following events without Executive's
consent:
(A) the Company assigns Executive to any duties
substantially inconsistent with his position, duties,
responsibilities, status or reporting responsibility with the
Company immediately prior to the Change of Control, or assigns
Executive to a position that does not provide Executive with
substantially the same or better compensation, status,
responsibilities and duties as Executive enjoyed immediately prior
to the Change of Control;
(B) the Company reduces the amount of Executive's Base
Salary as in effect as of the date of the Change of Control or as
the same may be increased thereafter from time to time, except for
across-the-board salary reductions similarly affecting all senior
executives of the Company;
(C) the Company fails to pay Executive an annual bonus
consistent with past practices and such bonuses are paid to any
other senior executives of the Company;
(D) the Company modifies either the proportion of
Executive's annual bonus that is based upon the Company's financial
performance for the preceding year or the percentage of Executive's
annual bonus attributable to the performance levels;
(E) the Company changes the location at which
Executive is employed by more than 50 miles from the location at
which Executive is employed as of the date of this Agreement; or
(F) the Company breaches this Agreement in any
material respect, including without limitation failing to obtain a
succession agreement from any successor to assume and agree to
perform this Agreement, as contemplated by this Agreement.
PAGE 20
<PAGE>
(vi) "Reemployment" shall mean the Executive's being employed
(including self employment) by a person other than the Company or its
Affiliates.
(vii) A Substantial Stock Accumulation shall be deemed to
have occurred when any "person" or "group" (as such terms are used in
Section 13(d) and 14(d) of the Exchange Act), is or becomes, after the
date of this Agreement, the "Beneficial Owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the
Company's then outstanding voting securities.
(viii) "Termination Date" shall mean the date Executive
ceases to be employed by the Company.
(b) Subject to the conditions set forth in this Agreement, if
either (i) the Company shall terminate Executive without Cause (other than by
reason of death, Disability, or following the expiration of this Agreement by
its terms) or (ii) Executive shall resign following a Change of Control for Good
Reason, then the Company shall make the following payments to Executive within
15 days after the Termination Date (in the case of (i) and (ii) below) and
provide the following benefits to Executive after the Termination Date (in the
case of (iii), (iv), (v) , (vi) and (vii) below), subject in each case to any
applicable payroll or other taxes required to be withheld:
(i) The Company shall pay Executive a lump sum amount in
cash equal to two (2) times Executive's Base Salary at the Termination
Date, plus two (2) times Executive s average bonus during the two years
immediately preceding the Termination Date.
(ii) The Company shall pay Executive a lump sum amount in
cash equal to accrued but unpaid salary and bonus through the Termination
Date, and unpaid salary with respect to any vacation days accrued but not
taken as of the Termination Date.
(iii) The Company shall continue to provide Executive medical,
dental and any other health insurance, life insurance, accidental death
and dismemberment insurance and disability protection on terms no less
favorable to Executive and his dependents covered thereby (including with
respect to any costs borne by Executive) than the greater of (i) the
coverage provided on the date of the Change of Control or (ii) the
coverage provided by Company immediately prior to the Termination Date.
Such benefits shall be provided for the period beginning on the
Termination Date and ending on the first to occur of (i) the date of
Executive's Reemployment in a position providing substantially the same or
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greater benefits as Executive's assignment with the Company on the
Termination Date, or (ii) the second anniversary of the Termination Date.
(iv) The Company shall pay to Executive a lump sum amount in
cash equal to the unvested portion of the Company's contributions to
Executive's account under any of the Company's plans that are "qualified"
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), to which the Company makes contributions to employee accounts in
effect as of the Termination Date (the "Plans"), plus an amount in cash
equal to two (2) times an amount equal to the amount of the Company's
annual contribution on behalf of Executive pursuant to the Plans as in
effect on the date of the Change of Control or the Termination Date,
whichever is greater. For purposes of this Section, the Company's
matching contributions to the Plans shall be deemed to be at the maximum
percentage contribution to which Executive could be entitled under the
Plans.
In addition, within 15 days after the Termination Date,
Executive shall be paid in cash an amount equal to the Company's matching
contributions determined pursuant to the Plans as in effect on the date of
the Change of Control or the Termination Date, whichever is greater, which
would have accrued to the benefit of Executive had he continued his
participation in, and elected to make the maximum contributions under, the
Plans for the period of 24 months from the Termination Date or until
December 31 of the year in which Executive would reach age 65, whichever
is the shorter period. The benefits received by Executive pursuant to
this Section are in addition to any benefits that were vested prior to the
Termination Date in accordance with the terms of the Plans.
(v) Within 15 days after the Termination Date, the Company
shall pay to Executive (i) an amount in cash equal to the vested and
unvested amounts that have been credited to Executive's account or
accounts under any deferred compensation plan that the Company maintains
for its employees as of the Termination Date whether or not then vested,
plus (ii) an amount equal to the total amount required to be, or actually,
credited to Executive's account, including interest equivalents, for the
year in which the Termination Date occurs.
(vi) Within 15 days after the Termination Date, Company shall
select and engage at Company's expense a nationally recognized executive
placement firm reasonably satisfactory to Executive to provide
outplacement consulting services to Executive until the first to occur of
the date of Executive's Reemployment and the second anniversary of the
Termination Date.
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(vii) Simultaneously within the Termination Date, the Company
shall accelerate the vesting of any unvested stock options, up to a total
of 115,000 options, and eliminate restrictions on any restricted stock, up
to a total of 10,000 shares (as such numbers are appropriately adjusted by
the Board to reflect any stock splits, stock dividends and similar
transactions).
(c) Executive is not required to seek other employment or
otherwise mitigate the amount of any payments to be made by the Company pursuant
to this Agreement. Except as otherwise provided in this Agreement, the amount
of any payments or other benefits provided for in this Agreement shall not be
reduced by any compensation earned by Executive as the result of Reemployment
after the Termination Date, or otherwise.
8. CONFIDENTIALITY AND PROPRIETARY RIGHTS.
(a) Executive recognizes and acknowledges that the Company and its
Affiliates' trade secrets and proprietary information and procedures, as they
may exist from time to time, are valuable, special and unique assets of the
Company and its Affiliates' business, access to and knowledge of which are
essential to the performance of Executive's duties hereunder. Executive agrees
to hold as the Company and its Affiliates' property, all memoranda, books,
papers, letters, formulas and other data, and all copies thereof and therefrom,
in any way relating to the Company and its Affiliates' business and affairs,
whether made by him or otherwise coming into his possession, and on termination
of his employment, or on demand of the Company or any of its Affiliates, at any
time, to deliver the same to the Company or any of its Affiliates.
(b) Executive hereby agrees he will not at any time during his
employment or thereafter disclose to any third party (other than in the ordinary
course of business of the Company or any of its Affiliates) or use for the
benefit of himself or any third party any Confidential Information (as such term
is defined in Section 8(d) below) without prior written authorization of the
Company or one of its Affiliates.
(c) Executive hereby sells, transfers and assigns to the Company
all of his entire right, title and interest to the Proprietary Rights (as such
term is defined in Section 8(e) below) and agrees to promptly take all action
and sign and deliver all instruments as the Company or any of its Affiliates may
require at any time hereafter (i) to vest or perfect in the Company and its
successors, assigns and nominees all right, title and interest in and to the
Proprietary Rights; (ii) to assist the Company or any of its Affiliates in
filing or prosecuting any application for registration, in Executive's name, the
Company's name, the name of any of its Affiliates or any other name, in any
country, for any patent, trademark, service mark, copyright, mask work or other
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registration on the Proprietary Rights, or any modification, reissue, division,
continuation, revival or extension thereof; or (iii) in conducting any legal or
administrative proceedings for securing, protecting or enforcing any of the
foregoing or otherwise relating to the Proprietary Rights. Executive further
agrees to disclose to the Company or any of its Affiliates promptly all
information, details and data pertaining to the Proprietary Rights to the extent
such information, details or data are not presently known to the Company or any
of its Affiliates.
(d) As used in this Agreement, "Confidential Information" shall
mean information which is not generally known to the public in the form
available to Executive and which was or is used, developed or obtained by the
Company or any of its Affiliates relating to the business of the Company or any
of its Affiliates, or research and development, including, but not limited to,
all client or customer lists, marketing strategies and techniques, trade
secrets, engineering or other know-how or other information pertaining to the
financial condition, business, research and development or prospects of the
Company or any of its Affiliates.
(e) As used in this Agreement "Proprietary Rights" shall mean any
and all inventions, discoveries, research, engineering methods, systems,
formulas, designs, mask works, copyrights, software, data, processes, products,
projects, improvements and developments all whether or not published,
confidential, protected or susceptible of protection by patent, trademark,
service mark, copyright or other form of legal protection and whether or not any
attempt has been made to secure such protection, which were made, conceived or
reduced to practice at any time after the date of this Agreement by Executive or
by any other employee or consultant of the Company or any of its Affiliates, in
whole or in part at the expense of, on the premises of, with the assistance of
the employees or consultants of, with the equipment or supplies of, or with the
equipment or supplies of the employees or consultants of, the Company or any of
its Affiliates, and any and all other Confidential Information.
9. NON-COMPETITION AND NON-SOLICITATION AGREEMENT.
(a) In consideration of the Company's agreements as set forth in
this Agreement, Executive agrees that during his employment and for a period of
two (2) years thereafter (provided, however, that such two year period shall be
extended by any period during which Executive is in violation of this Section
9), he will not in any way, directly or indirectly, except in the proper
exercise of his employment pursuant to this Agreement:
(i) engage in, represent, furnish consultant services to, be
employed by, or have any interest (whether as owner, principal, director,
officer, partner, agent, consultant, stockholder, or otherwise) in any
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<PAGE>
business which (A) engages in the sale and manufacture of tea products or
herbal supplement products; or (B) otherwise engages in a Significant
Business (as defined below). Such restrictions shall apply in the
specific geographic and customer markets served by the Company or any of
its Affiliates at any time during, or upon termination of, Executive's
employment (which shall include but not be limited to the United States).
This Section 9(a)(i) shall not prevent Executive from owning up to three
percent (3%) of the outstanding stock of any publicly traded company which
competes with the Company provided Executive does not participate in the
business of such entity;
(ii) (A) solicit, offer employment to, otherwise attempt to
hire, or assist in the hiring of any employee of the Company or any of its
Affiliates, (B) encourage, induce, assist, or assist others in inducing
any such person to terminate his or her employment with the Company or any
of its Affiliates, or (C) in any way interfere with the relationship
between the Company or any of its Affiliates and their employees; or
(iii) (A) contact or solicit, or direct or assist others to
contact or solicit, for the purpose of promoting any person's or entity's
attempt to compete with the Company or any of its Affiliates, in any
business carried on by the Company or any of its Affiliates during
Executive's employment, any customers, suppliers or other business
associates of the Company or any of its Affiliates that were existing or
identified prospective customers, suppliers or associates during
Executive's employment, or (B) otherwise interfere in any way in the
relationships between the Company or any of its Affiliates and their
customers, suppliers and business associates.
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(b) For purposes of this Agreement, a "Significant Business" shall
be a business similar to those engaged in or proposed to be engaged in at any
time during the Employment Period by the Company or any of its Affiliates;
provided, however, that (x) a business engaged in by the Company shall not be
deemed to be a Significant Business unless such business has accounted for at
least 5% of the Company's net sales during any of the Company's last four
quarterly periods, and (y) a business in which the Company is proposed to be
engaged shall not be deemed a Significant Business unless the Company has
expended at least $1 million in connection with such proposed business prior to
the Termination Date and the Company continues to actively pursue such proposed
business following the Termination Date; provided, however, that following the
expiration of 12 months from the Termination Date such proposed business shall
not be deemed a Significant Business unless such business has accounted for at
least 2% of the Company's net sales during any of the Company's last four
quarterly periods. The provisions of Section 9(a)(i)(B) above shall not
prohibit Executive from engaging in, representing, furnishing consultant
services to, being employed by, or having any interest in any business (a
Permitted Business ) provided (i) Significant Businesses account for less than
5% of the Permitted Business' net sales during each of the Permitted Business'
last four quarterly periods, and (ii) Executive's responsibilities with the
Permitted Business do not require him to devote a significant portion of his
time to the supervision, development or promotion of one or more Significant
Businesses.
(c) Executive agrees that this covenant is reasonable with respect
to its duration, geographic area and scope. It is the desire and intent of the
parties that the provisions of this Section 9 shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
portion of this Section 9 shall be adjudicated to be invalid or unenforceable,
this Section 9 shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of this Section 9 in the particular jurisdiction in
which such adjudication is made.
(d) Nothing in this Section 9 shall reduce or abrogate Executive's
obligations under Section 1 hereof during the Employment Period.
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10. BENEFITS VALUATION AND LIMITATION.
(a) Promptly following any Termination Date, and as of that date,
the Company will notify Executive of the itemized and aggregate cash value of
the payments and benefits, as determined under Section 280G of the Code,
received or to be received by Executive in connection with the termination of
his employment (whether payable pursuant to the terms of this Agreement or
otherwise). At the same time, the Company shall advise Executive of the portion
of such payments or benefits which constitute parachute payments within the
meaning of the Code and which may subject Executive to the payment of excise
taxes pursuant to Section 4999 of the Code and the expected amount of such taxes
(such payments or benefits being hereinafter referred to as "Parachute
Payments").
(b) Notwithstanding the provisions of Sections 6 and 7 of this
Agreement, if all or any portion of the payments or benefits provided under this
Agreement either alone or together with other payments or benefits which
Executive receives or is entitled to receive from the Company and any of its
subsidiaries, would constitute Parachute Payments, then such payments or
benefits provided to Executive by the Company and its subsidiaries (whether
under this Agreement or otherwise) shall be reduced to the extent necessary so
that no portion thereof shall be subject to the excise tax imposed by Section
4999 of the Code; but only if, by reason of such reduction, Executive's net
after-tax economic benefit shall exceed the net after-tax economic benefit to
Executive if such reduction were not made.
(c) If (i) all or any portion of the payments or benefits provided
under this Agreement either alone or together with other payments or benefits
which Executive receives or is entitled to receive from the Company and any of
its subsidiaries, would constitute Parachute Payments, (ii) the reduction of
such payment and benefits pursuant to Section 10(b) of this Agreement would not
provide Executive with a greater net after-tax economic benefit than if such
reduction were not made, and (iii) the termination of Executive's employment
relates to a Change of Control, then the Company shall increase the amount of
such payments and benefits to the extent necessary to provide Executive with a
net after-tax economic benefit equal to an amount Executive would have received
(after the payment of federal and state income taxes by Executive) had no excise
taxes on such payments and benefits been imposed pursuant to Section 4999 of the
Code (the "Gross-Up Allowance").
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(d) For purposes of this Section 10, Executive's base amount, the
present value of the Parachute Payments, the amount of the excise tax and all
other matters falling within the purview of Section 280G of the Code shall be
determined by the Company's independent auditors in accordance with the
principles of Section 280G of the Code and based upon the advice of tax counsel
selected by the Company, which tax counsel shall be reasonably satisfactory to
Executive. All calculations provided in this Section 10 shall be made at the
Company's expense.
(e) As a result of the uncertainty in the application of Section
4999 of the Code at the time of the determination by the Company's independent
auditors under this Agreement, it is possible that a portion of the Gross-Up
Allowance which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made under
this Agreement. In the event that the Company exhausts its remedies pursuant to
Section 10(f) of this Agreement and Executive thereafter is required to make a
payment of any excise tax, such auditors shall determine the amount of the
Underpayment that has occurred, and any such Underpayment shall be promptly paid
by the Company to or for the benefit of Executive.
(f) Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Allowance. Such notification shall be given as soon
as practicable but no later than ten (10) business days after Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the thirty (30) day period
following the date on which Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim, Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with
respect to such claim by tax counsel selected by the Company, which tax
counsel shall be reasonably acceptable to Executive;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
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provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any excise tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 10(f), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
reasonably determine; provided, however, that if the Company directs Executive
to pay such claim and sue for a refund, the Company shall advance the amount of
such payment to Executive, on an interest-free basis, and shall indemnify and
hold Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and provided, further, that if Executive is required to extend the
statute of limitations to enable the Company to contest such claim, Executive
may limit this extension solely to such contested amount. The Company's control
of the contest shall be limited to issues with respect to which a Gross-up
Allowance would be payable under this Agreement, and Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(g) If, after the receipt by Executive of an amount advanced by
the Company pursuant to Section 10(f) of this Agreement, Executive becomes
entitled to receive any refund with respect to such claim, Executive shall
(subject to the Company complying with the requirements of Section 10(f) of this
Agreement) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by Executive of an amount advanced by the Company pursuant to
Section 10(f) of this Agreement, a determination is made that Executive shall
not be entitled to any refund with respect to such claim and the Company does
not notify Executive in writing of its intent to contest such denial of refund
prior to the expiration of forty (40) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid, and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-up
Allowance required to be paid.
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11. FURTHER ASSISTANCE. During the Employment Period and
thereafter, Executive will not make any disclosure, issue any public statements
or otherwise cause to be disclosed any information which is designed, intended
or might reasonably be anticipated to discourage suppliers or customers of the
Company or any of its Affiliates or otherwise have a negative impact or adverse
effect on the Company or any of its Affiliates. Following termination of the
Employment Period, Executive will provide, at the Company's expense, assistance
reasonably requested by the Company in connection with actions taken by
Executive during the Employment Period, including but not limited to assistance
in connection with any lawsuits or other claims against the Company arising from
events during the Employment Period.
12. COMPLETE AGREEMENT. This Agreement, those documents expressly
referred to herein and other documents executed by the parties of even date
embody the complete agreement between the parties in respect to the matters set
forth in this Agreement, and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way. The provisions herein
shall be regarded as divisible, and if any of such provisions or any part
thereof are declared invalid or unenforceable, the validity and enforceability
of the remainder of such provisions or parts thereof and the applicability
thereof shall not be affected thereby.
13. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
14. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive, the Company and
their respective successors and assigns; provided that in no event shall
Executive's obligations under this Agreement be delegated or transferred by
Executive, nor shall Executive's rights be subject to encumbrance or to the
claims of Executive's creditors. Without limiting the foregoing, Executive's
right to receive payments under this Agreement shall not be assignable or
transferable, whether by pledge, creation of a security interest or otherwise,
other than a transfer by his will or trust or by the laws of descent or
distribution, and in the event of any attempted assignment or transfer contrary
to this Section the Company shall have no liability to pay any amount so
attempted to be assigned or transferred. This Agreement is for the sole benefit
of the parties hereto and shall not create any rights in third parties other
than the Company's Affiliates. The Company shall require any proposed successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance reasonably satisfactory to Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
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the same extent that the Company would be required to perform it if no such
succession had taken place, concurrent with the execution of a definitive
agreement with the Company to engage in any such transaction
15. REMEDIES. The Company will be entitled to enforce its rights
under this Agreement specifically, to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights to which it may
be entitled. Executive agrees and acknowledges that money damages may not be an
adequate remedy for breach of the provisions of this Agreement and that the
Company may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
16. REPRESENTATIONS AND WARRANTIES OF EXECUTIVE. Executive
represents and warrants that he has full power and authority to enter into this
Agreement and to perform his obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of Executive, enforceable in accordance
with its terms and conditions. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not (a) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate modify
of cancel or require any notice under any contract, lease, sublease, license,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, security interest or other obligation or liability
to which Executive is a party or by which he is bound or to which any of his
assets is subject (including but not limited to employment, nondisclosure and
confidentiality agreements) or (b) violate any statute, regulation, rule,
judgment, order, decree or other restriction of any government, government
agency or court to which Executive is subject.
17. CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Colorado.
18. MODIFICATIONS AND WAIVERS. No provision of this Agreement may
be modified, altered or amended except by an instrument in writing executed by
the parties hereto. No waiver by any party hereto of any breach by any other
party hereto of any term or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar terms or
provisions at the time or at any prior or subsequent time.
19. HEADINGS. The headings contained herein are solely for the
purpose of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
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20. NOTICES. Except as otherwise expressly set forth in this
Agreement, all notices, requests and other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be given (and, except as otherwise provided in this Agreement,
shall be deemed to have been duly given if so given) in person, by cable,
telegram, facsimile transmission, mailed by first class registered or certified
mail, postage, prepaid or sent by overnight courier to the parties at the
following addresses (or such other address as shall be furnished in writing by
like notice, provided, however, that notice of change of address shall be
effective only upon receipt):
Notices to Executive
Stephen B. Hughes
10. S. Sandy Hook Road
Sarasota, Florida 34242
With a copy to:
Stephen M. Feldhaus
Fulbright & Jaworski
801 Pennsylvania Avenue NW
Washington DC 20024
Notices to the Company:
Celestial Seasonings, Inc.
4600 Sleepytime Drive
Boulder, Colorado 80301
With a copy to:
Thomas R. Stephens
Bartlit Beck Herman Palenchar & Scott
511 Sixteenth Street, Suite 700
Denver, Colorado 80202
21. EXPENSES. Each party will pay its own expenses in connection
with this Agreement and the performance of the transactions and obligations
contemplated by this Agreement, provided, however, that the Company will
reimburse Executive for reasonable attorneys fees in connection with the
negotiation of this Agreement. In the event that either party files an action
against the other in any court to collect, enforce, protect or preserve its
rights under this Agreement, the prevailing party in such action shall be
entitled to receive reimbursement from such other party of all reasonable costs
and expenses, including attorneys' fees, which such prevailing party incurred in
prosecuting or defending such action, as the case may be.
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21. UNSECURED OBLIGATION. All rights of Executive and Executive's
spouse or other beneficiary under this Agreement shall at all times be entirely
unfunded and no provision shall at any time be made with respect to segregating
assets of the Company or payment of any amounts due hereunder. Neither
Executive nor his spouse or other beneficiary shall have any interest in or
rights against any specific assets of the Company, and Executive and his spouse
or other beneficiary shall have only the rights of a general unsecured creditor
of the Company.
22. EXECUTIVE'S PURCHASE OF COMMON STOCK. Executive agrees that
within 12 months of the date of this Agreement, he will purchase, in open market
or privately negotiated transactions in accordance with the Company s trading
policies, at least 5,000 shares of the Company's common stock.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first above written.
STEPHEN B. HUGHES
______________________________
CELESTIAL SEASONINGS, INC.
By:______________________________
Its:______________________________
24345
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EXECUTIVE AGREEMENT
This AGREEMENT, dated as of June 16, 1997 is entered into by and
between Celestial Seasonings, Inc., a Delaware corporation (the "Company") and
Mo Siegel ("Executive").
TERMS AND CONDITIONS
In consideration of the respective covenants and agreements of the
parties contained in this Agreement, the parties agree as follows:
Executive is Chairman of the Board of Directors of the Company (the
"Board") and a key employee of the Company. The Company recognizes that
Executive's contribution to the growth and success of the Company has been
substantial. The Company wishes to assure that it will have the continued
services of Executive and availability of Executive's advice and counsel, and
the Company wishes to induce Executive to remain as Chairman of the Board. The
Company considers it in the best interests of the Company and its stockholders
that Executive be encouraged to remain with the Company, be associated with the
Company's brand name, and continue to provide services to the Company.
In view of the foregoing recitals and for other good and valuable
consideration, the receipt and adequacy whereof is hereby expressly acknowledged
by the parties, the Company and Executive agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
be defined as immediately set forth below:
(a) "Cause" shall mean Executive's conviction of any criminal
violation involving dishonesty, fraud or breach of trust or any felony, or
Executive's willful engagement in gross misconduct in the performance of his
duties that has the proximate result of a material and adverse effect on the
financial condition of the Company.
(b) "Disability" shall be deemed to occur if Executive, by reason
of physical or mental incapacity, becomes unable to perform his normal duties
for more than 180 days in the aggregate (excluding infrequent and temporary
absence due to ordinary transitory illness) during any 12-month period.
(c) "Good Reason" shall mean the occurrence of any one of the
following events without Executive's consent:
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(i) the Board assigns Executive to any duties or
responsibilities substantially inconsistent with his position as Chairman
of the Board, it being understood that in such capacity as Chairman of the
Board, the Board has resolved that Executive will provide such consulting
and advisory services to the Company as reasonably requested by the
Company's Chief Executive Officer;
(ii) the Company fails to pay Executive (i) during the
remainder of the Company's 1997 fiscal year, a salary equal to Executive s
current base salary as in effect as of the date of this Agreement, plus a
bonus for such fiscal year determined in accordance with the Company's
policy as in effect on the date of this Agreement, and (ii) commencing
with the Company's 1998 fiscal year and thereafter, a salary equal to
$250,000 annually (without bonus provisions); provided, however, that if
Executive's consulting and advisory services require more than 30 hours
per week during the one year period commencing on the date of this
Agreement, then, commencing with the Company s 1999 fiscal year, such
salary of $250,000 annually shall be increased by an amount mutually
agreed by the parties or the Company shall thereafter limit Executive's
obligation to provide consulting and advisory services to less than 30
hours per week; or
(iii) the Company breaches this Agreement in any material
respect, including without limitation failing to obtain a succession
agreement from any successor to assume and agree to perform this
Agreement, as contemplated by this Agreement.
(d) "Reemployment" shall mean the Executive s being employed
(including self employment) by a person other than the Company or its
Affiliates.
(e) "Termination Date" shall mean the date Executive ceases to be
employed by the Company.
2. NATURE OF EMPLOYMENT RELATIONSHIP; PRINCIPAL OFFICE.
(a) Executive's employment with the Company as Chairman of the
Board may be terminated by duly authorized resolution of the Board in accordance
with the Company's bylaws, or by Executive. No such termination shall affect
Executive's status as a member of the Company's Board.
(b) The Company agrees to provide Executive, within 30 days after
the date of this Agreement (except as otherwise agreed by Executive), a lump sum
payment of $25,000 in connection with Executive's establishment of an off-site
office (which may be in Executive's home or another location in the Boulder,
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<PAGE>
Colorado area) which will be used by Executive as his principal office (the
"Principal Office"). Executive agrees to move to the Principal Office as soon
as practicable but in any event by September 1, 1997. The Company agrees that,
as soon as practicable, the Company's telephone system will be set up so that
all telephone calls received at the Company's headquarters for Executive shall
be automatically routed to the Principal Office without the need for redialing
by the caller. The Principal Office will staffed by an executive assistant
chosen by Executive. Such executive assistant will be an employee of the
Company for all purposes (including all benefits). Executive agrees to
reimburse the Company for 40% of the salary which the Company pays to such
executive assistant. The Company will pay directly, or reimburse Executive,
for all miscellaneous expenses incurred by Executive at the Principal Office
that are directly related to the Company's business, including travel expenses
incurred in compliance with the policies of the Company applicable to travel by
senior executives of the Company, telephone, fax, overnight mail service,
courier services, postage and similar expenses.
(c) While Executive is employed by the Company, the Company will
provide Executive with an appropriate secondary office at the Company's
headquarters.
(d) The provisions of this paragraph relating to Executive's
offices shall terminate on the Termination Date.
3. TERMINATION FOR CAUSE OR GOOD REASON. If either (i) the Company
shall terminate Executive for Cause or (ii) Executive shall resign for Good
Reason within six months following the event giving rise to Good Reason, then
any such termination shall be communicated by written notice to the other party
to this Agreement. Any such notice shall specify (i) the effective Termination
Date, which shall not be more than 30 days after the date the notice is
delivered; and (ii) in reasonable detail the facts and circumstances underlying
a determination that the termination is for Cause or for Good Reason, as the
case may be. If within 15 days after any notice is given, the party receiving
such notice notifies the other party that a good faith dispute exists concerning
the characterization of the termination, the Termination Date shall be the date
on which such dispute is finally resolved either by written agreement of the
parties or by a final arbitration or by a final judicial determination. In the
absence of such written agreement of the parties or arbitration agreed upon to
resolve such dispute, the party providing notice of the existence of such
dispute shall have the right to proceed to final resolution of the dispute by
judicial determination in any court of competent jurisdiction. Notwithstanding
the pendency of any such dispute, until such dispute is finally resolved, the
Company shall continue Executive and his dependents as participants, on the same
basis as before the Termination Date, in all medical, dental and any other
health insurance and similar benefit plans of the Company in which he and they
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<PAGE>
participated when the notice giving rise to the dispute was given. Benefits
provided under this Section 3 are in addition to all other amounts due under
Section 4 of this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
4. SEVERANCE PAYMENTS.
(a) Subject to the terms and conditions set forth in this
Agreement, if either (i) the Company shall terminate Executive without Cause
(other than by reason of death, Disability, following the expiration of this
Agreement by its terms, or Executive's reaching any mandatory retirement age of
at least 70 which may be established by the Company for all senior executives)
or (ii) Executive shall resign for Good Reason within six months following the
event giving rise to Good Reason, then the Company shall make the following
payments and provide the following benefits to Executive after the Termination
Date, subject in each case to any applicable payroll or other taxes required to
be withheld:
(i) Within 15 days after the Termination Date, the Company
shall pay Executive a lump sum amount in cash equal to accrued but unpaid
salary (and bonus, if applicable) through the Termination Date, and unpaid
salary with respect to any vacation days accrued but not taken as of the
Termination Date.
(ii) For two years following the Termination Date,. the
Company shall pay Executive $250,000 annually, in monthly payments in
accordance with the Company's normal payroll practices.
(iii) The Company shall continue to provide Executive medical,
dental and any other health insurance on the same terms as those generally
applicable to the Company's executive officers (including coverage of
Executive's family to the extent generally applicable to family members of
the Company's executive officers). Such benefits shall be provided to
Executive for life, provided, however, that such benefits will terminate
on the date of Executive's Reemployment in a position providing
substantially the same or greater benefits.
(iv) The Company shall continue to provide Executive life
insurance, accidental death and dismemberment insurance and disability
protection on the same terms as those generally applicable to the
Company's executive officers. Such benefits shall be provided for the
period beginning on the Termination Date and ending on the first to occur
of (i) the date of Executive's Reemployment in a position providing
substantially the same or greater benefits as provided by the Company on
the Termination Date, or (ii) the second anniversary of the Termination
Date.
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(v) The Company shall pay to Executive a lump sum amount in
cash equal to the unvested portion of the Company's contributions to
Executive's account under any of the Company's plans that are "qualified"
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), to which the Company makes contributions to employee accounts in
effect as of the Termination Date (the "Plans"), plus an amount in cash
equal to two (2) times an amount equal to the amount of the Company's
annual contribution on behalf of Executive pursuant to the Plans as in
effect on the date of the Termination Date. For purposes of this Section,
the Company's matching contributions to the Plans shall be deemed to be at
the maximum percentage contribution to which Executive could be entitled
under the Plans.
In addition, within 15 days after the Termination Date,
Executive shall be paid in cash an amount equal to the Company's matching
contributions determined pursuant to the Plans as in effect on the
Termination Date, which would have accrued to the benefit of Executive had
he continued his participation in, and elected to make the maximum
contributions under, the Plans for the period of 24 months from the
Termination Date or until December 31 of the year in which Executive would
reach age 65, whichever is the shorter period. The benefits received by
Executive pursuant to this Section are in addition to any benefits that
were vested prior to the Termination Date in accordance with the terms of
the Plans.
(vi) Within 15 days after the Termination Date, the Company
shall pay to Executive (i) an amount in cash equal to the vested and
unvested amounts that have been credited to Executive's account or
accounts under any deferred compensation plan that the Company maintains
for its employees as of the Termination Date whether or not then vested,
plus (ii) an amount equal to the total amount required to be, or actually,
credited to Executive's account, including interest equivalents, for the
year in which the Termination Date occurs.
(vii) Simultaneously within the Termination Date, the Company
shall accelerate the vesting of any unvested stock options such that all
such options are deemed to be fully vested on the Termination Date.
(viii) If the Termination Date occurs within one hundred
eighty (180) days after the date of this Agreement, the two (2) year
periods contained in clauses (ii), (iv) and (v) above and the two (2)
times multiple contained in clause (v) above shall each be increased such
that the applicable number is equal to two (2) plus the portion of the
year remaining from the Termination Date until the first anniversary of
the date of this Agreement.
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(b) Executive is not required to seek other employment or
otherwise mitigate the amount of any payments to be made by the Company pursuant
to this Agreement. Except as otherwise provided in Sections 4(a)(iii) and
4(a)(iv) this Agreement, the amount of any payments or other benefits provided
for in this Agreement shall not be reduced by any compensation earned by
Executive as the result of Reemployment after the Termination Date, or
otherwise.
5. CONFIDENTIALITY AND PROPRIETARY RIGHTS.
(a) Executive recognizes and acknowledges that the Company and its
Affiliates' trade secrets and proprietary information and procedures, as they
may exist from time to time, are valuable, special and unique assets of the
Company and its Affiliates' business, access to and knowledge of which are
essential to the performance of Executive's duties. Executive agrees to hold as
the Company's and its Affiliates' property, all documents, including all
memoranda, books, papers, letters, formulas and other data, and all copies
thereof and therefrom, in any way relating to the Company s and its Affiliates'
business and affairs, whether used or made by him or otherwise coming into his
possession, and on termination of his employment, or on demand of the Company or
any of its Affiliates, at any time, to deliver the same to the Company or any of
its Affiliates.
(b) Executive hereby agrees he will not at any time during his
employment and thereafter disclose to any third party (other than in the
ordinary course of business of the Company or any of its Affiliates) or use for
the benefit of himself or any third party any Confidential Information (as such
term is defined in Section 5(d) below) without prior written authorization of
the Company or one of its Affiliates. Notwithstanding the foregoing, the
restrictions of this Section 5(b) shall cease to apply (i) four years after the
Termination Date with respect to Confidential Information concerning the
Company s business of selling and manufacturing tea products, and (ii) two years
after the Termination Date with respect to any other Confidential Information
(or such earlier time period as the Noncompete Period (as defined in Section 6)
applies to businesses other than the sale and manufacturing of tea).
(c) Executive acknowledges the Company's Proprietary Rights (as
such term is defined in Section 5(e) below) and agrees to disclose to the
Company or any of its Affiliates promptly all information, details and data
pertaining to the Proprietary Rights to the extent such information, details or
data are not presently known to the Company or any of its Affiliates. Executive
agrees that he will not at any time (other than in the ordinary course of
business of the Company or any of its Affiliates) replicate the same formulas
used by the Company at any time prior to the Termination Date. Executive agrees
to comply with any policy concerning Proprietary Rights adopted by the Company
prior to the Termination Date and generally applicable to the Company's
employees.
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(d) As used in this Agreement, "Confidential Information" shall
mean information which is not generally known to the public in the form
available to Executive and which was or is used, developed or obtained by the
Company or any of its Affiliates relating to the business of the Company or any
of its Affiliates, or research and development, including, but not limited to,
all client or customer lists, marketing strategies and techniques, trade
secrets, engineering or other know-how or other information pertaining to the
financial condition, business, research and development or prospects of the
Company or any of its Affiliates.
(e) As used in this Agreement "Proprietary Rights" shall mean any
and all inventions, discoveries, research, engineering methods, systems,
formulas, designs, mask works, copyrights, software, data, processes, products,
projects, improvements and developments all whether or not published,
confidential, protected or susceptible of protection by patent, trademark,
service mark, copyright or other form of legal protection and whether or not any
attempt has been made to secure such protection, which were made, conceived or
reduced to practice at any time by Executive or by any other employee or
consultant of the Company or any of its Affiliates, in whole or in part at the
expense of, on the premises of, or with the assistance of the employees or
consultants of, with the equipment or supplies of, or with the equipment or
supplies of the employees or consultants of, the Company or any of its
Affiliates, and any and all other Confidential Information. Notwithstanding the
foregoing, no inventions, discoveries, research, engineering methods, systems,
formulas, designs, mask works, copyrights, software, data, processes, products,
projects, improvements or developments shall be deemed to be Proprietary
Rights under this Agreement unless they are directly related to either: (i) the
Company's business of selling and manufacturing tea products, (ii) the Company's
business of selling and manufacturing herbal and other supplement products, or
(iii) any other Company product developed after the date of this Agreement,
provided that Executive has devoted significant time to the development, sale or
manufacturing of such product and provided further that the Company is actively
pursuing the development or sale and manufacturing of such product.
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6. NON-COMPETITION AND NON-SOLICITATION AGREEMENT.
(a) In consideration of the Company's agreements as set forth in
this Agreement, Executive agrees that during his employment and for the
"Noncompete Period" defined below (provided, however, that the Noncompete Period
shall be extended by any period during which Executive is found by a factfinder
in any court or dispute resolution process to be in violation of this Section
6), he will not in any way, directly or indirectly, except in the proper
exercise of his employment by the Company:
(i) engage in, represent, furnish consultant services to, be
employed by, or have any interest (whether as owner, principal, director,
officer, partner, agent, consultant, stockholder, or otherwise) in any
business which (A) engages in the sale and manufacture of tea products; or
(B) engages in the sale and manufacture of any herbal or other supplement
products if such products accounted for at least 1% of the Company's net
sales during the Company's most recent four quarters, or (C) otherwise
engages in a business similar to those engaged in or proposed to be
engaged in at any time prior to the Termination Date by the Company or any
of its Affiliates. A business shall be deemed to be a business in which
the Company is engaged under clause (C) above if such business has
accounted for at least 5% of the Company's net sales during any of the
Company's last four quarterly periods, and a business shall only be deemed
to be a business in which the Company is proposed to be engaged under
clause (C) above if the Company has expended at least $1 million in
connection with such proposed business prior to the Termination Date and
the Company continues to actively pursue such proposed business; provided,
however, that following the expiration of 12 months from the Termination
Date such business shall only be deemed to be a business in which the
Company is proposed to be engaged if such proposed business has accounted
for at least 2% of the Company s net sales during any of the Company's
last four quarterly periods. Such restrictions shall apply in the
specific geographic and customer markets served by the Company or any of
its Affiliates at any time during, or upon termination of, Executive's
employment (which shall include but not be limited to the United States).
This Section 6(a)(i) shall not prevent Executive from owning (i) a nominal
amount of the outstanding stock of any publicly traded company which
competes with the Company in the tea business, provided Executive does not
participate in the business of such entity, and (ii) up to ten percent
(10%) of the outstanding stock of any publicly traded company and up to
thirty-five percent (35%) of the outstanding stock of any non-publicly
traded company, in each case which competes with the Company in any
business other than the tea business, provided in each case Executive does
not participate in the business of such entity;
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(ii) (A) solicit, offer employment to, or assist in the
hiring of any person who is employed, at the time of such activity, by the
Company or any of its Affiliates, (B) encourage, induce, assist, or assist
others in inducing any such person to terminate his or her employment with
the Company or any of its Affiliates, or (C) in any way interfere with the
relationship between the Company or any of its Affiliates and their
employees; or
(iii) (A) contact or solicit, or direct or assist others to
contact or solicit, for the purpose of promoting any person's or entity's
attempt to compete with the Company or any of its Affiliates, in any
business carried on by the Company or any of its Affiliates during
Executive's employment, any customers, suppliers or other business
associates of the Company or any of its Affiliates that were existing or
identified prospective customers, suppliers or associates during
Executive's employment, or (B) otherwise interfere in any way in the
relationships between the Company or any of its Affiliates and their
customers, suppliers and business associates.
(b) For purposes of Sections 6(a)(i) and (iii) of this Agreement,
in connection with the sale and manufacture of tea products, the Noncompete
Period shall be four years following the Termination Date, and in connection
with the sale and manufacture of herbal supplement products, other supplement
products or any other product, the Noncompete Period shall be two years
following the Termination Date. For purposes of Section 6(a)(ii) of this
Agreement, the Noncompete Period shall be two years following the Termination
Date. Notwithstanding the forgoing, the Noncompete Period in connection with
the sale and manufacture of herbal supplement products and other supplement
products shall terminate immediately if Executive waives his rights to, and
releases the Company from any obligation to pay, any amounts and benefits
pursuant to Section 4 of this Agreement (other than payments pursuant to Section
4(a)(i)) (whether such waiver occurs pursuant to a voluntary resignation or
otherwise).
(c) Executive agrees that this covenant is reasonable with respect
to its duration, geographic area and scope. It is the desire and intent of the
parties that the provisions of this Section 6 shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
portion of this Section 6 shall be adjudicated to be invalid or unenforceable,
this Section 6 shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of this Section 6 in the particular jurisdiction in
which such adjudication is made.
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7. STANDSTILL. For a period of four years following the
Termination Date, Executive will not, directly or indirectly, without the
consent of the Company (i) solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the Securities
Exchange Act of 1934, as amended) in opposition to the management of the
Company, (ii) announce or commence and tender offer for securities issued by the
Company or its subsidiaries, (iii) propose any merger or business combination or
other transaction with the Company or any of its subsidiaries, or (iv) formulate
any plans or make any proposals in connection with any of the foregoing acts, or
assist any other person in doing any of the foregoing acts. Nothing in this
Agreement shall prevent Executive from personally acquiring securities of the
Company, provided such acquisition is not pursuant to a tender offer.
8. NON-DISPARAGEMENT.
(a) While employed by the Company and for four years following the
Termination Date, Executive will not make any disclosure, issue any public
statements or otherwise cause to be disclosed any information which is designed,
intended, or might reasonably be anticipated to disparage the Company or its
Affiliates or the Company's officers, directors, employees, business or
prospects, or to discourage suppliers or customers of the Company or any of its
Affiliates or otherwise to have a negative impact or adverse effect on the
Company or any of its Affiliates. The provisions of this Section 8(a) shall not
be deemed to prohibit Executive from competing with the Company and its
Affiliates to the extent Executive is not prohibited from competing with the
Company pursuant to Section 6 of this Agreement.
(b) While Executive is employed by the Company and for four years
following the Termination Date, the Company will not make, and will not permit
its officers, directors or employees to make, any disclosure, issue any public
statements or otherwise cause to be disclosed any information which is designed,
intended or might reasonably be anticipated to disparage Executive and
Executive's performance during the period Executive was employed by the Company
or its Affiliates.
(c) The foregoing provisions of Sections 8(a) and 8(b) shall not
apply in any litigation or dispute resolution procedure selected or utilized by
either party relating to any claimed breach of this Agreement.
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9. FURTHER ASSISTANCE. Following the Termination Date, Executive
will provide, at the Company's expense, assistance reasonably requested by the
Company (at reasonable times and places and for a reasonable periods) in
connection with actions taken by Executive while employed by the Company,
including but not limited to assistance in connection with any lawsuits or other
claims against the Company arising from events prior to the Termination Date.
10. USE OF EXECUTIVE'S SIGNATURE AND NAME. Promptly following any
written request by Executive, the Company shall discontinue its use of
Executive's name and signature on all packaging and advertising relating to
Company products; provided, however that the Company shall not be required to
recall or destroy any such packaging or advertising and may continue to use its
existing supply of packaging and advertising until the supply is exhausted.
11. COMPLETE AGREEMENT. This Agreement embodies the complete
agreement between the parties in respect to the matters set forth in this
Agreement, and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way. The provisions herein shall be
regarded as divisible, and if any of such provisions or any part thereof are
declared invalid or unenforceable, the validity and enforceability of the
remainder of such provisions or parts thereof and the applicability thereof
shall not be affected thereby.
12. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
13. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive, the Company and
their respective successors and assigns; provided that in no event shall
Executive's obligations under this Agreement be delegated or transferred by
Executive, nor shall Executive's rights be subject to encumbrance or to the
claims of Executive's creditors. Without limiting the foregoing, Executive's
right to receive payments under this Agreement shall not be assignable or
transferable, whether by pledge, creation of a security interest or otherwise,
other than a transfer by his will or trust or by the laws of descent or
distribution, and in the event of any attempted assignment or transfer contrary
to this Section the Company shall have no liability to pay any amount so
attempted to be assigned or transferred. This Agreement is for the sole benefit
of the parties hereto and shall not create any rights in third parties other
than the Company's Affiliates. The Company shall require any proposed successor
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(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance reasonably satisfactory to Executive, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place, concurrent with the execution of a definitive
agreement with the Company to engage in any such transaction.
14. REMEDIES. Each party will be entitled to enforce its rights
under this Agreement specifically, to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights to which it may
be entitled. The parties agree and acknowledge that money damages may not be an
adequate remedy for breach of the provisions of this Agreement and that either
party may in its or his sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
15. REPRESENTATIONS AND WARRANTIES OF EXECUTIVE. Executive
represents and warrants that he has full power and authority to enter into this
Agreement and to perform his obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of Executive, enforceable in accordance
with its terms and conditions. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not (a) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate modify
of cancel or require any notice under any contract, lease, sublease, license,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, security interest or other obligation or liability
to which Executive is a party or by which he is bound or to which any of his
assets is subject (including but not limited to employment, nondisclosure and
confidentiality agreements) or (b) violate any statute, regulation, rule,
judgment, order, decree or other restriction of any government, government
agency or court to which Executive is subject.
16. CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Colorado. The parties agree
that in the event of any claimed breach by any party to this Agreement, the
matter may be presented in any federal or state court in Colorado having
jurisdiction over the parties and the premises, or, in the alternative, the
parties may mutually agree to select an arbitrator to resolve such matter. In
the event of arbitration, the prevailing party shall be entitled to receive
reimbursement from such other party of all reasonable costs and expenses,
including attorneys' fees, which such prevailing party incurred in prosecuting
or defending such matter, as the case may be, including costs and fees of the
arbitration.
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17. MODIFICATIONS AND WAIVERS. No provision of this Agreement may
be modified, altered or amended except by an instrument in writing executed by
the parties hereto. No waiver by any party hereto of any breach by any other
party hereto of any term or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar terms or
provisions at the time or at any prior or subsequent time.
18. HEADINGS. The headings contained herein are solely for the
purpose of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
19. NOTICES. Except as otherwise expressly set forth in this
Agreement, all notices, requests and other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be given (and, except as otherwise provided in this Agreement,
shall be deemed to have been duly given if so given) in person, by cable,
telegram, facsimile transmission, mailed by first class registered or certified
mail, postage, prepaid or sent by overnight courier to the parties at the
following addresses (or such other address as shall be furnished in writing by
like notice, provided, however, that notice of change of address shall be
effective only upon receipt):
Notices to Executive
Mo Siegel
620 12th Street
Boulder, Colorado 80302
Notices to the Company:
Celestial Seasonings, Inc.
4600 Sleepytime Drive
Boulder, Colorado 80301
Attention: Chief Executive Officer
With a copy to:
Thomas R. Stephens
Bartlit Beck Herman Palenchar & Scott
511 Sixteenth Street, Suite 700
Denver, Colorado 80202
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20. EXPENSES. Each party will pay its own expenses in connection
with this Agreement and the performance of the transactions and obligations
contemplated by this Agreement, provided, however, that the Company will
reimburse Executive for reasonable attorneys fees in connection with the
negotiation of this Agreement. In the event that either party files an action
against the other in any court to collect, enforce, protect or preserve its
rights under this Agreement, the prevailing party in such action shall be
entitled to receive reimbursement from such other party of all reasonable costs
and expenses, including attorneys' fees, which such prevailing party incurred in
prosecuting or defending such action, as the case may be.
21. UNSECURED OBLIGATION. All rights of Executive and Executive's
spouse or other beneficiary under this Agreement shall at all times be entirely
unfunded and no provision shall at any time be made with respect to segregating
assets of the Company or payment of any amounts due hereunder. Neither
Executive nor his spouse or other beneficiary shall have any interest in or
rights against any specific assets of the Company, and Executive and his spouse
or other beneficiary shall have only the rights of a general unsecured creditor
of the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first above written.
MO SIEGEL
______________________________
CELESTIAL SEASONINGS, INC.
By:______________________________
Its:______________________________
24465
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CELESTIAL SEASONINGS, INC.
STOCK OPTION AGREEMENT
Agreement made as of the 16th day of June, 1997, between Celestial
Seasonings, Inc., a Delaware corporation (the "Company"), and Stephen B. Hughes
("Grantee").
i. Grant of Option. The Company hereby grants to Grantee,
as of the date of grant specified above, a nonqualified option
to purchase 165,000 shares of common stock, par value $0.01
per share (the "Common Stock"), of the Company (which number
of shares may be adjusted pursuant to Paragraph 5 below) at
$21.50 per share, subject to the terms and conditions set
forth herein.
ii. Exercise of Option. Subject to the earlier termination
of the option as provided herein, the option may be exercised,
by written notice to the Company in the form attached as
Exhibit A hereto, at any time and from time to time after the
date of grant; provided however, unless a Change in Control
(as defined in Section 5) occurs, such option shall not be
exercisable for more than the sum of ( i) 20% of the aggregate
number of shares covered by this option multiplied by the
number of full years from the date of grant thereof to the
date of such exercise, in accordance with the following
schedule, plus (ii) the product of 1 % multiplied by the
number of full months from the most recent one-year
anniversary of the date of grant until the date of exercise
(the "Monthly Vesting Percentage") multiplied by the total
number of shares covered by this option. For example, if the
date of grant is July 19, 1993 and the date of exercise is
between January 19, 1995 and February 18, 1995, the option may
be exercised for 30% of the total number of shares covered
hereby.
Cumulative Percentage
Completed Years of Shares That May
From Date of Grant Be Exercisable
1 but less than 2 years 20% plus Monthly Vesting Percentage
2 but less than 3 years 40% plus Monthly Vesting Percentage
3 but less than 4 years 60% plus Monthly Vesting Percentage
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<PAGE>
4 but less than 5 years 80% plus Monthly Vesting Percentage
5 or more years 100%
An option shall not be exercisable in any event after the expiration of ten
years from the date of grant. An option may not be exercised for a fraction of
a share of Common Stock
iii. Conditions to Exercise. The option may not be exercised
by Grantee unless all of the following conditions are met:
(i) Legal counsel for the Company must be
satisfied at the time of exercise that the
issuance of shares of Common Stock upon
exercise will be in compliance with the
Securities Act of 1933, as amended (the
"Act") and applicable United States federal,
state, local and foreign laws;
(ii) Grantee must pay at the time of
exercise the full purchase price for the
shares of Common Stock being acquired
hereunder, by (i) paying in United States
dollars by cash, (ii) tendering shares of
Common Stock owned by Grantee which have a
fair market value equal to the full purchase
price for the shares of Common Stock being
acquired, such fair market value to be
determined in such reasonable manner as may
be provided from time to time by the Company
or as may be required in order to comply
with or conform to the requirements of any
applicable or relevant laws or regulations,
(iii) paying in such other form as the
Company may determine in its sole
discretion, or (iv) tendering a combination
of the forms of payment provided for in
Subparagraphs 3(b)(i) through 3(b)(iii)
above; and
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<PAGE>
(iii) Grantee must, at all times during the
period beginning with the grant date of the
option and ending on the date of such
exercise, have been employed by the Company,
except (i) if Grantee ceases to be an
employee by reason of Grantee's disability
or early, normal or deferred retirement or
resignation, Grantee may, at any time within
one year of the date of the onset of such
disability or retirement (but in no event
after the expiration of ten years from the
grant date) exercise the option with respect
to the number of shares, determined under
Paragraph 2 above, as to which Grantee could
have exercised the option on the date of the
onset of such disability or retirement or
with respect to such greater number of
shares as determined by the Company in its
sole discretion, and any remaining portion
of the option shall be cancelled by the
Company, (ii) if Grantee ceases to be an
employee by reason of death, the provisions
of Paragraph 4 shall apply, (iii) if
Grantee's employment is terminated for any
other reason (including termination by the
Company for reasons other than death as
described in Paragraph 4 or disability,
retirement or resignation as described
above), Grantee may, at any time within
ninety days of the date of such termination
(but in no event after the expiration of ten
years from the grant date) exercise the
option with respect to the number of shares,
determined under Paragraph 2 above, as to
which Grantee could have exercised the
option on the date of such termination or
with respect to such greater number of
shares as determined by the Company in its
sole discretion, and any remaining portion
of the option shall be cancelled by the
Company.
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<PAGE>
iv. Transferability. The option may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of by
Grantee, except by will or the laws of descent and
distribution and is exercisable during Grantee's lifetime only
by Grantee. If Grantee or anyone claiming under or through
Grantee attempts to violate this Paragraph 4, such attempt
shall be null and void and without effect, and the Company's
obligation to make any further payments (stock or cash)
hereunder shall terminate. If at the time of Grantee's death
the option has not been fully exercised, Grantee's estate or
any person who acquires the right to exercise the option by
bequest or inheritance or by reason of Grantee's death may, at
any time within fifteen months after the date of Grantee's
death (but in no event after the expiration of ten years from
the grant date), exercise the option with respect to the
number of shares, determined under Paragraph 2 above, as to
which Grantee could have exercised the option at the time of
Grantee's death, or with respect to such greater number of
shares as determined by the Company in its sole discretion.
The applicable requirements of Paragraph 3 above must be
satisfied at the time of such exercise.
v. Adjustments. In the event of any change in the number
of shares of Common Stock outstanding by reason of any stock
split, stock dividend, split-up, split-off, spin-off,
recapitalization, merger, consolidation, rights offering,
reorganization, combination or exchange of shares, sale by the
Company of all or part of its assets, distribution to
shareholders other than a normal cash dividend, or other
extraordinary or unusual event occurring after the grant date
specified above and prior to its exercise in full, the number
and kind of shares of Common Stock or other property for which
the option may then be exercised and the option price per
share may or may not be adjusted so as to reflect such change,
all as determined by the Company in its sole discretion. In
the event of the proposed dissolution or liquidation of the
Company, the option shall terminate immediately prior to the
consummation of such proposed action, unless otherwise
provided by the Company. In the event of a Change in Control,
all restrictions on the option shall lapse and Grantee shall
be entitled to the full benefit of the option immediately
prior to the closing of such Change in Control, and the option
shall terminate upon consummation of the Change in Control,
unless otherwise provided by the Company. For purposes of
this Agreement, a Change in Control shall mean a sale of all
or substantially all of the assets of the Company, or the
merger of the Company into another corporation.
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<PAGE>
vi. Withholding of Tax. It shall be a condition to the
obligation of the Company to furnish shares of Common Stock
upon exercise of an option (i) that Grantee (or any person
acting under Paragraph 4 above) pay to the Company or its
designee, upon its demand, such amount as may be demanded for
the purpose of satisfying the Company's obligation to withhold
federal, state, local or foreign income, employment or other
taxes incurred by reason of the exercise of the option or the
transfer of shares thereupon, and (ii) that Grantee (or any
person acting under Paragraph 4 above) provide the Company
with any forms, documents or other information reasonably
required by the Company in connection with the grant. If the
amount requested for the purpose of satisfying the withholding
obligation is not paid, the Company may refuse to furnish
shares of Common Stock upon exercise of the option.
vii. Amendment or Substitution of Awards. The terms of this
Agreement may be amended from time to time by the Company in
its sole discretion in any manner that it deems appropriate
(including, but not limited to, acceleration of the vesting
provisions of the option in Paragraph 2); provided, however,
that no such amendment shall adversely affect in a material
manner any right of Grantee under this Agreement without
Grantee's written consent, unless the Company determines in
its sole discretion that there have occurred or are about to
occur significant changes in Grantee's position, duties or
responsibilities or significant changes in economic,
legislative, regulatory, tax, accounting or cost/benefit
conditions which are determined by the Company in its sole
discretion to have or to be expected to have a substantial
effect on the performance of the Company, or any subsidiary,
affiliates, division, or department thereof. The Company
may, in its sole discretion, permit Grantee to surrender this
grant in order to exercise or realize the rights under other
awards, or in exchange for the grant of new awards, or require
Grantee to surrender this grant as a condition precedent to
the grant of new awards.
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<PAGE>
viii. Administration. Any action taken or decision made by
the Company's board of directors or the compensation committee
of the board or their delegates arising out of or in
connection with the construction, administration,
interpretation or effect of the Agreement shall lie within its
sole and absolute discretion, as the case may be, and shall be
final, conclusive and binding on Grantee and all persons
claiming under or through Grantee.
ix. No Rights as Stockholder. Unless and until a
certificate or certificates representing such shares of Common
Stock shall have been issued to Grantee (or any person acting
under Paragraph 4 above), Grantee shall not be or have any of
the rights or privileges of a stockholder of the Company with
respect to shares of Common Stock acquirable upon exercise of
the option. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is
issued to Grantee.
x. Investment Representation. Grantee hereby acknowledges
that the shares of Common Stock which Grantee may acquire by
exercising the option shall be acquired for investment without
a view to distribution, within the meaning of the Act, and
shall not be sold, transferred, assigned, pledged or
hypothecated in the absence of an effective registration
statement for the shares under the Act and applicable state
securities laws or an applicable exemption from the
registration requirements of the Act and any applicable state
securities laws. Grantee also agrees that the shares of
Common Stock which Grantee may acquire by exercising the
option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable
securities laws, whether federal or state.
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<PAGE>
xi. Registration of Common Stock. The Company, in its
discretion, may postpone the issuance and/or delivery of
shares of Common Stock upon any exercise of the option until
completion of such registration or other qualification of such
shares under any state and/or federal law, rule or regulation
as the Company may consider appropriate.
xii. Rights of Participants. Neither this Agreement nor the
grant of options creates any employment rights in Grantee and
the Company shall have no liability for terminating Grantee's
employment. Grantee shall have no rights under this Agreement
other than as an unsecured general creditor of the Company
except that insofar as Grantee may have become entitled to
payment of additional compensation by performance of services,
Grantee shall have the same rights as other employees under
general law.
xiii. Notices. Any notice hereunder to the Company shall be
addressed to: Celestial Seasonings, Inc., 4600 Sleepytime
Drive, Boulder, Colorado 80301, Attention: Secretary, and any
notice hereunder to Grantee shall be addressed to Grantee at
Grantee's last address on the records of the Company, subject
to the right of either party to designate at any time
hereafter in writing some other address. Any notice shall be
deemed to have been duly given when delivered personally, by
facsimile (receipt verified) or enclosed in a properly sealed
envelope, addressed as set forth above, and deposited (with
first class postage prepaid) in the United States mail.
xiv. Counterparts. This Agreement may be executed in one or
several counterparts, each of which shall constitute one and
the same instrument.
xv. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of any successors to the Company and
all persons lawfully claiming under Grantee.
xvi. Governing Law. The validity, construction,
interpretation, administration and effect of this Agreement,
shall be governed by the substantive laws, but not the choice
of law rules, of the State of Colorado.
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<PAGE>
IN WITNESS WHEREOF, the Company and Grantee have executed this
Agreement as of the date first above written.
CELESTIAL SEASONINGS, INC.
By: ___________________________
GRANTEE
______________________________
Stephen B. Hughes
______________________________
Social Security Number
24461
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<PAGE>
EXHIBIT A
Form of Letter to be Used on
Exercise of Stock Option
_______________
Date
Celestial Seasonings, Inc.
4600 Sleepytime Drive
Boulder, Colorado 80301
Attention: Secretary
Dear Sir:
I wish to exercise the stock option granted on June __, 1997 and
evidenced by my Option Agreement dated as of June __, 1997 to the extent of
________ shares of the Common Stock of Celestial Seasonings, Inc., at the option
price of $___ per share. My check in the amount of $________ in payment of the
entire purchase price for these shares accompanies this letter.
Please issue a certificate for these shares in the following name:
___________________________________
Name
___________________________________
Street Address
___________________________________
City/State/Zip
Very truly yours,
___________________________________
Stephen B. Hughes
___________________________________
Social Security Number
PAGE 56
<PAGE>
OPTION AGREEMENT
This OPTION AGREEMENT is dated June 13, 1997 ("this Agreement"), by
and between Celestial Seasonings, Inc., a Delaware corporation ("the Company")
and Mo Siegel ("Siegel"), and amends and restates the Common Stock Subscription
Agreement dated July 11, 1991 among Celestial Holdings, Inc. ("Holdings"),
Siegel and Vestar/Celestial Investment Limited Partnership (the "Vestar
Partnership") (the "Subscription Agreement") insofar as the Subscription
Agreement relates to certain options granted by Holdings to Siegel.
RECITALS
A. Pursuant to the Subscription Agreement, Holdings granted
Siegel an option to acquire 18,250 shares of Holdings' Class A Common Stock, par
value $.01 per share ("Holdings Common"), at an exercise price of $21.63 per
share (the "First Option"), and an option to acquire 18,250 shares of Holdings
Common at an exercise price of $30 per share (the "Second Option").
B. For federal and state income tax purposes, the First Option
and the Second Option constituted property held by Siegel and were not
compensatory options.
C. On July 19, 1993, Holdings was merged into the Company (the
"Merger"), and, in connection with the Merger, each share of Holdings Common was
converted into the right to receive 2.62 shares of the Company's Common Stock,
par value $.01 per share (the "CTEA Common").
D. As a result of the Merger, the First Option became the right
to acquire 47,815 shares of CTEA Common at a price of approximately $8.26 per
share, and the First Option became the right to acquire 47,815 shares of CTEA
Common at a price of approximately $11.45 per share.
E. Following the distribution of its CTEA Common to its limited
partners in 1994, the Vestar Partnership was dissolved.
F. Siegel and the Company, as the successor to Holdings, wish to
amend and restate the Subscription Agreement insofar as the Subscription
Agreement relates to the First Option and the Second Option so as to clarify the
rights and obligations of the parties.
The parties therefore agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of this
Agreement, the Company hereby confirms the grant to Siegel an option to acquire
47,815 shares of CTEA Common at an exercise price of $8.26 per share and an
option to acquire 47,815 shares of CTEA Common at an exercise price of $11.45
per share (collectively, the "Option"). The number of shares of CTEA Common and
the exercise price for such shares are subject to adjustment as provided in this
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Agreement. The Company agrees that all CTEA Common issued upon exercise of the
Option shall be duly issued, fully paid and nonassessable.
2. EXERCISE OF OPTION. The Option may be exercised, by written
notice to the Company in the form attached as Exhibit A hereto, at any time and
from time to time after the date of this Agreement. The Option shall not be
exercisable in any event after the close of business on July 11, 2031, and the
Option shall expire at such time. At the time of exercise of all or part of the
Option, Siegel shall pay the full exercise price for the shares of CTEA Common
being acquired, by delivering to the Company a certified bank check for the full
exercise price. Promptly following receipt of such notice and check, the
Company shall deliver to Siegel one or more stock certificates evidencing the
CTEA Common being acquired, each containing a legend substantially in the form
set forth below:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS OR BLUE SKY LAWS ("BLUE SKY LAW") AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER
THE ACT AND UNDER APPLICABLE BLUE SKY LAW OR UNLESS SUCH SALE, TRANSFER,
PLEDGE OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION THEREUNDER.
Siegel shall be considered the record owner of the CTEA Common being
acquired for all purposes as of the close of business on the date upon which a
duly executed notice of exercise and a certified bank check for the full
exercise price is received by the Company (the "Exercise Date").
3. TRANSFER OF THE OPTION AND THE CTEA COMMON. Siegel hereby
acknowledges that the Option has not been registered under the Securities Act of
1933, as amended (the "Act"), or any state securities laws, and accordingly, the
Option may not be sold, transferred, assigned, pledged or hypothecated without
registration under the Act and any applicable state securities law or without
exemption therefrom which is satisfactory to the Company. Siegel hereby
acknowledges that the shares of CTEA Common which Siegel may acquire by
exercising the Option must be acquired for investment without a view to
distribution, within the meaning of the Act, and shall not be sold, transferred,
assigned, pledged or hypothecated in the absence of an effective registration
statement for such shares under the Act and applicable state securities laws or
an exemption therefrom which is satisfactory to the Company. Siegel also agrees
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that the Option and the shares of CTEA Common which Siegel may acquire by
exercising the Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state.
4. ADJUSTMENTS. In the event of any change in the number of
shares of CTEA Common outstanding by reason of any stock dividend, split-up,
merger, recapitalization, combination, conversion, exchange of shares or other
change in the corporate or capital structure of the Company which could have the
effect of diluting or otherwise affecting Siegel's rights hereunder, the number
and kind of shares of CTEA Common subject to the Option and the exercise price
therefor shall be appropriately adjusted.
5. NO RIGHTS AS STOCKHOLDER. Siegel shall not be or have any of
the rights or privileges of a stockholder of the Company with respect to shares
of CTEA Common acquirable upon exercise of the Option until the close of
business on the Exercise Date. No adjustment shall be made to the Option for
any dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights on the CTEA Common.
6. NOTICES. Any notice hereunder to the Company shall be
addressed to: Celestial Seasonings, Inc., 4600 Sleepytime Drive, Boulder,
Colorado 80301, Attention: Secretary, and any notice hereunder to Siegel shall
be addressed to Siegel at Siegel's last address on the records of the Company,
subject to the right of either party to designate at any time hereafter in
writing some other address. Any notice shall be deemed to have been duly given
when delivered personally, by courier or by facsimile (receipt verified) or
three business days after being enclosed in a properly sealed envelope,
addressed as set forth above, and deposited (with first class postage prepaid)
in the United States mail.
7. COUNTERPARTS. This Agreement may be executed in one or
several counterparts, each of which shall constitute one and the same
instrument.
8. BINDING EFFECT; AMENDMENT; ENTIRE AGREEMENT. This Agreement
shall be binding upon and inure to the benefit of any successors to the Company
and the heirs, personal representatives, successors and assigns of Siegel. This
Agreement may not be modified, amended, altered or supplemented except by a
writing signed by the Company and Siegel. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement.
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9. GOVERNING LAW. The validity, construction, interpretation,
administration and effect of this Agreement, shall be governed by the
substantive laws, but not the choice of law rules, of the State of Delaware.
10. FURTHER ASSURANCES. The parties will execute and deliver such
documents and take such action reasonably deemed necessary or desirable to more
effectively complete and evidence the issuance of the Option and the sale and
transfer of any CTEA Common upon exercise of the Option pursuant to this
Agreement.
IN WITNESS WHEREOF, the Company and Siegel have executed this
Agreement as of the date first above written.
CELESTIAL SEASONINGS, INC.
By: ___________________________
Its:____________________________
SIEGEL
______________________________
Mo Siegel
24472
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EXHIBIT A
Form of Letter to be Used on
Exercise of Option
_______________
Date
Celestial Seasonings, Inc.
4600 Sleepytime Drive
Boulder, Colorado 80301
Attention: Secretary
Dear Ladies and Gentlemen:
I wish to exercise the stock option granted on July 11, 1991 and
evidenced by my Option Agreement dated as of June 13, 1997 to the extent of
________ shares of the Common Stock of Celestial Seasonings, Inc. (the "CTEA
Common"), at the exercise price of $___ per share. I represent and warrant that
the shares of CTEA Common I am acquiring are being acquired for investment
without a view to distribution, within the meaning of the Securities Act of
1933, as amended (the "Act"), and may not be sold, transferred, assigned,
pledged or hypothecated in the absence of an effective registration statement
for such shares under the Act and applicable state securities laws, or an
exemption therefrom which is satisfactory to Celestial Seasonings, Inc. My
check in the amount of $________ in payment of the entire exercise price for
these shares accompanies this letter.
Please issue a certificate for these shares in the following name:
___________________________________
Name
___________________________________
Street Address
___________________________________
City/State/Zip
Very truly yours,
___________________________________
Mo Siegel
___________________________________
Social Security Number
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Exhibit 23.1
INDEPENDENT ACCOUNTANTS' REPORT
Celestial Seasonings, Inc.:
We have reviewed the accompanying consolidated balance sheet of
Celestial Seasonings, Inc. and subsidiaries (the "Company") as of
June 30, 1997 and the related consolidated statements of income and
cash flows for the three-month and nine-month periods ended June 30,
1997 and June 30, 1996. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such consolidated financial statements for
them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of the Company and
subsidiaries as of September 30, 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated
November 4, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet as of
September 30, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
Deloitte & Touche LLP
Denver, Colorado
July 22, 1997
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