<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1998
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 Identification No.)
incorporation or organization)
4600 Sleepytime Drive, Boulder CO 80301-3292
(Address of principal executive offices)
(303) 530-5300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
RIGHTS TO PURCHASE JUNIOR PARTICIPATING PREFERRED STOCK, SERIES A,
PAR VALUE $.01 PER SHARE
(Title of Each Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of voting and non-voting common equity
held by nonaffiliates of the registrant was $205,022,727 as of December 1, 1998.
Number of shares of Common Stock outstanding as of December 1, 1998: 8,325,796
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement to be dated on or about January 15, 1999 - Incorporated into
Part III.
<PAGE>
PART I
ITEM 1. - BUSINESS
General
Celestial Seasonings, Inc. (the "Company") is the largest manufacturer and
marketer of herb teas in the United States, with an estimated 50% share of the
herb tea category. The Company developed and popularized the herb tea category
in the United States as a flavorful and non-caffeinated alternative to other hot
beverages. Currently the Company markets over 50 tea varieties under the
Celestial Seasonings brand. Celestial Seasonings products are sold in
substantially all of the major supermarkets, grocery stores and natural foods
markets in the United States.
The Company develops high-quality, flavorful, natural products as well as
attractive, colorful and thought-provoking packaging. The Company's products
include Sleepytime(R), Lemon Zinger(R), Peppermint, Chamomile, Mandarin Orange
Spice(R), Wild Cherry Blackberry, Cinnamon Apple Spice, Red Zinger(R), Raspberry
Zinger(R) and Wild Berry Zinger(R) herb teas, a line of green teas, a line of
wellness teas and a line of specialty black teas.
The Company's tea business began in the early 1970s. In 1984, the Company was
acquired by Kraft, Inc., and in 1988, the Company was acquired in a management
buyout. The Company completed its initial public offering of common stock during
1993.
During 1995, the Company entered the dietary supplement market. In 1997, the
Company introduced a line of herbal supplements under the Celestial(TM) Herbal
Extracts name. The Company developed a more extensive line of dietary supplement
products under the Celestial Seasonings(R) brand during 1998.
The Tea Industry
The domestic tea industry consists of a number of general product categories,
including herb tea, green tea, specialty black tea, commodity black tea, instant
tea and ready-to-drink tea. The Company believes, based on data derived from
Information Resources, Inc. reports and the Company's estimates, that annual
domestic retail tea sales, excluding ready-to-drink tea, are approximately $1.5
billion.
The Dietary Supplements Industry
The dietary supplements industry consists of three broad categories: vitamins,
minerals and herbal supplements. The Company believes, based on data from A. C.
Nielsen, Inc. reports and the Company's estimates, that annual domestic retail
sales of dietary supplements are approximately $11 billion. Based on these same
sources, the total dietary supplements industry growth rate over the past year
has been approximately 17%, while the herbal supplements category has
experienced a growth rate of approximately 35%.
Products
The Company's tea products contain no artificial preservatives, are made from
high-quality, natural ingredients and are generally offered in 20 and 40 count
packages sold in grocery, natural foods and other retail stores. Industry sales
of herb tea have grown only moderately in recent years, but green tea has
doubled over the past year to become a $42 million category. By introducing new
teas, such as green and wellness teas, and overall category growth, the
Company's sales growth in the beverage segment was approximately 11% during
1998.
The following table sets forth the amounts and percentages of the Company's net
sales for each major business segment during the last three years. Changes in
net sales are affected by timing of promotional activities, consumer trends and
the development and introduction of new products. Historical results may not be
indicative of results in future years.
2
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<TABLE>
Company Net Sales By Business Segment
Year Ended September 30,
---------------------------------------------------
1998 1997 1996
--------------- -------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Beverages $ 79,875 78.2% $72,205 91.4% $69,016 94.6%
Dietary supplements 18,739 18.3 3,789 4.8 1,917 2.6
Other 3,583 3.5 3,045 3.8 2,065 2.8
-------- ----- ------- ----- ------- -----
Total net sales $102,197 100.0% $79,039 100.0% $72,998 100.0%
======== ===== ======= ===== ======= =====
</TABLE>
BEVERAGES
Herb Tea. The Company's herb teas are made from all natural ingredients and are
offered in a wide variety of flavors. The Company's top-selling herb tea
products include Sleepytime(R), Chamomile, Lemon Zinger(R), Peppermint,
Raspberry Zinger(R), Tension Tamer(R), Wild Berry Zinger(R), Country Peach
Passion(R), Mandarin Orange Spice(R) and Red Zinger(R).
Green Tea. The company introduced a new line of green teas during 1998. The new
line includes Authentic Green Tea, Decaffeinated Green Tea, Emerald Gardens(R)
Green Tea, Honey Lemon Ginseng Green Tea, Misty Jasmine(TM) Green Tea and
Organic Green Tea.
Wellness Tea. During 1998, the Company developed a line of wellness teas, some
of which correspond to its line of dietary supplement products. These products
provide the healthful benefits of the Company's dietary supplement line in an
alternative format. This product line includes Detox A.M.(TM), Diet Partner(R),
Echinacea, Echinacea Cold Season(TM), GingerEase(TM), GinkgoSharp(TM), Ginseng
Energy(TM), Heart Health(TM), LaxaTea(TM) and Mood Mender(TM).
Specialty Black Tea. The Company's specialty black teas are made exclusively
from natural ingredients. Black tea products include Earl Grey, English
Breakfast, Estate Blend(TM), Fast Lane(R), Vanilla Maple, Ceylon Apricot Ginger,
Black Raspberry, Morning Thunder(R), Mountain Estate(TM) Decaffeinated Black Tea
and Organic Black Tea.
DIETARY SUPPLEMENTS
During 1998, the Company launched a line of herbal supplement products under the
Celestial Seasonings(R) brand. The current dietary supplement products include a
line of herbal blends and a line of single herb extracts, all of which contain
high-quality standardized herbs and extracts. The Company's dietary supplement
products include St. John's Wort, Ginseng Energy(TM), Mood Mender(TM), Tension
Tamer(R), Sleepytime Extra(R), Ginkgo Biloba, GingkoSharp(R) and Echinacea
Cold Season(TM). Additionally, the Company is currently marketing a line of
Celestial Seasonings(R) Ultimate Blend nutritional supplements and Certified
Organic Standardized herbal supplements to the natural foods market.
OTHER
Other includes direct retail sales by the Company, royalty income and sales of
other miscellaneous products. Direct sales by the Company totaled $3,356,000 in
1998, primarily from its on-site retail store and mail order catalogue. Total
royalty income in 1998 was $227,000 primarily from a license agreement with
Warner-Lambert Company ("Warner-Lambert") entered into in 1994. Under the
agreement, Warner-Lambert manufactures and distributes throat drops under the
Celestial Seasonings Soothers(TM) and Herbal Comfort(TM) names. The agreement is
for a five-year period and Warner-Lambert has options to renew for one-year
periods thereafter.
3
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Research and Development
The Company considers research and development of new products to be a
significant part of its overall philosophy and commitment to developing high-
quality products. A team of professional product developers works with a sensory
technologist to test product prototypes with consumers. The research and
development department incorporates product ideas from all areas of the Company
in order to formulate new products. In addition to developing new tea and
dietary supplement products, the research and development department routinely
reformulates and revises existing products. New blends of herbs and teas are
submitted for review and evaluation to tea-tasters and consumer focus groups.
Sales and Distribution
The Company's products are sold in all 50 states and approximately 40 countries.
The Company's sales are seasonal. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Seasonality" included in Part
II, Item 7. Net sales include total export sales of $9,672,000, $8,807,000 and
$7,579,000 in 1998, 1997 and 1996, respectively.
The major domestic channels of distribution for the Company's products are
supermarkets and grocery stores, natural foods markets and mass merchandisers.
During 1998, no single customer accounted for more than 10% of total Company
sales.
The Company's products are sold by the Company's sales staff and a network of
brokers who represent the Company in connection with sales to grocery, natural
foods and non-grocery businesses. Brokers represent the Company in presenting
marketing and sales programs, supporting retail stores, selling new items, and
establishing sales promotions with customers. The Company's policy is to grant
its brokers rights to sell the Company's products within a defined territory.
All of the Company's brokers also represent other food, beverage and herbal
supplement manufacturers.
Marketing
The Company uses a mix of consumer and trade promotions, as well as advertising,
to market its products. The Company's advertising and sales promotion
expenditures are for national and regional consumer promotion through television
advertising, couponing and other trial use programs, with the balance spent on
trade advertising and promotion, including slotting fees, cooperative
advertising and feature advertising.
Operations
Suppliers. The Company purchases its ingredients from numerous foreign and
domestic manufacturers, importers and growers, with the majority of those
purchases occurring outside of the United States. The Company maintains long-
term relationships with most of its suppliers. Purchase arrangements with
ingredient suppliers are generally made annually and in U.S. currency. Purchases
are made through purchase orders or contracts, and price, delivery terms and
product specifications vary.
The Company's botanical purchasers visit major suppliers around the world
annually to procure ingredients and to assure quality by observing production
methods and providing product specifications. Many ingredients are presently
grown in countries where labor-intensive cultivation is possible, and where the
Company often must educate the growers about product standards. The Company
performs laboratory analysis on incoming ingredient shipments for the purpose of
assuring that they meet the Company's quality standards and those of the U.S.
Food and Drug Administration ("FDA").
The Company's ability to ensure a continuing supply of ingredients at
competitive prices depends on many factors beyond its control, such as foreign
political situations, embargoes, changes in national and world economic
conditions, currency fluctuations and unfavorable climatic conditions. The
Company takes steps intended to lessen the risk of an interruption of botanical
supplies, including identification of alternative sources and maintenance of
appropriate inventory levels. The Company has, in the past, maintained
sufficient supplies for its ongoing operations.
4
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The Company purchases most of its packaging materials domestically. The Fort
James Corporation, a packaging materials supplier, was the largest single
supplier in 1998. The ability of the Company to assure continuing production of
bagged tea depends upon the continuing access to tea bag paper. The Company
currently obtains most of its tea bag paper from a single domestic supplier,
which has proven to be a reliable source of quality paper. Alternative sources
for tea bag paper have been utilized in the past and are available for future
purchases.
Beverage Production. The Company uses more than 100 ingredients in its various
tea blends. The Company separates and cleans herbs upon receipt from suppliers
at its facilities in Boulder, Colorado. Individual herbs are combined in the
Company's blending system, and the blends are taste-tested to ensure flavor
consistency. Finally, the Company packages herb blends into finished products. A
continuous line of automated equipment deposits the blended herbs in tea bags
and packages the tea bags, first in cartons and then in cases. The Company is
currently taking steps to increase its production capacity which should provide
it with sufficient production capacity for the foreseeable future. The Company
believes that its tea bagging lines are among the most automated in the tea
industry.
Dietary Supplement Production. The Company's dietary supplement product lines
are manufactured by independent co-packers located in the United States. All co-
packing locations are inspected by the Company. All lots of finished product are
statistically sampled and tested for quality. This testing includes marker
compounds, microbiological load and packaging quality. The Company believes that
its network of co-packers has sufficient production capacity to meet its future
needs.
Trademarks and Copyrights
The Company has trademarks for most of its best-selling brands, including
Sleepytime(R), Lemon Zinger(R), Mandarin Orange Spice(R), Red Zinger(R), Wild
Berry Zinger(R) and GinkgoSharp(R). The Company has made various federal and
international filings with respect to its material trademarks, and intends to
keep these filings current and seek protection for new trademarks to the extent
consistent with business needs. The Company also copyrights certain of its
artwork and package designs. The Company is not aware of any material challenge
to the validity of any trademark or copyright material to its business. However,
due to the importance of product package design and artwork to the success of
its business, the Company intends to take vigorous action to protect against the
imitation of its products and packages and to protect its trademarks and
copyrights to the extent consistent with business needs.
Competition
The beverage market is large and highly competitive. The tea portion of the
beverage market is also highly competitive. Competitive factors in the tea
industry include product quality and taste, brand awareness among consumers,
variety of specialty tea flavors, interesting or unique product names, product
packaging and package design, supermarket and grocery store shelf space,
alternative distribution channels, reputation, price, advertising and promotion.
The Company currently competes in the specialty tea market segment which
consists of herb tea, green tea and specialty black tea. The Company's specialty
herb tea products, like other specialty tea products, are priced higher than
most commodity black tea products.
The Company's principal competitors on a national basis in the specialty tea
market segment are Thomas J. Lipton Company, a division of Unilever PLC, which
has substantially greater financial resources than the Company, and R.C.
Bigelow, Inc. Additional competitors include a number of regional specialty tea
companies. There may be potential entrants which are not currently in the
specialty tea market who may have substantially greater financial resources than
the Company. Private label competition in the specialty tea category is
currently minimal.
The market for the Company's dietary supplement products is highly competitive.
Competition is based principally upon price, quality of products, customer
service and marketing support. The Company currently competes in the herbal
supplement segment of the dietary supplement category. Herbal supplements are
presently a high growth market category consisting of several competitors in a
broad spectrum of distribution channels. Private label and Rexall Sundown, Inc.
dominate the market on a national basis. Direct mail, regional and private label
competition is significant.
5
<PAGE>
Employees
As of September 30, 1998, the Company employed 261 full-time employees. Of this
number, 80 were in management and sales, 70 were in administrative or clerical
positions and 111 were production and service employees. The Company has
implemented a number of programs to maintain a high level of employee morale and
productivity, and believes its employee relations are satisfactory.
Government Regulation
The production and marketing of the Company's beverages and dietary supplements
are subject to the rules and regulations of various federal, state and local
food and health agencies, including the FDA and the Federal Trade Commission.
The Company believes it is currently in compliance with the Dietary Supplement
Health and Education Act of 1994 ("DSHEA"), which goes into effect in March of
1999. DSHEA defines dietary supplements as a new category of food, separate from
conventional food. DSHEA requires specific nutritional labeling requirements for
dietary supplements and permits substantiated, truthful and non-misleading
statements of nutritional support to be made in labeling, such as statements
describing general well-being resulting from consumption of a dietary
ingredient, or the role of a nutrient or dietary ingredient in affecting or
maintaining a structure or function of the body.
In addition to laws relating to food and dietary supplement products, the
Company is subject to various federal, state and local environmental laws and
regulations which limit the discharge, storage, handling and disposal of a
variety of substances. The Company's operations are also governed by laws and
regulations relating to workplace safety and worker health, principally the
Occupational Safety and Health Administration Act and applicable state laws. The
Company believes it presently complies, in all material respects, with the
foregoing laws and regulations and does not anticipate any material capital
expenditures in connection with any government regulations.
ITEM 2. - PROPERTIES
The Company owns a manufacturing and office facility in Boulder, Colorado built
in 1990 on 42 acres of Company-owned land. The facility has approximately
167,000 square feet, of which 50,000 square feet is office space and 117,000
square feet is manufacturing space. Management believes the property is in
satisfactory condition and suitable for the Company's purposes.
ITEM 3. - LEGAL PROCEEDINGS
The information in Note 6 to the Company's Consolidated Financial Statements
included in Part II is incorporated herein.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
6
<PAGE>
PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the Nasdaq-Amex Market Group
("Nasdaq-Amex") under the symbol "CTEA." The following table sets forth the high
and low sales prices for the Common Stock for the periods indicated as reported
by Nasdaq-Amex. On December 1, 1998, the last reported sale price of the Common
Stock was $24.63 per share.
<TABLE>
High Low
---- ---
1997:
<S> <C> <C>
First Quarter $12.25 $ 9.50
Second Quarter $11.88 $ 9.75
Third Quarter $12.50 $ 9.75
Fourth Quarter $14.32 $11.38
1998:
First Quarter $16.25 $13.19
Second Quarter $20.63 $15.25
Third Quarter $28.81 $20.00
Fourth Quarter $26.75 $17.38
</TABLE>
As of December 1, 1998, there were approximately 304 holders of record of the
Company's Common Stock. The Company declared a two-for-one stock split effected
in the form of a 100% common stock dividend during September 1998. All sales
prices for the Company's Common Stock are adjusted for the stock dividend.
The Company did not pay cash dividends during the last five years. The Company
intends to retain earnings to fund the growth of its business and therefore does
not anticipate paying any cash dividends on shares of Common Stock in the
foreseeable future.
7
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ITEM 6. - SELECTED FINANCIAL DATA
The following data for each of the five fiscal years ended September 30, 1998 is
derived from the consolidated financial statements of the Company. The following
data should be read in conjunction with the Company's financial statements,
related notes thereto and other financial information included elsewhere in this
Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------
(in thousands, except per share amounts)
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales $102,197 $ 79,039 $ 72,998 $ 70,104 $ 65,041
Cost of goods sold 36,638 29,606 28,545 27,349 24,322
-------- -------- -------- -------- --------
Gross profit 65,559 49,433 44,453 42,755 40,719
Operating expenses:
Selling and marketing 46,683 33,915 30,071 27,323 26,306
General and administrative 6,127 4,556 3,899 4,429 3,861
Amortization of intangibles 1,308 1,296 1,493 1,823 2,046
-------- -------- -------- -------- --------
Operating income 11,441 9,666 8,990 9,180 8,506
Interest expense 631 493 874 1,264 1,345
-------- -------- -------- -------- --------
Income before income taxes 10,810 9,173 8,116 7,916 7,161
Income taxes 4,054 3,509 3,093 2,049 698
-------- -------- -------- -------- --------
Net income attributable to common stock $ 6,756 $ 5,664 $ 5,023 $ 5,867 $ 6,463
======== ======== ======== ======== ========
Net income per common share-basic /1/ $ 0.82 $ 0.70 $ 0.62 $ 0.73 $ 0.80
======== ======== ======== ======== ========
Net income per common share-assuming dilution /1/ $ 0.77 $ 0.68 $ 0.61 $ 0.72 $ 0.79
======== ======== ======== ======== ========
Weighted average common shares-basic /1/ 8,250 8,107 8,088 8,053 8,040
Weighted average common shares-assuming dilution /1/ 8,732 8,281 8,230 8,172 8,211
Balance Sheet Data:
Working capital $ 23,131 $ 10,588 $ 7,882 $ 6,239 $ 4,624
Total assets 82,647 58,371 54,903 53,327 51,705
Long-term debt 10,750 6,073 9,057 12,768 17,432
Stockholders' equity 51,320 43,051 37,217 31,909 25,898
Other Data:
Earnings before interest, taxes,
depreciation and amortization (EBITDA) $ 14,055 $ 12,098 $ 11,551 $ 11,888 $ 11,280
</TABLE>
/1/ During September 1998 the Company declared a two-for-one stock split
effected in the form of a 100% common stock dividend. All per share and
weighted average common share information has been restated to reflect the
stock dividend.
8
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ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table is derived from the Company's 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 Increase/(Decrease)
-------------------------------------------------------------------------
1998 1997
Year Ended September 30, Compared Compared
1998 1997 1996 to 1997 to 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 29.3 % 8.3 %
Cost of goods sold 35.8 37.5 39.1 23.8 3.7
-----------------------------------
Gross profit 64.2 62.5 60.9 32.6 11.2
Selling and marketing 45.7 42.9 41.2 37.6 12.8
General and administrative 6.0 5.8 5.3 34.5 16.9
Amortization of intangibles 1.3 1.6 2.1 0.9 (13.2)
-----------------------------------
Operating income 11.2 12.2 12.3 18.4 7.5
Interest expense 0.6 0.6 1.2 28.0 (43.6)
-----------------------------------
Income before income taxes 10.6 11.6 11.1 17.8 13.0
Income taxes 4.0 4.4 4.2 15.5 13.4
-----------------------------------
Net income 6.6 % 7.2 % 6.9 % 19.3 12.8
===================================
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
Net sales. Net sales for 1998 increased 29.3% to $102.2 million from $79.0
million in 1997. Net sales growth was primarily the result of increased sales of
the Company's dietary supplement products and the introduction of a line of
green tea products. The Company's dietary supplement products contributed net
sales of $18.7 million for 1998, as compared to $3.8 million in 1997. This
increase was partially offset by a decrease in sales of the Company's iced and
specialty black tea products.
Gross profit. As a result of the Company's increase in net sales, gross profit
for 1998 increased 32.6% to $65.6 million from $49.4 million in 1997. The
Company's gross profit margin increased to 64.2% from 62.5%. The increase in
gross margin was primarily due to decreased sales of the Company's iced tea
products, which have lower margins than the Company's hot tea and dietary
supplement products, favorable pricing on key herbs used in the Company's
products, and the impact of greater utilization of the Company's manufacturing
facility.
Selling and marketing expenses. Selling and marketing expenses for 1998
increased 37.6% to $46.7 million from $33.9 million in 1997, and increased as a
percentage of net sales to 45.7% from 42.9%. The increase in selling and
marketing expenses primarily was due to increased personnel costs and trade and
consumer promotion expenses associated with the introduction of the Company's
dietary supplements line.
General and administrative expenses. General and administrative expenses for
1998 increased 34.5% to $6.1 million from $4.6 million in 1997, and increased as
a percentage of net sales to 6.0% from 5.8%. The increase was primarily due to
increased personnel costs, legal fees associated with a shareholder's lawsuit
(see note 6 of Notes to Consolidated Financial Statements) and increased
expenses associated with the support of accounts receivable.
Amortization. Amortization expense for 1998 remained relatively unchanged from
1997.
Operating income. Operating income for 1998 increased 18.4% to $11.4 million
from $9.7 million in 1997. The increase was primarily due to increased net sales
and improved gross profit margins, and was partially offset by increased selling
9
<PAGE>
and marketing, and general and administrative expenses. Operating income as a
percentage of net sales decreased to 11.2% from 12.2% primarily due to increased
selling and marketing expenses.
Interest expense. Interest expense for 1998 increased 28.0% from 1997 primarily
as a result of increased borrowings under the Company's credit facility.
Borrowings were necessary to fund increased working capital requirements,
primarily in the form of accounts receivable and inventory, associated with the
introduction of the Company's dietary supplements line.
Income taxes. Income tax expense for 1998 increased 15.5% from 1997 due to
increased pretax income.
Net income. Net income for 1998 increased 19.3% to $6.8 million from $5.7
million in 1997. This increase was primarily attributable to increased net
sales and improved gross profit margins. Net income as a percentage of net
sales decreased to 6.6% from 7.2% primarily due to increased selling and
marketing expenses.
Fiscal 1997 Compared to Fiscal 1996
Net sales. Net sales for 1997 increased 8.3% to $79.0 million from $73.0 million
in 1996. The increase primarily was attributable to an increase in case sales of
2.4% to 4,441,000 cases from 4,338,000 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. The 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 implemented during
the third quarter of fiscal 1996. The Company's dietary supplement products
contributed net sales of $3.8 million for 1997, a 97.7% increase from 1996.
Gross profit. As a result of the Company's increase in net sales, gross profit
for 1997 increased 11.2% to $49.4 million from $44.5 million in 1996. The
Company's gross profit margin increased to 62.5% from 60.9%. The increase in
gross margin was primarily due to increased sales of the Company's higher margin
hot herb tea products, along with a decrease in sales of the Company's lower
margin iced tea products. In addition, the Company realized higher gross margins
from its dietary supplement products during 1997, as compared to 1996, due to
increased operating efficiencies and more competitive inventory pricing.
Selling and marketing expenses. Selling and marketing expenses for 1997
increased 12.8% to $33.9 million from $30.1 million in 1996, and increased as a
percentage of net sales to 42.9% from 41.2%. The increase in selling and
marketing expenses primarily was due to increased trade promotion expenses. This
increase was partially offset by a decrease in consumer promotion expenses.
General and administrative expenses. General and administrative expenses for
1997 increased 16.9% to $4.6 million from $3.9 million in 1996, and increased as
a percentage of net sales to 5.8% from 5.3%. 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 1997, decreased 13.2% to $1.3
million from $1.5 million in 1996. Amortization of intangibles was lower for
1997, as compared to 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 1997 increased 7.5% to $9.7 million from
$9.0 million in 1996. The increase was primarily due to increased net sales and
improved gross profit margins, and was partially offset by increased selling and
marketing expenses. Operating income as a percentage of net sales remained
relatively unchanged.
Interest expense. Interest expense for 1997 decreased 43.6% from 1996 primarily
as a result of reduced outstanding borrowings. The Company extinguished its bank
debt during the first quarter of fiscal 1997. Interest expense for 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.
10
<PAGE>
Income taxes. Income tax expense for 1997 increased 13.4% from 1996. The
increase in income tax expense primarily was due to increased pretax income.
Net income. Net income for 1997 increased 12.8% to $5.7 million from $5.0
million in 1996, and as a percentage of net sales was 7.2% in 1997 compared to
6.9% in 1996. This increase was primarily attributable to increased net sales
and improved gross profit margins.
Seasonality
The Company's business is seasonal and its quarterly results of operations
reflect seasonal trends resulting from 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
eight most recent quarters.
<TABLE>
<CAPTION>
1998 Quarters Ended
--------------------------------------------------
dollars and cases in thousands
--------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Case sales 1,120 857 1,611 1,491
Net sales $ 23,073 $19,395 $32,329 $27,400
Gross profit 14,586 12,573 21,131 17,269
Operating income 1,782 355 5,549 3,755
Operating margin 7.7% 1.8% 17.2% 13.7%
Net income $ 1,053 $ 124 $ 3,341 $ 2,238
Net sales as a percent of annual net sales 22.6% 19.0% 31.6% 26.8%
1997 Quarters Ended
--------------------------------------------------
dollars and cases in thousands
--------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Case sales 855 656 1,491 1,439
Net sales $ 15,916 $11,589 $25,861 $25,673
Gross profit 9,439 6,401 16,994 16,599
Operating income 898 221 4,969 3,578
Operating margin 5.6% 1.9% 19.2% 13.9%
Net income $ 545 $ 74 $ 3,007 $ 2,038
Net sales as a percent of annual net sales 20.1% 14.7% 32.7% 32.5%
</TABLE>
Quarterly fluctuations in the Company's sales volume and operating results are
due to a number of factors, including the timing of trade promotions,
advertising and consumer promotions. The impact on sales volume and operating
results, due to the timing and extent of these factors, can be significant.
Liquidity and Capital Resources
The operations of the Company historically have been funded with a combination
of internally generated funds and external borrowings. Other than funding
ongoing operations, the Company's principal uses of funds in the future will be
the development of new or existing tea and dietary supplement products and the
possible acquisition of brands, product lines or other assets. 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.
11
<PAGE>
On November 2, 1998 the Company entered into a new three year credit facility
which includes a revolving credit loan of up to $15,000,000 (the "Revolving
Loan"), and a standby letter of credit commitment in the approximate amount of
$7,000,000 (the "Letter of Credit Facility") to support outstanding Economic
Development Revenue Bonds issued to finance the Company's manufacturing
facility. Borrowings under the credit facility currently bear interest at rates
ranging from LIBOR plus 0.75% to the Federal Funds Rate plus 1.00%, subject to
increases if the Company fails to achieve certain future operating results. The
Letter of Credit Facility includes annual financing fees of 0.50%, and loans
resulting from a draw under the Letter of Credit Facility bear interest at a
rate equal to the interest rate then applicable to the Revolving Loan. The
Revolving Loan is due on November 2, 2001 and the Letter of Credit Facility
expires on November 2, 2002. The credit facility imposes certain ratio
maintenance requirements on the Company, including minimum EBITDA levels,
interest coverage, current ratio and net worth, and certain restrictive
covenants including limitations on indebtedness, liens, sales of assets, mergers
and investments. Future borrowings under the credit facility will provide for
working capital and may be used for acquisition financing.
Cash and cash equivalents decreased by $0.3 million in 1998. Cash used in
operating activities of the Company was $7.2 million. The Company's investing
activities used cash of $3.2 million for 1998, primarily for capital
expenditures, including $3.5 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
$3.25 million in 1999. Financing activities of the Company provided cash of
$10.1 million for 1998.
Year 2000 Compliance
A number of computer programs are written using two digits rather than four to
define the applicable year. As a result, computer programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company, after an inventory of its business systems and business
interactions, is currently executing a plan to prepare its systems and business
relationships for the Year 2000. Although the exact steps and timing vary
depending upon component type, the Company expects to complete its plan of
preparation for all components on or around July 1, 1999. In the event there is
a delay in the completion of the Year 2000 compliance plan, the Company is in
the process of developing a contingency plan which will include some non-
computerized backup systems. The ability for the Company to achieve Year 2000
compliance is, however, highly dependent upon compliance of the systems of the
Company's customers, suppliers and other third parties with which the Company
has business relationships.
The total cost to the Company of Year 2000 compliance activities has not yet
been, and is not anticipated to be, material to its financial position or
results of operations in any given year. These costs, and the date on which the
Company plans to complete the Year 2000 modification and testing processes, are
based on management's best estimates, which were derived using numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
Forward-Looking Statements
The statements contained in this Annual Report on Form 10-K which are not
historical facts, including, but not limited to, certain statements found under
the captions "Business," "Results of Operations," "Liquidity and Capital
Resources" and "Year 2000 Compliance" 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 Annual Report on Form 10-K, 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, consumer acceptance of new products, general economic
conditions, consumer trends, costs and availability of raw materials and
management information systems, competition,
12
<PAGE>
litigation and the effect of governmental regulation. The Company disclaims any
intention or obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise.
ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
13
<PAGE>
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Celestial Seasonings, Inc.:
We have audited the accompanying consolidated balance sheets of Celestial
Seasonings, Inc. and subsidiaries (the "Company," Note 2) as of September 30,
1998 and 1997 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Celestial Seasonings, Inc. and its
subsidiaries at September 30, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1998, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Denver, Colorado
November 10, 1998
14
<PAGE>
Celestial Seasonings, Inc.
Consolidated Income Statements
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales $102,197 $ 79,039 $ 72,998
Cost of goods sold 36,638 29,606 28,545
-------- -------- --------
Gross profit 65,559 49,433 44,453
Operating expenses:
Selling and marketing 46,683 33,915 30,071
General and administrative 6,127 4,556 3,899
Amortization of intangibles 1,308 1,296 1,493
-------- -------- --------
Total operating expenses 54,118 39,767 35,463
Operating income 11,441 9,666 8,990
Interest expense 631 493 874
-------- -------- --------
Income before income taxes 10,810 9,173 8,116
Income taxes 4,054 3,509 3,093
-------- -------- --------
Net income $ 6,756 $ 5,664 $ 5,023
======== ======== ========
Earnings per share-basic:
Net income per common share $ 0.82 $ 0.70 $ 0.62
======== ======== ========
Weighted average common shares 8,250 8,107 8,088
======== ======== ========
Earnings per share-assuming dilution:
Net income per common share $ 0.77 $ 0.68 $ 0.61
======== ======== ========
Weighted average common shares 8,732 8,281 8,230
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
Celestial Seasonings, Inc.
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
September 30,
-------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,533 $ 2,829
Accounts receivable, net of allowance (1998 - $534, 1997 - $165) 15,156 7,755
Inventory 23,185 8,410
Deferred income taxes 93 200
Prepaid income taxes 630 -
Prepaid expenses 2,111 641
------------ ------------
Total current assets 43,708 19,835
Property, plant and equipment, net 19,240 17,085
Intangible assets, net 12,598 13,236
Goodwill, net 5,870 6,150
Deferred income taxes 217 263
Other assets 1,014 1,802
------------ ------------
Total assets $ 82,647 $ 58,371
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,656 $ 4,160
Accrued liabilities and wages 7,551 4,584
Accrued income taxes - 99
Accrued interest payable 47 31
Current portion of long-term debt 4,323 373
------------ ------------
Total current liabilities 20,577 9,247
Long-term debt 10,750 6,073
Commitments
Stockholders' equity:
Preferred stock, $.01 par value - authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, $.01 par value - authorized 15,000,000 shares;
1998-issued 8,322,528 shares, outstanding 8,304,728 shares;
1997-issued 8,136,982 shares, outstanding 8,119,182 shares 83 81
Capital surplus 35,011 33,500
Retained earnings 16,401 9,645
Treasury stock, 17,800 shares of common stock at cost (175) (175)
------------ ------------
Total stockholders' equity 51,320 43,051
------------ ------------
Total liabilities and stockholders' equity $ 82,647 $ 58,371
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
Celestial Seasonings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 6,756 $ 5,664 $ 5,023
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,306 1,136 1,068
Amortization of intangibles 1,308 1,296 1,493
Amortization of financing fees 194 196 223
Deferred income taxes 153 (169) 770
Changes in operating assets and liabilities:
Accounts receivable (7,401) 378 (2,835)
Inventory (14,775) (1,602) 913
Prepaid expenses (1,470) 248 (229)
Accounts payable 4,496 406 238
Accrued liabilities and wages 2,967 122 (570)
Accrued and prepaid income taxes (729) 569 (1,034)
Accrued interest payable 16 (21) (2)
---------- ---------- ----------
Net cash (used in) provided by operating activities (7,179) 8,223 5,058
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,461) (1,362) (1,294)
Increase in intangible assets (390) (738) (636)
Decrease (Increase) in other assets 594 (708) 121
---------- ---------- ----------
Net cash used in investing activities (3,257) (2,808) (1,809)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 1,513 250 285
Acquisition of treasury stock - (80) -
Increase in long-term debt 9,000 2,285 12,265
Reduction in long-term debt (373) (5,245) (15,970)
---------- ---------- ----------
Net cash provided by (used in) financing activities 10,140 (2,790) (3,420)
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (296) 2,625 (171)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,829 204 375
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,533 $ 2,829 $ 204
========== ========== ==========
CASH PAID FOR INTEREST $ 420 $ 333 $ 654
CASH PAID FOR INCOME TAXES $ 4,630 $ 3,109 $ 3,357
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
Celestial Seasonings, Inc.
Consolidated Statements of Stockholders' Equity
(dollars in thousands)
<TABLE>
<CAPTION>
Retained
Earnings
Common Stock Capital (Accumulated Treasury Stock Total
---------------------- --------------------
Shares Amount Surplus Deficit) Shares Amount Equity
---------- ---------- ----------- -------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1995 8,082,756 $ 80 $ 32,966 $ (1,042) (10,000) $ (95) $ 31,909
Issuance of common stock 26,188 1 284 285
Net income 5,023 5,023
---------- ---------- ----------- -------------- --------- --------- ----------
BALANCE, SEPTEMBER 30, 1996 8,108,944 81 33,250 3,981 (10,000) (95) 37,217
Issuance of common stock 28,038 - 250 250
Acquisition of treasury stock (7,800) (80) (80)
Net income 5,664 5,664
---------- ---------- ----------- -------------- --------- --------- ----------
BALANCE, SEPTEMBER 30, 1997 8,136,982 81 33,500 9,645 (17,800) (175) 43,051
Issuance of common stock 185,546 2 1,511 1,513
Net income 6,756 6,756
---------- ---------- ----------- -------------- --------- --------- ----------
BALANCE, SEPTEMBER 30, 1998 8,322,528 $ 83 $ 35,011 $ 16,401 (17,800) $ (175) $ 51,320
========== ========== =========== ============== ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
Celestial Seasonings, Inc.
Notes to Consolidated Financial Statements
1. Nature of Operations
Celestial Seasonings, Inc. is the largest manufacturer and marketer of herb teas
in the United States, with an estimated 50% share of the herb tea category. The
Company developed and popularized the herb tea category in the United States as
a flavorful and non-caffeinated alternative to other hot beverages. Currently
the Company markets over 50 tea varieties under the Celestial Seasonings(R)
brand. Celestial Seasonings tea products are sold in substantially all of the
major supermarkets, grocery stores and natural foods markets in the United
States. Additionally, the Company markets a line of dietary supplements under
the Celestial Seasonings brand. The Company currently markets approximately 30
products in major supermarkets, natural foods markets, drug stores and mass
merchandisers in the United States.
2. Significant Accounting Policies
Basis of presentation. The consolidated financial statements include the
accounts of Celestial Seasonings, Inc. and subsidiaries (the "Company"). All
material intercompany balances and transactions have been eliminated in
consolidation. The Company declared a two-for-one stock split effected in the
form of a 100% common stock dividend during September 1998. All share and per
share data has been restated to reflect this dividend. Certain reclassifications
have been made to the Company's 1997 and 1996 financial statements to conform to
the 1998 classifications. The Company's year ends on the last Saturday of each
September. For presentation purposes, however, such year is presented as if it
ended on September 30. All references to years refer to the Company's fiscal
years.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses through the
reporting period. Actual results could differ from these estimates.
Cash and cash equivalents. Cash and cash equivalents include cash on hand and on
deposit and investments in highly liquid, short-term financial instruments
purchased with a maturity of three months or less.
Inventory. Inventory is stated at the lower of cost or market using the first-
in, first-out (FIFO) method.
Earnings per share. In accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share," the increase in weighted average common
shares-assuming dilution is due to the application of the treasury share method
for outstanding stock options. The application of the treasury share method
resulted in an additional 482,000, 174,000 and 142,000 weighted average shares
for 1998, 1997 and 1996, respectively.
Export sales. Net sales include total export sales of $9,672,000, $8,807,000 and
$7,579,000 in 1998, 1997 and 1996, respectively.
19
<PAGE>
Depreciation and amortization. Depreciation and amortization of property, plant
and equipment is provided on the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Building 32
Vehicles 3
Factory equipment 7
Office and other equipment 3
</TABLE>
Maintenance, repairs and renewals that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as incurred
Amortization of intangible assets is provided on the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
------------
<S> <C>
Goodwill 15 to 40
Trademarks and copyrights 40
Grocery shelf space 40
Manufacturing process and workforce 7
Artwork and plates 3
Other 3 to 8
</TABLE>
Accumulated amortization of goodwill was $1,788,000 and $1,508,000 respectively,
at September 30, 1998 and 1997.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company periodically evaluates the recoverability of the
net carrying value of property, plant and equipment, intangible assets, and
goodwill based upon current and anticipated net income and undiscounted cash
flows, and if necessary an impairment is recorded. The Company has recorded no
such impairments in 1998, 1997 or 1996.
Research and development costs. Research and development costs are charged to
expense when incurred. During the years ended September 30, 1998, 1997 and 1996,
amounts expensed for Company-sponsored research and development activities were
$1,003,000, $790,000 and $653,000, respectively.
Concentrations of credit risk. Areas which potentially subject the Company to
significant concentrations of credit risk consist primarily of accounts
receivable. Concentrations of credit risk associated with accounts receivable
are limited due to the Company's large number of customers and their dispersion
across many different geographic areas. As of September 30, 1998, the Company
had no significant concentrations of credit risk.
Fair value of financial instruments. Statement of Financial Accounting Standards
No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of the fair value of certain of the Company's assets and liabilities.
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable at September 30, 1998 and 1997 approximate fair value due to
their short-term maturities. The carrying value of long-term debt at September
30, 1998 and 1997 also approximates fair value as interest rates are adjusted to
current market rates on a monthly basis.
Comprehensive income. In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income." SFAS 130 requires companies to disclose
comprehensive income and its components. The Company currently has no items of
other comprehensive income and therefore SFAS 130 does not apply.
20
<PAGE>
Operating segments. In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. The Company has adopted SFAS 131 for the year ended September 30,
1998.
The Company has two reportable segments which are segregated by product line:
beverages and dietary supplements. The beverages segment manufactures and sells
the Company's tea products. The dietary supplements segment manufactures and
sells the Company's herbal supplement products. Depreciation and amortization
expense for the Company's dietary supplements segment is immaterial. The
Company's beverage products are sold in all 50 states and approximately 40
countries, while its dietary supplement products are primarily sold in the
United States.
Financial data related to the Company's reportable segments is as follows (in
thousands):
<TABLE>
Dietary
Beverages Supplements Other Total
--------- ----------- ----- -----
<S> <C> <C> <C> <C>
Net sales:
1998 $ 79,875 $ 18,739 $3,583 $102,197
1997 72,205 3,789 3,045 79,039
1996 69,016 1,917 2,065 72,998
Operating income (loss):
1998 14,927 (3,971) 485 11,441
1997 9,721 (612) 557 9,666
1996 9,302 (786) 474 8,990
Inventory:
1998 8,674 13,981 530 23,185
1997 6,513 1,629 268 8,410
1996 6,056 614 138 6,808
Total assets:
1998 60,480 21,637 530 82,647
1997 54,121 3,982 268 58,371
1996 51,469 3,296 138 54,903
</TABLE>
Effective beginning in 1999, the Company intends to redefine its reportable
segments as a line of wellness products and a line of beverage products. The
wellness segment will include dietary supplement and related tea products, while
the beverage segment will include the Company's core tea products.
21
<PAGE>
3. Detail of Certain Balance Sheet Accounts
(in thousands)
September 30,
---------------------
1998 1997
-------- --------
Inventory:
Raw materials & supplies $ 10,941 $ 4,924
Work in process 2,047 1,393
Finished goods 10,406 2,431
-------- --------
23,394 8,748
Less inventory reserves 209 338
-------- --------
Total $ 23,185 $ 8,410
======== ========
Property, plant & equipment:
Land $ 5,931 $ 5,931
Building 9,125 8,771
Machinery & equipment 15,592 12,585
Furniture & fixtures 414 303
-------- --------
31,062 27,590
Less accumulated depreciation 11,822 10,505
-------- --------
Total $ 19,240 $ 17,085
======== ========
Intangible assets:
Trademarks & copyrights $ 9,848 $ 9,848
Grocery shelf space 5,700 5,700
Manufacturing process & workforce 4,879 4,879
Artwork & plates 5,362 4,972
Other 1,570 1,570
-------- --------
27,359 26,969
Less accumulated amortization 14,761 13,733
-------- --------
Total $ 12,598 $ 13,236
======== ========
Other assets:
Financing fees $ 1,830 $ 1,830
Less accumulated amortization 1,234 1,040
-------- --------
596 790
Long-term note receivable from
executive officer - 898
Other 418 114
-------- --------
Total $ 1,014 $ 1,802
======== ========
22
<PAGE>
4. Long-term Debt
Long-term debt consists of the following (in thousands):
September 30,
-----------------------
1998 1997
---------- ----------
Revolving Credit Facility payable to banks $ 9,000 $ -
Borrowings related to Economic Development
Revenue Bonds due in monthly installments
through November 1, 2009, interest payable
monthly at variable rates 6,050 6,350
Other 23 96
---------- ----------
15,073 6,446
Less current portion 4,323 373
---------- ----------
Total $ 10,750 $ 6,073
========== ==========
The Company's 1993 bank credit facility (the "Facility") includes a revolving
working capital facility, a reducing revolving facility and a letter of credit
facility. The commitment under the revolving working capital facility was
$8,000,000, subject to a borrowing base which is based on the Company's accounts
receivable and inventory, and expired on July 20, 1998. The commitment under the
reducing revolving facility ($9,000,000 outstanding at September 30, 1998) is
$9,000,000 at September 30, 1998, with semi-annual reductions of the commitment
until final maturity at July 19, 2000. Borrowings under these facilities bear
interest at rates ranging from LIBOR plus 1.00% to prime. The commitment under
the letter of credit facility is $6,429,000 and was scheduled to expire July 19,
2000, with fees of 1.00% per annum of the total commitment. Borrowings under
this facility (none at September 30, 1998) bear interest at the prime rate plus
1.00%.
The Facility imposes certain ratio maintenance requirements on the Company,
including minimum EBITDA levels, interest coverage, current ratio, net worth and
fixed charge coverage, and certain restrictive covenants including limitations
on indebtedness, liens, capital expenditures, sales of assets, mergers,
investments and dividends. Borrowings under the Facility are secured by
substantially all of the assets of the Company.
On November 2, 1998, the Company entered into a new bank credit facility and
paid off the 1993 Facility. The new credit facility includes a revolving credit
loan of up to $15,000,000, which matures in 2002 and a standby letter of credit
commitment of approximately $7,000,000. The new facility currently bears
interest at rates ranging from LIBOR plus 0.75% to the Federal Funds Rate plus
1.00% and is unsecured.
Borrowings related to Economic Development Revenue Bonds (the "Bonds") bear
interest at a variable rate (3.50% at September 30, 1998) and are secured by a
letter of credit issued under the Facility. The Bonds mature December 1, 2009.
The Bonds can be tendered monthly to the Bond trustee at face value plus accrued
interest, with payment for tendered Bonds made from drawdowns under the letter
of credit. Drawdowns under the letter of credit bear interest at prime plus
1.00%, and are repaid through resale of the Bonds. Any outstanding drawdowns
must be repaid on July 19, 2000. The standby letter of credit commitment
associated with the new credit facility currently secures the Bonds.
Prior to the termination of the 1993 Facility, the aggregate annual maturities
of long-term debt, during the five years subsequent to September 30, 1998 are:
1999 - $4,323,000; 2000 - $5,375,000; 2001 - $400,000; 2002 - $475,000; and 2003
- - $500,000.
5. Commitments
The Company leases various office and manufacturing equipment. Total rental
expense for the equipment for the years ended September 30, 1998, 1997 and 1996
was $419,000, $397,000 and $367,000, respectively. At September 30, 1998,
minimum rental commitments by year under noncancelable operating leases are:
1999 - $417,000; 2000 - $299,000; 2001 - $116,000; and 2002 - $23,000.
23
<PAGE>
6. 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 appealed the district court's decision to the United States Court
of Appeals for the Tenth Circuit. On September 5, 1997, the court of appeals
reversed the decision of the district court. The court of appeals found that the
plaintiff's complaint alleged sufficient facts to support his claim. The case
has been returned to the district court for further proceedings and has been
certified as a class action. Due to the uncertainties inherent in the
litigation process, the Company is unable to predict the outcome of this matter.
The Company is also a party to ordinary routine litigation incidental to its
business. The Company does not expect any of such incidental litigation to have
a material adverse effect on the Company's results of operations or financial
condition.
7. Stockholders' Equity
Preferred stock. In July 1993, the Company authorized the issuance of 1,000,000
shares of $0.01 par value Preferred Stock and designated 10,000 shares as a
Series A Junior Participating Preferred Stock in connection with the adoption of
a rights agreement. No shares were outstanding at September 30, 1998.
Stock-based compensation plans. At September 30, 1998, the Company has four
stock-based compensation plans. The Company applies APB Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its plans. Under APB 25, no compensation expense is recognized
for options granted to employees which are at or above market value.
Accordingly, no compensation cost has been recognized for the stock option and
stock purchase plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") the Company's pro forma net income and earnings per
share would have been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net income As reported $6,756 $5,664 $5,023
Pro forma $5,483 $5,153 $4,896
Net income per common share--basic As reported $ 0.82 $ 0.70 $ 0.62
Pro forma $ 0.66 $ 0.64 $ 0.61
Net Income per common share--assuming dilution As reported $ 0.77 $ 0.68 $ 0.61
Pro forma $ 0.64 $ 0.63 $ 0.60
</TABLE>
The amounts reflected in the pro forma disclosure are not indicative of future
amounts, as SFAS 123 is applicable only to options granted subsequent to
September 30, 1995. The pro forma effect will not be fully reflected until 2000.
24
<PAGE>
Stock option plans. During 1991, the Company adopted an incentive and non-
qualified stock option plan that provided for the granting of options to
purchase up to 92,224 shares of the Company's common stock to employees. The
options generally vested over a four year period and expired ten years from the
grant date. No further grants will be made under the plan.
In 1991, the Company granted options to an executive officer to purchase 191,260
shares of the Company's common stock in connection with capital contributions
made by the officer and certain other agreements. Such options were immediately
vested at the grant date, are exercisable half at $4.13 per share and half at
$5.73 per share, and expire in 2031.
During 1993, the Company adopted an incentive and non-qualified stock option
plan that provided for the granting of awards for up to 262,000 shares of the
Company's common stock. Options granted at the time of the Company's initial
public offering in 1993 vested over one year and five year periods. Options
granted subsequent to the Company's initial public offering generally vest over
a five year period. Options expire ten years from the grant date. During 1995,
the Company approved an increase in the number of awards that may be granted to
450,000 shares and in 1998 the Company approved a further increase of up to
1,250,000 shares which may be granted under the plan.
In 1993, the Company granted options to purchase 20,000 shares of the Company's
common stock to a director of the Company. The options vested over a three year
period and expire ten years from the grant date.
In 1995, the Company adopted a non-qualified stock option plan for non-employee
directors. The plan provides for up to 150,000 shares of the Company's common
stock for issuance upon exercise of options granted to non-employee directors
and in lieu of meeting fees paid to non-employee directors. The options vest
over a one year period and expire ten years from the grant date. During 1998,
the Company amended this plan to provide each non-employee director an initial
grant of an option to purchase 10,000 shares and an annual grant, commencing in
1999, of an option to purchase 4,000 shares. In addition, non-employee
directors may elect to receive their annual retainer in shares of common stock
rather than cash.
In 1997, the Company granted options to an executive officer to purchase 330,000
shares of the Company's common stock. The options were granted in connection
with the officer's employment agreement, vest over a five year period, are
exercisable at $10.75 per share and expire ten years from the grant date.
In the above pro forma amounts, the fair value of each option grant is estimated
on the date of the grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1998, 1997 and 1996,
respectively: no estimated dividends for all years; expected volatility of 31
percent for all years; risk-free interest rates of between 5.2 and 6.0 percent,
between 6.0 and 6.8 percent and between 5.3 and 6.9 percent; and expected lives
of 6 years for all years.
Employee stock purchase plan. Under the Company's Employee Stock Purchase Plan
(the "Plan") the Company is authorized to issue up to 52,400 shares of common
stock to its full-time employees, nearly all of whom are eligible to
participate. Under the terms of the Plan, employees can choose each year to have
up to 10 percent of their annual base earnings withheld to purchase the
Company's common stock. The purchase price of the stock is 85 percent of the
lower of the market price at the beginning or end of each six month
participation period. Approximately 30 percent of eligible employees have
participated in the Plan in the last 3 years. Under the Plan, the Company sold
4,740, 5,802 and 5,280 shares to employees in 1998, 1997 and 1996, respectively.
In the above pro forma amounts, compensation cost is recognized for the fair
value of the employees' purchase rights using the Black-Scholes model with the
following assumptions for 1998, 1997 and 1996, respectively: no estimated
dividends for all years; expected volatility of 31 percent for all years; risk-
free interest rates of 5.5 percent, between 5.3 and 5.7 percent and between 5.2
and 5.5 percent; and an expected life of 6 months for all years. The weighted
average fair value of those purchase rights granted in 1998, 1997 and 1996 were
$4.41, $2.41 and $2.39, respectively.
25
<PAGE>
The following table summarizes the status of the Company's stock option plans as
of September 30, 1998, 1997 and 1996, and changes during the years ending on
those dates:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted Avg Weighted Avg Weighted Avg
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 959,580 $ 9.14 512,382 $ 7.52 561,022 $ 7.47
Granted 287,876 18.56 497,200 10.75 90,308 10.23
Exercised (98,734) 8.47 (18,018) 8.03 (14,720) 9.48
Forfeited (41,836) 10.81 (31,984) 8.85 (124,228) 9.03
--------- -------- --------
Outstanding at end of year 1,106,886 $ 11.58 959,580 $ 9.14 512,382 $ 7.52
========= ======== ========
Options exercisable at year-end 437,526 $ 7.86 374,392 $ 6.88 336,976 $ 6.55
Weighted average fair value of options
granted during the year $ 7.92 $ 4.85 $ 4.35
</TABLE>
The following table summarizes information about stock options outstanding at
September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -----------------------------
Number Weighted Avg Number
Range of Outstanding Remaining Weighted Avg Exercisable Weighted Avg
Exercise Prices at 9/30/98 Contractual Life Exercise Price at 9/30/98 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.13-$ 7.63 215,288 29.8 years $ 5.22 210,087 $ 5.16
$ 8.00-$ 9.75 47,174 7.3 years $ 9.41 24,336 $ 9.37
$10.00-$11.94 556,448 8.1 years $10.65 201,930 $ 10.46
$12.19-$15.38 55,900 9.4 years $14.93 1,173 $ 12.51
$17.63-$19.63 194,076 9.4 years $18.80 - $ -
$21.19-$23.06 38,000 9.6 years $22.17 - $ -
----------- -----------
$ 4.13-$23.06 1,106,886 12.6 years $11.58 437,526 $ 7.86
=========== ===========
</TABLE>
26
<PAGE>
8. Income Taxes
The components of income taxes are as follows (in thousands):
1998 1997 1996
-------- -------- --------
Federal:
Current $ 3,366 $ 3,201 $ 2,101
Deferred 133 (150) 663
-------- -------- --------
3,499 3,051 2,764
-------- -------- --------
State:
Current 535 477 222
Deferred 20 (19) 107
-------- -------- --------
555 458 329
-------- -------- --------
Total $ 4,054 $ 3,509 $ 3,093
======== ======== ========
The Company's income tax expense in 1998, 1997 and 1996 differed from the
federal statutory provision as follows (in thousands):
1998 1997 1996
-------- -------- --------
Income tax at statutory rates $ 3,675 $ 3,119 $ 2,759
Increase in deferred tax assets for which
valuation allowances are provided - - 59
State income taxes, net of federal benefit 366 302 217
Other 13 88 58
-------- -------- --------
Total $ 4,054 $ 3,509 $ 3,093
======== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
27
<PAGE>
Components of the Company's net deferred tax assets at September 30 were as
follows (in thousands):
1998 1997
-------- --------
Current deferred tax assets:
Accruals $ 615 $ 253
Reserves 134 4
Capitalized costs 61 39
Prepayments (717) (96)
-------- --------
Current deferred tax assets, net $ 93 $ 200
======== ========
Noncurrent deferred tax assets:
Amortization $ 2,833 $ 2,665
Depreciation (443) (382)
Valuation allowance (2,173) (2,020)
-------- --------
Noncurrent deferred tax assets, net $ 217 $ 263
======== ========
At September 30, 1998, the potential future benefits from noncurrent deferred
tax assets relating to intangible assets, which are not amortizable for tax
purposes, are fully reserved by means of a valuation allowance, due to the
uncertainty of their future realization. The net change in the valuation
allowance in 1998 was $153,000.
9. Employee Benefit Plans
The Company has a contributory thrift plan covering all employees. Each year,
based on the achievement of certain targeted operating results, the Company can
contribute to the plan an amount equal to 1% to 2.5% of thriftable wages.
Additionally, the Company matches a portion (currently 50%) of participant
contributions up to limits provided in the plan. The Company's contributions are
funded currently and were $349,000, $334,000 and $323,000 for 1998, 1997 and
1996, respectively.
During 1989, the Company formed an employee stock ownership plan covering all
employees. The Company's contributions for 1998, 1997 and 1996 were $90,000,
$90,000 and $75,000, respectively. The plan held 53,318 shares of the Company's
common stock at September 30, 1998.
10. Related Party Transactions
During 1997, the Company, pursuant to an employment agreement, provided an
executive officer with an interest free loan of up to $1,500,000 to be used for
the purchase of a home associated with the executive's relocation. The loan was
payable upon the earlier of, the sale of executive's former home, or 18 months
after the purchase of a new home. The loan was paid in full during 1998.
During 1998, the Company, pursuant to an employment agreement, provided a key
employee with an interest free loan of $280,000 associated with the employee's
relocation. The loan is payable upon the earlier of the sale of, the employee's
former home, or five months. As of September 30, 1998 the balance due from the
employee was $280,000 and is included in accounts receivable.
28
<PAGE>
11. Quarterly Financial Data (Unaudited):
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 Quarters Ended
-----------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Case sales 1,120 857 1,611 1,491
Net sales $23,073 $19,395 $32,329 $27,400
Gross profit 14,586 12,573 21,131 17,269
Operating income 1,782 355 5,549 3,755
Net income 1,053 124 3,341 2,238
Net income per share-basic $ 0.13 $ 0.02 $ 0.40 $ 0.28
Net income per share-assuming dilution 0.12 0.01 0.38 0.26
Net sales as a percent of annual net sales 22.6% 19.0% 31.6% 26.8%
</TABLE>
<TABLE>
<CAPTION>
1997 Quarters Ended
-----------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Case sales 855 656 1,491 1,439
Net sales $15,916 $11,589 $25,861 $25,673
Gross profit 9,439 6,401 16,994 16,599
Operating income 898 221 4,969 3,578
Net income 545 74 3,007 2,038
Net income per share-basic $ 0.07 $ 0.01 $ 0.37 $ 0.25
Net income per share-assuming dilution 0.07 0.01 0.36 0.25
Net sales as a percent of annual net sales 20.1% 14.7% 32.7% 32.5%
</TABLE>
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
29
<PAGE>
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections labeled "Election of Directors," "Section 16(a) Beneficial
Ownership Reporting Compliance" and "Executive Officers" appearing in the
Company's Proxy Statement in connection with the 1999 Annual Meeting of
Stockholders are incorporated herein by reference.
ITEM 11. - EXECUTIVE COMPENSATION
The sections labeled "Compensation of Directors and Executive Officers,"
"Executive Compensation," "Option Grants in Last Fiscal Year," "Aggregated
Option Exercises in Last Fiscal Year and Year-end Option Values," "Employment
Agreements," "Compensation Committee Report" and "Performance Graph" appearing
in the Company's Proxy Statement in connection with the 1999 Annual Meeting of
Stockholders are incorporated herein by reference.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The section labeled "Principal Stockholders" appearing in the Company's Proxy
Statement in connection with the 1999 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section labeled "Certain Relationships and Related Transactions" appearing
in the Company's Proxy Statement in connection with the 1999 Annual Meeting of
Stockholders is incorporated herein by reference.
30
<PAGE>
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
<TABLE>
(a) 1. Index to Financial Statements
Page
----
<S> <C>
Independent Auditors' Report 14
Consolidated Income Statements for the years ended
September 30, 1998, 1997 and 1996 15
Consolidated Balance Sheets at September 30, 1998 and 1997 16
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996 17
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1998, 1997 and 1996 18
Notes to Consolidated Financial Statements 19-29
Quarterly Financial Data (Unaudited) 29
2. Index to Financial Statement Schedule
The following schedule is filed as part of this Form 10-K:
II - Valuation and Qualifying Accounts for the years ended
September 30, 1998, 1997 and 1996 36
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
31
<PAGE>
3. Exhibits
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit Description
No.
- -----------------------------------------------------------------------------------------------------------------
<C> <C> <S>
(a) 3.1 Amended and Restated Certificate of Incorporation of Registrant.
3.2 Bylaws of Registrant.
(a) 4.1 Common Stock certificate.
4.2 Rights Agreement dated as of July 19, 1993 between Registrant and Harris Trust and Savings Bank, as Rights
agent, as amended and restated November 11, 1998.
(a) 10.1 Incentive and Non-Qualified Stock Option Plan of Registrant as Successor to Celestial Holdings, Inc.
adopted February 26, 1991.
(f) 10.2 1993 Long-Term Incentive Plan of Registrant adopted June 7, 1993, as amended.
(f) 10.3 1994 Non-Employee Director Compensation Plan adopted August 4, 1994, as amended.
(b) 10.4 Credit Agreement dated as of July 19, 1993, among Registrant and Fleet National Bank as a lender and agent.
(d) 10.5 Amendments 1, 2 and 3 to the Credit Agreement dated as of July 19, 1993, among Registrant and Fleet
National Bank as a lender and agent.
(a) 10.6 Loan Agreement dated as of December 1, 1989 between Registrant and Colorado Housing and Finance Authority.
(c) 10.7 Employment Agreement dated February 15, 1994 between Registrant and Marie A. Gambon.
(e) 10.8 Employment Agreement dated June 16, 1997 between Registrant and Stephen B. Hughes.
(e) 10.9 Executive Agreement dated June 16, 1997 between Registrant and Mo Siegel.
(e) 10.10 Stock Option Agreement dated June 16, 1997 between Registrant and Stephen B. Hughes.
(e) 10.11 Option Agreement dated June 13, 1997 between Registrant and Mo Siegel.
10.12 Employment Agreement dated November 7, 1997 between Registrant and William Atchinson.
10.13 Employment Agreement dated March 2, 1998 between Registrant and Richard Karl.
10.14 Credit Agreement dated as of November 2, 1998, among Registrant and KeyBank National Association.
23.1 Report of Deloitte & Touche LLP on consolidated financial statement schedule.
23.2 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
</TABLE>
32
<PAGE>
Exhibits identified above are incorporated by reference as follows:
(a) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 No. 33-64012, as amended, filed with the Securities and Exchange
Commission on June 7, 1993.
(b) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.
(c) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1994.
(d) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 1996.
(e) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(f) Incorporated by reference to the Registrant's Proxy Statement in connection
with the 1998 Annual Meeting of Stockholders, filed with the Securities and
Exchange Commission on January 13, 1998.
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed on August 20, 1998, relating to the
declaration of a 100% common stock dividend payable on September 25, 1998
to stockholders of record as of September 11, 1998.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K
for the year ended September 30, 1998 to be signed on its behalf by the
undersigned, thereunto duly authorized.
CELESTIAL SEASONINGS, INC.
By: /S/ DARRELL F. ASKEY
- -------------------------
Darrell F. Askey
Vice President - Finance and Chief Financial Officer
Date: December 15, 1998
34
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this Annual Report
on Form 10-K for the year ended September 30, 1998 has been signed below by the
following persons, on behalf of the Registrant and in the capacities indicated
on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ MO SIEGEL Chairman December 15, 1998
- ---------------------------------
Mo Siegel
/S/ STEPHEN B. HUGHES President, December 15, 1998
- --------------------------------- Chief Executive Officer and Director
Stephen B. Hughes
/S/ RONALD V. DAVIS Director December 15, 1998
- ---------------------------------
Ronald V. Davis
/S/ MARINA HAHN Director December 15, 1998
- ---------------------------------
Marina Hahn
/S/ JOHN D. HOWARD Director December 15, 1998
- ---------------------------------
John D. Howard
/S/ JAMES P. KELLEY Director December 15, 1998
- ---------------------------------
James P. Kelley
/S/ LEONARD LIEBERMAN Director December 15, 1998
- ---------------------------------
Leonard Lieberman
/S/ GREGG A. OSTRANDER Director December 15, 1998
- ---------------------------------
Gregg A. Ostrander
/S/ DARRELL F. ASKEY Vice President - Finance December 15, 1998
- --------------------------------- and Chief Financial Officer
Darrell F. Askey (Principal Financial Officer)
/S/ SANFORD D. GOLDBERG Controller December 15, 1998
- --------------------------------- (Principal Accounting Officer)
Sanford D. Goldberg
</TABLE>
35
<PAGE>
SCHEDULE II
Celestial Seasonings, Inc.
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Classification Beginning of Year Expenses Write-offs End of Year
-------------- ----------------- ------- ---------- -----------
<S> <C> <C> <C> <C>
For the year ended September 30, 1996:
Allowance for doubtful accounts $ 71 $ 77 $ - $148
Inventory reserves 879 68 (716) 231
For the year ended September 30, 1997:
Allowance for doubtful accounts 148 17 - 165
Inventory reserves 231 372 (265) 338
For the year ended September 30, 1998:
Allowance for doubtful accounts 165 398 (29) 534
Inventory reserves 338 468 (597) 209
</TABLE>
36
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITIES
The accompanying consolidated financial statements of Celestial Seasonings, Inc.
and subsidiaries (the "Company") are prepared by the Company's management in
conformity with generally accepted accounting principles. Management is
responsible for the fairness of the financial statements, which include
estimates based on judgment.
The Company maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
the purposes of preparing financial statements, and that assets are properly
safeguarded and recorded. Underlying the concept of reasonable assurance is the
premise that the cost of control should not be disproportionate to the benefits
expected to be derived from control. The Company's internal control system is
reviewed by the independent auditors in connection with their audit of the
Company's consolidated financial statements.
The Audit Committee of the Board of Directors meets periodically with management
and the independent auditors to discuss the annual audit, internal control and
financial reporting matters. The independent auditors have direct access to the
Audit Committee.
Stephen B. Hughes
President and Chief Executive Officer
Darrell F. Askey
Vice President-Finance and Chief Financial Officer
37
<PAGE>
EXHIBIT 3.2
RESTATED BYLAWS
(Amended as of November 11, 1998)
of
CELESTIAL SEASONINGS, INC.
(hereinafter called the "Corporation")
ARTICLE I
Offices and Agent
-----------------
1. Principal Office. The principal office of the Corporation may
----------------
be located within or without the State of Delaware, as designated by the board
of directors. The Corporation may have other offices and places of business at
such places within or without the State of Delaware as shall be determined by
the directors.
2. Registered Office and Agent. The Corporation shall have and
---------------------------
maintain at all times (a) a registered office in the State of Delaware, which
office shall be located at 1209 Orange Street, Wilmington, Delaware 19801, and
(b) a registered agent located at such address whose name is The Corporation
Trust Company, until changed from time to time as provided by the General
Corporation Law of the State of Delaware ("Delaware Corporation Law").
ARTICLE II
Meetings of Stockholders
------------------------
1. Place of Meetings. All meetings of stockholders of the
-----------------
Corporation shall be held within or without the State of Delaware as may be
designated by the board of directors or the president, or, if not designated, at
the registered office of the Corporation.
2. Annual Meetings. The annual meeting of stockholders for the
---------------
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on such date and at such
time as determined by resolution of the Board of directors. If, at the place of
the meeting, this date shall fall upon a legal holiday, then such meeting shall
be held on the next succeeding business day at the same hour. If no annual
meeting is held in accordance with the foregoing provisions, the board of
directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting
<PAGE>
may be held in lieu of the annual meeting, and any action taken at that special
meeting shall have the same effect as if it had been taken at the annual
meeting, and in such case all references in these Bylaws to the annual meeting
of stockholders shall be deemed to refer to such special meeting.
3. Special Meetings. Unless otherwise prescribed by law or by the
----------------
Certificate of Incorporation, special meetings of stockholders, for any purpose
or purposes, may be called only by either the Chairman, if there be one, or the
President, and shall be called by the Secretary or any Assistant Secretary, if
there be one, at the request in writing of a majority of the Board of Directors.
Such request shall state the purpose or purposes of the proposed meeting. Upon
receipt of such written request, the president shall fix a date and time for
such meeting which such date shall be within ten business days of the proposed
date specified in the written request.
4. Notice of Meeting. Except as otherwise provided in these Bylaws
-----------------
or Delaware Corporation Law, written notice of any meeting of stockholders
stating the place, date and hour of the meeting and, in the case of a special
meeting, the purpose for which the meeting is called, shall be delivered either
personally or by mail to each stockholder of record entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting. If mailed, such notice shall be deemed to be delivered as to any
stockholder of record when deposited in the United States mail addressed to the
stockholder at his address as it appears on the stock transfer books of the
Corporation, with postage prepaid. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
5. Waiver of Notice. Any stockholder, either before or after any
----------------
stockholders' meeting, may waive in writing notice of the meeting, and his
waiver shall be deemed the equivalent of giving notice. Attendance at a meeting
by a stockholder shall constitute a waiver of notice, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
6. Fixing of Record Date. For the purpose of determining the
---------------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors of the Corporation may fix, in
advance, a record date which shall be not more than sixty (60) days nor less
than
2
<PAGE>
ten (10) days prior to the date of such meeting, nor more than sixty (60) days
prior to any other action. If no record date is fixed, the record date for
determining the stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. The record date for
determining the stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the board of directors is
necessary, shall be the day on which the first written consent is expressed. The
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or vote at a meeting of stockholders shall apply to any adjournment
of the meeting, provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
7. Notice of Business. At any meeting of the stockholders of the
------------------
Corporation, only such proper business shall be conducted as shall have been
brought before the meeting (i) by or at the direction of the Board of Directors
or (ii) by any stockholder of the Corporation who is a stockholder of record at
the time of giving of the notice provided for in this Section 7, who shall be
entitled to vote at such meeting and who complies with the notice procedures set
forth in this Section 7. For business to be brought before a meeting of
stockholders by a stockholder, the stockholder shall have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive office of the Corporation (i) in the case of the annual
meeting of the Corporation's stockholders (other than an annual meeting in which
the date of the meeting has been changed by more than 30 days from the prior
year), not less than 45 nor more than 70 days before the date on which the
Corporation first mailed its proxy materials for the prior year's annual meeting
of stockholders, or (ii) in the case of any other meeting of the Corporation's
stockholders, not less than 50 nor more than 75 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
- -------- -------
public disclosure of the date of such other meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of such other meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice to the
Secretary of the Corporation shall set forth as to each matter the stockholder
proposes to bring before the meeting (i) a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and, in the event that such business includes a proposal
to amend any document, including these Bylaws, the language of the proposed
amendment, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of capital stock of the Corporation which are beneficially owned by such
3
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stockholder and (iv) any material interest of such shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at a meeting of the stockholders except in accordance with the
procedures set forth in this Section 7. The chairman of the meeting of
stockholders shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meting and in accordance with
the provisions of these Bylaws, and if he or she should so determine, the
chairman shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 7, a stockholder shall also comply with all
applicable requirements of the Securities and Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder with respect to matters set
forth in this Section 7.
8. Quorum. Except as otherwise provided by law or by the
------
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
9. Voting. Unless otherwise required by law, the Certificate of
------
Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder shall have one
vote for each share of stock entitled to vote held of record by such stockholder
and a proportionate vote for each fractional share so held, unless otherwise
provided in the Certificate of Incorporation. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such meeting
shall be cast by written ballot.
Persons holding stock in a fiduciary capacity shall be entitled to
vote the shares so held. Persons whose stock is pledged shall be entitled to
vote, unless in the transfer by the pledgor on the books of the Corporation he
has expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such stock and vote thereon.
4
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If shares having voting power stand of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety, or otherwise, or if two or more
persons have the same fiduciary relationship respecting the same shares, unless
the secretary of the Corporation is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect: (i) if only one votes, his act binds all; (ii) if
more than one vote, the act of the majority so voting binds all; and (iii) if
more than one vote, but the vote is evenly split on any particular matter, each
fraction may vote the securities in question proportionately, or any person
voting the shares or a beneficiary, if any, may apply to the Court of Chancery
or any court of competent jurisdiction in the State of Delaware to appoint an
additional person to act with the persons so voting the shares. The shares shall
then be voted as determined by a majority of such persons and the person
appointed by the Court. If a tenancy is held in unequal interests, a majority
or even-split for the purpose of this subsection shall be a majority or even-
split in interest.
10. Proxies. A stockholder entitled to vote at a meeting of
-------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. No proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period.
11. Consent of Stockholders in Lieu of Meeting. No action required
------------------------------------------
or permitted to be taken at any annual or special meeting of stockholders of the
Corporation may be taken without a meeting, and stockholders of the Corporation
may not take action by written consent.
12. List of Stockholders Entitled to Vote. The officer of the
-------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
13. Stock Ledger. The stock ledger of the Corporation shall be the
------------
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 12 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
5
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ARTICLE III
Directors
---------
1. Duties and Powers. The business of the Corporation shall be
-----------------
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
2. Number of Directors. Except for the directors, if any,
-------------------
elected under specified circumstances pursuant to Part III of Article Four of
the Certificate of Incorporation of the Corporation hereof by the holders of any
class or series of Preferred Stock, the exact number of directors of the
Corporation shall be determined from time to time by resolution of the Board of
Directors. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director.
3. Election of Directors. Except as provided in Section 3 of this
---------------------
Article and subject to the right to elect additional directors under specified
circumstances which may be granted, pursuant to the provisions of Section III of
Article Four of the Certificate of Incorporation of the Corporation, to the
holders of any class or series of Preferred Stock, directors shall be elected by
a plurality of the votes cast at annual meetings of stockholders, and each
director so elected shall hold office until his successor is duly elected and
qualified, or until his earlier resignation or removal. Directors need not be
stockholders. Only persons who are nominated in accordance with the following
procedures shall be eligible for election by the stockholders as directors of
the Corporation. Nominations of persons for election as directors of the
Corporation may be made at a meeting of stockholders (a) by or at the direction
of the Board of Directors, (b) by any nominating committee or persons appointed
by the Board of Directors or (c) by any shareholders of the Corporation entitled
to vote for the election of directors at the meeting who complies with the
notice procedures set forth in this Section 3. Such nominations, other than
those made by or at the direction of the Board of Directors or any nominating
committee or persons appointed by the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the Corporation. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive office of the Corporation (i) in the case of the annual
meeting of the Corporation's stockholders (other than an annual meeting in which
the date of the meeting has been changed by more than 30 days from the prior
year), not less than 45 nor more than 70 days before the date on which the
Corporation first mailed its proxy materials for the prior year's annual meeting
of stockholders, or (ii) in the case of any other meeting of the Corporation's
stockholders, not less than 50 nor more than 75 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
- -------- -------
public disclosure of the date of such other meeting is given or made to
stockholders,
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notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of such other meeting was mailed or such public disclosure was made,
whichever first occurs. Such stockholder's notice to the Secretary of the
Corporation shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or reelection as a director, (i) the name, age,
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the person and
(iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as now or hereafter amended;
and (b) as to the stockholder giving the notice (i) the name and record address
of such stockholder and (ii) the class and number of shares of capital stock of
the Corporation which are beneficially owned by such stockholder. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation. No person shall
be eligible for election by the stockholders as a director of the Corporation
unless nominated in accordance with the procedures set forth herein. The
chairman of the meeting of the stockholders shall, if the facts warrant,
determine and declare to the meeting that nomination was not made in accordance
with the foregoing procedure, and if he or she should so determine, the chairman
shall so declare to the meeting and the defective nomination shall be
disregarded.
4. Vacancies and Additional Directorships. Except as otherwise
--------------------------------------
provided pursuant to Section III of Article Four of the Certificate of
Incorporation of the Corporation in connection with rights to elect additional
directors under specified circumstances which may be granted to the holders of
any class or series of Preferred Stock vacancies and newly created directorships
resulting from any increase in the authorized number of directors shall be
filled solely by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until their successors are duly elected and qualified, or until their
earlier resignation or removal.
5. Resignation. Any director may resign by delivering his written
-----------
resignation to the Corporation at its principal office addressed to the
president or secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
6. Removal. Except as may otherwise provided pursuant to Part III
-------
of Article Four of the Certificate of Incorporation of the Corporation in
connection with rights to elect additional directors under specified
circumstances which may be granted to the holders of any class or series of
Preferred Stock, any director or the entire Board of Directors may be removed
only for cause, and vacancies and newly created directorships resulting from any
increase in the authorized number of
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<PAGE>
directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the next election of the class for which such directors
have been chosen, and until their successors are duly elected and qualified, or
until their earlier resignation or removal.
7. Interested Directors. No contract or transaction between the
--------------------
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
8. Committees. The board of directors may, by a resolution passed
----------
by a majority of the whole board of directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of the absent or disqualified member. Any such committee,
to the extent provided in the resolution of the board of directors and subject
to the provisions of Delaware Corporation Law, shall have and may exercise all
the powers and authority of the board of directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all such papers which may require it. Each such
committee shall keep minutes and make such reports as the board of directors may
from time to time request. Except as the board of directors may otherwise
determine, any committee may make rules for the conduct of its business, but,
unless otherwise provided
8
<PAGE>
by the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the board of
directors.
9. Compensation. The directors may be paid their expenses, if any,
------------
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
Meetings of the Board
---------------------
1. Place of Meetings. The regular or special meetings of the board
-----------------
of directors or any committee designated by the board shall be held at the
principal office of the Corporation or at any other place within or without the
State of Delaware that a majority of the board of directors or any such
committee, as the case may be, may designate from time to time by resolution.
2. Regular Meetings. The board of directors shall meet each year
----------------
immediately after and at the same place as the annual meeting of the
stockholders for the purpose of electing officers and transacting such other
business as may come before the meeting. The board of directors or any committee
designated by the board may provide, by resolution, for the holding of
additional regular meetings within or without the State of Delaware without
notice of the time and place of such meeting other than such resolution;
provided that any director who is absent when such resolution is made shall be
given notice of said resolution.
3. Special Meetings Special meetings of the board of directors or
----------------
any committee designated by the board may be held at any time and place, within
or without the State of Delaware, designated in a call by the chairman of the
board, if any, by the president or by a majority of the members of the board of
directors or any such committee, as the case may be.
4. Notice of Special Meetings. Except as otherwise provided by
--------------------------
these Bylaws or the laws of the State of Delaware, written notice of each
special meeting of the board of directors or any committee thereof setting forth
the time and place of the meeting shall be given to each director by the
secretary or by the officer or director calling the meeting not less than
twenty-four hours prior to the time fixed for the meeting or, in the case of
notice by mail, not less than forty-eight hours before the date of the meeting.
Notice of special meetings may be either given personally, personally by
telephone, or by sending a copy of the notice through the United States mail or
by telegram, telex or telecopy, charges prepaid, to the address of each
director appearing on the books of the Corporation. If mailed, such notice
9
<PAGE>
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage prepaid thereon. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram, telex or telecopy, is
delivered to the telegraph, telex or telecopy operator. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
board of directors need be specified in the notice or waiver of notice of such
meeting.
5. Waiver of Notice. A director may waive, in writing, notice of
----------------
any special meeting of the board of directors or any committee thereof, either
before, at, or after the meeting; and his waiver shall be deemed the equivalent
of giving notice. By attending or participating in a regular or special
meeting, a director waives any required notice of such meeting unless the
director, at the beginning of the meeting, objects to the holding of the meeting
or the transacting of business at the meeting.
6. Quorum and Action at Meeting. At meetings of the board of
----------------------------
directors or any committee designated by the board, a majority of the total
number of directors, or a majority of the members of any such committee, as the
case may be, shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. If a quorum is present, the act of
the majority of directors in attendance shall be the act of the board of
directors or any committee thereof, as the case may be, unless the act of a
greater number is required by these Bylaws, the Certificate of
Incorporation or Delaware Corporation Law. If a quorum shall not be present at
any meeting of the board of directors, the directors present thereat may adjourn
that meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
7. Presumption of Assent. A director who is present at a meeting
---------------------
of the board of or a committee thereof when action is taken is deemed to have
assented to the action taken unless: (i) he objects at the beginning of such
meeting to the holding of the meeting or the transacting of business at the
meeting; (ii) he contemporaneously requests that his dissent from the action
taken be entered in the minutes of such meeting; or (iii) he gives written
notice of his dissent to the presiding officer of such meeting before its
adjournment or to the secretary of the Corporation immediately after adjournment
of such meeting. The right of dissent as to a specific action taken at a
meeting of a board or a committee thereof is not available to a director who
votes in favor of such action.
8. Actions of Board. Unless otherwise provided by the Certificate
----------------
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all the members of the Board
10
<PAGE>
of Directors or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
9. Meetings by Means of Conference Telephone. Unless otherwise
-----------------------------------------
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 11 shall constitute
presence in person at such meeting.
ARTICLE V
Officers and Agents
-------------------
1. Enumeration. Election and Term. The officers of the Corporation
------------------------------
shall consist of a president, a secretary, a treasurer and such other officers
with such other titles as may be deemed necessary or desirable by the board of
directors, including one or more vice presidents, assistant treasurers and
assistant secretaries and a chairman of the board (who must be a director). Any
number of offices may be held by the same person, unless otherwise prohibited by
law, and no officer need be a stockholder, director, except in the case of the
Chairman of the Board of Directors, or a resident of the State of Delaware.
Except as otherwise provided by law, the Certificate of Incorporation or these
Bylaws, each officer shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal. The officers of
the Corporation shall be elected annually by the board of directors at the first
meeting of the board held after each annual meeting of the stockholders.
2. General Duties. All officers and agents of the Corporation, as
--------------
between themselves and the Corporation, shall have such authority and shall
perform such duties in the management of the Corporation as may be provided in
these Bylaws or as may be determined by resolution of the board of directors not
inconsistent with these Bylaws. In all cases where the duties of any officer,
agent or employee are not prescribed by the Bylaws or by the board of directors,
such officer, agent or employee shall follow the orders and instructions of the
president.
3. Voting Securities Owned by the Corporation. Powers of attorney,
------------------------------------------
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall
11
<PAGE>
possess and may exercise any and all rights and power incident to the ownership
of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
4. Vacancies. The board of directors may fill any vacancy
---------
occurring in any office for any reason and may, in its discretion, leave any
vacancy unfilled for such period as it may determine other than a vacancy in the
office of president or secretary. The officer so selected shall hold office
until his successor is elected and qualified or until his earlier death,
resignation or removal.
5. Compensation. The board of directors from time to time shall
------------
fix the compensation of the officers of the Corporation. The compensation of
other agents and employees of the Corporation may be fixed by the board of
directors, or by any committee designated by the board or by an officer to whom
that function has been delegated by the board.
6. Resignation and Removal. Any officer may resign by delivering
-----------------------
his written resignation to the Corporation at its principal office addressed to
the president or secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event. Any officer or agent of the Corporation may be removed,
with or without cause, by a vote of the majority of the members of the board of
directors whenever in its judgment the best interests of the Corporation may be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or an agent shall not of itself create contract rights.
7. Chairman of the Board. The chairman of the board, if any, shall
---------------------
preside as chairman at meetings of the stockholders and the board of directors.
He shall, in addition, have such other duties as the board may prescribe that he
perform. At the request of the chief executive officer, the chairman of the
board may, in the case of the chief executive officer's absence or inability to
act, temporarily act in his place. In the case of death of the chief executive
officer or in the case of his absence or inability to act without having
designated the chairman of the board to act temporarily in his place, the
chairman of the board shall perform the duties of the chief executive officer,
unless the board of directors, by resolution, provides otherwise. If the
chairman of the board shall be unable to act in place of the chief executive
officer, the president may exercise such powers and perform such duties as
provided in Section 8 below.
8. Chief Executive Officer. The chief executive officer shall be
-----------------------
the Corporation's chief executive officer and have general supervision of the
business of the Corporation. At each annual meeting of the stockholders, the
chief executive officer shall give a report of the business of the Corporation
for the preceding fiscal year and shall perform whatever other duties the board
of directors may from time to time prescribe.
12
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9. President. In the event the position of chief executive officer
---------
shall not be occupied or the chief executive officer shall be absent or
otherwise unable to act, the president shall preside at meetings of the
stockholders and directors and shall discharge the duties of the presiding
officer. The president shall perform whatever other duties the board of
directors may from time to time prescribe.
10. Vice Presidents. Each vice president shall have such powers
---------------
and perform such duties as the board of directors may from time to time
prescribe or as the president may from time to time delegate to him. At the
request of the president, in the case of the president's absence or inability to
act, any vice president may temporarily act in his place. In the case of the
death of the president, or in the case of his absence or inability to act
without having designated a vice president or vice presidents to act
temporarily in his place, the board of directors, by resolution, may
designate a vice president or vice presidents to perform the duties of the
president. If no such designation shall be made all of the vice presidents may
exercise such powers and perform such duties.
11. Secretary. The secretary shall keep or cause to be kept in
---------
books provided for that purpose, the minutes of the meetings of the
stockholders, executive committee, if any, and any other committees, and of the
board of directors; shall see that all notices are duly given in accordance with
the provisions of these Bylaws and as required by law; shall be custodian of the
records and of the seal of the Corporation and see that the seal is affixed to
all documents, the execution of which on behalf of the Corporation under its
seal is duly authorized and in accordance with the provisions of these Bylaws;
and, in general, shall perform all duties incident to the office of secretary
and such other duties as may, from time to time, be assigned to him by the board
of directors or by the president. In the absence of the secretary or his
inability to act, the assistant secretaries, if any, shall act with the same
powers and shall be subject to the same restrictions as are applicable to the
secretary.
12. Treasurer. The treasurer shall have custody of corporate funds
---------
and securities. He shall keep full and accurate accounts of receipts and
disbursements and shall deposit all corporate monies and other valuable effects
in the name and to the credit of the Corporation in the depository or
depositories of the Corporation, and shall render an account of his transactions
as treasurer and of the financial condition of the Corporation to the president
and/or the board of directors upon request. Such power given to the treasurer
to deposit and disburse funds shall not, however, preclude any other officer or
employee of the Corporation from also depositing and disbursing funds when
authorized to do so by the board of directors. The treasurer shall, if required
by the board of directors, give the Corporation a bond in such amount and with
such surety or sureties as may be ordered by the board of directors for the
faithful performance of the duties of his office. The treasurer shall have such
other powers and perform
13
<PAGE>
such other duties as may be from time to time prescribed by the board of
directors or the president. In the absence of the treasurer or his inability to
act, the assistant treasurers, if any, shall act with the same authority and
shall be subject to the same restrictions as are applicable to the treasurer.
13. Delegation of Duties. Whenever an officer is absent, or
--------------------
whenever, for any reason, the board of directors may deem it desirable, the
board may delegate the powers and duties of an officer to any other officer or
officers or to any director or directors.
ARTICLE VI
Indemnification of Officers. Directors and Others
-------------------------------------------------
1. Indemnification: Third Party Actions. The Corporation shall
------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent, of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interest of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
---------------
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
2. Indemnification: Derivative Actions. The Corporation shall
-----------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation and, except that no indemnification shall be made in respect of
14
<PAGE>
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the Corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
3. Mandatory Indemnification. To the extent that a director or
--------------------------
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article VI or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
4. Authorization for Indemnification. Any indemnification under
---------------------------------
Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in Sections 1 and 2 of this Article VI. Such determination shall be
made (1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
5. Advance Payment of Expenses. Expenses incurred in defending a
---------------------------
civil or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized in this Article VI. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
6. Non-exclusivity. The indemnification and advancement of
---------------
expenses provided by, or granted pursuant to, the other subsections of this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue, unless otherwise
provided when authorized or ratified, as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
15
<PAGE>
7. Insurance. The corporation shall have power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify him or her against such liability under the
provisions of this Article VI.
8. Definitions. For purposes of this Article VI, the following
-----------
terms shall have the following meanings:
(a) references to "the Corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents so that any person who is
or was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise shall stand in the same position under the
provisions of this Article VI with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued;
(b) references to "other enterprises" shall include employee
benefit plans;
(c) references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan;
(d) references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and
(e) a person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the interests of the Corporation" as referred to in this Article VI.
ARTICLE VII
Capital Stock
-------------
1. Certificates of Stock. The shares of the Corporation shall be
---------------------
represented by certificates, provided that the board of directors of the
Corporation may, by resolution, provide that some
16
<PAGE>
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the board of directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the Corporation by the chairman or vice chairman of the board of
directors, or the president or vice president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
Corporation representing the number of shares registered in certificate form.
Any or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
2. Issuance of Stock. Unless otherwise voted by the stockholders
-----------------
and subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
Corporation or the whole or any part of any unissued balance of the authorized
capital stock of the Corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by resolution of the board of directors in
such manner, for such consideration and on such terms as the board of directors
may determine. Consideration for such shares of capital stock shall be
expressed in dollars, and shall not be less than the par value or stated value
therefor, as the case may be. The par value for shares, if any, shall be
stated in the Certificate of Incorporation, and the stated value for shares, if
any, shall be fixed from time to time by the board of directors.
3. Lost Certificates. The board of directors may direct a new
-----------------
certificate to be issued in place of any previously issued certificate alleged
to have been destroyed or lost if the owner makes an affidavit or affirmation of
that fact and produces such evidence of loss or destruction as the board may
require. The board, in its discretion, may as a condition precedent to the
issuance of a new certificate require the owner to give the Corporation a bond
as indemnity against any claim that may be made against the Corporation relating
to the allegedly destroyed or lost certificate.
4. Transfer of Shares. Subject to applicable law, shares of stock
------------------
of the Corporation may be transferred on its books upon the surrender to the
Corporation or its transfer agent of the certificates representing such shares,
if any, duly endorsed or accompanied by a written assignment or power of
attorney duly executed and with such proof of authority or authenticity of
signature as the Corporation or its transfer agent may reasonably require. In
that event, the surrendered certificates shall be cancelled, new certificates
issued to the persons entitled to them, if any, and the transaction recorded on
the books of the Corporation.
17
<PAGE>
5. Registered Stockholders. The Corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of the other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of the State of Delaware.
6. Stock Ledger. An appropriate stock journal and ledger shall be
------------
kept by the secretary or such registrars or transfer agents as the directors by
resolution may appoint in which all transactions in the shares of stock of the
Corporation shall be recorded.
7. Restriction on Transfer of Shares. Notice of any restriction on
---------------------------------
the transfer of the stock of the Corporation shall be placed on each certificate
of stock issued or in the case of uncertificated shares contained in the
notice sent to the registered owner of such shares in accordance with the
provisions of the Delaware Corporation Law.
ARTICLE VIII
Disbursements
-------------
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
ARTICLE IX
Fiscal Year
-----------
The fiscal year of the Corporation shall be determined by the board of
directors and set forth in the minutes of the directors. Said fiscal year may
be changed from time to time by the board of directors in its discretion.
ARTICLE X
Dividends
---------
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
18
<PAGE>
subject to the provisions of the Certificate of Incorporation. Before payment
of any dividend, there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think in the best interest of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE XI
Amendments
----------
Subject to repeal or change by action of the stockholders, the board
of directors may amend, supplement or repeal these Bylaws or adopt new Bylaws,
and all such changes shall affect and be binding upon the holders of all shares
heretofore as well as hereafter authorized, subscribed for or offered.
ARTICLE XII
Miscellaneous
-------------
1. Gender. Whenever required by the context, the singular shall
------
include the plural, the plural the singular, and one gender shall include all
genders.
2. Invalid Provision. The invalidity or unenforceability of any
-----------------
particular provision of these Bylaws shall not affect the other provisions
herein, and these Bylaws shall be construed in all respects as if such invalid
or unenforceable provision was omitted.
3. Governing Law. These Bylaws shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
19
<PAGE>
Exhibit 4.2
CELESTIAL SEASONINGS, INC.
AND
HARRIS TRUST AND SAVINGS BANK
RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF JULY 19, 1993
AS AMENDED AND RESTATED NOVEMBER 11, 1998
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
Page
Recitals ....................................................................................... 1
Section 1. Certain Definitions.................................................................... 1
-------------------
Section 2. Appointment of Rights Agent............................................................ 9
---------------------------
Section 3. Issuance of Rights Certificates........................................................ 9
-------------------------------
Section 4. Form of Rights Certificates............................................................ 11
---------------------------
Section 5. Execution, Countersignature and Registration........................................... 12
--------------------------------------------
Section 6. Transfer, Division, Combination and
-----------------------------------
Exchange of Rights Certificates;
--------------------------------
Mutilated, Destroyed, Lost or Stolen
------------------------------------
Rights Certificates.................................................................... 13
-------------------
Section 7. Exercise of Rights; Purchase Price;
-----------------------------------
Expiration Date of Rights.............................................................. 14
-------------------------
Section 8. Cancellation and Destruction of Rights Certificates.................................... 16
---------------------------------------------------
Section 9. Reservation and Availability of Preferred Stock........................................ 17
-----------------------------------------------
Section 10. Preferred Stock Record Date............................................................ 18
---------------------------
Section 11. Antidilution Adjustments............................................................... 19
------------------------
Section 12. Certification of Adjustments........................................................... 28
----------------------------
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.................... 28
--------------------------------------------------------------------
Section 14. Fractional Rights and Fractional Shares................................................. 31
---------------------------------------
Section 15. Rights of Action........................................................................ 32
----------------
Section 16. Agreement of Rights Holders Concerning Transfer and Ownership of Rights................. 33
-----------------------------------------------------------------------
Section 17. Rights Holder Not Deemed a Stockholder.................................................. 33
--------------------------------------
Section 18. Concerning the Rights Agent............................................................. 33
---------------------------
Section 19. Merger or Consolidation or Change of Name of Rights Agent............................... 34
---------------------------------------------------------
Section 20. Duties of Rights Agent.................................................................. 35
----------------------
Section 21. Change of Rights Agent.................................................................. 36
----------------------
Section 22. Issuance of New Rights Certificates..................................................... 37
-----------------------------------
Section 23. Redemption and Termination.............................................................. 38
--------------------------
Section 24. Notice of Certain Events................................................................ 39
------------------------
Section 25. Notices................................................................................. 40
-------
Section 26. Supplements and Amendments.............................................................. 41
--------------------------
Section 27. Successors.............................................................................. 41
----------
Section 28. Benefits of this Agreement; Determinations and Actions by the Board of Directors........ 41
--------------------------------------------------------------------------------
</TABLE>
- ii -
<PAGE>
Section 29. Severability.............................................. 42
------------
Section 30. Governing Law............................................. 42
-------------
Section 31. Counterparts.............................................. 43
------------
Section 32. Descriptive Headings...................................... 43
--------------------
Section 33. Grammatical Construction.................................. 43
------------------------
Exhibit A -- Amended and Restated Certificate of Incorporation
Exhibit B -- Form of Rights Certificate
<PAGE>
RIGHTS AGREEMENT
----------------
Rights Agreement dated as of July 19, 1993, and amended and restated
as of November 11, 1998, between Celestial Seasonings, Inc., a Delaware
corporation (the "Company") and Harris Trust and Savings Bank, an Illinois
banking corporation (the "Rights Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (the "Right") for each
share of Common Stock (as defined in Section 1) outstanding on the Record Date
(as defined in Section 1) and has authorized the issuance of one Right for each
share of Common Stock issued between the Record Date and the Distribution Date
(as defined in Section 1), and, in certain cases following the Distribution
Date, each Right representing, as of the Record Date, the right to purchase one
one-thousandth of a share of Preferred Stock (as defined in Section 1) upon the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth in this Agreement, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be (or has previously
been, at any time after July 19, 1993, whether or not such Person(s) continues
to be) the Beneficial Owner of 15% or more of the Common Stock then outstanding
(determined without taking into account any securities exercisable or
exchangeable for, or convertible into, Common Stock, other than any such
securities beneficially owned by the Acquiring Person and Affiliates and
Associates of such Person). However, "Acquiring Person" shall not include any
Exempt Person.
No Person shall become an "Acquiring Person" solely as the result of
(i) an acquisition of Common Stock by the Company which, by reducing the number
of shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 15% or more of the Common Stock then outstanding as
determined above, or (ii) such Person becoming the Beneficial Owner of 15% or
more of the Common Stock then outstanding as determined above solely as a result
of an Exempt Event; provided, however, that if a Person becomes the Beneficial
-------- -------
Owner of 15% or more of the Common Stock then outstanding as determined above
solely by reason of such a share acquisition by the Company or the occurrence of
such an Exempt Event and such Person shall, after becoming the Beneficial Owner
of such Common Stock, become the Beneficial Owner of any additional shares of
Common Stock by any means whatsoever (other than as a result of the subsequent
occurrence of an Exempt
<PAGE>
Event, a stock dividend or a subdivision of the Common Stock into a larger
number of shares or a similar transaction), then such Person shall be deemed to
be an "Acquiring Person."
No Person that would have become an "Acquiring Person" solely on
account of becoming the Beneficial Owner of additional shares of Common Stock
but would have become such inadvertently shall become an Acquiring Person on
such account if such Person divests sufficient shares as soon as practicable so
that the proportionate number of shares of Common Stock beneficially owned by
such Person is less than the level at which such Person would otherwise have
become an Acquiring Person. The determination of whether such Person's becoming
an Acquiring Person would have been inadvertent and the determination of whether
the divestment of sufficient shares has been made as soon as practicable shall
be made by the Board of Directors of the Company.
(b) "Affiliate" shall have the meaning given to such term in Rule 12b-
2 of the General Rules and Regulations under the Exchange Act, as in effect on
July 19, 1993; provided that, for purposes of this Agreement, the term
"Affiliate" shall not include any Person that is an Exempt Person.
(c) "Associate" of a Person shall mean (i) any corporation or other
organization of which such Person is an officer, director, partner or beneficial
owner of 10% of any class of equity securities; (ii) any trust or other estate
in which such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar fiduciary capacity; and (iii) any
relative or spouse of such Person, or any relative of such spouse; provided
that, for purposes of this Agreement, the term "Associate" shall not include any
Person that is an Exempt Person.
(d) Except as provided below, a Person shall be deemed the "Beneficial
Owner" of, and shall be deemed to "beneficially own," any securities:
(i) which such Person or any Affiliate or Associate of such
Person beneficially owns, directly or indirectly;
(ii) which such Person or any Affiliate or Associate of such
Person has, directly or indirectly, the right or obligation (whether or not
then exercisable or effective) to acquire pursuant to any agreement,
arrangement or understanding (whether or not in writing), or upon the
exercise of conversion rights, exchange rights, rights (other than these
Rights), warrants or options, or otherwise; provided, however, that a
-------- -------
Person shall not be deemed the Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any Affiliate or Associate of such Person until
such tendered securities are accepted for purchase or exchange; and
provided further, that prior to the
-------- -------
-2-
<PAGE>
occurrence of a Triggering Event, a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities obtainable upon
exercise of the Rights;
(iii) which such Person or any Affiliate or Associate of such
Person has, directly or indirectly, the right (whether or not then
exercisable) to vote, or to direct the voting of, pursuant to any
agreement, arrangement or understanding (whether or not in writing);
provided, however, that a Person shall not be deemed the Beneficial Owner
-------- -------
of, or to beneficially own, any security pursuant to this clause (iii) if
the agreement, arrangement or understanding to vote, or to direct the
voting of, such security (A) arises solely from a revocable proxy or
consent given in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and applicable rules
and regulations thereunder and (B) is not also then reportable under Item 6
(or any comparable or successor item) of Schedule 13D under the Exchange
Act (or any comparable or successor schedule or report);
(iv) which such Person or any Affiliate or Associate of such
Person has "beneficial ownership" of (as determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Exchange Act or any
successor provision); or
(v) which are beneficially owned, directly or indirectly, by any
other Person or any Affiliate or Associate of such other Person with whom
such Person or any Affiliate or Associate of such Person has any agreement,
arrangement or understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as
described in subparagraph (iii) of this Section 1(d)) or disposing of any
securities of the Company.
Nothing in this Section 1(d) shall cause a Person engaged in business
as an underwriter of securities to be the "Beneficial Owner" of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition.
Notwithstanding anything in this Agreement to the contrary, for
purposes of this Agreement, no Person shall be treated as the "Beneficial Owner"
of, or to "beneficially own," any securities owned by any other Person that is
an Exempt Person.
(e) "Business Combination" shall have the meaning set forth in Section
13 of this Agreement.
(f) "Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of Illinois are authorized
or obligated by law or executive order to close.
-3-
<PAGE>
(g) "Close of Business" on any given date shall mean 5:00 p.m.,
Chicago, Illinois time, on such date; provided, however, that if such date is
-------- -------
not a Business Day it shall mean 5:00 p.m., Chicago, Illinois time, on the next
succeeding Business Day.
(h) "Common Stock" when used in any context applicable prior to a
Business Combination shall mean the Common Stock, $.01 par value per share, of
the Company (as the same may be changed by reason of any combination,
subdivision or reclassification of the Common Stock). "Common Stock" when used
with reference to any Person (other than the Company prior to a Business
Combination) shall mean shares of capital stock of such Person (if such Person
is a corporation) of any class or series, or units of equity interests in such
Person (if such Person is not a corporation) of any class or series, the terms
of which shares or units do not limit (as a fixed amount and not merely in
proportional terms) the amount of dividends or income payable or distributable
on such shares or units or the amount of assets distributable on such shares or
units upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person and do not provide that such shares or units are subject to
redemption at the option of such Person, or any shares of capital stock or units
of equity interests into which the foregoing shall be reclassified or changed;
provided, however, that if at any time there shall be more than one such class
- -------- -------
or series of capital stock of or equity interests in such Person, "Common Stock"
of such Person shall include all such classes and series substantially in the
proportion of the total number of shares or other units of each such class or
series outstanding at such time.
(i) "Current Market Price" per share of Common Stock, Preferred Stock
or Equivalent Shares on any date shall be deemed to be the average of the daily
closing prices per share of such Common Stock, Preferred Stock or Equivalent
Shares for the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date for the purpose of any computation under this
Agreement except computations made pursuant to Section 11(a)(iv), and for the
Trading Day immediately prior to such date for the purpose of any computation
under Section 11(a)(iv); provided, however, that in the event that the Current
-------- -------
Market Price per share of Common Stock, Preferred Stock or Equivalent Shares is
determined during a period following the announcement by the issuer of such
Common Stock, Preferred Stock or Equivalent Shares of (i) a dividend or
distribution on such Common Stock, Preferred Stock or Equivalent Shares other
than a regular quarterly cash dividend, or (ii) any subdivision, combination or
reclassification of such Common Stock, Preferred Stock or Equivalent Shares, and
prior to the expiration of 30 Trading Days after the "ex-dividend" date for such
dividend or distribution or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "Current Market Price" shall
be appropriately adjusted to take into account such dividend, distribution,
subdivision, combination or reclassification. The closing price
-4-
<PAGE>
for each Trading Day shall be the last sale price, regular way, on such day, or,
in case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, on such day, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock, Preferred Stock or Equivalent Shares are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal United States national securities exchange on which the Common
Stock, Preferred Stock or Equivalent Shares are listed or admitted to trading
or, if the Common Stock, Preferred Stock or Equivalent Shares are not listed or
admitted to trading on any United States national securities exchange, the last
quoted sale price on such day or, if not so quoted, the average of the high bid
and low asked prices in the over-the-counter market on such day, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use. If on such day the Common Stock,
Preferred Stock or Equivalent Shares are not quoted by any such organization,
the average of the closing bid and asked prices on such day as furnished by a
professional market maker making a market in the Common Stock, Preferred Stock
or Equivalent Shares selected by the Board of Directors of the Company shall be
used. If no such market maker is making a market, the fair market value of such
shares on such day as determined in good faith by the Board of Directors of the
Company or the Board of Directors of the issuer of such Common Stock, Preferred
Stock or Equivalent Shares shall be used, which determination shall be described
in a statement filed with the Rights Agent and shall be binding and conclusive
for all purposes. The term "Trading Day" shall mean a day on which the principal
United States national securities exchange on which the Common Stock, Preferred
Stock or Equivalent Shares are listed or admitted to trading is open for the
transaction of business or, if the Common Stock, Preferred Stock or Equivalent
Shares are not listed or admitted to trading on any United States national
securities exchange, but are traded in the over-the-counter market and reported
by NASDAQ, then any day for which NASDAQ reports the high bid and low asked
prices in the over-the-counter market, or if the Common Stock, Preferred Stock
or Equivalent Shares are not traded in the over-the-counter market and reported
by NASDAQ, then a Business Day. If the Common Stock, Preferred Stock or
Equivalent Shares have not been so listed or admitted to trading for 30 or more
Trading Days or traded in the over-the-counter market and reported by NASDAQ for
30 or more Trading Days, "Current Market Price" per share shall mean the fair
market value per share as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent and shall be binding and conclusive for all purposes.
(j) "Distribution Date" shall mean the earlier of (i) the day after
the Company's right to redeem the Rights pursuant to Section 23(a)(i) expires
and (ii) the tenth day after
-5-
<PAGE>
commencement or public disclosure of an intention to commence (including,
without limitation, any such commencement or public disclosure which occurs on
or after July 19, 1993 and prior to the issuance of the Rights) a tender offer
or exchange offer by a Person if, after acquiring the maximum number of
securities sought pursuant to such offer, such Person, or any Affiliate or
Associate of such Person, would be an Acquiring Person.
(k) "Equivalent Shares" shall mean any class or series of capital
stock of the Company, other than the Preferred Stock, which is entitled to
participate on a proportional basis with the Preferred Stock in dividends and
other distributions, including distributions upon the liquidation, dissolution
or winding up of the Company. In calculating the number of any class or series
of Equivalent Shares for purposes of Section 11, the number of shares, or
fractions of a share, of such class or series of capital stock that is entitled
to the same dividend or distribution as a whole share of Preferred Stock shall
be deemed to be one share.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute.
(m) "Exchange Date" shall mean the time at which the Rights are
exchanged pursuant to Section 11(a)(iv).
(n) "Exempt Event" shall mean with respect to any Person, the
acquisition by such Person of Beneficial Ownership of Common Stock solely as a
result of the occurrence of a Triggering Event and the effect of such Triggering
Event on the last proviso of clause (ii) of the definition of Beneficial Owner,
other than a Triggering Event in which such Person becomes an Acquiring Person.
(o) "Exempt Person" shall mean (i) the Company, (ii) any Subsidiary of
the Company, (iii) any employee benefit plan of the Company or of any Subsidiary
of the Company, (iv) any Person holding Common Stock for any such employee
benefit plan or for employees of the Company or of any Subsidiary of the Company
pursuant to the terms of any such employee benefit plan, (v) the Vestar Group,
each member thereof and each Person of which the Vestar Group or one or more
members thereof owns (a) more than fifty percent (50%) of the voting stock or
other voting interests and (b) stock or other interests representing more than
fifty percent (50%) of the total value of the stock or other interests of such
Person, provided that neither the Vestar Group nor any member thereof nor any
such Person shall continue to be an "Exempt Person" by virtue of this (v) after
the earliest date on which the Vestar Group, the members thereof and any such
Persons are the Beneficial Owners (whether or not indicated on any report on
Schedule 13D or 13G filed by any of them) in the aggregate of less than 5% of
the outstanding Common Stock (determined without taking into account any
securities exercisable or exchangeable for, or convertible into, Common Stock,
other than any such securities beneficially owned by the Vestar Group, the
members thereof or any such Persons) and (vi) Morris Siegel and the members of
his Family
-6-
<PAGE>
Group.
(p) "Expiration Date" shall mean the Close of Business on July 19,
2003.
(q) "Family Group" shall mean a Person's spouse, descendants and
spouses of descendants, trustees of trusts established for the benefit of such
persons (acting in their capacity as trustees of such trusts), and executors of
estates of such persons (acting in their capacity as executors of such estates).
For purposes of this Section 1(r), "spouses" includes widows and widowers until
first remarried.
(r) "Person" shall mean any individual, firm, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity, and shall include any "group" as that term is used in Rule 13d-
5(b) under the Exchange Act (or any successor provision).
(s) "Preferred Stock" shall mean the Company's Junior Participating
Preferred Stock, Series A, $.01 par value per share, having the rights and
preferences set forth in the Amended and Restated Certificate of Incorporation
attached hereto as Exhibit A.
(t) "Principal Party" shall mean, (i) in the case of any Business
Combination described in clause (i), (ii) or (iii) of the first sentence of
Section 13(a), (A) the Person that is the issuer of any securities into which
shares of Common Stock of the Company are converted or for which they are
exchanged in such Business Combination or, if there is more than one such
issuer, the issuer of the Common Stock which has the greatest aggregate market
value or (B) if no securities are so issued, the Person that survives or results
from the Business Combination or, if there is more than one such Person, the
Person the Common Stock of which has the greatest aggregate market value, and
(ii) in the case of any Business Combination described in clause (iv) of the
first sentence in Section 13(a), the Person that receives the greatest portion
of the assets or earning power transferred pursuant to such Business Combination
or, if each Person that is a party to such Business Combination receives the
same portion of the assets or earning power so transferred or if the Person
receiving the greatest portion of the assets or earning power cannot reasonably
be determined, whichever of such Persons is the issuer of the Common Stock which
has the greatest aggregate market value; provided, however, that in any such
-------- -------
case, if the Common Stock of such Person is not at such time and has not been
continuously over the preceding 12-month period registered under Section 12 of
the Exchange Act and such Person is a direct or indirect Subsidiary of one or
more other Persons, then (x) "Principal Party" shall refer to whichever of such
other Persons has Common Stock that is and has been continuously over the
preceding 12-month period registered under Section 12 of the Exchange Act; (y)
if the Common Stocks of two or more of such other Persons are and have been so
registered, "Principal Party"
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<PAGE>
shall refer to whichever of such other Persons is the issuer of the Common Stock
which has the greatest aggregate market value; or (z) if the Common Stock of
none of such other Persons has been so registered, "Principal Party" shall refer
to whichever of such other Persons (other than an individual) is the Person
which has the equity securities with the greatest aggregate market value. In
case such Person is owned, directly or indirectly, by a joint venture formed by
two or more Persons that are not owned, directly or indirectly, by the same
Person, the rules set forth above shall apply to each of the chains of ownership
having an interest in such joint venture as if such Person were a Subsidiary of
both or all of such joint venturers and the Principal Parties in each such chain
shall bear the obligations set forth in Section 13 in the same ratio as their
direct or indirect interests in such Person bear to the total of such interests.
(u) "Purchase Price" with respect to each Right shall initially be
$85 per one one-thousandth of a share of Preferred Stock ($42.50 after
adjustment for the Company's common stock split on September 25, 1998), shall be
subject to adjustment from time to time as provided in Sections 11 and 13, and
shall be payable in lawful money of the United States of America in cash or by
certified check or bank draft payable to the order of the Company.
(v) "Record Date" shall mean the Close of Business on July 19, 1993.
(w) "Redemption Date" shall mean the time at which the Rights are
scheduled to be redeemed as provided in Section 23.
(x) "Schedule 13D" and "Schedule 13G" have the meanings assigned
under Regulation 13D under the Exchange Act and include any successor schedules
or reports.
(y) "Securities Act" shall mean the Securities Act of 1933, as
amended, and any successor statute.
(z) "Stock Acquisition Date" shall mean the first date (including,
without limitation, any such date which is on or after July 19, 1993 and prior
to the issuance of the Rights) of public disclosure by the Company, an Acquiring
Person or otherwise that a Person has become an Acquiring Person.
(aa) "Subsidiary" shall have the meaning given to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on July 19, 1993.
(bb) "Triggering Event" shall mean a Person becoming an Acquiring
Person.
(cc) "Vestar Group" shall mean Vestar Capital Partners, Inc.,
Vestar/Celestial Investment Limited Partnership, all of the general partners
thereof and the members of their respective Family Groups.
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<PAGE>
Section 2. Appointment of Rights Agent. The Company hereby appoints
---------------------------
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issuance of Rights Certificates.
-------------------------------
(a) Until the Distribution Date: (i) the Rights shall be issued in
respect of and shall be evidenced by the certificates representing the shares of
Common Stock issued and outstanding on the Record Date and shares of Common
Stock issued after the Record Date and prior to the earliest of the Distribution
Date, the Redemption Date, the Exchange Date or the Expiration Date (which
certificates for Common Stock shall be deemed to also be certificates evidencing
the Rights), and not by separate certificates; (ii) the registered holders of
such shares of Common Stock shall also be the registered holders of the Rights
associated with such shares; and (iii) the Rights shall be transferable only in
connection with the transfer of shares of Common Stock, and the surrender for
transfer of any certificate for such shares of Common Stock shall also
constitute the surrender for transfer of the Rights associated with such shares.
As soon as practicable after the Company has notified the Rights Agent of the
occurrence of the Distribution Date, the Rights Agent shall mail, by first-
class, insured, postage prepaid mail, to each record holder of the Common Stock
as of the Close of Business on the Distribution Date, as shown by the records of
the Company, at the address of such holder shown on such records, one or more
certificates evidencing the Rights ("Rights Certificates"), in substantially the
form of Exhibit B hereto, evidencing one Right (as adjusted from time to time
pursuant to this Agreement) for each share of Common Stock so held. From and
after the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates. In the event that an adjustment in the number of Rights per share
of Common Stock has been made pursuant to Section 11(o) of this Agreement, at
the time of distribution of the Rights Certificates, the Company may make the
necessary and appropriate adjustments (in accordance with Section 14(a) of this
Agreement) so that Rights Certificates representing only whole numbers of Rights
are distributed and cash is paid in lieu of any fractional Rights.
(b) Rights shall be issued in respect of all shares of Common Stock
which are issued or sold by the Company after the Record Date but prior to the
earliest of the Distribution Date, the Redemption Date, the Exchange Date and
the Expiration Date. In addition, in connection with the issuance or sale of
Common Stock by the Company following the Distribution Date and prior to the
earliest of the Redemption Date, the Exchange Date and the Expiration Date, the
Company shall, with respect to Common Stock so issued or sold pursuant to (i)
the exercise of stock options issued prior to the Distribution Date or under any
employee plan
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<PAGE>
or arrangement created prior to the Distribution Date, or (ii) upon the
exercise, conversion or exchange of securities issued by the Company prior to
the Distribution Date, issue Rights and Rights Certificates representing the
appropriate number of Rights in connection with such issuance or sale; provided,
--------
however, that (x) no such Rights and Rights Certificate shall
- -------
be issued if, and to the extent that, the Company shall be advised by counsel
that such issuance would create a significant risk of material adverse tax
consequences to the Company or the Person to whom such Rights Certificate would
be issued and (y) no such Rights and Rights Certificates shall be issued, if,
and to the extent that, appropriate adjustment shall otherwise have been made in
lieu of the issuance thereof. Certificates issued after the Record Date
representing shares of Common Stock outstanding on the Record Date or shares of
Common Stock issued after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date, the Exchange Date and the Expiration
Date shall have impressed, printed, or written on, or otherwise affixed to them
a legend substantially in the following form:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between Celestial
Seasonings, Inc. and Harris Trust and Savings Bank, as Rights Agent,
dated as of _________, 1993 (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of which
is on file at the principal executive offices of Celestial Seasonings,
Inc. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. Celestial Seasonings,
Inc. will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
Under certain circumstances, Rights that were, are or become
beneficially owned by Acquiring Persons or their Associates or
Affiliates (as such terms are defined in the Rights Agreement) may
become null and void and the holder of any of such Rights (including
any subsequent holder) shall not have any right to exercise such
Rights.
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<PAGE>
Section 4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the form of election to purchase
shares and form of assignment to be printed on the reverse thereof) shall be in
substantially the form of Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of this Agreement, the
Rights Certificates, whenever issued, shall be dated as of the Distribution
Date, and on their face shall entitle the holders thereof to purchase such
number of shares of Preferred Stock as shall be set forth therein at the
Purchase Price set forth therein, but the number of such securities and the
Purchase Price shall be subject to adjustment as provided in this Agreement.
(b) Notwithstanding any other provision of this Agreement, (i) any
Rights Certificate issued pursuant to this Agreement that represents Rights
beneficially owned or formerly beneficially owned, on or after the earlier of
the Distribution Date and the Stock Acquisition Date, by a Person known by the
Company to be: (A) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person; (B) a direct or indirect transferee of an Acquiring Person (or
of an Associate or Affiliate of such Acquiring Person) who becomes or becomes
entitled to be a transferee after the Acquiring Person becomes such; or (C) a
direct or indirect transferee of an Acquiring Person (or of an Associate or
Affiliate of such Acquiring Person) who becomes or becomes entitled to be a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (x) a direct or indirect transfer
(whether or not for consideration) from the Acquiring Person (or from an
Associate or Affiliate of such Acquiring Person) to holders of equity interests
in such Acquiring Person (or to holders of equity interests in an Associate or
Affiliate of such Acquiring Person) or to any Person with whom such Acquiring
Person (or an Associate or Affiliate of such Acquiring Person) has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (y) a direct or indirect transfer which the Board of Directors of the
Company has determined is part of a plan, arrangement or understanding which has
as a primary purpose or effect the avoidance of Section 7(e) of this Agreement,
or (ii) any Rights Certificate issued pursuant to this Agreement upon transfer,
exchange, replacement or adjustment of any other Rights Certificate beneficially
owned by a Person referred to in this Section 4(b), shall contain (to the extent
feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
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<PAGE>
Person or an Affiliate or Associate of an Acquiring Person (as such
terms are defined in the Rights Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void
in the circumstances specified in Section 7(e) of the Rights
Agreement.
Section 5. Execution, Countersignature and Registration.
--------------------------------------------
(a) Each Rights Certificate shall be executed on behalf of the Company
by the Company's Chairman of the Board and Chief Executive Officer, Vice
Chairman of the Board, President and Chief Operating Officer or any Vice
President, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by the
Company's Secretary or an Assistant Secretary, either manually or by facsimile
signature. Each Rights Certificate shall be countersigned by the Rights Agent
either manually or, if permitted by the Company, by facsimile signature and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed a Rights Certificate shall cease to be such
officer of the Company before countersignature by the Rights Agent and issuance
and delivery by the Company, such Rights Certificate nevertheless may be
countersigned by the Rights Agent and issued and delivered with the same force
and effect as though the Person who signed such Rights Certificate had not
ceased to be such officer of the Company; and any Rights Certificate may be
signed on behalf of the Company by any Person who, at the actual date of the
execution of such Rights Certificate, shall be a proper officer of the Company
to sign such Rights Certificate, although at the date of the execution of this
Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent shall keep or
cause to be kept, at its principal corporate trust office, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced by each Rights Certificate, and the
certificate number and the date of issuance of each Rights Certificate.
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<PAGE>
Section 6. Transfer, Division, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- ----------------------------------------------------------------------
(a) Subject to the provisions of Section 14, at any time after the
Close of Business on the Distribution Date and at or prior to the Close of
Business on the earliest of the Redemption Date, the Exchange Date and the
Expiration Date, any Rights Certificate or Rights Certificates may be
transferred, divided, combined or exchanged for another Rights Certificate or
Rights Certificates, entitling the registered holder to purchase a like number
of shares of Preferred Stock (or other securities, cash or other property,
following a Triggering Event or a Business Combination, as the case may be) as
the Rights Certificate or Rights Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, divide, combine
or exchange any Rights Certificate shall make such request in writing delivered
to the Rights Agent, and shall surrender the Rights Certificate or Rights
Certificates to be transferred, divided, combined or exchanged at the principal
corporate trust office of the Rights Agent. Thereupon the Rights Agent shall
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. As a condition to such
transfer, division, combination or exchange, the Company may require payment by
the surrendering holder of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection therewith. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have duly completed and executed the form of assignment on the reverse
side of such Rights Certificate and shall have provided such additional evidence
of the identity of the Beneficial Owner (or such former or proposed Beneficial
Owner) thereof or such Beneficial Owner's Affiliates or Associates as the
Company shall reasonably request.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will make and deliver a new Rights Certificate of like
tenor to the Rights Agent for delivery to the registered owner in lieu of the
Rights Certificate so lost, stolen, destroyed or mutilated.
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<PAGE>
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
------------------------------------------------------
Rights.
- ------
(a) Each Right shall entitle (except as otherwise provided in this
Agreement) the registered holder thereof, upon the exercise thereof as provided
in this Agreement, to purchase, for the Purchase Price, at any time after the
Distribution Date and prior to the earliest of the Expiration Date, the Exchange
Date and the Redemption Date, one one-thousandth of a share of Preferred Stock,
subject to adjustment from time to time as provided in Sections 11 and 13.
(b) The registered holder of any Rights Certificate may exercise the
Rights evidenced thereby (except as otherwise provided in this Agreement) in
whole or in part (except that no fraction of a Right may be exercised) at any
time on or after the Distribution Date and prior to the earliest of the
Expiration Date, the Exchange Date and the Redemption Date, by surrendering the
Rights Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the principal corporate trust
office of the Rights Agent, together with payment of the Purchase Price for each
one one-thousandth of a share of Preferred Stock (or other securities, cash or
other assets, as the case may be) as to which the Rights are exercised.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for each one one-thousandth of a share of
Preferred Stock (or, following a Triggering Event or a Business Combination,
other securities, cash or other assets, as the case may be) to be purchased and
an amount in cash, certified bank check or bank draft payable to the order of
the Company equal to any applicable transfer tax required to be paid by the
surrendering holder pursuant to Section 9(d), the Rights Agent shall, subject to
the provisions of this Agreement, thereupon promptly (i)(A) requisition from any
transfer agent for the Preferred Stock (or make available, if the Rights Agent
is the transfer agent for such shares) certificates for the total number of one
one-thousandths of a share of Preferred Stock (or other securities, as the case
may be) to be purchased (and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests), or (B) if the Company shall
have elected to deposit the total number of shares of Preferred Stock (or other
securities, as the case may be) issuable upon exercise of the Rights with a
depositary agent, requisition from the depositary agent depositary receipts
representing such number of one one-thousandths of a share of Preferred Stock
(or other securities, as the case may be) as are to be purchased (in which case
certificates for the Preferred Stock (or other securities, as the case may be)
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company shall direct the depositary agent to comply
with such request; (ii) after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Rights Certificate, registered in such
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<PAGE>
name or names as may be designated by such holder; and (iii) if appropriate,
requisition from the Company the amount of cash to be paid in lieu of issuance
of fractional shares in accordance with Section 14 of this Agreement and,
promptly after receipt thereof, cause the same to be delivered to or upon the
order of the registered holder of such Rights Certificate. In the event that the
Company is obligated to issue other securities (including shares of Common
Stock) of the Company, pay cash and/or distribute other property pursuant to
this Agreement, the Company will make all arrangements necessary so that such
other securities, cash and/or other property are available for distribution by
the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to the registered holder of such Rights
Certificate or to his duly authorized assigns, subject to the provisions of
Section 6 and Section 14.
(e) Notwithstanding anything in this Agreement to the contrary, any
Rights that are or were formerly beneficially owned on or after the earlier of
the Distribution Date or the Stock Acquisition Date by (i) an Acquiring Person
or any Associate or Affiliate of an Acquiring Person, (ii) a direct or indirect
transferee of an Acquiring Person (or of an Associate or Affiliate of such
Acquiring Person) who becomes or becomes entitled to be a transferee after the
Acquiring Person becomes such, or (iii) a direct or indirect transferee of an
Acquiring Person (or of an Associate or Affiliate of such Acquiring Person) who
becomes or becomes entitled to be a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
direct or indirect transfer (whether or not for consideration) from the
Acquiring Person (or from an Associate or Affiliate of such Acquiring Person) to
holders of equity interests in such Acquiring Person (or to holders of equity
interests in any Associate or Affiliate of such Acquiring Person) or to any
Person with whom the Acquiring Person (or an Associate or Affiliate of such
Acquiring Person) has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a direct or indirect transfer which the
Board of Directors of the Company determines is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall, immediately upon the occurrence of a Triggering Event and
without any further action, be null and void and no holder of such Rights shall
have any rights whatsoever with respect to such Rights whether under this
Agreement or otherwise, provided, however, that, in the case of transferees
under clause (ii) or clause (iii) above, any Rights beneficially owned by such
transferee shall be null and void only if and to the extent such Rights were
formerly beneficially owned by a Person who was, at the time such Person
beneficially owned such Rights, or who later became, an Acquiring Person or an
Affiliate or Associate of such Acquiring Person. The Company shall
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<PAGE>
use all reasonable efforts to ensure that the provisions of this Section 7(e)
and Section 4(b) are complied with, but shall have no liability to any holder of
a Rights Certificate or to any other Person as a result of the Company's failure
to make, or any delay in making (including any such failure or delay by the
Board of Directors of the Company) any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to the registered holder of a Rights Certificate upon the
occurrence of any purported exercise as set forth in this Section 7 unless such
registered holder shall have (i) completed and signed the certificate contained
in the form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former or proposed
Beneficial Owner) thereof or the Affiliates or Associates of such Beneficial
Owner (or former or proposed Beneficial Owner) as the Company shall reasonably
request.
Section 8. Cancellation and Destruction of Rights Certificates.
---------------------------------------------------
All Rights Certificates surrendered for the purpose of exercise,
transfer, division, combination or exchange shall, if surrendered to the Company
or to any of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Rights Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Rights Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
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<PAGE>
Section 9. Reservation and Availability of Preferred Stock.
-----------------------------------------------
(a) The Company covenants and agrees that it will cause to be reserved
and kept available at all times out of its authorized and unissued shares of
Preferred Stock or its authorized and issued shares of Preferred Stock held in
its treasury (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares of Common Stock and/or other securities held in
its treasury) free from preemptive rights or any right of first refusal, a
sufficient number of shares of Preferred Stock (and, following the occurrence of
a Triggering Event, shares of Common Stock and/or other securities) to permit
the exercise in full of all Rights from time to time outstanding.
(b) The Company further covenants and agrees, so long as the Preferred
Stock (and, following the occurrence of a Triggering Event, shares of Common
Stock and/or other securities) issuable upon the exercise of Rights may be
listed on any United States national securities exchange, to use its best
efforts to cause, from and after the time that the Rights become exercisable,
all such shares and/or other securities reserved for such issuance to be listed
on such exchange upon official notice of issuance upon such exercise.
(c) The Company further covenants and agrees that it will take all
such action as may be necessary to ensure that all shares of Preferred Stock
(and, following the occurrence of a Triggering Event or a Business Combination,
shares of Common Stock and/or other securities) delivered upon the exercise of
Rights shall, at the time of delivery of the certificates for such shares and/or
such other securities (subject to payment of the Purchase Price), be duly and
validly authorized and issued, fully paid, nonassessable, freely tradeable, not
subject to liens or encumbrances, and free of preemptive rights, rights of first
refusal or any other restrictions or limitations on the transfer or ownership
thereof, of any kind or nature whatsoever.
(d) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the original issuance or delivery of the Rights
Certificates or of any certificates for shares of Preferred Stock (or Common
Stock and/or other securities, as the case may be) upon the exercise of Rights.
The Company shall not, however, be required to (i) pay any transfer tax which
may be payable in respect of any transfer involved in the issuance or delivery
of any Rights Certificates or the issuance or delivery of any certificates for
shares of Preferred Stock (or Common Stock and/or other securities as the case
may be) to a Person other than, or in a name other than that of, the registered
holder of the Rights Certificate evidencing Rights surrendered for exercise or
(ii) transfer or deliver any Rights Certificate or issue or deliver any
certificates for shares
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<PAGE>
of Preferred Stock (or Common Stock and/or other securities as the case may be)
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
(e) The Company shall use its best efforts (i) as soon as practicable
following a Triggering Event (provided the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) of this Agreement), or as soon as is required by law
following the Distribution Date, as the case may be, to prepare and file a
registration statement on an appropriate form under the Securities Act with
respect to the securities purchasable upon exercise of the Rights, (ii) to cause
such registration statement to become effective as soon as practicable after
such filing, and (iii) to cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the earlier of (A) the date as of which Rights are no longer exercisable
for such securities and (B) the Expiration Date. The Company shall also use its
best efforts to take such action as may be necessary or appropriate under, or to
ensure compliance with, the securities or "blue sky" laws of the various states
in connection with the exercise of the Rights. The Company may temporarily
suspend, for a period of time not to exceed 90 days after the date of a
Triggering Event described in clause (i) of the first sentence of this paragraph
of Section 9, the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall make a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
has been declared effective.
Section 10. Preferred Stock Record Date.
---------------------------
Each Person in whose name any certificate for shares of Preferred
Stock (or Common Stock and/or other securities, as the case may be) is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Preferred Stock (or Common Stock and/or other
securities, as the case may be) represented thereby on, and such certificate
shall be dated, the date upon which the Rights Certificate evidencing such
Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
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surrender and payment is a date upon which the Preferred Stock (or Common Stock
and/or other securities, as the case may be) transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such
shares (and/or such other securities, as the case may be) on, and such
certificate shall be dated, the next succeeding Business Day on
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which the Preferred Stock (or Common Stock and/or other securities, as the case
may be) transfer books of the Company are open.
Section 11. Antidilution Adjustments. The Purchase Price, the number
------------------------
and kind of securities, cash and other property obtainable upon exercise of each
Right and the number of Rights outstanding shall be subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time on or after July
19, 1993 (A) pay a dividend or make a distribution on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide (by a stock split or
otherwise) the outstanding Preferred Stock into a larger number of shares, (C)
combine (by a reverse stock split or otherwise) the outstanding Preferred Stock
into a smaller number of shares, or (D) issue any securities in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the surviving
corporation), then in each such event the Purchase Price and the redemption
price set forth in Section 23, as each is in effect at the time of the record
date for such dividend or distribution, or of the effective date of such
subdivision, combination or reclassification, shall be proportionately adjusted
by multiplying the Purchase Price and such redemption price by a fraction the
numerator of which shall be the total number of shares of Preferred Stock
outstanding immediately prior to the occurrence of such event and the
denominator of which shall be the total number of shares of Preferred Stock
outstanding immediately following the occurrence of such event. If an event
occurs which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be
in addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii).
(ii) Upon the first occurrence of a Triggering Event, proper provision
shall be made so that each holder of a Right, except as otherwise provided in
this Agreement, shall thereafter have the right to receive, and the Company
shall issue, upon exercise thereof at the then-current Purchase Price required
to be paid in order to exercise a Right in accordance with the terms of this
Agreement, in lieu of the number of one one-thousandths of a share of Preferred
Stock or other securities receivable upon exercise of a Right prior to the
occurrence of the Triggering Event, such number of shares of Common Stock of the
Company as shall equal the result obtained by (x) multiplying the then-current
Purchase Price by the number of one-thousandths of a share of Preferred Stock or
other securities for which a Right was then exercisable (without giving effect
to such Triggering Event) and (y) dividing that product by 50% of the Current
Market Price per share of Common Stock on the date of the occurrence of the
Triggering Event (such number of shares being referred to as the "Adjustment
Shares"); provided, however, that if the transaction or event that would
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otherwise give rise to the foregoing
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<PAGE>
adjustment is also subject to the provisions of Section 13 of this Agreement,
then only the provisions of Section 13 of this Agreement shall apply and no
adjustment shall be made pursuant to this Section 11(a)(ii). Upon the occurrence
of such Triggering Event, the Purchase Price required to be paid in order to
exercise a Right shall be unchanged, and the Purchase Price shall be
appropriately adjusted to reflect, and shall thereafter mean, the amount
required to be paid per share of Common Stock upon exercise of a Right.
(iii) In lieu of issuing shares of Common Stock in accordance with
Section 11(a)(ii), the Company may, if the Board of Directors of the Company
determines that such action is necessary or appropriate and not contrary to the
interests of holders of Rights (and, in the event that the number of shares of
Common Stock which are authorized by the Company's certificate of incorporation,
but which are not outstanding or reserved for issuance for purposes other than
upon exercise of the Rights, are not sufficient to permit the exercise in full
of the Rights in accordance with Section 11(a)(ii), the Company shall) take one
or more of the following actions: (A) reduce the Purchase Price required to be
paid in order to exercise a Right by any amount (the "Reduction Amount"), in
which event the number of Adjustment Shares and/or the amount of any Substitute
Consideration (as hereinafter defined) issuable in respect of each Right (the
Adjustment Shares, if any, and the Substitute Consideration, if any, issuable in
respect of a Right are herein collectively referred to as the "Total
Consideration") shall be reduced so that the aggregate value of the Total
Consideration issuable in respect of each Right is equal to the Current Value
(as hereinafter defined) less the Reduction Amount (herein the "Adjusted Current
Value"), and/or (B) make adequate provision with respect to each Right to
substitute for all or part of the Adjustment Shares otherwise obtainable upon
exercise of a Right: (1) cash, (2) other equity securities of the Company
(including, without limitation, shares, or units of shares, of preferred stock
which the Board of Directors of the Company has determined to have the same
value as shares of Common Stock (such shares or units of preferred stock being
referred to as "Common Stock Equivalents")), (3) debt securities of the Company,
(4) other assets, or (5) any combination of the foregoing (collectively,
"Substitute Consideration"), having an aggregate value which, when added to the
value of the Adjustment Shares (if any) in respect of which no substitution is
being made, is equal to the Adjusted Current Value. If the Board of Directors
determines to issue or deliver any equity securities (other than Common Stock or
Common Stock Equivalents), debt securities and/or other assets pursuant to this
Section 11(a)(iii), the value of such securities and/or assets shall be
determined by the Board of Directors of the Company based upon the advice of a
nationally recognized investment banking firm selected by the Board of Directors
of the Company. If the Company is required to make adequate provision to deliver
value pursuant to the first sentence of this Section 11(a)(iii) and the Company
shall not have made such adequate provision to deliver value within ninety (90)
days following the first occurrence of a
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<PAGE>
Triggering Event (the "Substitution Period"), then notwithstanding any provision
of Section 11(a)(ii) or this Section 11(a)(iii) to the contrary, the Company
shall be obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of Common Stock (to the
extent available) and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the excess of the Current Value over the Purchase
Price. If both Common Stock and cash are to be delivered pursuant to the
preceding sentence, amounts of both Common Stock and cash shall be delivered
upon surrender of each Right in a ratio of Common Stock to cash that bears the
same ratio as the total value of all Common Stock to be delivered (as determined
pursuant to this Section 11(a)(iii)) bears to the total value of all cash to be
delivered; provided, however, that
-------- -------
the Company may adjust such ratio to avoid issuing any fractional shares of
Common Stock so long as the method of adjustment is applied consistently to each
holder of Rights entitled to receive value thereon pursuant to this Section
11(a)(iii). To the extent that the Company determines that some action is to be
taken pursuant to the first and/or third sentences of this Section 11(a)(iii),
the Company (x) shall provide, subject to Section 7(e) hereof, that such action
shall apply uniformly to all outstanding Rights, and (y) may suspend the
exercisability of the Rights but in no event to a time later than the expiration
of the Substitution Period. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. Upon any change in the Adjustment Shares
obtainable upon exercise of a Right pursuant to this Section 11(a)(iii), the
Purchase Price shall thereafter mean the amount, if any, required to be paid
upon exercise of a Right for the Adjustment Shares, if any, and the Substitute
Consideration, if any, then issuable or deliverable upon exercise of a Right,
and the Board of Directors of the Company shall make any necessary provisions to
ensure that the provisions of Section 11(e) shall thereafter apply as
appropriate to the Total Consideration. For purposes of this Section 11(a)(iii),
(A) "Current Value" shall be the product derived by multiplying (x) the number
of Adjustment Shares issuable in respect of each Right determined under Section
11(a)(ii), by (y) the Current Market Price per share of Common Stock on the date
of the Triggering Event, and (B) the value of each share of Common Stock and
each share or unit of any "Common Stock Equivalent" shall be deemed conclusively
to be equal to the Current Market Price per share of the Common Stock on the
date of the Triggering Event.
(iv) The Board of Directors of the Company may, at its option, at any
time and from time to time after the first occurrence of a Triggering Event,
cause the Company to exchange, for all or part of the then-outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) hereof), shares of Common Stock or
Common Stock Equivalents at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any
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<PAGE>
stock split, stock dividend or similar transaction occurring after July 19, 1993
(such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Any
partial exchange shall be effected on a pro rata basis based on the number of
Rights (other than Rights which have become void pursuant to the provisions of
Section 7(e) hereof) held by each holder of Rights.
Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to this Section 11(a)(iv) and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of shares of Common Stock and/or Common Stock
Equivalents equal to the number of such Rights held by such holder multiplied by
the Exchange Ratio. The Company shall promptly give public notice of any such
exchange and in addition, the Company shall promptly mail a notice of any such
exchange to all of the holders of such Rights in accordance with Section 25 of
this Agreement; provided, however, that the failure to give, any delay in giving
-------- -------
or any defect in, such notice shall not affect the validity of such exchange.
Each such notice of exchange will state the method by which the exchange of the
Common Stock or Common Stock Equivalents for Rights will be effected and, in the
event of any partial exchange, the number of Rights which will be exchanged. In
the event that the number of shares of Common Stock which is authorized but not
outstanding or reserved for issuance for a purpose other than exercise of the
Rights is not sufficient to permit any exchange of Rights as contemplated in
accordance with this Section 11(a)(iv), the Board of Directors of the Company
shall take all such action within its power as may be necessary to authorize
additional shares of Common Stock for issuance upon exchange of the Rights. The
Company shall not be required to issue fractions of shares of Common Stock or
Common Stock Equivalents or to distribute certificates which evidence fractional
shares of Common Stock or Common Stock Equivalents. In lieu of such fractional
shares of Common Stock or Common Stock Equivalents, the Company shall pay to the
registered holders of the Rights Certificates with regard to which such
fractional shares of Common Stock or Common Stock Equivalents would otherwise be
issuable an amount in cash equal to the product derived by multiplying (x) the
subject fraction, by (y) the last sale price of the Company's Common Stock on
the fifth Trading Day following the public announcement of the exchange by the
Company, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices on such day, in either case on a when issued basis
(taking into account the exchange), as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange (or, if the Company's Common Stock is not
so listed or traded, then as determined in the manner provided under the
definition of "Current Market Price," adjusted to take into account the
exchange). For the purposes of this Section 11(a)(iv) the value of any Common
Stock Equivalent on any date shall be the same as the value of the Common Stock,
as determined pursuant to the previous sentence, on such date.
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<PAGE>
(b) If the Company shall at any time on or after July 19, 1993 fix a
record date for the issuance of rights, options or warrants to holders of
Preferred Stock entitling them to subscribe for or purchase Preferred Stock or
Equivalent Shares (or securities convertible into Preferred Stock or Equivalent
Shares) at a price per share of Preferred Stock or Equivalent Shares (or, in the
case of a convertible security, having a conversion price per share of Preferred
Stock or Equivalent Shares) less than the Current Market Price per share of
Preferred Stock on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Preferred Stock and Equivalent Shares (if any)
outstanding on such record date, plus the number of shares of Preferred Stock or
Equivalent Shares, as the case may be, which the aggregate exercise and/or
conversion price for the total number of shares of Preferred Stock or Equivalent
Shares, as the case may be, which are obtainable upon exercise and/or conversion
of such rights, options, warrants or convertible securities would purchase at
such Current Market Price, and the denominator of which shall be the number of
shares of Preferred Stock and Equivalent Shares (if any) outstanding on such
record date, plus the number of additional shares of Preferred Stock or
Equivalent Shares, as the case may be, which may be obtained upon exercise
and/or conversion of such rights, options, warrants or convertible securities.
In case such subscription price may be paid in a consideration part or all of
which shall be in a form other than cash, the value of such consideration shall
be as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent. Preferred Stock and Equivalent Shares
owned by or held for the account of the Company or any Subsidiary of the Company
shall not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights, options or warrants are not issued following such
adjustment, the Purchase Price shall be readjusted to be the Purchase Price
which would have been in effect if such record date had not been fixed.
(c) In case the Company shall at any time after July 19, 1993 fix a
record date for the making of a distribution to holders of Preferred Stock
(including any such distribution made in connection with a reclassification of
the Preferred Stock or a consolidation or merger in which the Company is the
surviving corporation) of securities (other than Preferred Stock and rights,
options or warrants referred to in Section 11(b)), cash (other than a regular
periodic cash dividend at an annual rate not in excess of: (x) 125% of the
annual rate of the regular cash dividend paid on the Preferred Stock during the
immediately preceding fiscal year (or, if the Preferred Stock was not
outstanding during such preceding fiscal year, then 125% of the annual rate of
the regular cash dividend paid on the Common Stock
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<PAGE>
during such year), or (y) in the event that a regular cash dividend was not paid
on the Preferred Stock (or Common Stock) during such preceding fiscal year, 5%
of the Current Market Value of the Preferred Stock on the date such regular cash
dividend was first declared), property, evidences of indebtedness, or assets,
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the Current Market Price per
share of Preferred Stock on such record date, less the fair market value (as
determined in good faith by a the Board of Directors of the Company whose
determination shall be described in a statement filed with the Rights Agent) of
such securities, cash, property, evidences of indebtedness or assets to be so
distributed in respect of one share of Preferred Stock, and the denominator of
which shall be such Current Market Price per share of Preferred Stock on such
record date. Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not made following
such adjustment, the Purchase Price shall be readjusted to be the Purchase Price
which would have been in effect if such record date had not been fixed.
(d) Except as provided below, no adjustment in the Purchase Price
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the Purchase Price; provided, however, that any adjustments
-------- -------
which by reason of this Section 11(d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made to the nearest cent, to the
nearest ten-thousandth of a share of Common Stock, or to the nearest ten-
millionth of a share of Preferred Stock, as the case may be. Notwithstanding the
first sentence of this Section 11(d), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three years from the date of the
transaction which requires such adjustment or (ii) the Expiration Date.
(e) If, as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) of this Agreement, the holder of any Right thereafter exercised
shall become entitled to receive any securities of the Company other than shares
of Preferred Stock, thereafter the Purchase Price and the number of such other
securities so receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of Preferred Stock
contained in this Section 11 and the provisions of Sections 7, 9, 10, 12, 13, 14
and 24 with respect to the shares of Preferred Stock shall apply on like terms
to any such other securities.
(f) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of shares of Preferred
Stock or other securities, cash or other property purchasable from time to time
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<PAGE>
hereunder upon exercise of the Rights, all subject to further adjustment as
provided in this Agreement.
(g) Unless the Company shall have exercised its election as provided
in Section 11(h), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(a)(i), 11(b) and 11(c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one one-
thousandths of a share of Preferred Stock (calculated to the nearest one ten-
millionth of a share of Preferred Stock) obtained by (i) multiplying the number
of one one-thousandths of a share of Preferred Stock covered by a Right
immediately prior to adjustment pursuant to this Section 11(g) by the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(h) The Company may elect, on or after the date of any adjustment of
the Purchase Price or any adjustment to the number of shares of Preferred Stock
for which a Right may be exercised, to adjust the number of Rights, in lieu of
an adjustment in the number of one one-thousandths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right outstanding prior
to such adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one hundred-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to such adjustment by the Purchase
Price in effect immediately after such adjustment. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least 10 days after the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(h) the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date a new Rights Certificate evidencing, subject to
Section 14, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record, in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment and
upon surrender thereof (if required by the Company), new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates to be so distributed shall be issued, executed
and countersigned in the manner provided for in this Agreement (and may bear, at
the option of the Company, the adjusted Purchase
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<PAGE>
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(i) Irrespective of any adjustment or change in the Purchase Price or
the number or kind of shares issuable upon the exercise of the Rights, the
Rights Certificates theretofore and thereafter issued may continue to express
the Purchase Price per one one-thousandth of a share of Preferred Stock and the
number of shares of Preferred Stock which were expressed in the initial Rights
Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of one one-thousandth of a
share of Preferred Stock issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable one one-thousandth shares of such Preferred Stock at such adjusted
Purchase Price.
(k) In any case in which this Section 11 shall require that an
adjustment be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event the issuance to
the holder of any Right exercised after such record date the shares of Preferred
Stock and other securities, cash or property of the Company, if any, issuable
upon such exercise over and above the shares of Preferred Stock and other
securities, cash or property of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
--------
however, that the Company shall deliver to such holder a due bill or other
- -------
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or other securities, cash or property upon the
occurrence of the event requiring such adjustment.
(l) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any combination or subdivision of the Preferred Stock, issuance
wholly for cash of any Preferred Stock at less than the Current Market Price,
issuance wholly for cash of Preferred Stock or securities which by their terms
are convertible into or exchangeable or exercisable for Preferred Stock, stock
dividends or issuance of rights, options or warrants referred to in this Section
11, hereafter made by the Company to holders of its Preferred Stock, shall not
be taxable to such stockholders.
(m) The Company covenants and agrees that it shall not (i) consolidate
with, (ii) merge with or into, or (iii) directly or indirectly sell, lease, or
otherwise transfer or dispose of (in one transaction or a series of related
transactions) assets or
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<PAGE>
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries taken as a whole, to any other Person if (A) at the
time of or immediately after such consolidation, merger, sale, lease, transfer
or disposition there are any rights, warrants, securities or other instruments
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (B)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, lease, transfer or disposition the stockholders (or equity holders) of the
Person who constitutes, or would constitute, the Principal Party in such
transaction shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates or (C) the form or nature of
organization of the Principal Party would preclude or limit the exercisability
of the Rights. The Company shall not consummate any such consolidation, merger,
sale, lease, transfer or disposition unless prior thereto the Company and such
other Person shall have executed and delivered to the Rights Agent a
supplemental agreement evidencing compliance with this Section 11(m).
(n) The Company covenants and agrees that, after the Stock Acquisition
Date it will not, except as permitted by Section 11(a)(iv), 26 or 29(b) of this
Agreement, take (or permit any Subsidiary to take) any action if at the time
such action is taken it is reasonably foreseeable that such action will,
directly or indirectly, diminish or otherwise eliminate the benefits intended to
be afforded by the Rights.
(o) Anything in this Agreement to the contrary notwithstanding, if the
Company shall at any time prior to the Distribution Date (i) pay a dividend or
distribution on the outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then the number of
Rights associated with each share of Common Stock then outstanding, or issued or
delivered thereafter but prior to the Distribution Date, and the Purchase Price
under, and the number of one one-thousandths of a share of Preferred Stock
issuable in respect of, the Rights, shall be proportionately adjusted, so that
following such event one Right (with the Purchase Price and the number of one
one-thousandths of a share proportionately adjusted thereunder) shall thereafter
be associated with each share of Common Stock then outstanding, or issued or
delivered thereafter but prior to the Distribution Date. For example, if the
Company effects a two-for-one stock split at a time when each Right (if it
becomes exercisable) would entitle the holder to purchase one one-thousandth of
a share of Preferred Stock for a Purchase Price of $"Z", then following such
stock split each previous Right would be split into two current Rights and
thereafter each current Right, upon becoming exercisable, would (subject to
further adjustment) entitle the holder to purchase one two-thousandth of a share
of Preferred Stock at a Purchase Price of 1/2 x $"Z".
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Section 12. Certification of Adjustments. Whenever an adjustment is
----------------------------
made as provided in Sections 11 and 13, the Company shall (a) promptly prepare a
certificate setting forth such adjustment and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights Agent and with
each transfer agent for the Preferred Stock a copy of such certificate, and (c)
mail a brief summary thereof to each holder of a Rights Certificate (or, if no
Rights Certificates have been issued, to each holder of a certificate
representing shares of Common Stock) in accordance with Section 25.
Notwithstanding the foregoing sentence, the failure of the Company to give such
notice shall not affect the validity of or the force or effect of or the
requirement for such adjustment. Any adjustment to be made pursuant to Sections
11 and 13 of this Agreement shall be effective as of the date of the event
giving rise to such adjustment.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- -------------
(a) A "Business Combination" shall be deemed to occur in the event
that, in or following a Triggering Event, (i) the Company shall, directly or
indirectly, consolidate with, or merge with and into, any other Person (other
than a Subsidiary of the Company in a transaction that complies with Section
11(m) and Section 11(n) of this Agreement) in a transaction in which the Company
is not the continuing, resulting or surviving corporation of such merger or
consolidation, (ii) any Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(m) and Section 11(n) of this
Agreement) shall, directly or indirectly, consolidate with the Company, or shall
merge with and into the Company, in a transaction in which the Company is the
continuing, resulting or surviving corporation of such merger or consolidation
and, in connection with such merger or consolidation, all or part of the Common
Stock shall be changed (including, without limitation, any conversion into or
exchange for securities of the Company or of any other Person, cash or any other
property), (iii) the Company shall, directly or indirectly, effect a share
exchange in which all or part of the Common Stock shall be changed (including,
without limitation, any conversion into or exchange for securities of any other
Person, cash or any other property) or (iv) the Company shall, directly or
indirectly, sell, lease, exchange, mortgage, pledge or otherwise transfer or
dispose of (or one or more of its Subsidiaries shall directly or indirectly
sell, lease, exchange, mortgage, pledge or otherwise transfer or dispose of), in
one transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person (other than the Company or
any of its Subsidiaries in one or more transactions each and all of which comply
with Section 11(m) and Section 11(n) of this Agreement).
In the event of a Business Combination, proper provision shall be made
so that each holder of a Right (except as
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otherwise provided in this Agreement) shall thereafter have the right to
receive, upon the exercise thereof at the Purchase Price immediately prior to
the first occurrence of a Triggering Event multiplied by the number of one one-
thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Triggering Event (without giving
effect to the Triggering Event) in accordance with the terms of this Agreement,
such number of shares of Common Stock of the Principal Party as shall be equal
to the result obtained by (x) multiplying the Purchase Price immediately prior
to the first occurrence of a Triggering Event by the number of one one-
thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Triggering Event (without giving
effect to the Triggering Event), and (y) dividing that product by 50% of the
Current Market Price per share of the Common Stock of such Principal Party
immediately prior to the consummation of such Business Combination. All shares
of Common Stock of any Person for which any Right may be exercised after
consummation of a Business Combination as provided in this Section 13(a) shall,
when issued upon exercise thereof in accordance with this Agreement, be duly and
validly authorized and issued, fully paid, nonassessable, freely tradeable, not
subject to liens or encumbrances, and free of preemptive rights, rights of first
refusal or any other restrictions or limitations on the transfer or ownership
thereof of any kind or nature whatsoever.
(b) After consummation of any Business Combination, (i) the Principal
Party shall be liable for, and shall assume, by virtue of such Business
Combination and without the necessity of any further act, all the obligations
and duties of the Company pursuant to this Agreement, (ii) the term "Company" as
used in this Agreement shall thereafter be deemed to refer to such Principal
Party, and (iii) such Principal Party shall take all steps (including, but not
limited to, the reservation of a sufficient number of shares of its Common Stock
in accordance with Section 9) in connection with such Business Combination as
necessary to ensure that the provisions of this Agreement shall thereafter be
applicable, as nearly as reasonably may be, in relation to the shares of its
Common Stock thereafter deliverable upon the exercise of the Rights.
(c) The Company shall not consummate any Business Combination unless
prior thereto (i) the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance (other than shares reserved for issuance pursuant to this Agreement to
the holders of Rights) to permit the exercise in full of the Rights in
accordance with this Section 13, (ii) the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the fulfillment of the Principal Party's obligations and the terms
as set forth in paragraphs (a) and (b) of this Section 13 and further providing
that, as soon as practicable on or after the date of such Business Combination,
the Principal Party, at its own expense, shall (A) prepare and file, if
necessary, a registration statement on an
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appropriate form under the Securities Act with respect to the Rights and the
securities purchasable upon exercise of the Rights, (B) use its best efforts to
cause such registration statement to become effective as soon as practicable
after such filing and remain effective (with a prospectus at all times meeting
the requirements of the Securities Act) until the Expiration Date, (C) deliver
to holders of the Rights historical financial statements for the Principal Party
and each of its Affiliates which comply in all respects with the requirements
for registration on Form 10 (or any successor form) under the Exchange Act, (D)
use its best efforts to qualify or register the Rights and the securities
purchasable upon exercise of the Rights under the state securities or "blue sky"
laws of such jurisdictions as may be necessary or appropriate, (E) use its best
efforts to list the Rights and the securities purchasable upon exercise of the
Rights on a United States national securities exchange, and (F) obtain waivers
of any rights of first refusal or preemptive rights in respect of the Common
Stock of the Principal Party subject to purchase upon exercise of outstanding
Rights, (iii) the Company and the Principal Party shall have furnished to the
Rights Agent an opinion of independent counsel stating that such supplemental
agreement is a legal, valid and binding agreement of the Principal Party
enforceable against the Principal Party in accordance with its terms, and (iv)
the Company and the Principal Party shall have filed with the Rights Agent a
certificate of a nationally recognized firm of independent accountants setting
forth the number of shares of Common Stock of such issuer which may be purchased
upon the exercise of each Right after the consummation of such Business
Combination.
(d) The provisions of this Section 13 shall similarly apply to
successive Business Combinations. In the event a Business Combination shall be
consummated at any time after the occurrence of a Triggering Event, the Rights
which have not theretofore been exercised shall thereafter be exercisable for
the consideration and in the manner described in Section 13(a). Following a
Business Combination, the provisions of Section 11(a)(ii) of this Agreement
shall be of no effect.
(e) Notwithstanding any other provision of this Agreement, no
adjustment to the number of shares of Preferred Stock (or fractions of a share)
or other securities, cash or other property for which a Right is exercisable or
the number of Rights outstanding or associated with each share of Common Stock
or any similar or other adjustment shall be made or be effective if such
adjustment would have the effect of reducing or limiting the benefits the
holders of the Rights would have had absent such adjustment, including, without
limitation, the benefits under Sections 11 and 13, unless the terms of this
Agreement are amended so as to preserve such benefits.
(f) The Company covenants and agrees that it shall not effect any
Business Combination if at the time of, or immediately after such Business
Combination, there are any rights, options, warrants or other instruments
outstanding which would diminish or
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<PAGE>
otherwise eliminate the benefits intended to be afforded by the Rights.
(g) Without limiting the generality of this Section 13, in the event
the nature of the organization of any Principal Party shall preclude or limit
the acquisition of Common Stock of such Principal Party upon exercise of the
Rights as required by Section 13(a) as a result of a Business Combination, it
shall be a condition to such Business Combination that such Principal Party
shall take such steps (including, but not limited to, a reorganization) as may
be necessary to ensure that the benefits intended to be derived under this
Section 13 upon the exercise of the Rights are assured to the holders thereof.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractional Rights or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, the Company may at its option pay to the registered holders
of the Rights Certificates with respect to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of a Right
for the Trading Day immediately prior to the date on which such fractional
Rights otherwise would have been issuable. The closing price for any Trading Day
shall be the last sale price on such day, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, on such day, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights are not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal United States national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any United States national securities exchange, the last
quoted sale price on such day or, if not so quoted, the average of the high bid
and low asked prices on such day in the over-the-counter market, as reported by
NASDAQ or such other system then in use or, if on such day the Rights are not
quoted by any such system, the average of the closing bid and asked prices on
such day as furnished by a professional market maker making a market in the
Rights selected by the Board of Directors of the Company. If on such day no such
market maker is making a market in the Rights, the current market value of the
Rights on such day shall be determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement filed with
the Rights Agent and shall be binding and conclusive for all purposes.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which
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<PAGE>
are integral multiples of one one-thousandth of a share of Preferred Stock) upon
exercise of the Rights or to distribute certificates which evidence fractional
shares of Preferred Stock (other than fractions which are integral multiples of
one one-thousandth of a share of Preferred Stock). Fractions of shares of
Preferred Stock may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it, provided that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Stock. In lieu of fractional shares of Preferred Stock that are not integral
multiples of one one-thousandth of a share of Preferred Stock, the Company may
at its option (i) issue scrip or warrants in registered form (either represented
by a certificate or uncertificated) or in bearer form (represented by a
certificate) which shall entitle the holder to receive a full one one-thousandth
of a share of Preferred Stock upon the surrender of such scrip or warrants
aggregating a full one one-thousandth of a share of Preferred Stock, or (ii) pay
to the registered holders of Rights Certificates at the time such Rights
Certificates are exercised as provided in this Agreement an amount in cash equal
to the same fraction of the current market value of a share of Preferred Stock.
For purposes of this Section 14(b), the current market value of a share of
Preferred Stock shall be the closing price of a share of Preferred Stock (as
determined pursuant to the second sentence of the definition of "Current Market
Price" in Section 1) for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by his acceptance thereof expressly waives
any right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as otherwise provided in this Agreement).
Section 15. Rights of Action. Except as otherwise provided, all rights
----------------
of action in respect of this Agreement are vested in the respective registered
holders of the Rights Certificates (and, prior to the Distribution Date, any
registered holders of associated Common Stock); and any registered holder of any
Rights Certificate (or, prior to the Distribution Date, any share of associated
Common Stock), without the consent of the Rights Agent or of the holder of any
other Right, may, on his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, his rights pursuant to this Agreement.
Without limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Agreement and will be
entitled to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of, the obligations of any Person
subject to this Agreement.
Section 16. Agreement of Rights Holders Concerning
--------------------------------------
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<PAGE>
Transfer and Ownership of Rights. Every holder of a Right by accepting the same
- --------------------------------
consents and agrees with the Company and the Rights Agent and with every other
holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates will be
transferable on the registry books of the Rights Agent only if surrendered at
the principal corporate trust office of the Rights Agent, duly endorsed or
accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name a Rights Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Rights Certificate or the associated Common Stock certificate
made by anyone other than the Company, the transfer agent for the Common Stock
or the Rights Agent) for all purposes whatsoever, and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary.
Section 17. Rights Holder Not Deemed a Stockholder.
--------------------------------------
No holder, as such, of any Rights Certificate shall be entitled to
vote or to receive dividends or distributions or shall be deemed for any purpose
the holder of Preferred Stock or any other securities, cash or other property
which may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained in this Agreement or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company, including, without
limitation, any right (i) to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, (ii) to give or
withhold consent to any corporate action, (iii) to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 24), (iv) to
receive dividends, distributions or subscription rights, (v) to institute, as a
holder of Preferred Stock or other securities issuable on exercise of the Rights
represented by any Rights Certificate, any derivative action on behalf of the
Company, or otherwise, until and only to the extent that the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions of this Agreement.
Section 18. Concerning the Rights Agent. The Company agrees to pay
---------------------------
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss,
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<PAGE>
liability, or expense, incurred without negligence, bad faith, willful
misconduct or breach of this Agreement on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Rights Certificate or
certificate for Preferred Stock or Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document reasonably believed by it to be genuine and to be signed,
executed and, when necessary, verified or acknowledged, by the proper Person or
Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
---------------------------------------------------
Agent. Any corporation into which the Rights Agent or any successor Rights Agent
- -----
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust business of the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Agreement without the execution or
filing of any document or any further act on the part of any of the parties
hereto, provided that such corporation would be eligible for appointment as a
--------
successor Rights Agent under the provisions of Section 21. In case at the time
such successor Rights Agent shall succeed to the agency created by this
Agreement any of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Rights Certificate so countersigned;
and in case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificate either in the name of the predecessor Rights Agent or in the name of
the successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.
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<PAGE>
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person or any
Affiliate or Associate of an Acquiring Person or the determination of Current
Market Price) be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be specifically prescribed in this Agreement) may be deemed to
be conclusively proved and established by a certificate signed by the Chairman
of the Board and Chief Executive Officer, the Vice Chairman of the Board, the
President and Chief Operating Officer, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for the
negligence, bad faith, willful misconduct or breach of this Agreement by it or
its attorneys or agent.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery of this
Agreement (except the due execution and delivery of this Agreement by the Rights
Agent) or in respect of the validity or execution of any Rights Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Agreement
or in any Rights Certificate; nor shall it be responsible for any change or
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Sections 3, 11, 13 or 23 or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Rights Certificates after actual
notice of any change
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<PAGE>
or adjustment is required); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
shares of Preferred Stock, Common Stock or other securities to be issued
pursuant to this Agreement or any Rights Certificate or as to whether any shares
of Preferred Stock, Common Stock or other securities will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performance by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board and Chief Executive Officer, the Vice Chairman of the
Board, the President and Chief Operating Officer, any Vice President, the
Secretary or the Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be liable
for any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though the Rights Agent were not
serving as such under this Agreement. Nothing in this Agreement shall preclude
the Rights Agent from acting in any other capacity for the Company or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail.
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<PAGE>
The Company may remove the Rights Agent or any successor Rights Agent upon 30
days' notice in writing, mailed to the Rights Agent or successor Rights Agent,
as the case may be, and to each transfer agent of the Common Stock or Preferred
Stock by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. Notwithstanding any other provision of this
Agreement, in no event shall the resignation or removal of a Rights Agent be
effective until a successor Rights Agent shall have been appointed and have
accepted such appointment. If the Company shall fail to make such appointment
within a period of 30 days after such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by any holder of a Rights Certificate (who shall, with such
notice, submit his Rights Certificate for inspection by the Company), then the
incumbent Rights Agent or the registered holder of any Rights Certificate may
apply to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be a corporation organized and doing business under the laws of the
United States or of the State of Colorado (or of any other state of the United
States so long as such corporation is authorized to conduct a corporate trust or
banking business in the State of Colorado) in good standing, which is authorized
under such laws to exercise corporate trust powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for such purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock or Preferred Stock, and mail a notice thereof in writing to the
registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
-----------------------------------
of the provisions of this Agreement or of the Rights Certificates to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing new Rights in such form as may be approved by the Board of Directors
of the Company to reflect any adjustment or change in the Purchase Price per
share and the number or kind or class of securities, cash or other property
purchasable under the Rights Certificates made in accordance with the provisions
of this Agreement.
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<PAGE>
Section 23. Redemption and Termination.
--------------------------
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) 12:00 midnight (Boulder, Colorado time) ending
the tenth day following the Stock Acquisition Date, and (ii) the Expiration
Date, redeem all but not less than all the then-outstanding Rights at a
redemption price of $.005 per Right (appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date of this
amended and restated Agreement).
(b) At the time and date of effectiveness set forth in any resolution
of the Board of Directors of the Company ordering the redemption of the Rights,
without any further action and without any further notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the redemption price; provided, however, that such
-------- -------
resolution of the Board of Directors of the Company may be revoked, rescinded or
otherwise modified at any time prior to the time and date of effectiveness set
forth in such resolution, in which event the right to exercise will not
terminate at the time and date originally set for such termination by the Board
of Directors of the Company. Notwithstanding anything contained in this
Agreement or the Rights Certificates to the contrary, the Rights shall not be
exercisable until such time as the Company's right of redemption under Section
23(a) has expired. As soon as practicable after the action of the Board of
Directors of the Company ordering the redemption of the Rights, the Company
shall give notice of such redemption to the Rights Agent and to the holders of
the then-outstanding Rights by mailing such notice to all such holders at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the issuance of Rights Certificates, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the manner
provided in this Agreement shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the redemption price will be made. In any case, failure to
give such notice by mail, or any defect in the notice, to any particular holder
of Rights shall not affect the sufficiency of the notice to other holders of
Rights. In the case of a redemption permitted under this Section 23, the Company
may, at its option, discharge all of its obligations with respect to the Rights
by (i) issuing a press release announcing the manner of redemption of the Rights
and (ii) mailing payment of the redemption price to the registered holders of
the Rights at their last addresses as they appear on the registry books of the
Rights Agent or, prior to the issuance of the Rights Certificates, on the
registry books of the transfer agent for the Common Stock, and upon such action,
all outstanding Rights Certificates shall be null and void without any further
action by the Company. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically
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<PAGE>
set forth in this Section 23, and other than in connection with the purchase of
shares of Common Stock prior to the earlier of the Distribution Date and the
Expiration Date.
(c) Following the occurrence of a Stock Acquisition Date and following
the expiration of the right of redemption under Section 23(a) but prior to the
occurrence of a Business Combination, the right of redemption set forth in
Section 23(a) shall be reinstated and thereafter shall be subject to the
provisions of this Section, provided each of the following shall have occurred
--------
and remain in effect: (x) a Person who is an Acquiring Person shall have
transferred or otherwise disposed of a number of shares of Common Stock in a
transaction, or series of transactions, which did not result in the occurrence
of a Business Combination such that such Person is thereafter a Beneficial Owner
of 5% or less of the outstanding shares of Common Stock, (y) there are no other
Persons, immediately following the occurrence of the event described in clause
(x), who are Acquiring Persons, and (z) the transfer or other disposition
described in clause (x) above was other than pursuant to a transaction, or
series of transactions, which directly or indirectly involved the Company or any
of its Subsidiaries.
Section 24. Notice of Certain Events. In case the Company, on or
------------------------
after the Distribution Date, shall propose to (a) pay any dividend payable in
stock of any class to the holders of its Preferred Stock or to make any other
distribution to the holders of its Preferred Stock (other than a regular
periodic cash dividend at an annual rate not in excess of 125% of the annualized
rate of the cash dividend paid on the Preferred Stock during the immediately
preceding fiscal year), or (b) offer to the holders of its Preferred Stock
rights, options, or warrants to subscribe for or to purchase any additional
shares of Preferred Stock or shares of stock of any class or any other
securities, rights or options, or (c) effect any reclassification of the
Preferred Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock, a change in the par value of such
Preferred Stock or a change from par value to no par value), or (d) directly or
indirectly effect any consolidation or merger into or with, or effect any sale,
lease, exchange, or other transfer or disposition (or to permit one or more of
its Subsidiaries to effect any sale, lease, exchange or other transfer or
disposition), in one transaction or a series of related transactions, of more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to, any other Person, or (e) effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Right, in accordance with Section 25, a notice of
such proposed action, which shall specify any record date for the purposes of
such stock dividend or distribution of rights, or the date on which such
reclassification, consolidation, merger, sale, lease, exchange, transfer,
disposition, liquidation, dissolution, or winding up is to take place and if
such holders will or may participate therein, the date of participation therein
by the holders of Common Stock and/or Preferred Stock, if any such date
-39-
<PAGE>
is to be fixed, and such notice shall be so given in the case of any action
covered by clause (a) or (b) above at least 20 days prior to the record date for
determining holders of the Preferred Stock for purposes of such action, and in
the case of any such other action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein, if any, by
the holders of Preferred Stock, whichever shall be the earlier. The failure to
give notice as required by this Section 24 or any defect therein shall not
affect the legality or validity of the action taken by the Company or the vote
upon any such action.
In case any Triggering Event or Business Combination shall occur,
then, in any such case, the Company shall as soon as practicable thereafter give
to each holder of a Rights Certificate, in accordance with Section 25, notice of
the occurrence of such Triggering Event or Business Combination, which shall
specify the Triggering Event or Business Combination and include a description
of the consequences of such event to holders of Rights under Section 11(a)(ii)
or 13.
Section 25. Notices. Notices or demands authorized by this Agreement
-------
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Celestial Seasonings, Inc.
4600 Sleepytime Drive
Boulder, Colorado 80301
Attention: Chief Financial Officer
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Celestial Account Representative
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company (or, if no Rights Certificates have been issued, if sent by
first-class mail, postage prepaid, addressed to each holder of a certificate
representing shares of Common Stock at the address of such holder as shown on
the Company's Common Stock registry books).
-40-
<PAGE>
Section 26. Supplements and Amendments.
--------------------------
(a) At any time prior to the Distribution Date, the Board of Directors
of the Company may, except as provided in Section 26(c), and the Rights Agent
shall, if so directed, supplement or amend any provision of this Agreement
without the approval of any holders of Rights.
(b) From and after the Distribution Date, the Board of Directors of
the Company may, except as provided in Section 26(c), and the Rights Agent
shall, if so directed, amend this Agreement without the approval of any holders
of Rights Certificates (i) to cure any ambiguity, (ii) to correct or supplement
any provision contained in this Agreement which may be defective or inconsistent
with any other provision of this Agreement, or (iii) to change or supplement the
provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Rights Certificates (other than an Acquiring Person or an Affiliate or Associate
of an Acquiring Person).
(c) No supplement or amendment to this Agreement shall be made which
changes the Purchase Price, the number of shares of Preferred Stock, other
securities, cash or other property for which a Right is then exercisable or the
redemption price or provides for an earlier Expiration Date.
(d) Immediately upon the action of the Board of Directors providing
for any amendment or supplement pursuant to this Section 26, and without any
further action and without notice, such amendment or supplement shall be deemed
effective. Promptly following the adoption of any amendment or supplement
pursuant to this Section 26, the Company shall deliver to the Rights Agent a
copy, certified by the Secretary or any Assistant Secretary of the Company, of
resolutions of the Board of Directors of the Company adopting such amendment or
supplement. Upon such delivery, the amendment or supplement shall be
administered by the Rights Agent as part of this Agreement in accordance with
the terms of this Agreement, as so amended or supplemented.
Section 27. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Benefits of this Agreement; Determinations and Actions by
---------------------------------------------------------
the Board of Directors. Nothing in this Agreement shall be construed to give to
- ----------------------
any Person other than the Company, the Rights Agent and the registered
holders of Rights any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Rights.
-41-
<PAGE>
For purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act (or any successor provision); provided,
--------
however, that any such calculation made for purposes of determining the
- -------
particular percentage of outstanding shares of Common Stock of which any Person
is the Beneficial Owner shall also include any such other securities not then
actually issued and outstanding which such Person would be deemed to be the
Beneficial Owner of, or to "beneficially own," pursuant to Section 1(d) of this
Agreement. The Board of Directors of the Company shall have the exclusive power
and authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board of Directors of the Company or the Company, or
as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement, and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including a determination
to redeem or not redeem the Rights, to exchange or not exchange the Rights for
Common Stock or other securities of the Company, or to amend or supplement this
Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board of Directors of the Company in
good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other Persons, and (y) not
subject the Board of Directors of the Company to any liability to the holders of
the Rights.
Section 29. Severability.
------------
(a) If any term, provision, covenant or restriction of this Agreement
or the application thereof to any Person or to any circumstance is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) If legal counsel to the Company delivers to the Company a written
opinion to the effect that, as a result of changes in federal law or Delaware
law, any term, provision, covenant or restriction of this Agreement may be
invalid, void, or unenforceable, then, notwithstanding any other provision of
this Agreement, the Company and the Rights Agent may amend this Agreement to
modify, revise or delete such term, provision, covenant or restriction to the
extent necessary to comply with such law as so changed.
Section 30. Governing Law. This Agreement and each Rights Certificate
-------------
issued hereunder shall be deemed to be a
-42-
<PAGE>
contract made under the laws of the State of Delaware and for all purposes shall
be governed by and construed in accordance with the internal laws of such state
applicable to contracts to be made and performed entirely within such State.
Section 31. Counterparts. This Agreement may be executed in
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and both such counterparts shall together constitute but one and
the same instrument.
Section 32. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions of this
Agreement.
Section 33. Grammatical Construction. Throughout this Agreement,
------------------------
where such meanings would be appropriate, (a) any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms (e.g., references
----
to "he" shall also include "she" and "it" and references to "who" and "whom"
shall also include "which"), and (b) the plural form of nouns and pronouns shall
include the singular and vice-versa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
CELESTIAL SEASONINGS, INC.
By_________________________________
ATTEST: Title:
By_________________________
Title:
HARRIS TRUST AND SAVINGS BANK
By_________________________________
ATTEST: Title:
By_________________________
Title:
-43-
<PAGE>
EXHIBIT 10.12
November 7, 1997
Mr. Bill Atchinson
9880 North 111th Place
Scottsdale, AZ 85259
602/314-1012
Dear Bill,
It is with great pleasure that we extend this offer to you. We are excited
about your joining Celestial Seasonings and know you will be a strong addition
to our team.
The following information covers the specifics of our verbal offer:
1. Position: General Manager, Supplements
2. Reports To: Steve Hughes, President and CEO
3. Compensation: Base salary will be $160,000 per year with a
performance/salary review one year from your start date. In addition, you
will receive a one-time sign-on bonus of $10,000.00.
4. Bonus Plan: You are eligible to participate in the following:
----------
A. Annual Performance Bonus: Beginning on your start date, you will be a
participant in a mutually agreed to bonus plan based on established
company and personal goals (outlined below), with a target bonus
opportunity of 40 percent of base salary. Your participation in this
plan for the current fiscal year will be prorated from your start
date.
<TABLE>
<CAPTION>
FY98 FY99
- ------------------------------------------------------------------------------------------------------
% Payout of Revenue P&L % Payout of Revenue P&L
Base Salary Base Salary
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
40% $25M <4.5M> 40% 40M 0
- ------------------------------------------------------------------------------------------------------
80% $40M <4.5M> 80% 65M 4M
- ------------------------------------------------------------------------------------------------------
120% $60M <4.5M> 120% 100M 8M
- ------------------------------------------------------------------------------------------------------
160% $80M <4.5M> 160% 120M 12M
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Mr. Bill Atchinson
November 7, 1997
Page 2
B. All-company bonuses of $25 for your birthday, $50 for Thanksgiving and
$100 for the holiday season.
5. Car: Celestial Seasonings will provide a company leased vehicle,
including insurance. Out-of-pocket costs are your responsibility.
6. Apartment: Celestial Seasonings will provide you with a furnished
apartment and will pay for electricity, cable TV, telephone and charges
relating to Celestial business.
7. Travel Expenses: You will be reimbursed for reasonable coach airfare
expenses to be expensed through Celestial's travel report.
8. Stock Options: The Board of Directors will grant you an option of 15,000
shares of Celestial Seasonings, Inc. common stock contingent upon Board of
Directors approval. The exercise price of the options will be the closing
price on your first day of employment. These options will vest over three
years.
9. Benefit Plans: You will be eligible to participate in the following:
A. Paid Vacation - You will receive four weeks of vacation upon your
start date with the company. You will then accrue vacation at four
weeks each succeeding year.
B. Thrift Plan (Tax-Deferred Compensation Plan) - Effective the first
quarterly enrollment period following six months of employment, you
may participate in our Thrift Plan. You may contribute up to 16% of
your base salary, up to the allowable annual limit, with the company
matching 50% of the first 8% that you contribute. You vest in the
company match contribution at 20% per year.
C. Thrift Retirement Contribution - In addition to the Thrift Plan
matching contribution, a percentage of profit, after taxes (up to 2
1/2% of eligible payroll), is distributed to all employees based on a
point system using length of service and compensation. This
contribution will occur after the end of the fiscal year. You vest in
this contribution at 20% per year.
D. Employee Stock Ownership Plan - This plan gives employees an ownership
interest in the company and a share of the company's growth. Company
contributions occur after 12 months of service. Vesting is 60% after
3 years, 80% after 4 years and 100% after 5 years.
<PAGE>
Mr. Bill Atchinson
November 7, 1997
Page 3
E. Employee Stock Purchase Plan - This plan gives employees an
opportunity to purchase stock through payroll deductions. We will
provide you with more information during your employee orientation
session.
F. Employee Assistance Program - This program is available to you and
other members of your immediate family. It provides a wide range of
professional counseling service, at no cost to you.
G. Tuition Reimbursement Program - Provides 100% tuition reimbursement,
up to $2,000 maximum per year, for any successfully completed,
approved course. You will be eligible to participate in this program
after successfully completing three months of service.
H. Welfare Benefits - Celestial Seasonings also offers Welfare Benefits,
which will be described by Stephanie Thibault in your employee
orientation session.
10. Confidentiality Agreement - Celestial has an "Employee Confidentiality
Agreement and Covenant Not to Compete" which all exempt employees are asked
to sign and return the signature page to us. One copy is enclosed.
Bill, we know that you will be an excellent addition to the Celestial
Seasonings' team. We understand that your start date is to be determined. If
you have any questions about this offer, please call either of us. Please sign
this offer acknowledging acceptance and return one original to us, along with
the signature page of the Confidentiality Agreement. A self-addressed
confidential envelope is enclosed for your convenience.
Best regards,
/S/ STEVE HUGHES /S/ MARIE GAMBON
- ----------------- ----------------
Steve Hughes Marie Gambon
President & CEO Vice President for People
Accepted:
/S/ BILL ATCHINSON 12/1/97
- ------------------------------------------------------------------------------
Bill Atchinson Date
Enclosures
<PAGE>
EXHIBIT 10.13
March 2, 1998
Mr. Richard Karl
2015 Huntington Drive
Chico, CA 95928
916/342-5830
Dear Rick,
It is with great pleasure that we extend this offer to you. We are excited
about you joining Celestial Seasonings and know you will be a strong addition to
our team.
The following information covers the specifics of our verbal offer:
1. Position: Vice President, Operations
--------
2. Reports To: Steve Hughes, President and CEO
----------
3. Compensation: Base salary will be $150,000 per year with a
------------
performance/salary review one year from your start date. Additionally, you
will receive a $10,000 sign-on bonus.
4. Bonus Plan: You are eligible to participate in the following:
----------
A. Annual Performance Bonus: Beginning on your start date, you will be a
participant in a mutually agreed to bonus plan based on established
company and personal goals with a target bonus opportunity of 36
percent of base salary. Your participation in this plan of the
current fiscal year will be prorated from your start date.
B. All-company bonuses of $25 for your birthday, $50 for Thanksgiving and
$100 for the holiday season.
<PAGE>
Mr. Richard Karl
March 2, 1998
Page 2
5. Stock Options: You will be granted an option of 9,000 shares of Celestial
-------------
Seasonings, Inc. common stock with a grant date and closing price recorded
on 2/12/98. These options will vest over five years.
6. Car Allowance: You will receive a car allowance not to exceed $5,000/year.
-------------
7. Benefit Plans: You will be eligible to participate in the following:
-------------
A. Paid Vacation - You will receive four weeks of vacation upon your
start date with the company. You will then accrue vacation at four
weeks each succeeding year.
B. Thrift Plan (401k) - Effective the first quarterly enrollment period
following six months of employment, you may participate in our Thrift
Plan. You may contribute up to 16% of your base salary, up to the
allowable annual limit, with the company matching 50% of the first 8%
that you contribute. You vest in the company match contribution at
20% per year.
C. Thrift Retirement Contribution - In addition to the Thrift Plan
matching contribution, a percentage of profit, after taxes (up to 2
1/2% of eligible payroll), is distributed to all employees based on a
point system using length of service and compensation. This
contribution will occur after the end of the fiscal year. You vest in
this contribution at 20% per year.
D. Employee Stock Ownership Plan - This plan gives employees an ownership
interest in the company and a share of the company's growth. Company
contributions occur at the end of the fiscal year after 12 months of
service. Vesting is 60% after 3 years, 80% after 4 years and 100%
after 5 years.
E. Employee Stock Purchase Plan - This plan gives employees an
opportunity to purchase stock through payroll deductions. We will
provide you with more information during your employee orientation
session.
F. Employee Assistance Program - This program is available to you and
other members of your immediate family. It provides a wide range of
professional counseling service, at no cost to you.
G. Tuition Reimbursement Program - Provides 100% tuition reimbursement,
up to $2,000 maximum per year, for any successfully completed,
approved course. You will be eligible to participate in this program
after successfully completing three months of service.
<PAGE>
Mr. Richard Karl
March 2, 1998
Page 3
H. Welfare Benefits - Celestial Seasonings also offers Welfare Benefits,
which will be described by Stephanie Thibault in your employee
orientation session.
8. Relocation: Per our relocation policy (copy enclosed), Celestial is
----------
prepared to pick up the following costs of relocation to ensure that you
incur no losses because of your decision to join us:
A. Relocation of all household goods and automobile(s).
B. Travel and expenses incurred by you in making the move to Boulder.
C. Up to 60 days of temporary housing, with the flexibility of a week or
two if absolutely necessary.
D. One house-hunting trip for you.
E. Reimbursement of appropriate and customary closing points of up to
2.25% of the purchase price when buying a new house in the Boulder
area to replace a formerly-owned residence.
F. A relocation bonus equal to one month's salary to offset general
relocation expenses.
9. Confidentiality Agreement - Celestial has an "Employee Confidentiality
-------------------------
Agreement and Covenant Not to Compete" which all exempt employees are asked
to sign. Return only the signature page to us. One copy is enclosed.
Rick, we know that you will be an excellent addition to the Celestial
Seasonings' team. We understand that your start date will be on or before
4/6/98. If you have any questions about this offer, please call either of us.
Please sign this offer acknowledging acceptance and return one original to us,
along with the signature page of the Confidentiality Agreement. A self-
addressed confidential envelope is enclosed for your convenience.
Best regards,
/S/ STEVE HUGHES /S/ MARIE GAMBON
- ----------------- ----------------
Steve Hughes Marie Gambon
President and CEO Vice President for People
<PAGE>
Mr. Richard Karl
March 2, 1998
Page 4
Accepted:
/S/ RICHARD KARL 3/9/98
- ---------------------------------------------------------------
Richard Karl Date
<PAGE>
EXHIBIT 10.14
CREDIT AGREEMENT
Dated as of November 2, 1998
Among
CELESTIAL SEASONINGS, INC.
As Borrower
and
KEYBANK NATIONAL ASSOCIATION
as Lender
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS 1
SECTION 1.1. Defined Terms 1
------------ -------------
SECTION 1.2. Terms Generally 9
------------ ---------------
ARTICLE II. THE CREDIT 9
- -----------------------
SECTION 2.1. Amount of Credit 9
------------ ----------------
SECTION 2.2. Loan Evidenced by Promissory Note 10
------------ ---------------------------------
SECTION 2.3. Interest Rates 11
------------ --------------
SECTION 2.4 Interest Payments 12
------------ -----------------
SECTION 2.5 Prepayment 12
------------ ----------
SECTION 2.6 Notice of Borrowings 12
------------ --------------------
SECTION 2.7 Fees 12
------------ ----
SECTION 2.8 Termination of Commitments 13
------------ --------------------------
SECTION 2.9 Computation of Interest and Fees 13
------------ --------------------------------
SECTION 2.10 Additional Costs 13
------------ ----------------
SECTION 2.11 Illegality 14
------------ ----------
SECTION 2.12 Payments 15
------------ --------
SECTION 2.13 Letter of Credit 15
------------ ----------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES 19
- --------------------------------------------
SECTION 3.1. Organization; Powers 19
------------ --------------------
SECTION 3.2. Authorization 20
------------ -------------
SECTION 3.3. Enforceability 20
------------ --------------
SECTION 3.4. Governmental Approvals 20
------------ ----------------------
SECTION 3.5. Financial Statements 20
------------ --------------------
SECTION 3.6. No Material Adverse Change 20
------------ --------------------------
SECTION 3.7. Title to Properties; Possession Under Leases 20
------------ --------------------------------------------
SECTION 3.8. Subsidiaries 21
------------ ------------
SECTION 3.9. Litigation 21
------------ ----------
SECTION 3.10. Agreements 21
------------- ----------
SECTION 3.11. Use of Proceeds 21
------------- ---------------
SECTION 3.12. Tax Returns 21
------------- -----------
SECTION 3.13. No Material Misstatements 21
------------- -------------------------
SECTION 3.14. Employee Benefit Plans 21
------------- ----------------------
SECTION 3.15. Operation of Business 22
------------- ---------------------
SECTION 3.16. Laws; Environment. 22
-------------- ------------------
SECTION 3.17. Investment Company Act 23
-------------- ----------------------
SECTION 3.18. Public Utility Holding Company Act 23
--------------- ----------------------------------
SECTION 3.19. Foreign Person 23
--------------- --------------
ARTICLE IV. CONDITIONS OF LENDING 23
- ----------------------------------
<PAGE>
SECTION 4.1. All Borrowings 23
------------ --------------
SECTION 4.2. Closing Date 23
------------ ------------
SECTION 4.3. Conditions Precedent to Letter of Credit 24
------------ ----------------------------------------
ARTICLE V. AFFIRMATIVE COVENANTS 25
- ---------------------------------
SECTION 5.1. Existence; Businesses and Properties 25
------------ ------------------------------------
SECTION 5.2. Insurance 25
------------ ---------
SECTION 5.3. Obligations and Taxes 25
------------ ---------------------
SECTION 5.4. Financial Statements, Reports, etc. 26
------------ -----------------------------------
SECTION 5.5. Litigation and Other Notices 27
------------ ----------------------------
SECTION 5.6. ERISA 27
------------ -----
SECTION 5.7. Maintaining Records; Inspections 27
------------ --------------------------------
SECTION 5.8. Environment. 28
------------ ------------
SECTION 5.9. Use of Proceeds 28
------------ ---------------
ARTICLE VI. NEGATIVE COVENANTS 28
- -------------------------------
SECTION 6.1. Acquisitions 28
------------ ------------
SECTION 6.2. Liens 28
------------ -----
SECTION 6.3. [INTENTIONALLY DELETED] 29
------------ -----------------------
SECTION 6.4. Investments, Loans and Advances 29
------------ -------------------------------
SECTION 6.5. Mergers, Consolidations and Sales of Assets. 29
------------ --------------------------------------------
SECTION 6.6. [INTENTIONALLY DELETED] 30
------------- -----------------------
SECTION 6.7. Transactions with Affiliates 30
------------ ----------------------------
SECTION 6.8. Business of Borrower 30
------------ --------------------
SECTION 6.9. Current Ratio 30
------------ -------------
SECTION 6.10. Funded Debt to EBITDA Ratio 30
------------- ---------------------------
SECTION 6.11. EBITDA to Interest Expense Ratio 30
------------- --------------------------------
SECTION 6.12. Total Indebtedness to Tangible Net Worth 30
------------- ----------------------------------------
ARTICLE VII. EVENTS OF DEFAULT 30
- -------------------------------
ARTICLE VIII. MISCELLANEOUS 32
- ----------------------------
SECTION 8.1. Notices 33
------------ -------
SECTION 8.2. Survival of Agreement 33
------------ ---------------------
SECTION 8.3. Binding Effect 33
------------ --------------
SECTION 8.4. Successors and Assigns 33
------------ ----------------------
SECTION 8.5. Expenses; Indemnity 34
------------ -------------------
SECTION 8.6. Right of Setoff 34
------------ ---------------
SECTION 8.7. Applicable Law 35
------------ --------------
SECTION 8.8. Waivers; Amendment 35
------------ ------------------
SECTION 8.9. Interest Rate Limitation 35
------------ ------------------------
SECTION 8.10. Entire Agreement 35
------------- ----------------
SECTION 8.11. Waiver of Jury Trial 36
------------- --------------------
SECTION 8.12. Severability 36
------------- ------------
SECTION 8.13. Counterparts 36
------------- ------------
SECTION 8.14. Jurisdiction; Consent to Service of Process 36
------------- -------------------------------------------
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT dated as of November 2, 1998, is between CELESTIAL
------------------------------------------------------------------------
SEASONINGS, INC., a Delaware corporation (the "Borrower"), and KEYBANK NATIONAL
- -------------------------------------------------------------------------------
ASSOCIATION, a national banking association (the "Lender").
- -----------------------------------------------------------
The Borrower has requested the Lender to extend credit in order to enable
-------------------------------------------------------------------------
the Borrower, subject to the terms and conditions of this Agreement, to (i)
- ---------------------------------------------------------------------------
borrow on a revolving basis, at any time and from time to time prior to the
- ---------------------------------------------------------------------------
Maturity Date (as defined herein), an aggregate principal amount at any time
- ----------------------------------------------------------------------------
outstanding not in excess of $15,000,000 (the "Revolving Credit Loan"), the
- ---------------------------------------------------------------------------
proceeds of which shall be used for working capital, for acquisitions, for the
- ------------------------------------------------------------------------------
issuance of letters of credit up to a maximum of $5,000,000 and for other
- -------------------------------------------------------------------------
general corporate purposes and (ii) provide for the issuance of a standby Letter
- --------------------------------------------------------------------------------
of Credit (the "IDB Letter of Credit") in the approximate amount of $7,000,000,
- -------------------------------------------------------------------------------
which will provide a credit enhancement for existing industrial development
- ---------------------------------------------------------------------------
revenue bonds. The Lender is willing to extend such credit to the Borrower on
- ------------------------------------------------------------------------------
the terms and subject to the conditions set forth herein.
- ---------------------------------------------------------
Accordingly, the Borrower and the Lender agree as follows:
----------------------------------------------------------
1. ARTICLE DEFINITIONS
- -- ---------------------
SECTION 1.1 Defined Terms. As used in this Agreement, the following
----------- -------------
words and terms shall have the meanings specified below:
"Acquisition" shall mean any transaction, or any series of related
-----------
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going concern or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors or a majority (by percentage or voting power) of the outstanding
partnership interests of a partnership or a majority (by percentage or voting
power) of the outstanding ownership interests in any other form of legal entity.
"Additional Letters of Credit" shall mean the letters of credit, other
----------------------------
than the IDB Letter of Credit, issued by Lender upon the terms and conditions
set forth in Section 2.13, the face amount of which shall not exceed, in the
aggregate, at any time the sum of $5,000,000.
"Affiliate" shall mean, when used with respect to a specified Person,
---------
another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"Agreement" shall mean this Credit Agreement, as the same may be modified
---------
from time to time by an amendment duly executed by Borrower and Lender.
<PAGE>
"Asset Sale" means the conveyance, transfer or other disposition, to the
----------
extent the proceeds of such disposition exceed $5,000,000, consummated after the
Closing Date, by Borrower to another Person of any asset of Borrower, other than
sales, transfers or other dispositions in the ordinary course of business and
other than dispositions of equipment deemed to be surplus or obsolete.
"Base Rate" shall mean either (i) the sum of the Federal Funds Rate and the
---------
Federal Funds Rate Margin or (ii) the sum of the LIBOR Rate and the LIBOR Rate
Margin as designated by Borrower pursuant to Section 2.1(ii) hereof.
"Bond Documents" shall have the meaning assigned to such term in Section
--------------
2.13.
"Bonds" shall mean those certain Variable Rate Demand/Fixed Rate Economic
-----
Development Revenue Bonds (Celestial Seasonings, Inc, Project) Series 1989 in
the original face amount of $8,200,000 ("Bonds"), which were issued pursuant to
that certain Trust Indenture dated December 1, 1989, between Colorado Housing
and Finance Authority, as issuer, and United Bank of Denver National
Association, as trustee.
"Borrowing" shall have the meaning set forth in Section 2.6.
---------
"Business Day" shall mean (i) with respect to any borrowing, payment or
------------
rate selection of LIBOR Rate Loans, a day (other than a Saturday or Sunday) on
which banks generally are open in Denver, Colorado for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Denver, Colorado for the conduct of substantially all of
their commercial lending activities.
"Calendar Quarter" shall mean a three (3) month period commencing on
----------------
January 1, April 1, July 1 or October 1, as the context may require.
"Capital Lease Obligations" of any Person shall mean the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP.
"Change of Control" means any of the following: (i) the sale, lease,
-----------------
conveyance or other disposition of all or substantially all of the assets of the
Borrower (except for any Internal Reorganization), as an entirety or
substantially as an entirety to any Person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) in one or a series of related
transactions; (ii) the acquisition of fifty percent (50%) or more of the
aggregate voting power of all classes of Common Equity of the Borrower (except
for an Internal Reorganization) in one transaction or a series of related
transactions; (iii) the liquidation or dissolution of the Borrower (except for
an Internal Reorganization); (iv) any transaction or a series of related
transactions (as a result of a tender offer, merger, consolidation or otherwise
but excluding an Internal Reorganization) that results in, or that is in
connection with any Person, including, a "group" (within the meaning of
<PAGE>
Section 13(d)(3) of the Exchange Act) acquiring "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly of fifty
percent (50%) or more of the aggregate voting power of all classes of Common
Equity of the Borrower, or of any Person that possesses "beneficial ownership"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
fifty percent (50%) or more of the aggregate voting power of all classes of
Common Equity of the Borrower; or (v) a majority of the Board of Directors of
the Borrower, not being comprised of Persons who (a) were members of the Board
of Directors of the Borrower, as of the date of this Agreement ("Original
Directors"), (b) were nominated for election or elected to the Board of
Directors of the Borrower, with the affirmative vote of at least a majority of
the directors who themselves were Original Directors or who were similarly
nominated for election or elected or (c) are otherwise approved by Lender.
"Closing Date" shall mean November 2, 1998.
------------
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
----
amended from time to time.
"Commitment" shall mean the Commitment of Lender to make Loans hereunder as
----------
set forth in Section 2.1.
"Commitment Fee" shall mean a fee calculated at the Unused Fee Rate,
--------------
payable quarterly in arrears, which shall be computed based on the average
unused amount of the Revolving Loan Commitment.
"Common Equity" means with respect to any Person, capital stock of such
-------------
Person that is generally entitled to (i) vote in the election of directors of
such Person, or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management or policies of such Person.
"Consolidated Amortization Expense" for any Person means, for any period,
---------------------------------
the consolidated amortization expense of such Person for such period, determined
on a consolidated basis for such Person and its subsidiaries in conformity with
GAAP.
"Consolidated Current Assets" means, with respect to any Person as at any
---------------------------
date of determination, the total assets of such Person and its consolidated
subsidiaries which may properly be classified as current assets on a
consolidated balance sheet of such Person and its subsidiaries in accordance
with GAAP.
"Consolidated Current Liabilities" means, with respect to any Person as at
--------------------------------
any date of determination, the total liabilities of such Person and its
consolidated subsidiaries which may properly be classified as current
liabilities on a consolidated balance sheet of such Person and its consolidated
Subsidiaries in accordance with GAAP.
"Consolidated Depreciation Expense" for any Person means, for any period,
---------------------------------
the consolidated depreciation expense of such Person for such period, determined
on a consolidated basis for such Person and its consolidated Subsidiaries in
conformity with GAAP.
<PAGE>
"Consolidated EBITDA" for any Person means, for any period, the difference
-------------------
between (A) the sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Tax Expense, (iii) Consolidated Interest Expense, (iv)
Consolidated Amortization Expense, and (v) Consolidated Depreciation Expense
less (B) (i) extraordinary gains and (ii) dividends and distributions in cash,
- ----
all as determined on a consolidated basis for such Person and its consolidated
Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense" for any Person shall mean, for any period,
-----------------------------
the sum of (x) total interest expense (including that attributable to Capital
Leases in accordance with GAAP) and (y) total cash dividends paid on any
preferred stock, in each case of such Person and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness and preferred
stock of such Person and its Subsidiaries, including, without limitation, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing.
"Consolidated Net Income" for any Person means, for any period, the net
-----------------------
income (or loss) of such Person and its Subsidiaries on a consolidated basis for
such period taken as a single accounting period determined on a consolidated
basis for such Person and its consolidated Subsidiaries in conformity with GAAP;
provided that there shall be excluded (i) the income (or loss) of any other
- --------
Person (other than consolidated Subsidiaries of such Person) in which any third
Person (other than such Person or any of its consolidated Subsidiaries) has a
joint interest, except to the extent of the amount of dividends or other
distributions actually paid to such Person or any of its Subsidiaries by such
other Person during such period, (ii) the income (or loss) of any other Person
accrued prior to the date it becomes a consolidated Subsidiary of such Person or
is merged into or consolidated with such Person or any of its consolidated
Subsidiaries or such other Person's assets are acquired by such Person or any of
its consolidated Subsidiaries, and (iii) the income of any consolidated
Subsidiary of such Person to the extent that the declaration or payment of
dividends or similar distributions by that consolidated Subsidiary of that
income is not at the time permitted by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that consolidated Subsidiary.
"Consolidated Tangible Net Worth" of any Person means, for any time for the
-------------------------------
determination thereof, the sum of the capital stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of such Person,
less Intangible Assets, in conformity with GAAP.
"Consolidated Tax Expense" for any Person means, for any period, the
------------------------
consolidated tax expense of such Person for such period, determined on a
consolidated basis for such Person and its consolidated Subsidiaries in
conformity with GAAP.
"Control" shall mean the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
<PAGE>
"Default" shall mean any event or condition which upon notice, lapse of
-------
time or both would constitute an Event of Default.
"Default Rate" shall have the meaning assigned to such term in Section
------------
2.3(c).
"Dollars" or "$" shall mean lawful money of the United States of America.
------- -
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) that is a member of a group of which the Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Event of Default" shall have the meaning assigned to such term in Article
----------------
VII.
"Federal Funds Rate" "Federal Funds Rate" means, for each day, a
------------------
fluctuating interest rate per annum equal to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations at approximately
10:00 A.M. Denver time on such day on such transactions received by the Lender
from three Federal Funds brokers of recognized standing selected by the Lender
in its sole discretion.
"Federal Funds Rate Loan" shall mean any Loan that bears interest with
-----------------------
reference to the Federal Funds Rate.
"Federal Funds Rate Margin" shall mean such margin as is adjusted pursuant
-------------------------
to Section 2.3(b)(ii) of this Agreement.
"Fees" shall mean the Commitment Fee.
----
"Financial Officer" of any corporation shall mean the chief financial
-----------------
officer, principal accounting officer, treasurer or controller of such
corporation.
"Funded Debt" shall mean, as of the applicable measuring date, all Capital
-----------
Lease Obligations plus the outstanding principal balance, and interest accrued
thereon, of all Indebtedness.
"GAAP" shall mean generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or in such
other statements by such other entity as may be in general use
<PAGE>
by significant segments of the U.S. accounting profession, which are applicable
to the circumstances as of the date of determination.
"Governmental Authority" shall mean any federal, state, local or foreign
----------------------
court or governmental agency, authority, instrumentality or regulatory body.
"Guarantee" of or by any Person shall mean any obligation, contingent or
---------
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
Person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase property, securities or services for the purpose
of assuring the owner of such Indebtedness of the payment of such Indebtedness
or (c) to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness.
"Indebtedness" of any Person shall mean, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property or assets purchased by such Person, (e) all obligations of such Person
issued or assumed as the deferred purchase price of property or services, (f)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g) all Guarantees by such Person
of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations of such Person in respect of interest rate protection agreements
and (j) all obligations of such Person as an account party in respect of letters
of credit and bankers' acceptances. The Indebtedness of any Person shall
include the Indebtedness of any partnership in which such Person is a general
partner.
"Intangible Assets" means, with respect to any Person, at any time for the
-----------------
determination thereof, the amount of (i) all write-ups in the book value of any
asset owned by such Person, (ii) any amount, however designated on the balance
sheet, representing the excess of the purchase price paid for assets or equity
interests over the value assigned thereto on the books of such Person, (iii) all
unamortized debt discount, goodwill, patents, trademarks, service marks, trade
names, copyrights, organization or development expenses and other intangible
items and (iv) all items that would be considered intangible assets under GAAP.
"Internal Reorganization" means any reorganization between or among the
-----------------------
Borrower and any Subsidiary or Subsidiaries or between or among any Subsidiary
and one or more other Subsidiaries or any combination thereof by way of
liquidations, mergers, consolidations, conveyances, assignments, sales,
transfers and other dispositions of all or substantially all of the assets of a
Subsidiary (whether in one transaction or in a series of transactions); provided
that (a)
<PAGE>
the Borrower shall preserve and maintain its status as a validly existing
corporation and (b) all assets, liabilities, obligations and guarantees of any
Subsidiary party to such reorganization will continue to be held by a Subsidiary
of Borrower or be assumed by the Borrower.
"Interest Period" means, with respect to any LIBOR Rate Loan, the period
---------------
commencing on the date such Loan is made or continued and ending on the last day
of such period as selected by the Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of such period as selected
by the Borrower pursuant to the provisions below. The duration for any LIBOR
Rate Loan shall be one (1) month, two (2) months, three (3) months or six (6)
months, as selected by the Borrower; provided, however, that whenever the last
day of any Interest Period would otherwise occur on a day other than a Business
Day, the last day of such Interest Period shall occur on the next succeeding
Business Day, and; provided, further, however, that if such extension of time
would cause the last day of such Interest Period for a LIBOR Rate Loan to occur
in the next following calendar month, the last day of such Interest Period shall
occur on the next preceding Business Day.
"Letter of Credit" shall mean, collectively, the IDB and any Additional
----------------
Letters of Credit issued by Lender pursuant to the provisions of Section 2.13.
"LIBOR Rate" shall mean for each Interest Period for any LIBOR Rate Loan,
----------
the average rate as established by the British Bankers Association ("BBA"),
based on the average of the rates charged by eight (excluding the four highest
and the four lowest rates) of the sixteen largest British Banks in London. If
the BBA no longer reports such rate or Lender determines in good faith that the
rate so reported no longer accurately reflects the rate available to Lender in
the London Interbank Market, Lender may select in its reasonable discretion a
replacement index for determining LIBOR, and shall promptly notify Borrower of
such selection. If there are changes in the LIBOR Reserve Requirement, the
LIBOR Rate shall be adjusted by dividing the LIBOR Rate by the result of (x)
1.00 minus (y) the LIBOR Reserve Requirement.
"LIBOR Rate Loan" shall mean any Loan that bears interest with reference to
---------------
the LIBOR Rate.
"LIBOR Rate Margin" shall mean such margin as is adjusted pursuant to
-----------------
Section 2.3(b)(ii) of this Agreement.
"LIBOR Reserve Requirements" means, for any Interest Period for any LIBOR
--------------------------
Rate Loan, the maximum reserves (whether basic, supplemental, marginal,
emergency, or otherwise) prescribed by the Board of Governors of the Federal
Reserve System (or any successor) with respect to liabilities or assets
consisting of or including "Eurocurrency liabilities" (as defined in Regulation
D of the Board of Governors of the Federal Reserve System) having a term equal
to such Interest Period.
"Lien" shall mean any mortgage, deed of trust, pledge, security interest,
----
hypothecation, assignment for security, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or
<PAGE>
encumbrance of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction to evidence any of the foregoing).
"Loans" shall mean the loans made by Lender pursuant to Section 2.1.
-----
"Loan Documents" shall mean this Agreement, the Note, any other instruments
--------------
or documents evidencing or relating to the Loan.
"Material Adverse Effect" shall mean (a) a materially adverse effect on the
-----------------------
business, assets, operations or condition, financial or otherwise, of the
Borrower and the Subsidiaries taken as a whole, (b) material impairment of the
ability of the Borrower or any Subsidiary to perform any of its obligations
under any Loan Document to which it is or will be a party or (c) material
impairment of the rights of or benefits available to the Lender under any Loan
Document.
"Maturity Date" shall mean three (3) years from the Closing Date.
-------------
"Net Cash Proceeds" means with respect to any Asset Sale, the aggregate
-----------------
cash payments received by the Borrower, from such Asset Sale, net of direct
expenses of sale; provided that, with respect to the taxes, expenses shall only
--------
include taxes to the extent that taxes are payable in cash in the current year
or in the next succeeding year with respect to the current year as a result of
such Asset Sale.
"Note" shall mean the promissory note executed by Borrower which evidences
----
the Revolving Credit Loan.
"Origination Fee" shall mean that certain origination fee payable by
---------------
Borrower to Lender pursuant to a letter agreement of even date herewith.
"PBGC" shall mean the Pension Benefit Guarantee Corporation referred to and
----
defined in ERISA and any successor thereto.
"Person" shall mean any natural person, corporation, business trust, joint
------
venture, association, Borrower, partnership or government, or any agency or
political subdivision thereof.
"Plan" shall mean any pension plan subject to the provisions of Title IV of
----
ERISA or Section 412 of the Code which is maintained for employees of the
Borrower or any ERISA Affiliate.
"Reimbursement Agreement" shall mean that certain Reimbursement Agreement
-----------------------
dated as of November 1, 1998, entered into between Lender and Borrower with
respect to the IDB Letter of Credit.
"Repayment Date" shall have the meaning given such term in Section 2.12.
--------------
<PAGE>
"Reportable Event" shall mean any reportable event as defined in Section
-----------------
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate which is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code).
"Responsible Officer" of any corporation shall mean any executive officer
-------------------
or financial officer of such corporation and any other officer or similar
official thereof responsible for the administration of the obligations of such
corporation in respect of this Agreement.
"Revolving Loan Commitment" shall mean the maximum amount of the Revolving
-------------------------
Credit Loan, which shall initially be $15,000,000, but shall be subject to
reduction as provided herein.
"Significant Subsidiary" shall mean a Subsidiary which meets any of the
----------------------
following conditions:
(1) The Borrower's and its other Subsidiaries' investments in and advances
to the Subsidiary exceed 10 percent of the total assets of the
Borrower and its Subsidiaries consolidated as of the end of the most
recently completed fiscal year; or
(2) The Borrower's and its other Subsidiaries' proportionate share of the
total assets (after intercompany eliminations) of the Subsidiary
exceeds 10 percent of the total assets of the Borrowers and its
Subsidiaries consolidated as of the end of the most recently completed
fiscal year.
"Subordinated Debt" shall mean Indebtedness of a Person which is
-----------------
subordinated, in a manner reasonably satisfactory to the Lender, to all
Indebtedness owing to the Lender.
"Subsidiary" shall mean, with respect to any Person (herein referred to as
----------
the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) which is, at the time any
determination is made, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Total Indebtedness" shall mean all Indebtedness of a Person less
------------------
Subordinated Debt.
"Transactions" shall have the meaning assigned to such term in Section 3.2.
------------
"Unused Fee Rate" shall mean such rate as is set forth pursuant to Section
---------------
2.3(b)(ii) of this Agreement.
SECTION 1.2 Terms Generally. The definitions in Section 1.1. shall
---------------
apply equally to both the singular and plural forms of the terms defined.
Except as otherwise expressly
<PAGE>
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time.
ARTICLE II THE CREDIT
SECTION 2.1 Amount of Credit. The Bank hereby agrees, subject to the
----------------
terms and conditions of this Agreement, to make a Revolving Credit Loan to the
Borrower as follows:
(i) Lender hereby makes a Revolving Credit Loan to the
Borrower from time to time on and after the date of this Agreement
through and including the Maturity Date, in an amount not to exceed
the Revolving Loan Commitment. Until the Maturity Date, the
Borrower may borrow, repay, and reborrow such Revolving Credit Loan
up to the maximum amount of the Revolving Loan Commitment.
(ii) Each Revolving Credit Loan shall be either a LIBOR Rate
Loan or a Federal Funds Rate Loan, subject to the following
conditions:
(A) Each Loan that is made or continued as a LIBOR Rate
Loan shall be made or continued on such Business Day, in such
amount (equal to $10,000.00 or an integral multiple thereto),
and with such an Interest Period as the Borrower shall request
by written notice given to the Lender no later than 11:00 a.m.
(Denver, Colorado time) on the third Business Day prior to the
date of disbursement or continuation of the requested LIBOR
Rate Loan. Each written notice of any LIBOR Rate Loan shall be
irrevocable and binding on the Borrower and the Borrower shall
indemnify the Lender against any loss or expense incurred by
the Lender as a result of any failure by the Borrower to
consummate such LIBOR Rate Loan, including, without limitation,
any loss (including loss of anticipated profits) or expense
incurred by reason of liquidation or reemployment of deposits
or other funds acquired by the Lender to fund the LIBOR Rate
Loan. A certificate as to the amount of such loss or expense
submitted by the Lender to the Borrower shall be conclusive and
binding for all purposes, absent manifest error. In the event
that the Borrower fails to provide the Lender with the required
written notice, the Borrower shall be deemed to have given a
written notice that such LIBOR Rate Loan shall be converted to
a Federal Funds Rate Loan on the last day of the applicable
Interest Period. In no event shall the Borrower be permitted to
select a LIBOR Rate Loan having an Interest Period ending after
the Maturity Date;
(B) Each Loan that is made as a Federal Funds Loan shall
be made on such Business Day and in such amount (equal to
$10,000.00 or any integral multiple thereof) as the
<PAGE>
Borrower shall request by written notice given to the Lender
no later than 11:00 a.m. (Denver, Colorado time) on the date
of disbursement of the requested Federal Funds Loan.
(iii) On or before each anniversary of the Closing Date, the Borrower
may elect, by written notice to Lender, to reduce the amount of the Revolving
Loan Commitment; provided, that (i) the amount of the Revolving Loan Commitment,
after giving effect to the requested reduction, cannot be less than the then
outstanding principal balance of the Revolving Credit Loan, and (ii) each such
notice shall be irrevocable, and the Borrower shall not thereafter have the
right to increase the amount of the Revolving Loan Commitment.
SECTION 2.2 Loan Evidenced by Promissory Note. All Loans shall be
---------------------------------
evidenced by the Note dated the date hereof. The Note shall be a master note,
and the principal amount of all revolving Loans outstanding shall be evidenced
by the Note or any ledger or other record of the Lender, which shall be
presumptive evidence of the principal owing and unpaid on the Note.
SECTION 2.3 Interest Rates. The Borrower shall pay interest on the
--------------
unpaid principal amount of each Revolving Credit Loan made by the Lender from
the date of such Revolving Credit Loan until such principal amount shall be paid
in full as follows:
(a) (i) During such periods as any LIBOR Rate Loan is
outstanding, at a rate per annum equal to the sum of the LIBOR Rate
and the LIBOR Rate Margin (as described in subpart (b) below) in
effect from time to time, in accordance with this Agreement.
(ii) During such periods as any Federal Funds Rate Loan
is outstanding, at a rate per annum equal to the sum of the Federal
Funds Rate and the Federal Funds Rate Margin (as described in
subpart (b) below) in effect from time to time, in accordance with
this Agreement.
(b) (i) Except as otherwise provided herein, the LIBOR Rate
Margin, the Federal Funds Rate Margin or the Unused Fee Rate in
effect shall be adjusted as of the first day of each Calendar
Quarter, based on the balance sheet provided to Lender by Borrower
during the preceding Calendar Quarter. For example, for the
Calendar Quarter beginning on January 1, the applicable LIBOR Rate
Margin, Federal Funds Rate Margin and Unused Fee Rate shall be
determined based on the balance sheet delivered to Lender by
Borrower pursuant to Section 5.4 during the preceding November for
the Calendar Quarter ending on September 30th. The LIBOR Rate
Margin or the Federal Funds Rate Margin in effect shall be
applicable to new advances for Revolving Credit Loans as of the
date of such advances, and to a continued Loan as of the date of
continuation, occurring within the calendar quarter in which such
LIBOR Rate Margin or Federal Funds Rate Margin is in effect.
<PAGE>
(ii) As of the first day of each Calendar Quarter, the LIBOR Rate
Margin, the Federal Funds Rate Margin and the Unused Fee Rate
shall be adjusted to be the percentage indicated in the following
table corresponding to the Borrower's Funded Debt to Consolidated
EBITDA ratio, which shall be calculated from the balance sheet
provided by the Borrower to the Lender under Section 5.4 of this
Agreement.
<TABLE>
<CAPTION>
Funded Debt to EBITDA LIBOR Rate Margin Federal Funds Rate Margin Unused Fee Rate
<S> <C> <C> <C>
Greater than or equal to 3.0 125 Basis Points 150 Basis Points 30 Basis Points
Less than 3.0 but greater than or
equal to 2.0 100 Basis Points 125 Basis Points 25 Basis Points
Less than 2.0 but greater than or
equal to 1.0 75 Basis Points 100 Basis Points 15 Basis Points
Less than 1.0 50 Basis Points 75 Basis Points 10 Basis Points
</TABLE>
(iii) Any such adjustment to the LIBOR Rate Margin, the Federal Funds
Rate Margin or the Unused Fee Rate shall only remain effective
until the earlier of the first day of the next Calendar Quarter
or the date on which an Event of Default shall occur.
(c) Upon the occurrence of any Event of Default and so long as such
Event of Default is continuing, the unpaid principal amount of
the Loan, and accrued interest thereon, or any fees or any and
other sum payable hereunder, shall thereafter until paid in full
bear interest (the "Default Rate") at a rate per annum equal to
------------
six hundred (600) basis points in excess of the Federal Funds
Rate in effect from time to time.
SECTION 2.4 Interest Payments. The Borrower shall pay to the Lender interest
-----------------
on the unpaid principal balance of each Federal Funds Rate Loan on either (i)
the date such Loan is converted to a LIBOR Rate Loan, or (ii) the last date of
each Calendar Quarter, whichever is earlier. The Borrower shall pay to the
Lender interest on the unpaid principal balance of each LIBOR Rate Loan on (i)
the date such Loan is converted to a Federal Funds Rate Loan, or (ii) the last
day of the day of each Calendar Quarter, whichever is earlier.
SECTION 2.5 Prepayment. The Borrower may prepay any Federal Funds Rate Loan
----------
in whole, or in part, at any time or times. The Borrower may prepay any LIBOR
Rate Loan, in whole or in part, upon not less than three (3) Business Days'
prior written notice given to the Lender; provided, that, if payment of a LIBOR
Rate Loan occurs on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment or otherwise, the Borrower
shall indemnify Lender for any loss or cost incurred by it resulting therefrom,
including, without limitation, any loss or cost in liquidating or employing
deposits required to fund or maintain the LIBOR Rate Loan.
SECTION 2.6 Notice of Borrowings. The Borrower shall give the Lender prior
--------------------
written notice to Lender before a proposed borrowing (a "Borrowing") pursuant to
Section 2.1(ii) hereof. Such notice shall be irrevocable and shall in each case
refer to this Agreement. Each
<PAGE>
notice of Borrowing shall be deemed a representation by Borrower that all
conditions precedent to such Borrowing have been satisfied.
SECTION 2.7 Fees.
-----------------
(a) The Commitment Fee shall be payable, in arrears, on the last day of
each Calendar Quarter, commencing December 31, 1998, and continuing on the first
day of each Calendar Quarter thereafter until the Maturity Date, and shall be
based on the average unused amount of the Commitment pertaining to the Revolving
Credit Loan for the Calendar Quarter ending on such date. The Commitment Fee
due December 31, 1998, shall be prorated based on the number of days from the
Closing Date through December 31, 1998, divided by the number of days in the
Calendar Quarter ending December 31, 1998.
(b) Once paid, none of the Fees shall be refundable under any
circumstances, unless the Borrower and Lender subsequently determine that an
error has occurred in the calculation of any fees due. In such event, any
remaining fee balances will be paid within thirty (30) days from the date that
the error was determined.
SECTION 2.8 Termination of Commitments. The Commitment shall be
--------------------------
automatically terminated at 5:00 p.m., Denver, Colorado time, on the Maturity
Date.
SECTION 2.9 Computation of Interest and Fees. Interest on Loans and
--------------------------------
unpaid fees, if any, shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed.
SECTION 2.10 Additional Costs.
----------------
(a) If, due to either (i) any change in any law or regulation (or its
interpretation), or (ii) the compliance with any guideline or request from
any central lender or other governmental authority (whether or not having
the force of law), there shall be any increase in the cost to the Lender of
making, funding or maintaining LIBOR Rate Loans, then the Borrower shall
from time to time, upon demand by the Lender pay to the Lender additional
amounts sufficient to reimburse the Lender for any such additional costs.
A certificate of the Lender submitted to the Borrower as to the amount of
such additional costs, shall be conclusive and binding for all purposes,
absent manifest error. Notwithstanding anything to the contrary contained
in this Section 2.10(a), the Borrower shall not be obligated to indemnify
or reimburse the Lender for any additional costs which arose or were
incurred during, or is otherwise attributable to, any period of time more
than 180 days prior to the date on which the Lender delivered its written
certificate for indemnification or reimbursement for such additional costs
and such costs shall be nondiscriminatory in nature. Upon notice from the
Borrower to the Lender within five (5) Business Days after the Lender
notifies the Borrower of any such additional costs pursuant to this Section
2.10(a), the Borrower may either prepay in full all LIBOR Rate Loans so
affected then outstanding, together with interest accrued thereon to the
date of such prepayment, or (ii) convert such LIBOR Rate Loans so affected
then outstanding into Federal Funds Rate Loans upon not less than four (4)
Business Days' notice to the
<PAGE>
Lender. If any such prepayment or conversion of any LIBOR Rate Loan occurs
on any day other than the last day of the applicable Interest Period for
such Loan, the Borrower also shall pay to the Lender such additional
amounts sufficient to indemnify the Lender against any loss, cost, or
expense incurred by the Lender as a result of such prepayment or
conversion, including, without limitation, any loss (including loss of
anticipated profits), cost, or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the
Lender to fund any such Loan, and a certificate as to the amount of any
such loss, cost, or expense submitted by the Lender to the Borrower shall
be conclusive and binding for all purposes, absent manifest error.
(b) If either (i) any change in any law or regulation (or its
interpretation), or (ii) the compliance with any guideline or request from
any central lender or other governmental authority (whether or not having
the force of law), affects or would affect the amount of capital required
or expected to be maintained by the Lender or any corporation controlling
the Lender and the Lender determines that the amount of such capital is
increased by or based upon the existence of the Loan (or commitment to make
the Loan) and other extensions of credit (or commitments to extend credit)
of similar type, then, upon demand by the Lender, the Borrower shall pay to
the Lender from time to time as specified by the Lender additional amounts
sufficient to compensate the Lender in the light of such circumstances, to
the extent that the Lender reasonably determines such increase in capital
to be allocable to the existence of the Lender's Loan (or commitment to
make the Loan). A certificate of the Lender submitted to the Borrower as
to such amounts shall be conclusive and binding for all purposes, absent
manifest error. Notwithstanding anything to the contrary contained in this
Section 2.10(b), the Borrower shall not be obligated to indemnify or
reimburse the Lender for any such additional amounts which arose or were
incurred during, or is otherwise attributable to, any period of time more
than 180 days prior to the date on which the Lender delivered its written
certificate for indemnification or reimbursement for such additional
amounts and such amounts shall be nondiscriminatory in nature. Upon notice
from the Borrower to the Lender within five (5) Business Days after the
Lender notifies the Borrower of any such additional costs pursuant to this
Section 2.10(b), the Borrower may either (A) prepay in full the Loan if so
affected, together with interest accrued thereon to the date of such
prepayment, or (B) convert the Loan if so affected into a Loan of any other
type not so affected upon not less than four (4) Business Days' notice to
the Lender. If any such prepayment or conversion of any LIBOR Rate Loan
occurs on any day other than the last day of the applicable Interest Period
for such Loan, the Borrower also shall pay to the Lender such additional
amounts sufficient to indemnify the Lender against any loss, cost, or
expense incurred by the Lender as a result of such prepayment or
conversion, including, without limitation, any loss (including loss of
anticipated profits), cost, or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the
Lender to fund any such Loan, and a certificate as to the amount of any
such loss, cost, or expense submitted by the Lender to the Borrower shall
be conclusive and binding for all purposes, absent manifest error.
SECTION 2.11 Illegality. Notwithstanding any other provision of this
----------
Agreement, if any change in any law or regulation (or its interpretation) shall
make it unlawful, or any central
<PAGE>
Lender or other governmental authority shall assert that it is unlawful, for the
Lender to perform its obligations hereunder to make, continue, or convert LIBOR
Rate Loans hereunder, then, (a) on notice thereof by the Lender to the Borrower,
the obligation of the Lender to make or continue a LIBOR Rate Loan or to convert
any Federal Funds Rate Loan into a LIBOR Rate Loan shall terminate and the
Lender shall thereafter be obligated to make only Federal Funds Rate Loans
whenever any written notice requests for any type LIBOR Rate Loan is received,
and (b) upon demand therefor by the Lender to the Borrower, the Borrower shall
either (i) forthwith prepay in full any LIBOR Rate Loan then outstanding,
together with interest accrued thereon, or request that the Lender, upon four
(4) Business Days' notice, convert any LIBOR Rate Loan then outstanding into a
Federal Funds Rate Loan. If any such prepayment or conversion of any LIBOR Rate
Loan occurs on any day other than the last day of the applicable Interest Period
for such Loan, the Borrower also shall pay to the Lender such additional amounts
sufficient to indemnify the Lender against any loss, cost, or expense incurred
by the Lender as a result of such prepayment or conversion, including, without
limitation, any loss (including loss of anticipated profits), cost, or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by the Lender to fund any such Loan, and a certificate as to the amount
of any such loss, cost, or expense submitted by the Lender to the Borrower shall
be conclusive and binding, for all purposes, absent manifest error.
SECTION 2.12 Payments. The Borrower shall make each payment (including
--------
principal of or interest on any Borrowing or any Fees or other amounts)
hereunder and under any other Loan Document not later than 12:00 (noon), Denver,
Colorado time, on the date when due in dollars to the Lender at its offices at
600 South Cherry Street, Suite 1000, Denver, Colorado 80246, in immediately
available funds. Borrower may direct that such payments be made by direct debit
from an account of Borrower. Whenever any payment (including principal of or
interest on any Borrowing or any Fees or other amounts) hereunder or under any
other Loan Document shall become due, or otherwise would occur, on a day that is
not a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of interest or Fees, if applicable.
SECTION 2.13 Letter of Credit.
----------------
(a) IDB Letter of Credit.
--------------------
(i) The IDB Letter of Credit shall be issued by Lender upon
compliance by Borrower with the conditions set forth in Section 4.3 hereof. If
the conditions to issuance of the IDB Letter of Credit have not been satisfied
on or before March 31, 1999, the obligation of Lender to issue the IDB Letter of
Credit shall expire.
(ii) Pursuant to the terms and conditions of the documents and
instruments (the "Bond Documents") governing the issuance of the Bonds, the
principal amount of the Bonds is scheduled to reduce on an annual basis, and
accordingly, the amount of the IDB Letter of Credit may be reduced. Upon
Borrower's written notice, and compliance by Borrower with all of the terms and
conditions of the Bond Documents (including the payment by Borrower of all fees,
costs and charges due thereunder) and the Reimbursement Agreement, the Lender
shall reduce the face amount of the IDB Letter of Credit.
<PAGE>
(b) Issuance of Additional Letters of Credit. Subject to the terms and
----------------------------------------
conditions of this Agreement and in reliance upon the representations and
warranties of the Borrower set forth herein, in addition to requesting that the
Lender make Loans pursuant to Section 2.1, the Borrower may request, in
accordance with the provisions of this Section 2.13, that Lender issue
Additional Letters of Credit for the account of the Borrower; provided that (i)
--------
Borrower shall not request that Lender issue any Additional Letter of Credit and
the Lender shall not issue any Additional Letter of Credit, if after giving
effect to such issuance, the sum of (A) the outstanding Additional Letters of
Credit on the date of such issuance, after giving effect to the issuance of all
Additional Letters of Credit subject to outstanding requests for the issuance
thereof, plus (B) the aggregate principal amount of Loans then outstanding,
after giving effect to the making of all Loans then requested by all outstanding
but unfunded notices of Borrowing, would the maximum amount of the Revolving
Credit Loan, (ii) in no event shall Lender issue (A) any Additional Letter of
Credit having an expiration date later than thirty (30) Business Days prior to
the Maturity Date, after giving effect to any possible renewal of such
Additional Letter of Credit pursuant to the proviso to the following clause (ii)
(B), (B) subject to the foregoing clause (ii)(A), any Additional Letter of
Credit having an expiration date more than one year after its date of issuance;
provided that, subject to the foregoing clause (ii) (A), this clause (B) shall
- --------
not prevent Lender from issuing an Additional Letter of Credit containing a
provision to the effect that such Additional Letter of Credit will automatically
be renewed annually for a period not to exceed one year, so long as such
renewable Additional Letter of Credit provides that it shall not at any time be
renewed for an additional year if (I) Borrower notifies the Lender in writing
one Business Day prior to the applicable renewal date that such Borrower elects
to allow the Additional Letter of Credit to expire without being renewed, or
(II) the Lender notifies Borrower in writing, prior to the date set forth in
-----
such Additional Letter of Credit as the date by which the beneficiary thereof is
to be notified whether such Additional Letter of Credit is to be renewed, that
such Additional Letter of Credit shall not be so renewed, in which case such
Additional Letter of Credit shall not be so renewed, (C) any Additional Letter
of Credit, the initial stated amount of which is less than $10,000.00, or (D)
any Additional Letter of Credit (I) as to which a drawing can be made in a
location other than in the United States of America, or (II) which is governed
by laws other than the laws of the State of Colorado, without regard to the
principles of conflicts of laws and (iii) Borrower shall not request that Lender
issue and Lender shall not issue any Additional Letter of Credit if, after
giving effect to such issuance and the issuance of all other requested Letters
of Credit, the then outstanding face amount of all Additional Letters of Credit
would exceed $5,000,000. The issuance of any Additional Letter of Credit in
accordance with the provisions of this Section 2.13 shall be given effect in the
calculation of the aggregate principal amount of Loans outstanding.
(c) Request for Issuance of Additional Letters of Credit. Whenever the
----------------------------------------------------
Borrower desires the issuance of an Additional Letter of Credit, it shall
deliver to the Lender a request for issuance of a Additional Letter of Credit no
later than 1:00 p.m. (Denver, Colorado time) at least three Business Days, or
such shorter period as may be agreed to by Lender in any particular instance, in
advance of the proposed date of issuance. The request for issuance with respect
to any Additional Letter of Credit shall specify (i) the proposed date of
issuance (which shall be a Business Day) of such Additional Letter of Credit,
(ii) the face amount of such Additional Letter of Credit, (iii) the expiration
date of such Additional Letter of Credit and (iv) the name and address of the
beneficiary of such Additional Letter of Credit. Prior to the date of issuance,
the
<PAGE>
Borrower shall specify a precise description of the documents and the
verbatim text of any certificate to be presented by the beneficiary of such
Additional Letter of Credit which, if presented by such beneficiary prior to the
expiration date of the Additional Letter of Credit, would require the Lender to
make payment under the Additional Letter of Credit; provided that the Lender, in
--------
its sole judgment, may require changes in any such documents and certificates.
In determining whether to pay under any Additional Letter of Credit, the Lender
shall be responsible only to determine that the documents and certificates
required to be delivered under that Additional Letter of Credit have been
delivered and that they comply on their face with the requirements of that
Additional Letter of Credit.
(d) Payment of Amounts Drawing Under Letter of Credit. In the event of any
-------------------------------------------------
request for drawing under the Letter of Credit by the beneficiary thereof, the
Lender shall notify such Borrower on or before the date on which Lender intends
to honor such drawing, and if such drawing is a Principal Drawing or Interest
Drawing (as such terms are defined in the Reimbursement Agreement) or a drawing
under an Additional Letter of Credit (each of such events being referred to
hereunder as a "Drawing") such Borrower shall reimburse Lender on the day on
which such Drawing is honored in an amount in same day funds equal to the amount
of such Drawing; provided that, anything contained in this Agreement to the
--------
contrary notwithstanding, (i) unless such Borrower shall have notified Lender
prior to Noon (Denver, Colorado time) on the Business Day of the date of such
Drawing that such Borrower intends to reimburse Lender for the amount of such
Drawing with funds other than proceeds of the Revolving Credit Loan, Borrower
shall be deemed to have timely given a notice of Borrowing to the Lender
requesting the Lender to make Loans on the date on which such Drawing is honored
in an amount equal to the amount of such Drawing, and (ii) the Lender shall, on
the date of such Drawing, make Loans to Borrower in the amount of such Drawing,
the proceeds of which shall be applied directly to reimburse Lender for the
amount of such Drawing.
(e) Compensation.
------------
(1) The Borrower shall pay the following amount with respect to the Letter
of Credit:
(i) with respect to drawings made under Additional Letters of Credit,
interest, payable on demand, on the amount paid by Lender in respect of
each such drawing from and including the date of the drawing through the
date such amount is reimbursed by Borrower (including any such
reimbursement out of the proceeds of Loans) at a rate which is equal to the
interest rate then applicable to the Loans for the period from the date of
such drawing to and including the first Business Day after the date of such
drawing; provided that amounts reimbursed after 2 p.m. (Seattle, Washington
--------
time) on any date shall be deemed to be reimbursed on the next succeeding
Business Day.
(ii) with respect to the issuance, amendment or transfer of the Letter
of Credit and each drawing made thereunder, documentary and processing
charges in accordance with Lender's standard schedule for such charges in
effect at the time of
<PAGE>
such amendment, transfer or drawing, as the case may be, except that, in
the case of the IDB Letter of Credit, such changes shall be as set forth in
the Reimbursement Agreement.
(2) The Borrower shall pay to Lender in respect of any Additional Letters
of Credit, the fees and charges in effect from time to time under the standard
policies and procedures of Lender.
(f) Obligations Absolute. The obligation of the Borrower to reimburse
--------------------
Lender for drawings made under the Letter of Credit (except for the IDB Letter
of Credit, which shall be governed by the Reimbursement Agreement) issued by it
shall be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances including, without
limitation, the following circumstances:
(1) any lack of validity or enforceability of the Letter of Credit;
(2) the existence of any claim, setoff, defense, or other right that
Borrower or any other Person may have any time against a beneficiary or any
transferee of the Letter of Credit (or any Persons or entities for whom any such
beneficiary or transferee may be acting), the Lender or any other Person,
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction;
(3) any draft, demand, certificate or any other document presenting under
the Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(4) payment by Lender under the Letter of Credit against presentation of a
demand, draft or certificate or other document that does not comply with the
terms of such Letter of Credit;
(5) any other circumstance or happening whatsoever that is similar to any
of the foregoing; or
(6) the fact that a Default or Event of Default shall have occurred and be
continuing.
(g) Additional Payments. If by reason of (a) any change after the date of
-------------------
this Agreement in applicable law, regulation, rule, decree or regulatory
requirement or any change in the interpretation or application by any judicial
or regulatory authority of any law, regulation, rule, decree or regulatory
requirement or (b) compliance by Lender with any direction, request or
requirement (whether or not having the force of law) of any governmental or
monetary authority:
(i) Lender shall be subject to any tax, levy, charge or withholding of
any nature or to any variation thereof or to any penalty with respect to
the maintenance or
<PAGE>
fulfillment of its obligations under this Section 2.13, whether directly or
by such being imposed on or suffered by Lender;
(ii) any reserve, deposit or similar requirement is or shall be
applicable, imposed or modified in respect of the Letter of Credit issued
by the Lender; or
(iii) there shall be imposed on Lender any other condition
regarding this Section 2.13, the Letter of Credit or any participation
therein;
and the result of the foregoing is to directly or indirectly increase the cost
to Lender of issuing, making or maintaining the Letter of Credit or of
purchasing or maintaining any participation therein, or to reduce the amount
then and in any such case Lender shall, as promptly as practical after the
additional cost is incurred or the amount received is reduced, notify the
Borrower and Borrower shall pay on demand such amounts as shall be necessary to
compensate Lender for such additional cost or reduced receipt, together with
interest, if any, on such amount from five (5) Business Days after the date
demanded until payment in full thereof at a rate per annum equal at all times to
--- -----
the rate applicable to Loans then in effect; provided, however, that the failure
-------- -------
of Lender to timely give such notice shall not affect the obligation of Borrower
to pay such amounts. A certificate in reasonable detail as to the amount of
such increased cost or reduced receipt, submitted to the Borrower by Lender
shall, absent manifest error, be final, conclusive and binding for all purposes.
Notwithstanding the foregoing, amounts of the foregoing nature assessed with
respect to the IDB Letter of Credit shall be governed solely by the
Reimbursement Agreement.
(h) Indemnification; Nature of Lender's Duties. In addition to amounts
------------------------------------------
payable as elsewhere provided in this Section 2.13, without duplication,
Borrower hereby agrees to protect, indemnify, pay and save harmless from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees and allocated costs
of internal counsel) which Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of the Letter of Credit or (ii) the
failure of Lender to honor a drawing under the Letter of Credit as a result of
any act or omission, whether rightful or wrongful, of any present or future de
jure or de facto government or Governmental Authority (all such acts or
-- -----
omissions herein called "Government Acts").
As between the Borrower and Lender, Borrower assumes all risks of the acts
and omissions of, or misuse of the Letter of Credit by the respective
beneficiary of such Letter of Credit. In furtherance and not in limitation of
the foregoing, in the absence of Lender's gross negligence or intentional
misconduct, Lender shall not be responsible: (i) for the form, validity,
sufficiency, accuracy, genuineness or legal effects of any document submitted by
any party in connection with the issuance of such Letter of Credit, even if it
should in fact prove to be in any of all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign or
proceeds thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (iii) for failure of the beneficiary of such Letter
of Credit to comply fully with conditions required in order to draw upon such
Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph,
<PAGE>
telex or otherwise, whether or not they are in cipher; (v) for errors in
interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under such Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of such Letter of Credit of the proceeds of
any drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of Lender, including, without limitation, any
Government Acts. None of the above shall affect, impair, or prevent the vesting
of any of Lender's rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by Lender in
connection with the Letter of Credit issued by it or the related certificates,
if taken or omitted in good faith and in the absence of Lender's gross
negligence or intentional misconduct, shall not put Lender under any resulting
liability to the Borrower.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to Lender that:
SECTION 3.1. Organization; Powers. The Borrower (a) is a Delaware
--------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, (b) has all requisite power and
authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (c) is qualified to do business in
every jurisdiction where such qualification is required, except where the
failure so to qualify would not result in a Material Adverse Effect, and (d) has
the power and authority to execute, deliver and perform its obligations under
each of the Loan Documents and each other agreement or instrument contemplated
thereby to which it is or will be a party and to borrow hereunder.
SECTION 3.2. Authorization. The execution, delivery and performance by
-------------
the Borrower of each of the Loan Documents and the borrowings hereunder
(collectively, the "Transactions" (a) have been duly authorized by all requisite
------------
corporate and, if required, stockholder action and (b) will not (i) violate (A)
any provision of law, statute, rule or regulation, or of the certificate or
articles of incorporation or other constitutive documents or by-laws of the
Borrower or any Subsidiary, (B) any order of any Governmental Authority or (C)
any provision of any indenture, agreement or other instrument to which the
Borrower or any Subsidiary is a party or by which any of them or any of their
property is or may be bound, (ii) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or (iii) result in the creation or
imposition of any Lien upon any property or assets of the Borrower or any
subsidiary.
SECTION 3.3. Enforceability. This Agreement has been duly executed and
--------------
delivered by the Borrower and constitutes, and each other Loan Document when
executed and delivered by the Borrower will constitute, a legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
<PAGE>
SECTION 3.4. Governmental Approvals. No action, consent or approval of,
----------------------
registration or filing with or any other action by any Governmental Authority is
required in connection with the Transactions, except such as have been made or
obtained and are in full force and effect.
SECTION 3.5. Financial Statements. The Borrower has heretofore
--------------------
furnished to Lender its consolidated and consolidating balance sheets and
statements of income and changes in financial condition (a) as of and for the
fiscal year ended September 30, 1997, audited by and accompanied by the report
of independent public accountants, and (b) as of and for the fiscal quarter and
the portion of the fiscal year ended, June 30, 1998, certified by its chief
financial officer. Such financial statements present fairly the financial
condition and results of operations of the Borrower and its consolidated
subsidiaries as of such dates and for such periods. Such balance sheets and the
notes thereto disclose all material liabilities, direct or contingent, of the
Borrower and its consolidated subsidiaries as of the dates thereof required to
be disclosed in accordance with GAAP. Such financial statements were prepared
in accordance with GAAP applied on a consistent basis.
SECTION 3.6. No Material Adverse Change. There has been no material
--------------------------
adverse change in the business, assets, operations, prospects or condition,
financial or otherwise, of the Borrower and the Subsidiaries, taken as a whole,
since June 30, 1998.
SECTION 3.7. Title to Properties; Possession Under Leases.
--------------------------------------------
(a) The Borrower and each of the Subsidiaries has good and marketable
title to, or valid leasehold interests in, all its material properties and
assets, except for minor defects in title that do not interfere with its ability
to conduct its business as currently conducted or to utilize such properties and
assets for their intended purposes. All such material properties and assets are
free and clear of Liens, other than Liens expressly permitted by Section 6.2.
(b) The Borrower and each of the Subsidiaries has complied with all
material obligations under all material leases to which it is a party and all
such leases are in full force and effect. The Borrower and each of the
Subsidiaries enjoys peaceful and undisturbed possession under all such material
leases.
SECTION 3.8. Subsidiaries. Schedule 3.8 sets forth a complete and
------------
accurate list of the Subsidiaries of the Borrower as of the date of this
Agreement, showing the jurisdiction of incorporation or formation of each and
showing the percentage of the Borrower's ownership of the outstanding stock or
membership interest of each Subsidiary. All of the outstanding capital stock of
each such corporate Subsidiary has been validly issued, is fully paid and
nonassessable, and is owned by the Borrower free and clear of all liens.
SECTION 3.9. Litigation. Except as set forth in Schedule 3.9, as of the
----------
date of this Agreement there are not any actions, suits or proceedings at law or
in equity or by or before any Governmental Authority now pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
Subsidiary or any business, property or rights of any such Person (i) which
involve any Loan Document or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and which, if adversely
determined, could,
<PAGE>
individually or in the aggregate, result in a Material Adverse Effect or a
judgment in excess of $500,000.
SECTION 3.10. Agreements. Neither the Borrower nor any of its
----------
Subsidiaries is in default in any manner under any provision of any indenture or
other agreement or instrument evidencing Indebtedness, or any other material
agreement or instrument to which it is a party or by which it or any of its
properties or assets are or may be bound, where such default could result in a
Material Adverse Effect.
SECTION 3.11. Use of Proceeds. The Borrower will use the proceeds of
---------------
the Loans only for the purposes specified in the preamble to this Agreement.
SECTION 3.12. Tax Returns. The Borrower and the Subsidiary has filed or
-----------
caused to be filed all Federal, state and local tax returns required to have
been filed by it and has paid or caused to be paid all taxes shown to be due and
payable on such returns or on any assessments received by it, except taxes that
are being contested in accordance with Section 5.3.
SECTION 3.13. No Material Misstatements. No information, report,
-------------------------
financial statement, exhibit or schedule furnished by or on behalf of the
Borrower to the Lender in connection with the negotiation of any Loan Document
or included therein or delivered pursuant thereto contained, contains or will
contain any material misstatement of fact or omitted, omits or will omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were, are or will be made, not misleading.
SECTION 3.14. Employee Benefit Plans. The Borrower and each of its
----------------------
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the regulations and published interpretations
thereunder. No Reportable Event has occurred during the past five years as to
which the Borrower or any ERISA Affiliate was required to file a report with the
PBGC, and the present value of all benefit liabilities under each Plan (based on
those assumptions used to fund such Plan) did not, as of the last annual
valuation date applicable thereto, exceed by a material amount the value of the
assets of such Plan. Schedule 3.14 sets forth a complete list of the Plans of
the Borrower as of the date of this Agreement.
SECTION 3.15. Operation of Business. The Borrower possesses all
---------------------
licenses, permits, franchises, patents, copyrights, trademarks, and trade names,
or rights thereto, to conduct its effective businesses substantially as now
conducted and as presently proposed to be conducted and the Borrower is not in
material violation of any valid rights of others with respect to any of the
foregoing.
SECTION 3.16. Laws; Environment. The Borrower has duly complied, and
-----------------
its businesses, operations, assets, equipment, property, leaseholds, or other
facilities are in compliance, in all material respects, with the provisions of
all federal, state, and local statutes, laws, codes, and ordinances and all
rules and regulations promulgated thereunder (including without limitation those
relating to the environment, health and safety) . The Borrower has been issued
and will maintain all required federal, state, and local permits, licenses,
certificates, and approvals relating to (1) air emissions; (2) discharges to
surface water or groundwater; (3) noise
<PAGE>
emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage,
transportation, or disposal of toxic or hazardous substances or hazardous wastes
(intended hereby and hereafter to include any and all such materials listed in
any federal, state, or local law, code, or ordinance and all rules and
regulations promulgated thereunder as hazardous); or (6) other environmental,
health or safety matters, other than such as would not have a Material Adverse
Effect or result in a fine, penalty, judgment or other liability in excess of
$500,000. During the past five years, the Borrower has not received notice of,
or has actual knowledge of any violations of any federal, state, or local
environmental, health, or safety laws, codes or ordinances or any rules or
regulations promulgated thereunder with respect to its businesses, operations,
assets, equipment, property, leaseholds, or other facilities which would result
in a Material Adverse Effect or result in a fine, penalty, judgment or other
liability in excess of $500,000. Except in accordance with a valid governmental
permit, license, certificate or approval, during the past five years, there has
been no material emission, spill, release, or discharge into or upon (1) the
air; (2) soils, or any improvements located thereon; (3) surface water or
groundwater; or (4) the sewer, septic system or waste treatment, storage or
disposal system servicing any premises owned or leased by Borrower, of any toxic
or hazardous substances or hazardous wastes at or from any premises owned or
operated by Borrower. During the past five years, there has been no complaint,
order, directive, claim, action, or notice by any governmental authority or any
Person or entity with respect to violations of law or damages by reason of
Borrower's (1) air emissions; (2) spills, releases, or discharges to soils or
improvements located thereon, surface water, groundwater or the sewer, septic
system or waste treatment, storage or disposal systems servicing the premises;
(3) noise emissions; (4) solid or liquid waste disposal; (5) use, generation,
storage, transportation, or disposal of toxic or hazardous substances or
hazardous waste; or (6) other environmental, health or safety matters affecting
the Borrower or its business, operations, assets, equipment, property,
leaseholds, or other facilities, other than such as would not have a Material
Adverse Effect or result in a fine, penalty, judgment or other liability in
excess of $500,000. Borrower does not have any material indebtedness,
obligation, or liability, absolute or contingent, matured or not matured, with
respect to the storage, treatment, cleanup, or disposal of any solid wastes,
hazardous wastes, or other toxic or hazardous substances including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law, or statute regarding such storage, treatment, cleanup,
or disposal, other than obligations in the ordinary course of Borrower's
business.
SECTION 3.17. Investment Company Act. The Borrower is not currently,
----------------------
or upon the making of any Loan hereunder will become, an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 3.18. Public Utility Holding Company Act. The Borrower is not
----------------------------------
a "holding company" or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
SECTION 3.19. Foreign Person. The Borrower is not a "foreign person"
--------------
within the meaning of Section 1445(f)(3) of the Code.
<PAGE>
ARTICLE IV. CONDITIONS OF LENDING
The obligations of Lender to make the Loan hereunder are subject to the
satisfaction of the following conditions:
SECTION 4.1. All Borrowings. On the date of each Borrowing:
--------------
(a) The Lender shall have received a notice of such borrowing as required
by Section 2.6.
(b) The representations and warranties set forth in Article III hereof
shall be true and correct in all material respects on and as of the date of such
Borrowing with the same effect as though made on and as of such date, except to
the extent such representations and warranties expressly relate to an earlier
date.
(c) The Borrower shall be in compliance in all material respects with all
the terms and provisions set forth herein and in each other Loan Document on its
part to be observed or performed, and at the time of and immediately after such
Borrowing no Event of Default or Default shall have occurred and be continuing.
Without limiting the foregoing, as of the date of each Borrowing, Borrower must
have furnished to Lender all of the financial information required by Section
5.4.
Each Borrowing shall be deemed to constitute a representation and warranty
by the Borrower on the date of such borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.1.
SECTION 4.2. Closing Date. On the Closing Date:
------------
(a) Lender shall have received a duly executed Note complying with the
provisions of Section 2.2, and all other Loan Documents required herein.
(b) Lender shall have received a favorable written opinion from counsel for
the Borrower, dated the Closing Date and addressed to the Lender.
(c) All legal matters incident to this Agreement and the borrowings
hereunder shall be satisfactory to the Lender and its counsel.
(d) The Lender shall have received (i) a copy of the certificate of
incorporation, including all amendments thereto, of the Borrower, certified as
of a recent date by the Secretary of State of the state of its organization, and
a certificate as to the good standing of the Borrower as of a recent date, from
such Secretary of State; (ii) a certificate of the Secretary or Assistant
Secretary of the Borrower dated the Closing Date and certifying (A) that
attached thereto is a true and complete copy of the by-laws of the Borrower as
in effect on the Closing Date and at all times since a date prior to the date of
the resolutions described in clause (B) below, (B) that attached thereto is a
true and complete copy of resolutions duly adopted by the Board of Directors of
the Borrower authorizing the execution, delivery and performance of the Loan
<PAGE>
Documents and the borrowings hereunder, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect, (C) that the
certificate of incorporation of the Borrower have not been amended since the
date of the last amendment thereto shown on the certificate furnished pursuant
to clause (i) above, and (D) as to the incumbency and specimen signature of each
officer executing any Loan Document or any other document delivered in
connection herewith on behalf of the Borrower; (iii) a certificate of another
officer as to the incumbency and specimen signature of the Secretary or
Assistant Secretary executing the certificate pursuant to (ii) above; and (iv)
such other documents as Lender or counsel for the Lender, may reasonably
request.
(e) The Lender shall have received a certificate, dated the Closing Date
and signed by a Financial Officer of the Borrower, confirming compliance with
the conditions precedent set forth in paragraphs (b) and (c) of Section 4.1.
SECTION 4.3. Conditions Precedent to Letter of Credit. On the date of
----------------------------------------
issuance of the IDB Letter of Credit, all conditions precedent to the issuance
of the IDB Letter of Credit set forth in the Reimbursement Agreement shall have
been satisfied.
ARTICLE V. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with Lender that so long as this
Agreement shall remain in effect or the principal of or interest on any Loan,
any Fees or any other expenses or amounts payable under any Loan Document shall
be unpaid, unless the Lender shall otherwise consent in writing, the Borrower
will, and will cause each of the Subsidiaries to:
SECTION 5.1. Existence; Businesses and Properties.
------------------------------------
(a) Do or cause to be done all things necessary to preserve, renew and keep
in full force and effect its legal existence other than pursuant to Internal
Reorganizations.
(b) Do or cause to be done all things necessary to obtain, preserve, renew,
extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; comply in all material respects with
all applicable laws, rules, regulations and orders of any Governmental
Authority, whether now in effect or hereafter enacted; and at all times maintain
and preserve all property and equipment material to the conduct of such business
and keep such property and equipment in good repair, working order and condition
and from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times.
SECTION 5.2. Insurance. Keep its insurable properties adequately
---------
insured at all times by financially sound and reputable insurers; maintain such
other insurance, to such extent and against such risks, including fire and other
risks insured against by extended coverage, as is customary with companies in
the same or similar businesses, including public liability insurance against
claims for Personal injury or death or property damage occurring upon, in, about
or in
<PAGE>
connection with the use of any properties owned, occupied or controlled by
it; and, maintain such other insurance as may be required by law.
SECTION 5.3. Obligations and Taxes. Pay its Indebtedness and other
---------------------
obligations promptly and in accordance with their terms and pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or in respect of its property, before the same
shall become delinquent or in default, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might give rise to a Lien
upon such properties or any part thereof; Provided, however, that such payment
--------
and discharge shall not be required with respect to any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the Borrower shall set
aside on its books adequate reserves with respect thereto.
SECTION 5.4. Financial Statements, Reports, etc. The Borrower shall
-----------------------------------
furnish to Lender:
(a) within 90 days after the end of each fiscal year, its consolidated
balance sheets (together with an unaudited description of consolidating entries)
and related statements of income and changes in financial position, showing the
financial condition of the Borrower and its consolidated subsidiaries as of the
close of such fiscal year and the results of its operations and the operations
of such subsidiaries during such year, all audited by reputable independent
public accountants acceptable to the Lender and accompanied by an opinion of
such accountants (which shall not be qualified in any material respect) to the
effect that such consolidated financial statements fairly present the financial
condition and results of operations of the Borrower on a consolidated basis in
accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal quarters
of each fiscal year, its consolidated balance sheets (together with an unaudited
description of consolidating entries) and related statements of income and
changes in financial position, showing the financial condition of the Borrower
and its consolidated subsidiaries as of the close of such fiscal quarter and the
results of its operations and the operations of such subsidiaries during such
fiscal quarter and the then elapsed portion of the fiscal year, all certified by
one of its Financial Officers as fairly presenting the financial condition and
results of operations of the Borrower on a consolidated basis in accordance with
GAAP consistently applied, subject to normal year-end audit adjustments and the
absence of notes;
(c) concurrently with any delivery of financial statements under (a) or (b)
above, a certificate of the accounting firm or Financial Officer opining on or
certifying such statements (which certificate, when furnished by an accounting
firm, may be limited to accounting matters and disclaim responsibility for legal
interpretations) (i) certifying that no Event of Default or Default has occurred
or, if such an Event of Default or Default has occurred, specifying the nature
and extent thereof and any corrective action taken or proposed to be taken with
respect thereto and (ii) setting forth computations in reasonable detail
satisfactory to the Lender demonstrating compliance with the covenants contained
in Sections 6.9 through 6.12, inclusive;
(d) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by it
with the Securities and Exchange
<PAGE>
Commission, or any governmental authority succeeding to any of or all the
functions of said Commission, or with any national securities exchange, or
distributed to its shareholders, as the case may be;
(e) promptly upon receipt thereof, copies of any reports submitted to the
Borrower by independent certified public accountants in connection with
examination of the financial statements of the Borrower made by such
accountants;
(f) as soon as possible and in any event within ten (10) days after the
occurrence of each Default or Event of Default, a written notice setting forth
the details of such Default or Event of Default and the action which is proposed
to be taken by the Borrower with respect thereto;
(g) promptly after the furnishing thereof, copies of any statement, report,
document, notice, certificate, and correspondence furnished to any other party
pursuant to the terms of any indenture, loan, credit, or similar agreement
relating to Indebtedness in excess of $500,000 and not otherwise required to be
furnished to the Lender pursuant to any other clause of this Section 5.4; and
(h) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
subsidiary, or compliance with the terms of any Loan Document, as the Lender may
reasonably request.
SECTION 5.5. Litigation and Other Notices. The Borrower shall furnish
----------------------------
to the Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with respect
thereto;
(b) the filing or commencement of, or any threat or notice of intention of
any Person to file or commence, any action, suit or proceeding, whether at law
or in equity or by or before any Governmental Authority, against the Borrower or
any Affiliate thereof which, if adversely determined, could result in (i) a
Material Adverse Effect or (ii) a judgement in excess of $500,000; and
(c) any development that has resulted in, or could reasonably be
anticipated to result in, a Material Adverse Effect.
SECTION 5.6. ERISA. (a) Comply in all material respects with the
-----
applicable provisions of ERISA and (b) furnish to the Lender (i) as soon as
possible, and in any event within 30 days after any Responsible officer of the
Borrower either knows or has reason to know that any Reportable Event has
occurred that alone or together with any other Reportable Event could reasonably
be expected to result in liability of the Borrower to the PBGC in an aggregate
amount exceeding $250,000, a statement of a Financial Officer setting forth
details as to such Reportable Event and the action proposed to be taken with
respect thereto, together with a copy of the notice, if any, of such Reportable
Event given to the PBGC, (ii) promptly after receipt thereof, a
<PAGE>
copy of any notice the Borrower may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or Plans (other than a Plan
maintained by an ERISA Affiliate which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 412 of the Code) or to appoint a
trustee to administer any Plan or Plans, and (iii) within 10 days after a filing
with the PBGC pursuant to Section 412(n) of the Code of a notice of failure to
make a required installment or other payment with respect to a Plan, a statement
of a Financial officer setting forth details as to such failure and the action
proposed to be taken with respect thereto, together with a copy of such notice
given to the PBGC.
SECTION 5.7. Maintaining Records; Inspections. The Borrower shall
--------------------------------
maintain all financial records in accordance with GAAP and permit any
representatives designated by Lender to inspect the financial records of the
Borrower or any Subsidiary at reasonable times and as often as reasonably
requested and to make extracts from and copies of such financial records, and
permit any representatives designated by Lender to discuss the affairs, finances
and condition of the Borrower or any Subsidiary with the officers thereof and
independent accountants therefor.
SECTION 5.8. Environment. Be and remain in compliance in all material
-----------
respects with the provisions of all federal, state, and local environmental,
health, and safety laws, codes and ordinances, and all rules and regulations
issued thereunder; notify the Lender promptly of any notice of a hazardous
discharge or environmental complaint received from any governmental agency or
any other party which could have a Material Adverse Effect or result in a
penalty, fine, judgment or other liability in excess of $500,000; notify the
Lender promptly of any hazardous discharge from or affecting its premises which
could have a Material Adverse Effect or result in a penalty, fine, judgment or
other liability in excess of $500,000; promptly contain and remove the same, to
the extent required by applicable laws; and promptly pay any fine or penalty
assessed in connection therewith.
SECTION 5.9. Use of Proceeds. Use the proceeds of the Loans only for
---------------
the purposes set forth in the preamble to this Agreement.
ARTICLE VI. NEGATIVE COVENANTS
The Borrower covenants and agrees with Lender that, so long as this
Agreement shall remain in effect or the principal of or interest on any Loan,
any Fees or any other expenses or amounts payable under any Loan Document shall
be unpaid, unless the Lender shall otherwise consent in writing, the Borrower
will not, and will not cause or permit any of the Subsidiaries to:
SECTION 6.1. Acquisitions. Enter into, or permit, any Acquisition
------------
valued in excess of $5,000,000, without the prior written consent of Lender.
Notwithstanding the foregoing, Borrower shall have the right to enter into
Acquisitions in excess of $5,000,000, without the consent of Lender, provided
that any portion of the purchase price for such Acquisition in excess of
$5,000,000 is payable entirely in stock of the Borrower.
SECTION 6.2. Liens. Create, incur, assume or permit to exist any Lien
-----
on any property or assets (including stock or other securities of any Person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or rights in respect of any thereof, except:
<PAGE>
(a) Liens for taxes not yet due or which are being contested in compliance
with Section 5.3;
(b) pledges and deposits made in the ordinary course of business and/or in
compliance with workmen's compensation, unemployment insurance and other social
security laws or regulations, as applicable;
(c) zoning restrictions, easements, rights-of-way, restrictions on use of
real property and other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount and do not
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of the Borrower or any of its
Subsidiaries;
(d) Liens which arise in the ordinary course of business for sums not due
or sums which the Company is contesting in good faith and by appropriate
proceedings and with respect to which the Company has made adequate reserves in
accordance with GAAP, but which do not involve any deposits or advances or
borrowed money or the deferred purchase price of property or services;
(e) purchase money security interests in an aggregate amount not to exceed
$250,000 per annum;
(f) statutory Liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons for labor,
materials, supplies or rentals incurred in the ordinary course of the Company's
business; provided that the underlying obligations relating to such Liens are
paid in the ordinary course of business or are being contested in good faith and
by appropriate proceedings and with respect to which the Company has made
adequate reserves in accordance with GAAP;
(g) attachment, judgment and other similar non-tax Liens with respect to
which no Event of Default would exist pursuant to Article VIII; and
SECTION 6.3. [INTENTIONALLY DELETED].
SECTION 6.4. Investments, Loans and Advances. Make any loan or
-------------------------------
advance to any Person, or purchase or otherwise acquire, any capital stock,
assets (other than assets acquired in the ordinary course of business),
obligation, or other securities of, make any capital contribution to, or
otherwise invest in or acquire any interest in any Person including, without
limitation, any hostile takeover, hostile tender offer or similar hostile
transaction (collectively, "Investments"), except: (1) a direct obligation of
the United States or any agency thereof with maturities of one year or less from
the date of acquisition; (2) commercial paper of a domestic issuer rated at
least "A-1," by Standard & Poor's Corporation or "P-1" by Moody's Investors
Service, Inc.; (3) certificates of deposit with maturities of one year or less
from the date of acquisition issued by any commercial Lender or federal savings
Lender having capital and surplus in excess of
<PAGE>
$250,000,000; (4) stocks, obligations, or securities received in settlement of
debts (created in the ordinary course of business) owing to the Borrower; (5)
Acquisitions permitted pursuant to Section 6.1; (6) loans or expense advances to
employees in the ordinary course of business in an amount not to exceed $250,000
in the aggregate; (7) Investments in Subsidiaries of the Borrower; or (8)
Investments not exceeding an aggregate amount of $5,000,000.
SECTION 6.5. Mergers, Consolidations and Sales of Assets. Merge into or
--------------------------------------------
consolidate with any other Person, or permit any other Person to merge into or
consolidate with it,
<PAGE>
or sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or any substantial part of its assets (whether now
owned or hereafter acquired) except that (a) the Borrower may purchase and sell
inventory in the ordinary course of business, (b) the Borrower may make sales,
transfers and other dispositions in the ordinary course of business and dispose
of equipment deemed to be surplus or obsolete, (c) the Borrower and its
Subsidiaries may engage in Internal Reorganizations, and (d) the Borrower may
enter into one or more Asset Sales provided that the Net Cash Proceeds are paid
over to Lender for application against, and to reduce the outstanding principal
of, the Loans (unless Lender waives the foregoing requirement in writing, which
waiver, if granted by Lender, shall not require an amendment to this Agreement).
SECTION 6.6. [INTENTIONALLY DELETED]
SECTION 6.7. Transactions with Affiliates. Sell or transfer any
----------------------------
property or assets to, or purchase or acquire any property or assets of, or
otherwise engage in any other transactions with, any of its Affiliates, except
that the Borrower or any Subsidiary may engage in any of the foregoing
transactions in the ordinary course of business at prices and on terms and
conditions not less favorable to the Borrower or such Subsidiary than could be
obtained on an arm's-length basis from unrelated third parties; and, further,
Borrower may enter into transactions with wholly-owned Subsidiaries without
regard to the price, terms and conditions thereof.
SECTION 6.8. Business of Borrower. Engage at any time in any business
--------------------
or business activity other than the manufacture and sale of consumer products
and business activities reasonably incidental thereto.
SECTION 6.9. Current Ratio. Borrower shall not permit the ratio of
-------------
Consolidated Current Assets to Consolidated Current Liabilities, at the end of
any quarterly period, to be less than 1.50 to 1.00.
SECTION 6.10. Funded Debt to EBITDA Ratio. Borrower shall not permit
---------------------------
the ratio of Funded Debt to Consolidated EBITDA, at the end of any quarterly
period, to be greater than 3.50 to 1.00, which amount shall be calculated on a
rolling four Calendar Quarter basis.
SECTION 6.11. EBITDA to Interest Expense Ratio. Borrower shall not
--------------------------------
permit the ratio of Consolidated EBITDA to Consolidated Interest Expense, at the
end of any quarterly period, to be less than 3.00 to 1.00.
SECTION 6.12. Total Indebtedness to Tangible Net Worth. Borrower shall
----------------------------------------
not permit the ratio of Total Indebtedness to Consolidated Tangible Net Worth,
at the end of any quarterly period, to be more than 2.50 to 1.00.
<PAGE>
ARTICLE VII. EVENTS OF DEFAULT
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in or in connection
with any Loan Document or the borrowings hereunder, or any representation,
warranty, statement or information contained in any report, certificate,
financial statement or other instrument furnished in connection with or pursuant
to any Loan Document, shall prove to have been false or misleading in any
material respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any Loan when
and as the same shall become due and payable, whether at the due date thereof or
at a date fixed for prepayment thereof or by acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on any Loan or any
Fee or any other amount (other than an amount referred to in (b) above) due
under any Loan Document, when and as the same shall become due and payable, and
such default shall continue unremedied for a period of three (3) Business Days;
(d) default shall be made in the due observance or performance by the
Borrower of any covenant, condition or agreement contained in Sections 5.1(a),
5.9, 6.1, 6.5, and 6.8 through 6.12, inclusive;
(e) default shall be made in the due observance or performance by the
Borrower or any Subsidiary of any non-monetary covenant, condition or agreement
contained in any Loan Document and such default shall continue unremedied for a
period of thirty (30) days after written notice thereof from the Lender to the
Borrower;
(f) the Borrower or any Subsidiary shall (i) fail to pay any principal or
interest, regardless of amount, due in respect of any Indebtedness in a
principal amount in excess of $500,000, when and as the same shall become due
and payable, or (ii) fail to observe or perform, after any applicable notice and
cure period, any other term, covenant, condition or agreement contained in any
agreement or instrument evidencing or governing any such Indebtedness, the
breach of which could give rise to acceleration of such Indebtedness;
(g) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (i) relief in
respect of the Borrower or any Significant Subsidiary, or of a substantial part
of the property or assets of the Borrower or a Significant Subsidiary, under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Significant Subsidiary
or for a substantial part of the property or assets of the Borrower or a
Significant Subsidiary or (iii) the winding-up or liquidation of the Borrower or
any Significant Subsidiary; and such proceeding or petition shall continue
undismissed for 90 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(h) the Borrower or any Significant Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now
<PAGE>
constituted or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (ii) consent to the institution of, or
fail to contest in a timely and appropriate manner, any proceeding or the filing
of any petition described in (g) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any Significant Subsidiary or for a
substantial part of the property or assets of the Borrower or any Significant
Subsidiary, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for the
purpose of effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate amount
in excess of $500,000.00 shall be rendered against the Borrower, any Subsidiary
or any combination thereof and the same shall remain undischarged for a period
of 30 consecutive days during which execution shall not be effectively stayed,
or any action shall be legally taken by a judgment creditor to levy, upon assets
or properties of the Borrower or any Subsidiary to enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to make a
required payment (within the meaning of Section 412(n)(1)(A) of the Code), shall
have occurred with respect to any Plan or Plans that reasonably could be
expected to result in liability of the Borrower to the PBGC or to a Plan in an
aggregate amount exceeding $250,000.00 and, within 30 days after the reporting
of any such Reportable Event to the Lender or after the receipt by the Lender of
the statement required pursuant to Section 5.6, the Lender shall have notified
the Borrower in writing that (i) the Lender has made a determination that, on
the basis of such Reportable Event or Reportable Events or the failure to make a
required payment, there are reasonable grounds (A) for the termination of such
Plan or Plans by the PBGC, (B) for the appointment by the appropriate United
States District Court of a trustee to administer such Plan or Plans or (C) for
the imposition of a lien in favor of a Plan and (ii) as a result thereof an
Event of Default exists hereunder; or a trustee shall be appointed by a United
States District court to administer any such Plan or Plans; or the PBGC shall
institute proceedings to terminate any Plan or Plans;
(k) a Change in Control shall occur;
then, and in every such event and at any time thereafter during the continuance
of such event, the Lender may by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitment and (ii) declare the Loans then outstanding to be forthwith due
and payable, whereupon the principal of the Loan, together with accrued interest
thereon and any unpaid accrued Fees and all other liabilities of the Borrower
accrued hereunder and under any other Loan Document, shall become forthwith due
and payable, without presentment, demand, protest or any other notice
<PAGE>
of any kind, all of which are hereby expressly waived by the Borrower, anything
contained herein or in any other Loan Document to the contrary notwithstanding;
and in any event with respect to the Borrower described in paragraph (g) or (h)
above, the Commitment shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of the Borrower accrued hereunder and
under any other Loan Document, shall automatically become due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. Notices. Notices and other communications provided for
-------
herein shall be in writing and shall be delivered by hand, overnight courier
service, or via certified or registered mail as follows:
(a) if to the Borrower, to it at: 4600 Sleepytime Drive, Boulder,
Colorado 80301,
Attention: Chief Financial Officer, (303) 581-1349;
(b) if to the Lender, to it at 600 South Cherry Street, Suite 1000,
Denver, Colorado 80246, Attention: Scot T. Wetzel, Vice
President, (303) 320-5026.
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt if delivered by hand or overnight courier service
or on the date five (5) Business Days after dispatch by certified or registered
mail if mailed, in each case delivered, sent or mailed (properly addressed) to
such party as provided in this Section 8.1 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 8.1.
Notwithstanding the foregoing notice requirements, notices of Borrowing,
interest rate elections, prepayment and similar administrative matters may be
sent by the Borrower to the Lender via facsimile.
SECTION 8.2. Survival of Agreement. All covenants, agreements,
---------------------
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lender and shall survive the making by the Lender
of the Loan, and the execution and delivery to the Lender of the Note evidencing
such Loan, regardless of any investigation made by the Lender or on their
behalf, and shall continue in full force and effect as long as the principal of
or any accrued interest on any Loan or any Fee or any other amount payable under
this Agreement or any other Loan Document is outstanding and unpaid and so long
as the Commitments have not been terminated.
SECTION 8.3. Binding Effect. This Agreement shall become effective when
--------------
it shall have been executed by the Borrower and the Lender, and thereafter shall
be binding upon and inure to the benefit of the Borrower and the Lender and
their respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without the
prior consent of the Lender.
<PAGE>
SECTION 8.4. Successors and Assigns.
----------------------
(a) Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party; and all covenants, promises and agreements by or on behalf of the
Borrower, the Lender that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and assigns.
(b) Lender may assign to one or more assignees all or a portion of its
interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loan at the time owing to it and the Note held
by it).
SECTION 8.5. Expenses; Indemnity.
-------------------
(a) The Borrower agrees to pay all reasonable out-of-pocket expenses
incurred by the Lender in connection with the preparation of this Agreement and
the other Loan Documents or in connection with any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
hereby contemplated shall be consummated) or incurred by the Lender in
connection with the enforcement or protection of its rights in connection with
this Agreement and the other Loan Documents or in connection with the Loan made
or the Note issued hereunder, including the fees and disbursements of Brownstein
Hyatt Farber & Strickland, P.C., counsel for the Lender, and, in connection with
any such amendment, modification or waiver or any such enforcement or
protection, the fees and disbursements of any other counsel for the Lender. The
Borrower further agrees that it shall indemnify the Lender from and hold them
harmless against any documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of this Agreement
or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Lender and its directors,
officers, employees and agents (each such Person being called an "Indemnitee")
against, and to hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including reasonable counsel fees and
expenses, incurred by or asserted against any Indemnitee arising out of, in any
way connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their respective obligations
thereunder or the consummation of the transactions contemplated thereby, (ii)
the use of the proceeds of the Loan or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
Indemnitee is a party thereto; provided that such indemnity shall not, as to any
--------
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 8.5 shall remain operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loan, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Lender. All amounts due under this Section 8.5 shall be payable within
five (5) Business Days following written demand therefor.
<PAGE>
SECTION 8.6. Right of Setoff. If an Event of Default shall have
---------------
occurred and be continuing Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by Lender to or for the
credit or the account of the Borrower against any of and all the obligations of
the Borrower now or hereafter existing under this Agreement and other Loan
Documents held by Lender, irrespective of whether or not Lender shall have made
any demand under this Agreement or such other Loan Document and although such
obligations may be unmatured. The rights of Lender under this Section are in
addition to other rights and remedies (including other rights of setoff) which
Lender may have.
SECTION 8.7. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
--------------
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF COLORADO.
SECTION 8.8. Waivers; Amendment. (a) No failure or delay of the Lender
------------------
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of Lender hereunder and under the other
Loan Documents are cumulative and exclusive of any rights or remedies which they
would otherwise have. No waiver of any provision of this Agreement or any other
Loan Document or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances. Each holder of any of the Notes shall be bound
by any amendment, modification, waiver or consent authorized as provided herein,
whether or not such Note shall have been marked to indicate such amendment,
modification, waiver or consent.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Lender.
SECTION 8.9. Interest Rate Limitation. Notwithstanding anything herein
------------------------
or in the Notes to the contrary, if at any time the applicable interest rate,
together with all fees and charges which are treated as interest under
applicable law (collectively the "Charges"), as provided for herein or in any
other document executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by Lender, shall exceed the maximum lawful
rate (the "Maximum Rate") which may be contracted for, charged, taken, received
or reserved by Lender in accordance with applicable law, the rate of interest
payable under the Note, together with all Charges payable to Lender, shall be
limited to the Maximum Rate.
SECTION 8.10. Entire Agreement. This Agreement and the other Loan
----------------
Documents constitute the entire contract between the parties relative to the
subject matter hereof. Any previous agreement among the parties with respect to
the subject matter hereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan
<PAGE>
Documents, expressed or implied, is intended to confer upon any party other than
the parties hereto any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.
SECTION 8.11. Waiver of Jury Trial. Each party hereto hereby waives, to
--------------------
the fullest extent permitted by applicable law, any right it may have to a trial
by jury in respect of any litigation directly or indirectly arising out of,
under or in connection with this Agreement or any of the other Loan Documents.
Each party hereto (a) certifies that no representative, agent or attorney of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it and the other parties hereto have been induced to enter
into this Agreement and the other Loan Documents, as applicable, by, among other
things, the mutual waivers and certifications in this Section 8.11.
SECTION 8.12. Severability. In the event any one or more of the
------------
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 8.13. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become
effective as provided in Section 8.3.
SECTION 8.14. Jurisdiction; Consent to Service of Process.
-------------------------------------------
(a) The Borrower hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any Colorado State court
or Federal court of the United States of America sitting in Denver, Colorado,
and any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such Colorado State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that Lender may otherwise have to bring any action or proceeding relating
to this Agreement or the other Loan Documents against the Borrower or its
properties in the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this agreement or the other Loan Documents in any
Colorado State or Federal court. Each of the parties hereto
<PAGE>
hereby irrevocably waives, to the fullest extent permitted by law, the defense
or an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 8.1. Nothing in this Agreement
will affect the right of any party to this Agreement to serve process in any
other manner permitted by law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
CELESTIAL SEASONINGS, INC.,
a Delaware corporation
By: _______________________________________________
Title: _____________________________________________
KEYBANK NATIONAL ASSOCIATION
By: _______________________________________________
Title: ____________________________________________
<PAGE>
SCHEDULE 3.8
SUBSIDIARIES OF BORROWER
Botalia Pharmaceutical, Inc.
Celestial Beverages, Inc.
Mountain Chai Company
Sleep Right, Inc.
Celestial Seasonings International Ltd.
<PAGE>
SCHEDULE 3.9
LITIGATION
Schwartz et al v. Celestial Seasonings, Inc. et al., Civil Action No. 95-K-1045
(Federal District Court, District of Colorado)
Julie Matter v. Celestial Seasonings, Inc., Case No. 98-CV-1277 (Boulder
Colorado District Court).
<PAGE>
SCHEDULE 3.14
ERISA PLANS
Employee Stock Ownership Plan of Celestial Seasonings, Inc.
Thrift Plan of Celestial Seasonings, Inc.
Celestial Seasonings, Inc. Health Benefit Plan
Celestial Seasonings, Inc. Cafeteria Compensation Plan
Celestial Seasonings, Inc. Tuition Reimbursement Plan
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Celestial Seasonings, Inc.:
We have audited the consolidated financial statements of Celestial Seasonings,
Inc. and subsidiaries (the "Company") as of September 30, 1998 and 1997, and for
each of the three years in the period ended September 30, 1998, and have issued
our report thereon dated November 10, 1998; such consolidated financial
statements and report are included in your 1998 Annual Report to Stockholders
and are included herein. Our audits also included the consolidated financial
statement schedule of the Company, listed in Item 14. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
Denver, Colorado
November 10, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
69120, 33-67356, 33-67538 and 33-89340 of Celestial Seasonings, Inc. on Forms S-
8 of our reports dated November 10, 1998 appearing in this Annual Report on Form
10-K of Celestial Seasonings, Inc. for the year ended September 30, 1998.
Deloitte & Touche LLP
Denver, Colorado
December 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CELESTIAL
SEASONINGS, INC.'S FORM 10-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 2,533
<SECURITIES> 0
<RECEIVABLES> 15,690
<ALLOWANCES> (534)
<INVENTORY> 23,185
<CURRENT-ASSETS> 43,708
<PP&E> 31,062
<DEPRECIATION> (11,822)
<TOTAL-ASSETS> 82,647
<CURRENT-LIABILITIES> 20,577
<BONDS> 10,750
0
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<COMMON> 83
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<TOTAL-LIABILITY-AND-EQUITY> 82,647
<SALES> 102,197
<TOTAL-REVENUES> 102,197
<CGS> 36,638
<TOTAL-COSTS> 36,638
<OTHER-EXPENSES> 54,118
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<INTEREST-EXPENSE> 631
<INCOME-PRETAX> 10,810
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