<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended
October 31, 1998 Commission File No. 000-17174
HAUSER, INC.
-----------------------------------------
(formerly Hauser Chemical Research, Inc.)
Colorado 84-0926801
- ------------------------------------------ --------------------------------
(State or other jurisdiction of (I.R.S. Identification Number)
incorporation or organization)
5555 Airport Boulevard, Boulder, Colorado 80301
- ------------------------------------------- --------------------------------
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (303) 443-4662
---------------------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 par value 10,467,519
- ------------------------------------------ --------------------------------
Class Outstanding at October 31, 1998
<PAGE>
Part 1. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations (Unaudited)- Three and
six months ended October 31, 1998 and October 31, 1997.............1
Consolidated Balance Sheets -
October 31, 1998 and April 30, 1998................................2
Consolidated Statements of Cash Flows - Six months ended October
31, 1998 and October 31, 1997......................................3
Notes to Consolidated Financial Statements............................4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................6-14
Part 2. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................15
Item 2. Changes in Securities.................................................15
Item 3. Defaults Upon Senior Securities.......................................15
Item 4. Submission of Matters to a Vote of Security Holders...................15
Item 5. Other Information.....................................................15
Item 6. Exhibits and Reports on Form 8-K......................................15-16
SIGNATURE PAGE.................................................................17
</TABLE>
<PAGE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
------------------------------------ ------------------------------------
1998 1997 1998 1997
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Natural product processing $ 5,255,016 $ 3,083,406 $ 8,337,968 $ 7,865,704
Technical services 4,344,013 3,015,024 8,312,479 5,778,243
------------ ------------ ------------ ------------
Total revenues 9,599,029 6,098,430 16,650,447 13,643,947
COST OF REVENUES:
Natural product processing 3,516,297 3,094,597 6,001,826 6,694,571
Technical services 3,034,502 2,225,266 5,937,920 4,237,711
------------ ------------ ------------ ------------
Total cost of revenues 6,550,799 5,319,863 11,939,746 10,932,282
GROSS PROFIT 3,048,230 778,567 4,710,701 2,711,665
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development 496,942 800,450 817,898 1,257,762
Sales and marketing 796,997 545,223 1,496,197 1,071,706
General and administrative 1,616,977 1,355,554 3,301,886 2,856,204
------------ ------------ ------------ ------------
Total operating expenses 2,910,916 2,701,227 5,615,981 5,185,672
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 137,314 (1,922,660) (905,280) (2,474,007)
OTHER INCOME (EXPENSE):
Interest income 22,754 89,757 49,808 199,877
Interest expense (133,094) (4,281) (179,478) (6,663)
Other 42,037 173,822 42,037 361,461
------------ ------------ ------------ ------------
Other income (expense) - net (68,303) 259,298 (87,633) 554,675
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 69,011 (1,663,362) (992,913) (1,919,332)
INCOME TAX BENEFIT - 597,367 - 671,600
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 69,011 $ (1,065,995) $ (992,913) $ (1,247,732)
============ ============ ============ ============
INCOME (LOSS) PER SHARE BASIC $ 0.01 $ (0.10) $ (0.09) $ (0.12)
============ ============ ============ ============
INCOME (LOSS) PER SHARE DILUTED $ 0.01 $ (0.10) $ (0.09) $ (0.12)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 10,464,458 10,424,872 10,467,519 10,429,458
============ ============ ============ ============
DILUTED 10,465,320 10,424,872 10,467,519 10,429,458
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
1 of 16
<PAGE>
HAUSER, INC.
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, April 30,
1998 1998
------------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,502,432 $ 2,081,796
Restricted Cash 558,896 139,346
Accounts receivable, less allowance for doubtful accounts:
October 31, 1998, $252,263; April 30, 1998, $430,518 7,705,689 9,090,005
Inventories, current 10,440,734 10,111,688
Prepaid expenses and other 558,979 349,570
Net deferred income tax assets 1,956,229 1,946,339
------------------- -----------------
Total current assets 23,722,959 23,718,744
------------------- -----------------
PROPERTY AND EQUIPMENT
Land and buildings 7,650,010 7,635,216
Lab and processing equipment 33,149,081 31,883,787
Furniture and fixtures 4,911,360 4,671,647
------------------- -----------------
Total property and equipment 45,710,451 44,190,650
Accumulated depreciation and amortization (24,057,454) (21,846,032)
------------------- -----------------
Net property and equipment 21,652,997 22,344,618
------------------- -----------------
OTHER ASSETS:
Goodwill, less accumulated amortization:
October 31, 1998, $1,082,729; April 30, 1998, $936,670 1,815,403 1,961,462
Inventories, non-current 18,398,250 14,787,837
Deposits 5,226,782 4,013,992
Net deferred income tax asset 1,010,154 1,010,154
Other 557,901 456,774
------------------- -----------------
Total other assets 27,008,490 22,230,219
------------------- -----------------
TOTAL $72,384,446 $68,293,581
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,425,053 $ 1,764,294
Current portion of long term debt 6,464,099 1,911,498
Accrued salaries and wages 1,176,766 1,201,201
Deposits 516,070 670,155
Product warranty 108,616 1,500,000
Other accrued current liabilities 488,036 -
------------------- -----------------
Total current liabilities 12,178,640 7,047,148
------------------- -----------------
LONG TERM LIABILITIES 629,262 692,733
------------------- -----------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized;
shares issued: October 31, 1998, 10,467,519; April 30, 1998, 10,464,458 10,468 10,464
Additional paid-in capital 58,880,048 58,864,295
Retained earnings 686,028 1,678,941
------------------- -----------------
Net stockholders' equity 59,576,544 60,553,700
------------------- -----------------
TOTAL $ 72,384,446 $ 68,293,581
=================== =================
</TABLE>
See notes to consolidated financial statements.
2 of 16
<PAGE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended October 31,
---------------------------------------------
1998 1997
-------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (992,913) $ (1,247,732)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,357,481 1,915,081
Provision for bad debt 57,002 14,437
Provision for excess inventories 168,000 165,000
Expenditure for product warranty (1,391,384) -
Gain on sales of investment - (358,479)
Deferred income tax benefit - (591,445)
Change in deposits and other (1,323,807) (1,229,476)
Change in assets and liabilities:
Accounts receivable 1,327,314 (940,107)
Income tax receivable - 1,445,046
Inventories (4,107,459) (873,126)
Prepaid expenses and other (209,409) (54,683)
Accounts payable 1,660,759 (380,256)
Customer deposits (154,085) 1,150,000
Other accrued liabilities 463,601 324,306
-------------------- -------------------
Net cash used in operating activities (2,144,900) (661,434)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,466,111) (984,659)
Proceeds from sale of investments - 458,479
Purchase of investments - (194,922)
Maturity of investments - 196,751
Net change in restricted cash (419,550) -
-------------------- -------------------
Net cash used in investing activities (1,885,661) (524,351)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line of credit 4,500,000 -
Repayments of long-term debt (64,560) (15,658)
Proceeds from issuance of common stock and warrants 15,757 45,068
-------------------- -------------------
Net cash provided by financing activities 4,451,197 29,410
-------------------- -------------------
-------------------- -------------------
Net increase (decrease) in cash and cash equivalents 420,636 (1,156,375)
Cash and cash equivalents, beginning of year 2,081,796 8,379,551
-------------------- -------------------
Cash and cash equivalents, end of period $ 2,502,432 $ 7,223,176
==================== ===================
</TABLE>
See notes to consolidated financial statements.
3 of 16
<PAGE>
HAUSER, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF OCTOBER 31, 1998 AND APRIL
30, 1998 AND FOR THE THREE AND SIX MONTH PERIODS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the Company's financial position as of October 31,
1998, and results of its operations and cash flows for the periods ended October
31, 1998 and 1997. The year-end balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. Certain fiscal 1998 amounts have been
reclassified to conform to the fiscal 1999 presentation.
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 amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of these financial statements.
Actual results could differ from those estimates.
2. INVENTORIES
Raw material, work in process, and finished goods inventories, which include
costs of materials, direct labor and manufacturing overhead, are priced at the
lower of average cost or market. Write-downs for excess and obsolete inventories
are charged to expense in the period when conditions giving rise to the
write-downs are first recognized. The Company purchases raw material inventory
during harvest seasons, generally in the spring and fall. These purchases may
take place well in advance of scheduled production of finished product.
Non-current inventories represent raw materials, work in process, and finished
goods in various stages of completion in excess of shipments expected to occur
in the next fiscal year.
Inventories are classified as follows:
<TABLE>
<CAPTION>
October 31, April 30,
1998 1998
--------------- ----------------
<S> <C> <C>
Raw materials and supplies $ 5,334,703 $ 5,224,750
Work in process 14,495,515 11,763,470
Finished goods 9,805,733 8,515,134
--------------- ----------------
Total before valuation allowance 29,635,951 25,503,354
Less valuation allowance (796,967) (603,829)
--------------- ---------------
Total inventories 28,838,984 24,899,525
Less non-current inventories 18,398,250 14,787,837
--------------- ---------------
Current portion of inventories $ 10,440,734 $ 10,111,688
--------------- ---------------
--------------- ---------------
</TABLE>
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consisted of the following:
4 of 16
<PAGE>
<TABLE>
<CAPTION>
October 31, 1998 April 30, 1998
---------------- ----------------
<S> <C> <C>
Line of Credit $6,000,000 $1,500,000
Capital Leases 1,086,361 1,067,125
Other 7,000 37,106
---------------- ----------------
Total 7,093,361 2,604,231
Less current portion 6,464,099 1,911,498
---------------- ----------------
Long Term debt $ 629,262 $ 692,733
---------------- ----------------
---------------- ----------------
</TABLE>
BANK LINE OF CREDIT - The Company has an $8,850,000 bank line of credit at
the bank's prime interest rate plus 0.75% which matures on June 30, 2000.
4. PRODUCT WARRANTY
During the fourth quarter of fiscal 1998, the Company took a charge to
earnings and reserved $1,500,000 in anticipation of product returns, rework
costs, legal and professional fees, and process development costs related to the
discovery of a contaminant in its bulk Panax ginseng. In the first half of
fiscal 1999, the Company charged $1,391,384 against the reserve for expenses
associated with this issue.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130"). SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in a financial statement that
is displayed with the same prominence as other financial statements. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. Comprehensive
income (loss) would have been approximately $69,011 and ($979,977) for the
quarters ended October 31, 1998, and 1997, respectively, and ($992,913) and
($1,001,613) for the six months ended October 31, 1998, and 1997, respectively.
6. SUBSEQUENT EVENTS
On December 9, 1998, the Company announced that it had entered into an
agreement to merge with three subsidiaries of Zuellig Group N. A., Inc.
("ZGNA"). The agreement calls for the Company to exchange approximately 10.05
million common shares of stock for the acquired subsidiaries. The acquired
subsidiaries are already aligned with the Company's Natural Ingredients and
Technical Services business units, but are unrelated to the Company's
Pharmaceuticals business unit. Therefore, as a direct result of the decision to
acquire these subsidiaries, the Company has decided to discontinue its
paclitaxel supply activities. The Company will incur a one-time charge of
approximately $25-$30 million in its third fiscal quarter ended January 31,
1999, to exit the paclitaxel business. This charge includes non-cash charges of
approximately $20-$25 million to write-down paclitaxel related assets to their
estimated fair value upon sale of these assets in the near future. The Company's
original intent was to hold these assets for future production of paclitaxel
once current legal and regulatory issues were resolved.
5 of 16
<PAGE>
PART 1, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company's financial performance in the quarter ended October 31, 1998,
improved compared to the same quarter in the prior fiscal year. Compared to the
second quarter of fiscal 1998, total revenues increased 57% to $9,599,029; gross
profit was 32% of total revenues compared to 13% in the same quarter last year;
total operating expenses increased only 8%; and operating income was $137,314
compared to the operating loss of $1,922,660 in the quarter ended October 31,
1997.
This improvement in operating performance was the result of increased
revenues in each of the Company's business units. Growth in the sales of Natural
Ingredients products was almost 53% compared to the second quarter last year.
Inventory overstock conditions experienced by customers in the first fiscal
quarter of 1999, were somewhat relieved in the second quarter in that the
Company was able to deliver products that had been delayed at the end of the
first quarter. Next, revenues from Technical Services increased 44% over the
same quarter last year. This is the result of ongoing natural products, custom
synthesis and drug development projects at Hauser Laboratories combined with
increasing revenues from Shuster Laboratories attributable to their Technically
Advanced Quality Assurance ("TAQA-TM-") and Foods 2000 initiatives. Finally,
revenues in the Pharmaceuticals business unit were $1,405,358 compared to
$565,329 in the second quarter of fiscal 1998. This is the result of contractual
royalty revenues associated with the August 13, 1998 signing of a supply
contract with Immunex Corporation ("Immunex") to provide them and their
collaborative partner, IVAX Corporation ("IVAX") with bulk paclitaxel. In the
quarter ended October 31, 1998, these revenues were $697,000.
On December 9, 1998, the Company announced it had entered into an agreement
to merge with three subsidiaries of privately-held Zuellig Group N. A., Inc.,
("ZGNA") in a transaction valued at approximately $66 million. The Company will
acquire Zuellig Botanical Extracts, Inc., Wilcox Drug Company, Inc., and
ZetaPharm, Inc., thereby creating the leading U.S. supplier of herbal extracts,
botanical raw materials and related products to the fast-growing nutritional
industry. Sales for the three acquired companies for the four quarters ended
September 30, 1998, exceeded $100 million.
The agreement calls for the Company to exchange approximately 10.05 million
of the Company's common shares for the common stock of the acquired
subsidiaries. The Company also will assume approximately $19.0 million of the
acquired subsidiaries' bank debt. Upon closing, the Company's shareholders will
own 51.0% of the combined company, while ZGNA will own 49.0%. Wells Fargo Bank,
NA will provide a $35 million line of credit and a $10 million fixed asset line
in support of the merged companies. The agreement is subject to approval by the
Company's shareholders and customary closing conditions. Management expects the
transaction to close during the Company's fiscal 1999 fourth quarter and, aside
from transaction related charges, to be accretive to earnings in fiscal year
2000.
Concurrent with the merger, the Company will discontinue its paclitaxel
activities. During the fiscal quarter ended January 31, 1999, the Company will
incur a one-time charge ranging between $25 million and $30 million. Management
is pursuing several alternatives to restructure or divest the business and
expects to have such a restructuring or divestiture completed during the first
half of fiscal year 2000.
6 of 16
<PAGE>
Management believes that the opportunity for revenue growth from the
Natural Ingredients and Technical Services business units can still result in
operational profitability for the fiscal year ended April 30, 1999; however,
there can be no assurance of when profitability will again be realized.
The following is a discussion of the Company's activities.
NATURAL INGREDIENTS
NUTRACEUTICALS - The term nutraceuticals is used to identify the broad
range of natural, healthful products that are used to supplement the diet by
increasing the total dietary intake of important nutrients. The U.S. market
for herbal and botanical supplements is estimated to be $2.3 billion, and is
growing at over 20% per year, according to industry sources. The Company's
products include liquid and dry herbal extracts of Echinacea, Valerian, St.
John's Wort, Siberian Ginseng, Panax Ginseng, Ginger, Goldenseal, Kava Kava,
Black Cohosh, Saw Palmetto and Rosemary (RoseOx-Registered Trademark-).
Management believes that the Company's expertise in the production of special
products from natural sources and its extensive regulatory experience
position it well in this market.
On December 3, 1997, the Company announced that the value of signed
agreements with PharmaPrint, Inc. ("PharmaPrint") was expected to be $20 million
over the next three years. The Company continues to manufacture botanical
products and provide research and development services to PharmaPrint to support
its herbal-based pharmaceuticals. Sales of products and services to PharmaPrint
in the six months ended October 31, 1998, were 10% of total revenues. Management
expects the percentage of sales from PharmaPrint to decline during fiscal 1999
because of fewer sales of herbal products and technical services as well as
growth in sales to other customers.
On November 14, 1996, the Company signed a three-year contract to supply
RoseOx-Registered Trademark-, an antioxidant nutraceutical product, to D&F
Industries ("D&F"), a manufacturer of vitamin and food supplement products.
Under that agreement, D&F had exclusive marketing rights to the Company's
antioxidant nutraceutical products, RoseOx-Registered Trademark- and
RoseOx660-Registered Trademark-, in the multi-level dietary supplement and
cosmetic markets. The Company began shipping product under this contract
during the third quarter of fiscal year 1997, and delivered contractual
quantities through the second quarter of fiscal 1998. Sales to D&F comprised
11% of total revenues in the six-month period ended October 31, 1997.
On November 6, 1997, the Company announced it had mutually agreed with
D&F, to cancel the exclusivity agreement between the companies. This change
in exclusivity allows the Company to market RoseOx-Registered Trademark-
products directly through its sales force. While sales volumes of this
product are not yet at previous levels, expanded sales have already occurred,
and management believes the modification of the D&F contract will not have a
material adverse impact on future operations.
NATURAL FLAVOR EXTRACTS AND NATURAL FOOD INGREDIENTS - The Company
manufactures, markets and sells natural flavor extracts. The extracts are
marketed under the Company's brand name NATURENHANCE-Registered Trademark-
Flavor Extracts. Competition for products in the flavor extract market is
based on flavor quality and concentration, availability, customer service,
and price. Some of these factors are beyond the direct control of the Company.
Natural food ingredients are products which perform a function in foods,
such as preservatives, stabilizers, colorants, antioxidants, and nutritional
additives. The Company's objective is to build a quality line
7 of 16
<PAGE>
of products generating revenues and profits as a leader in the development,
manufacture and sale of natural food ingredients.
Revenues from natural food ingredients products were $267,069 in the
second quarter of fiscal 1999. On November 3, 1997, the Company announced its
signing of a three-year agreement with RFI Ingredients ("RFI"), whereby RFI
will serve as exclusive distributors for the Company's
NATURENHANCE-Registered Trademark- product lines to the food and beverage
industries. To improve the success of these products, the Company has reduced
the number of products offered to allow for improved marketing focus and
technical support of the remaining products. However, management is unable to
predict the timing and amount of future revenues from natural food
ingredients products.
TECHNICAL SERVICES
The Technical Services business unit, comprised of Hauser Laboratories
and Shuster Laboratories, Inc., (the Company's wholly-owned subsidiary),
operates as a single entity in the research and development, formulation,
analysis and project delivery to fee-for-service clients. During the second
quarter of fiscal 1999, Technical Services revenues increased 44% over the
same quarter last year, as the Company concentrated its efforts on increasing
the number of projects related to custom synthesis and natural products
isolation in the pharmaceuticals industry. Also, Shuster's TAQA-TM- and Foods
2000 initiatives contributed additional revenues during the quarter.
The Company announced on November 6, 1997, a collaborative agreement with
The National Institute on Drug Abuse ("NIDA"), for custom synthesis of drug
compounds that are under development as potential treatment agents for various
drug addictions. Under the agreement, the Company will receive $2.3 million over
a three-year period.
Management believes that demand for technical services will continue to
increase and expects this business unit to grow. Ongoing marketing efforts in
the Company's Technical Services business unit are centered on projects that
provide opportunity to employ the collective capabilities of the Hauser
Laboratories and Shuster Laboratories team.
PHARMACEUTICALS
The Company has been a supplier of bulk paclitaxel for approximately the
last seven years. The Company's customers wishing to enter the market for
paclitaxel-based therapies must obtain proper regulatory approval before they
can formulate and sell paclitaxel in final form. The U.S. market, which
comprises approximately 65% of the world market, has been severely restricted
because of administration patents held by Bristol-Myers Squibb, Company
("Bristol"). Additionally, the Company learned in November 1998, that its
European customer, Yew Tree Pharmaceuticals ("Yew Tree"), had concluded an
agreement with Bristol whereby Yew Tree will cease selling its paclitaxel
product by the end of December 1998.
The pending merger with ZGNA will focus corporate resources on extract
products for the dietary supplement market and Technical Services. As a result,
management has decided to discontinue its paclitaxel supply activities. During
the fiscal quarter ended January 31, 1999, the Company will incur a one-time
charge ranging between approximately $25-$30 million. Management is pursuing
several alternatives to restructure or divest the business and expects to have
such a restructuring or divestiture completed during the first half of fiscal
year 2000. As part of this process, management intends to negotiate early
settlements with its growers of cultivated yew trees. An estimate of these
settlement costs has been included in the one-time charge to earnings noted
above, but the exact amount is uncertain at this time.
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<PAGE>
RESULTS OF OPERATIONS:
Below is a table that summarizes the Company's results of operations as a
percentage of total revenues.
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit 31.8 % 12.7 % 28.3 % 19.9 %
Research & development 5.2 % 13.1 % 4.9 % 9.2 %
Sales and marketing 8.3 % 8.9 % 9.0 % 7.9 %
General and administrative 16.9 % 22.2 % 19.8 % 20.9 %
Income (loss) from operations 1.4 % (31.5) % (5.4) % (18.1) %
Other income (expense), net (0.7) % 4.3 % (0.5) % 4.0 %
Income (loss) from operations before taxes 0.7 % (27.2) % (5.9) % (14.1) %
Net income (loss) 0.7 % (17.5) % (5.9) % (9.1) %
</TABLE>
REVENUES. A breakout of the Company's revenues by product and service groupings
for its continuing operations is as follows:
<TABLE>
<CAPTION>
Three months ended October 31, Six months ended October 31,
------------------------------- --------------------------------
1998 1997 1998 1997
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Natural ingredients products (includes,
nutraceuticals natural flavor extracts
and food ingredients) $ 3,849,658 $ 2,518,077 $ 6,341,893 $ 5,340,232
Technical services (includes Hauser
Laboratories and Shuster
Laboratories, Inc.) 4,344,013 3,015,024 8,312,479 5,778,243
Pharmaceuticals 1,405,358 565,329 1,996,075 2,525,472
-------------- ------------- ------------- ---------------
$ 9,599,029 $ 6,098,430 $16,650,447 $13,643,947
============== ============= ============= ===============
</TABLE>
Total revenues increased 57% to $9,599,029 in the second quarter of fiscal 1999,
from $6,098,430 in the second quarter of fiscal 1998, the result of higher
revenues in each of the Company's business units. For the six months ended
October 31, 1998, total revenues increased 22% over the same period last year,
with increased revenues in Natural Ingredients and Technical Services offset by
a decrease in Pharmaceuticals revenues.
NATURAL INGREDIENTS:
Natural ingredients product revenues increased 53% and 19% in the three and six
months ended October 31, 1998, respectively, as compared to the same periods in
the prior fiscal year.
The increases are primarily attributable to success in selling nutraceutical
products. In the quarter ended October 31, 1998, nutraceuticals revenues were
$3,582,589, an increase of $1,240,209, or 53%, over revenues of $2,342,380 in
the same quarter last year. In the six months ended October 31, 1998,
nutraceuticals revenues were $5,762,615, an increase of 20% over revenues of
$4,797,758 in same period last year.
Sales of natural flavor extracts and food ingredients were $267,069 in the
quarter ended October 31, 1998, an increase of 52% over revenues of $175,697 in
the quarter ended October 31, 1997. For the six months ended October 31, 1998,
revenues from these products were $579,278, a 7% increase over revenues of
$542,474 in
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the six months ended October 31, 1997. These increases were the
result of higher sales of rosemary extract products sold into the beverage
industry.
TECHNICAL SERVICES:
Technical Services revenues were $4,344,013 in the quarter ended October 31,
1998, compared to $3,015,024 in the quarter ended October 31, 1997, an increase
of 44%. In the six months ended October 31, 1998, Technical Services revenues
were $8,312,479, a 44% increase over revenues of $5,778,243 for the same period
last year. These increases were because of ongoing natural products, custom
synthesis and drug development projects at Hauser Laboratories, as well as
increasing revenues from Shuster Laboratories attributable to the TAQA-TM-
program and the Foods 2000 initiative.
PHARMACEUTICALS:
Revenues from pharmaceutical products in the quarter ended October 31, 1998,
increased 149% to $1,405,358, compared to $565,329 in the same quarter one year
ago. This is the result of contractual royalty revenues associated with the
August 13, 1998 signing of a supply contract with Immunex to provide them and
their collaborative partner IVAX, with bulk paclitaxel. In the quarter ended
October 31, 1998, these high-margin revenues were $697,000. For the six months
ended October 31, 1998, revenues declined 21% from the same period one year ago
because of lower sales of paclitaxel.
GROSS PROFIT. Total gross profit for the Company was 31.8% and 12.7% of total
revenues in the quarters ended October 31, 1998, and 1997, respectively, and
28.3% and 19.9% of total revenues in the six month periods ended October 31,
1998, and 1997, respectively. The increases are the result of higher product and
service revenues. In the three and six month periods ended October 31, 1998,
gross profit for the natural products industry segment was 33.5% and 28.3% of
total natural product revenues, respectively. In the three and six month periods
ended October 31, 1997, gross profit for the natural products industry segment
was (.06)% and 10.6% of total natural product revenues, respectively. The
increases were the result of higher sales volume of nutraceutical product sales.
Gross profit for technical services in the three months and six months ended
October 31, 1998, and 1997, was 30.1% and 28.6%, respectively, as compared to
26.2% and 26.7% in the three and six months ended October 31, 1997,
respectively. These increases are the result of higher revenues and a change in
the mix of technical service projects, which can alter gross profit
quarter-to-quarter.
OPERATING EXPENSES. Research and development expenses were $496,942 in the
quarter ended October 31, 1998, compared to $800,450 in the quarter ended
October 31, 1997, a decrease of almost 38%. Research and development expenses in
the six months ended October 31, 1998, were $817,898, a decrease of 35% compared
to the same period last year. These decreases in research and development costs
were because some R&D employees were deployed to work on billable projects in
the Technical Services business unit, the result of increasing customer
projects. As new staff is hired in Technical Services, the R&D personnel will go
back to their research assignments. The Company intends to actively continue
research and development efforts, and expects research and development expenses
to return to their historical levels.
Sales and marketing expenses in the quarter ended October 31, 1998, were
$796,997, an increase of $251,774, or 46% over the same three-month period last
year. Sales and marketing expenses in the six months ended October 31, 1998,
were $1,496,197, an increase of $424,491, or 40% over the same six-month period
last year. The increases represent the Company's accelerated efforts to market
new products, particularly in the areas of nutraceuticals and natural food
ingredients. The Company added new staff and increased spending on
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advertising and marketing materials for launches of new products, such as
TT550-TM-, a ginger-based product for motion sickness. Further, higher
commission costs were incurred as a result of higher revenues.
General and administrative expenses were $1,616,977 in the second quarter of
fiscal 1999, a 19% increase compared to general and administrative expenses in
the same quarter of fiscal 1998. For the six months ended October 31, 1998,
general and administrative costs were $3,301,886, a 16% increase over the same
period last year. These increases are the result of staff additions and
additional depreciation expense on certain new leasehold improvements.
INTEREST INCOME/EXPENSE. Interest income was $22,754 and $49,808 in the three
and six months ended October 31, 1998, respectively, compared to $89,757 and
$199,877 in the three and six months ended October 31, 1997, respectively. The
decrease is the result of less capital available for investment. Interest
expense in the three and six-month periods ended October 31, 1998, was $133,094
and $179,478 respectively, compared to $4,281 and $6,663 in the three and
six-month periods ended October 31, 1997, respectively. The increases reflect
the Company's use of its line of credit during fiscal 1999.
OTHER INCOME. Other income was $42,037 and $173,822 for the three months ended
October 31, 1998, and 1997, respectively, and $42,037 and $361,461 for the six
months ended October 31, 1998, and 1997, respectively. The decrease in other
income is due to the sale of certain investments held by the Company in fiscal
1998 and the associated gains from these sales.
INCOME TAXES. The Company is continuing to evaluate on a quarterly basis the
realizability of the deferred assets on the balance sheet. Management believes
it is more likely than not that these assets will be realized by return to
profitability, although there can be no assurance of when profitability will be
attained. Management's estimate of the deferred tax assets may change in the
future.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Total cash and cash equivalents were $2,502,432 at October 31, 1998,
compared to $2,081,796 at April 30, 1998. The increase is primarily the result
of increased borrowings against the bank line of credit offset by purchases of
inventory and the acquisition of capital equipment.
The Company has a revolving line of credit totaling $8,850,000 which expires on
June 30, 2000. As of October 31, 1998, the Company had borrowed $6,000,000 under
this line and $784,675 had been applied against letters of credit for the
purchase of raw materials. Therefore, $2,065,325 was available for use under
this line of credit. Under the terms of the loan agreement, all assets of the
Company, with the exception of intangibles, are secured by the bank.
Additionally, the Company has a lease credit line with a bank of $500,000; as of
October 31, 1998, $350,861 was available for use under this line. The Company
does not use derivatives to manage its interest rate risk.
The merger agreement announced on December 9, 1998, is expected to provide the
Company with necessary capital to fund operations. As part of the merger, Wells
Fargo Bank, NA will provide a $35 million line of credit and a $10 million fixed
asset line in support of the merged companies. Therefore, management believes
that current cash reserves and the revolving line of credit are sufficient to
meet the Company's short-term liquidity needs, and sufficient to fund
anticipated merger and integration costs. Further, management believes that
funds generated from business opportunities discussed earlier, will be
sufficient to meet the liquidity needs of the Company on a long-term basis.
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In the process of exiting the paclitaxel business, management intends to
negotiate early settlements with its growers of cultivated yew trees. An
estimate of these settlement costs has been included in the one-time charge to
earnings noted before, but the exact amount is uncertain at this time. The cost
to negotiate out of these contracts is expected to be funded from the sale of
paclitaxel assets.
WORKING CAPITAL. Working capital as of October 31, 1998, was $11,544,319
compared to $16,671,596 as of April 30, 1998. This decrease is primarily
attributable to increased use of the bank line of credit.
PROPERTY AND EQUIPMENT. Purchases of property and equipment in the first six
months of fiscal 1999, totaled $1,500,565. This was the result of new
construction and improvements to manufacturing equipment for the production of
nutraceuticals and food ingredients products. The Company also entered into new
capital leases totaling $53,690 during the three months ended October 31, 1998,
primarily for laboratory equipment used in technical services.
YEAR 2000. The Year 2000 problem is the result of computer systems and programs
recognizing a date using "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures. The term "Year 2000
compliant" means that all computers, computer systems, and software, including
all firmware, microcode, and embedded software, will accurately and consistently
process date data for all dates in the twentieth and twenty-first centuries
(including leap year considerations and data) without any loss of functionality
or performance. This processing includes calculating, comparing, sequencing,
storing, retrieving, transmitting, receiving, sorting, and displaying date data
when computers, computer systems, or software are used as stand-alone systems,
or in combination with other software or hardware. These computer systems will
function without interruption before, during, and after January 1, 2000, without
any change in operation or performance associated with the advent of the new
century. Additionally, these computer systems will respond to date data input in
a way that resolves any ambiguity as to century in a defined and predetermined
manner; and store and provide output of date data in ways that are unambiguous
as to century. The term "software" includes, but is not limited to, firmware,
embedded software, and microcode.
The Company has undertaken a thorough review of its current information
technology ("IT") and non-IT systems. This review is expected to be a continuing
process. Initial results of the testing and identification phase of the
Company's core systems indicate that approximately one third of its desktop
computer systems (approximately 100 machines) and less than one fourth of its
other microprocessor or microcontroller-based equipment (approximately 20
machines) are in need of replacement for Year 2000 compliance. The replacement
of these machines is expected to be completed by October 1999. Cost of
replacement is not expected to exceed $200,000. As the review progresses, this
estimate could be revised. Through first quarter of fiscal 1999, the Company had
expensed a total of $50,000 directly related to Year 2000 remediation efforts.
As another part of Year 2000-compliance review, the Company has also undertaken
a logical process of updating or deleting software systems known to have
problems handling two-digit date information properly. The Company has completed
the testing and identification phase of the review of its core applications
supporting accounting, human resources and manufacturing processes. Upgrade or
replacement of these applications is expected to be completed in the spring of
1999. The net cost of these
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upgrades is not expected to exceed $50,000. The review of other software
applications is underway at this time.
The Company has also implemented a Year 2000 compliance inquiry program with its
current and potential major vendors and suppliers as to both the status of their
equipment and systems and any delays they anticipate in supplying goods and
services to the Company. Management expects that this inquiry program will be
completed by February 1, 1999. If a third party's systems are not Year 2000
compliant, that problem will be addressed directly with that third party.
Management recognizes that failure to meet all Year 2000 issues could result in
significant degradation of the Company's ability to provide laboratory testing,
to manufacture products, and to invoice customers and pay vendors. Management is
addressing these issues directly, aggressively pursuing upgrading all
mission-critical systems.
Management foresees the likely internal "worst case scenario" to be limited in
scope, and could include a very small number of machines which may not handle
date data correctly. In this event, processing of data will be shifted to other
machines until replacement can be accomplished. No significant degradation of
data collection or processing is anticipated.
The other major risk to normal operations could result from the inability of our
suppliers to provide materials, products and services. The Company has begun
identifying alternative sources or suppliers to alleviate such circumstances.
If, because of unforeseen circumstances, installed hardware and software systems
cease to function on January 1, 2000, a disaster recovery contingency plan
(currently being drafted) will be activated to handle the emergency situation.
The disaster recovery plan is expected to include a disaster recovery computer
center with sufficient equipment to allow the Company to continue data
processing operations that will operate on a 24-hour-a-day basis until normal
operations can be resumed. The Company has established relationships with
several computer system vendors who will be contracted to provide the necessary
hardware and software to support the contingency plan.
The Company plans to devote the necessary resources to resolve all significant
Year 2000 issues in a timely manner.
SEASONALITY. The Company has experienced seasonality in its sales of
nutraceutical products. Lower demand for these products is evident in the summer
months and tends to increase in the fall and winter months.
FORWARD LOOKING STATEMENTS
Certain oral and written statements of management of the Company included
in the Form 10-Q and elsewhere, may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations. The forward-looking statements included herein
and elsewhere are based on current expectations that involve judgments which are
difficult or impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could be inaccurate and, therefore, there can be no assurance
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that the forward-looking statements will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements, the
inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the Company
will be achieved.
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PART 2.
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of shareholders was held
October 22, 1998.
1. The following directors were elected to serve as directors
of the Company for the following year: William E. Coleman,
Stanley J. Cristol, Randall J. Daughenbaugh, Beverly J.
Haddon, Robert F. Saydah, Dean P. Stull and Bert M. Tolbert.
The votes cast for, against or withheld as to each
director nominee is as follows:
To elect seven (7) Directors:
<TABLE>
<CAPTION>
Director For Against/Withheld
-------- --- ----------------
<S> <C> <C>
Dean P. Stull 9,283,404 312,426
Randall J. Daughenbaugh 9,352,527 243,303
Stanley J. Cristol 9,236,456 359,374
Beverly J. Haddon 9,334,122 261,708
Bert M. Tolbert 9,233,421 362,409
William E. Coleman 9,197,058 398,722
Robert F. Saydah 9,173,431 422,399
</TABLE>
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger by and among Zuellig Group N.A.,
Inc., Hauser, Inc. and certain other parties dated as of December
8, 1998.
2.2 Form of Agreement Regarding Employees by and between Hauser, Inc.
and Zuellig Botanicals, Inc.
2.3 Form of Escrow Agreement by and among Zuellig Group N.A., Inc.,
Hauser, Inc. Zuellig Botanicals, Inc. and American Securities
Transfer & Trust, Inc.
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2.4 Form of Governance Agreement by and between Hauser, Inc., Zuellig
Group N.A., Inc. and Zuellig Botanicals, Inc.
2.5 Inventory Purchase Agreement dated December 8, 1998 by and
between Hauser, Inc. and Zuellig Group N.A., Inc.
2.6 Form of Agreement for Option to Acquire Powders Business From
Zuellig Botanicals, Inc. by and between Hauser, Inc. and Zuellig
Botanicals, Inc.
2.7 Registration Rights Agreement dated December 8, 1998 by and among
Hauser, Inc., Zuellig Group N.A., Inc. and Zuellig Botanicals,
Inc.
2.8 Form of Sourcing Agency Agreement by and Between Hauser, Inc. and
Zuellig Botanicals, Inc.
2.9 Agreement for Option to Acquire Common Stock of Hauser, Inc.
dated December 8, 1998 by and between Hauser, Inc. and Zuellig
Group N.A., Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On December 14, 1998, the Company filed a Form 8-K which recited its
press release regarding the Zuellig transaction.
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<PAGE>
FORM 10 Q
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAUSER, INC.
Date: December 14, 1998
/s/ Dean P. Stull
------------------------------------------------
Dean P. Stull
Chairman of the Board, Chief Executive Officer,
and President
Date: December 14, 1998
/s/ David I. Rosenthal
------------------------------------------------
David I. Rosenthal
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT 2.1
EXECUTION COPY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
ZUELLIG GROUP N.A., INC.
HAUSER, INC.
AND CERTAIN OTHER PARTIES
dated
as of
December 8, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1. The Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3. Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4. Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK;
MERGER CONSIDERATION; EXCHANGE OF CERTIFICATES. . . . . . . . . .9
3.1. Effect on Capital Stock; Merger Consideration. . . . . . . . . . . .9
3.2. Certificate of Incorporation of Surviving Corporations . . . . . . .9
3.3. By-laws of the Surviving Corporations. . . . . . . . . . . . . . . .9
3.4. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . 10
3.5. Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.6. Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . 10
4.1. Corporate Organization.. . . . . . . . . . . . . . . . . . . . . . 10
4.2. Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3. Capitalization.. . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4. Corporate Proceedings, etc.. . . . . . . . . . . . . . . . . . . . 12
4.5. Consents and Approvals.. . . . . . . . . . . . . . . . . . . . . . 13
4.6. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . 13
4.7. Litigation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.8. Change in Ownership. . . . . . . . . . . . . . . . . . . . . . . . 16
4.9. Absence of Defaults, Conflicts, etc. . . . . . . . . . . . . . . . 16
4.10. Reports and Financial Statements . . . . . . . . . . . . . . . . . 17
4.11. Absence of Certain Developments. . . . . . . . . . . . . . . . . . 18
4.12. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . 19
4.13. Absence of undisclosed Liabilities . . . . . . . . . . . . . . . . 19
4.14. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.15. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.16. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . 22
4.17. Patents, Licenses, etc. . . . . . . . . . . . . . . . . . . . . . 22
4.18. Title to Tangible Assets . . . . . . . . . . . . . . . . . . . . . 23
4.19. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.20. Transactions with Related Parties. . . . . . . . . . . . . . . . . 24
4.21. Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . 24
4.22. Private Offering . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.23. Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.24. Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.25. Takeover Statute . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.26. Material Facts . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.27. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(i)
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4.28. Company Real Property. . . . . . . . . . . . . . . . . . . . . . . 26
4.29. Corporate Minute Books . . . . . . . . . . . . . . . . . . . . . . 27
4.30. Good Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.31. Manufacturing Capacity . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5. REPRESENTATIONS AND WARRANTIES OF ZGNA . . . . . . . . . . . . 28
5.1. Corporate Organization. . . . . . . . . . . . . . . . . . . . . . . 28
5.2. Contributed Subsidiaries. . . . . . . . . . . . . . . . . . . . . . 29
5.3. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.4. Corporate Proceedings, etc. . . . . . . . . . . . . . . . . . . . . 30
5.5. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . 31
5.6. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . 31
5.7. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8. Change in Ownership . . . . . . . . . . . . . . . . . . . . . . . . 33
5.9. Absence of Defaults, Conflicts, etc. . . . . . . . . . . . . . . . 33
5.10. Reports and Financial Statements. . . . . . . . . . . . . . . . . . 34
5.11. Absence of Certain Developments . . . . . . . . . . . . . . . . . . 35
5.12. Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . 35
5.13. Absence of undisclosed Liabilities. . . . . . . . . . . . . . . . . 36
5.14. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.15. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.16. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . 38
5.17. Patents, Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . 39
5.18. Title to Tangible Assets. . . . . . . . . . . . . . . . . . . . . . 40
5.19. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.20. Transactions with Related Parties . . . . . . . . . . . . . . . . . 40
5.21. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . 41
5.22. Private Offering. . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.23. Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.24. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.25. Material Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.26. Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.27. Financial Records. . . . . . . . . . . . . . . . . . . . . . . . . 43
5.28. Subsidiary Real Property. . . . . . . . . . . . . . . . . . . . . . 43
5.29. Company Security Holdings . . . . . . . . . . . . . . . . . . . . . 44
5.30. Bank Accounts; Powers of Attorney . . . . . . . . . . . . . . . . . 44
5.31. Corporate Minute Books. . . . . . . . . . . . . . . . . . . . . . . 44
5.32. Sufficient Assets . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.33. Good Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.34. Bank Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES. . . . . . . . . . . . . . 45
6.1. Resale of Securities. . . . . . . . . . . . . . . . . . . . . . . . 45
6.2. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.3. Access to Information . . . . . . . . . . . . . . . . . . . . . . . 47
6.4. Stockholders Meeting. . . . . . . . . . . . . . . . . . . . . . . . 48
6.5. Execution and Delivery of Agreements. . . . . . . . . . . . . . . . 48
6.6. Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.7. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 51
6.8. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.9. Standstill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.10. Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . 53
6.11. Noncompetition. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.12. Resignation of Directors. . . . . . . . . . . . . . . . . . . . . . 55
(ii)
<PAGE>
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6.13. Subscription Right. . . . . . . . . . . . . . . . . . . . . . . . . 55
6.14. Letters of Accountants. . . . . . . . . . . . . . . . . . . . . . . 56
6.15. Efforts to Satisfy Conditions;
Notice of Inability to Meet Conditions. . . . . . . . . . . . . . . 57
6.16. HSR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.17. Public Announcement . . . . . . . . . . . . . . . . . . . . . . . . 57
6.18. Cooperation in Defense. . . . . . . . . . . . . . . . . . . . . . . 57
6.19. Volker Wypyszyk . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.20. Repayment of Debt . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7. ZGNA'S CLOSING CONDITIONS. . . . . . . . . . . . . . . . . . . 58
7.1. Representations and Warranties . . . . . . . . . . . . . . . . . . . 58
7.2. Compliance with Agreement. . . . . . . . . . . . . . . . . . . . . . 59
7.3. Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.4. Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . 59
7.5. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . 59
7.6. NASDAQ Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.7. Adverse Development. . . . . . . . . . . . . . . . . . . . . . . . . 59
7.8. Transaction Documents. . . . . . . . . . . . . . . . . . . . . . . . 59
7.9. Credit Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.10. HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.11. Election of Officer and Directors . . . . . . . . . . . . . . . . . 60
7.12. Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . 60
7.13. Counsel's Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.15. Approval of Proceedings . . . . . . . . . . . . . . . . . . . . . . 61
7.16. Accountant's Letter . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 8. COMPANY CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . 61
8.1. Representations and Warranties . . . . . . . . . . . . . . . . . . . 62
8.2. Compliance with Agreement. . . . . . . . . . . . . . . . . . . . . . 62
8.3. Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.4. Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . 62
8.5. Election of Officer and Directors. . . . . . . . . . . . . . . . . . 62
8.6. Adverse Development. . . . . . . . . . . . . . . . . . . . . . . . . 63
8.7. Credit Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.8. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . 63
8.9. HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.10. Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . 63
8.11. ZGNA's Certificates . . . . . . . . . . . . . . . . . . . . . . . . 63
8.12. Counsel's Opinion. . . . . . . . . . . . . . . . . . . . . . . . . 64
8.13. Completion of Mergers . . . . . . . . . . . . . . . . . . . . . . . 64
8.14. Approval of Proceedings . . . . . . . . . . . . . . . . . . . . . . 64
8.15. Accountant's Letter . . . . . . . . . . . . . . . . . . . . . . . . 64
8.16. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.17. Exclusive Distributorship Agreement . . . . . . . . . . . . . . . . 65
SECTION 9. TERMINATION AND INDEMNIFICATION. . . . . . . . . . . . . . . . 65
9.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.2. Procedure and Effect of Termination . . . . . . . . . . . . . . . . 66
9.3. Survival of Representations, Warranties and Covenants . . . . . . . 66
9.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.5. Break-Up Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
(iii)
<PAGE>
<S> <C>
SECTION 10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 72
10.1. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.2. Paragraph and Section Headings. . . . . . . . . . . . . . . . . . 72
10.3. Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.4. Expenses and Taxes. . . . . . . . . . . . . . . . . . . . . . . . 73
10.5. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 73
10.6. Entire Agreement; Amendment and Waiver. . . . . . . . . . . . . . 74
10.7. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.8. Third Parties.. . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.9. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
(iv)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
December 8, 1998, is by and among Hauser, Inc., a Colorado corporation (the
"COMPANY"), QQB Holdings I, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company ("MERGER SUB 1"), QQB Holdings II, Inc., a New York
corporation and a wholly owned subsidiary of the Company ("MERGER SUB 2"),
QQB Holdings III, Inc., a Delaware corporation and a wholly owned subsidiary
of the Company ("MERGER SUB 3"), Zuellig Group N.A., Inc., a Delaware
corporation ("ZGNA"), Zuellig Botanicals, Inc., a Delaware corporation and a
wholly owned subsidiary of ZGNA ("ZBI"), Zuellig Botanical Extracts, Inc., a
Delaware corporation and a wholly owned subsidiary of ZBI ("ZUELLIG BOTANICAL
EXTRACTS"), ZetaPharm, Inc., a New York corporation and a wholly owned
subsidiary of ZGNA ("ZETAPHARM"), and Wilcox Drug Company, Inc., a Delaware
corporation and a wholly owned subsidiary of ZGNA ("WILCOX").
R E C I T A L S :
WHEREAS, ZGNA owns, directly or indirectly, all of the issued and
outstanding capital stock (the "SUBSIDIARY SHARES") of Zuellig Botanical
Extracts, ZetaPharm and Wilcox (collectively, the "CONTRIBUTED SUBSIDIARIES");
WHEREAS, ZGNA and ZBI desire to assign, transfer and convey the
Subsidiary Shares to the Company solely in exchange for the Shares (as herein
defined), and the Company desires to issue and exchange the Shares to ZGNA
and ZBI solely in exchange for the Subsidiary Shares, all in accordance with
and subject to the terms and conditions of this Agreement;
WHEREAS, the acquisition of the Subsidiary Shares is to be effected by
a merger of Merger Sub 1 with and into Zuellig Botanical Extracts, a merger
of Merger Sub 2 with and into ZetaPharm and a merger of Merger Sub 3 with and
into Wilcox (collectively, the "MERGERS"); and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company and ZGNA are executing and delivering an Inventory
Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements herein
contained, the parties hereby agree as follows:
<PAGE>
SECTION 1. DEFINITIONS
The terms defined in this Section 1, whenever used herein, shall have
the following meanings for all purposes of this Agreement.
"AFFILIATE" means any Person or entity, directly or indirectly,
controlling, controlled by or under common control with such Person or entity.
"AGREEMENT" shall have the meaning set forth in the preamble hereto.
"AGREEMENT REGARDING EMPLOYEES" shall mean the agreement regarding
employees, dated as of the Closing Date, by and between the Company and ZBI,
substantially in the form of Exhibit C.
"APPROVALS" shall have the meaning set forth in Section 4.6(b).
"BASKET AMOUNT" shall have the meaning set forth in Section 9.4(c).
"BENEFIT ARRANGEMENT" shall have the meaning set forth in Section 4.16.
"BOARD" shall mean the board of directors of the Company.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other
day on which banks in the State of New York are not required or authorized to
close.
"BCL" shall mean the New York Business Corporation Law.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 ET SEQ.
"CERTIFICATES OF MERGER" shall have the meaning set forth in Section
2.3.
"CLOSING" shall have the meaning set forth in Section 2.2(a).
"CLOSING DATE" shall have the meaning set forth in Section 2.2(a).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
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<PAGE>
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMMITMENT" shall have the meaning set forth in Section 4.8.
"COMMON STOCK" shall mean the common stock, par value $0.001 per share,
of the Company.
"COMPANY" shall have the meaning set forth in the preamble hereto.
"COMPANY INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 9.4(b).
"COMPANY KEY AGREEMENTS AND INSTRUMENTS" shall have the meaning set
forth in Section 4.9(a).
"COMPANY LEASED REAL PROPERTIES" shall have the meaning set forth in
Section 4.28(b).
"COMPANY MATERIAL ADVERSE EFFECT" shall have the meaning set forth in
Section 4.1(c).
"COMPANY OWNED REAL PROPERTIES" shall have the meaning set forth in
Section 4.28(a).
"COMPANY PERMITTED ENCUMBRANCES" shall have the meaning set forth in
Section 4.28(a).
"COMPANY REAL PROPERTIES" shall have the meaning set forth in Section
4.28(b).
"COMPANY SEC REPORTS" shall have the meaning set forth in Section 4.10.
"CONTRIBUTED SUBSIDIARIES" shall have the meaning set forth in the
recitals hereto.
"CS BALANCE SHEETS" shall have the meaning set forth in Section 5.10.
"DAMAGES" shall have the meaning set forth in Section 9.4(a).
"DELAWARE MERGERS" shall have the meaning set forth in Section 2.1.
"DGCL" shall have the meaning set forth in Section 2.1.
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<PAGE>
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.3.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section 4.6(c).
"ENVIRONMENTAL PERMITS" shall have the meaning set forth in Section
4.6(c).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
"ESCROW AGREEMENT" shall mean the escrow agreement, dated as of the
Closing Date by and among the Company, ZGNA, ZBI and the Escrow Agent, as
defined therein, substantially in the form of Exhibit D.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, an
amended.
"GAAP" shall have the meaning set forth in Section 4.10.
"GOVERNANCE AGREEMENT" shall mean the governance agreement, dated as of
the Closing Date, by and among the Company and ZGNA, substantially in the
form of Exhibit E.
"HAZARDOUS MATERIALS" shall have the meaning set forth in Section
4.6(c).
"HSR" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 9.4(h).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 9.4(h).
"INTELLECTUAL PROPERTY" shall have the meaning set forth in Section 4.17.
"INVENTORY PURCHASE AGREEMENT" shall mean the inventory purchase
agreement between the Company and ZGNA, substantially as set forth as Exhibit
F hereto.
"MERGER SUBS" shall mean Merger Sub 1, Merger Sub 2 and Merger Sub 3.
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<PAGE>
"MERGER SUB 1" shall have the meaning set forth in the preamble hereto.
"MERGER SUB 2" shall have the meaning set forth in the preamble hereto.
"MERGER SUB 3" shall have the meaning set forth in the preamble hereto.
"MERGER SUBS ORGANIZATIONAL DOCUMENTS" shall have the meaning set forth
in Section 4.1(a).
"MERGERS" shall have the meaning set forth in the recitals hereto.
"NEW YORK MERGER" shall have the meaning set forth in Section 2.1.
"OPTION" shall mean the option to acquire 2,000,000 shares of Common
Stock granted to ZGNA on the date hereof.
"PERSON" shall mean an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated organization,
or a government, agency, regulatory authority or political subdivision
thereof.
"POWDERS OPTION AGREEMENT" shall mean the agreement between the Company
and ZBI pursuant to which ZBI will grant the Company an option to acquire the
powders business of ZBI, substantially in the form set forth as Exhibit G
hereto.
"PREFERRED STOCK" shall have the meaning set forth in Section 4.3(a).
"PROCEEDING" shall have the meaning set forth in Section 4.7.
"PROPOSED SECURITIES" shall have the meaning set forth in Section
6.13(a).
"PROXY STATEMENT" shall have the meaning set forth in Section 6.2(a).
"REGISTRATION RIGHTS AGREEMENT" shall mean the registration rights
agreement, dated as of the date hereof, by and between the Company, ZBI and
ZGNA, substantially in the form set forth as Exhibit H hereto.
"SECURITIES ACT" shall mean the Securities Act of 1933, an amended.
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<PAGE>
"SHARES" shall mean such number of shares of Common Stock obtained by
multiplying (x) 0.49 times (y) the quotient obtained by dividing the number
of shares of Common Stock issued and outstanding immediately prior to Closing
by 0.51.
"SOURCING AGENCY AGREEMENT" means the sourcing agency agreement by and
between the Company and Zuellig Botanicals, Inc., substantially in the form
set forth as Exhibit I hereto.
"STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and ZGNA pursuant to which the Company will grant ZGNA the Option,
substantially in the form set forth as Exhibit J hereto.
"SUBSCRIPTION SECURITIES" shall have the meaning set forth in Section
6.13(a).
"SUBSIDIARY" shall mean a corporation of which a Person owns, directly
or indirectly, more than 50% of the Voting Stock.
"SUBSIDIARY KEY AGREEMENTS AND INSTRUMENTS" shall have the meaning set
forth in Section 5.9.
"SUBSIDIARY LEASED REAL PROPERTIES" shall have the meaning set
forth in Section 5.28(b).
"SUBSIDIARY MATERIAL ADVERSE EFFECT" shall have the meaning set
forth in Section 5.1(c).
"SUBSIDIARY OWNED REAL PROPERTIES" shall have the meaning set forth in
Section 5.28(a).
"SUBSIDIARY PERMITTED ENCUMBRANCES" shall have the meaning set forth in
Section 5.28(a).
"SUBSIDIARY REAL PROPERTIES" shall have the meaning set forth in
Section 5.28(b).
"SUBSIDIARY SHARES" shall have the meaning set forth in the recitals
hereto.
"SURVIVING CORPORATIONS" shall have the meaning set forth in Section
2.1.
"SURVIVING CORPORATIONS COMMON STOCK" shall have the meaning set
forth in Section 3.1(b).
"TAKEOVER STATUTE" shall mean any corporate takeover provision under
laws of the State of Colorado or any other state
-6-
<PAGE>
or federal "fair price", "moratorium", "control share acquisition" or other
similar antitakeover statute or regulation.
"TAXES" shall mean all U.S. Federal, state, local or foreign and
other taxes, assessments, workers compensation contributions, duties,
withholdings, FICA and similar charges of any kind imposed by any taxing
authority, including interest, penalties and additions thereto.
"TERMINATION FEE" shall have the meaning set forth in Section 9.5.
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Governance
Agreement, the Escrow Agreement, the Stock Option Agreement, the Sourcing
Agency Agreement, the Agreement Regarding Employees, the Registration Rights
Agreement and the Powders Option Agreement.
"VOTING STOCK" shall mean securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
"WILCOX" shall have the meaning set forth in the recitals hereto.
"ZBI" shall have the meaning set forth in the preamble hereto.
"ZETAPHARM" shall have the meaning set forth in the recitals hereto.
"ZUELLIG BOTANICAL EXTRACTS" shall have the meaning set forth in the
recitals hereto.
"ZGNA" shall have the meaning set forth in the preamble hereto.
"ZGNA INDEMNIFIED PARTIES" shall have the meaning set forth in Section
9.4(a).
SECTION 2. THE MERGER
2.1. THE MERGERS. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), at the Effective Time, Merger Sub 1 shall be
merged with and into Zuellig Botanicals Extracts and Merger Sub 3 shall be
-7-
<PAGE>
merged with and into Wilcox (the "DELAWARE MERGERS"). Upon the terms and
subject to the conditions set forth in this Agreement, and in accordance with
the BCL, at the Effective Time, Merger Sub 2 shall be merged with and into
ZetaPharm (the "NEW YORK MERGER"). Following the Effective Time, the
separate corporate existence of the Merger Subs shall cease and Zuellig
Botanicals Extracts, ZetaPharm and Wilcox shall each continue as the
surviving corporation (the "SURVIVING CORPORATIONS") as a corporation
incorporated under the laws of the State of Delaware, in the case of Zuellig
Botanicals Extracts and Wilcox, and as a corporation under the laws of the
State of New York, in the case of ZetaPharm, and shall succeed to and assume
all the rights and obligations of the Merger Sub that merged into them in
accordance with the DGCL and the BCL, as the case may be.
2.2. THE CLOSING. The closing of the Mergers (the "CLOSING") will
take place at 10:00 a.m., New York City Time, on a date to be specified by the
parties (the "CLOSING DATE"), which shall be no later than the second business
day after the satisfaction or waiver of the conditions set forth in Sections 6
and 7, at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York,
New York, unless another date or place is agreed to in writing by the parties
hereto. On the Closing Date, the Company shall issue, sell and deliver to (i)
ZGNA, as the stockholder of ZetaPharm and Wilcox, a certificate representing the
number of shares of Common Stock equal to 45% multiplied by the Shares, duly
registered in ZGNA's name and (ii) ZBI, as the stockholder of Zuellig Botanical
Extracts, a certificate representing the number of shares of Common Stock equal
to 55% multiplied by the Shares, duly registered in ZBI's name.
2.3. EFFECTIVE TIME. Subject to the provisions of this Agreement,
the Contributed Subsidiaries and the Merger Subs shall file Certificates of
Merger (the "CERTIFICATES OF MERGER") executed in accordance with the relevant
provisions of the DGCL and the BCL and shall make all other filings or
recordings required under the DGCL and the BCL to effect the Mergers as soon as
practicable on or after the Closing Date. Each of the Mergers shall become
effective at such time as the Certificate of Merger in respect of such Merger is
duly filed with the Secretary of State of the State of Delaware in the case of
the Delaware Mergers, and the Secretary of State of the State of New York in the
case of the New York Merger, or at such later time as may be specified in the
relevant Certificate of Merger (the "EFFECTIVE TIME"). The parties intend that
all of the Mergers will become effective simultaneously.
2.4. EFFECT OF THE MERGERS. Each Merger shall have the effects set
forth in the DGCL or the BCL, as the case may be. Without limiting the
generality of the foregoing, and subject thereto and any other applicable laws,
at the Effective Time, all the properties, rights, privileges, powers and
franchises of the Contributed Subsidiaries and the Merger Subs shall vest in the
Surviving Corporations, and all debts, liabilities, restrictions,
-8-
<PAGE>
disabilities and duties of the Contributed Subsidiaries and the Merger Subs
shall become the debts, liabilities, restrictions, disabilities and duties of
the Surviving Corporation.
SECTION 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK; MERGER
CONSIDERATION; EXCHANGE OF CERTIFICATES
3.1. EFFECT ON CAPITAL STOCK; MERGER CONSIDERATION. As of the
Effective Time, by virtue of the Mergers and without any action on the part of
any shareholder of the Contributed Subsidiaries:
(a) The shares of capital stock of each Contributed Subsidiary issued
and outstanding immediately before the Effective Time shall be canceled and
extinguished and be converted into the right to receive the Shares.
(b) The shares of common stock of each Merger Sub outstanding
immediately prior to the Merger shall be converted into one share of the common
stock of the Surviving Corporation (the "SURVIVING CORPORATION COMMON STOCK"),
which one share of the Surviving Corporation Common Stock shall constitute all
of the issued and outstanding capital stock of the Surviving Corporation and
shall be owned by the Company.
(c) At the Effective Time, the stock transfer books of the
Contributed Subsidiaries shall be closed and no transfer of shares shall be made
thereafter.
3.2. CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATIONS. The
Certificate of Incorporation of each Contributed Subsidiary in effect
immediately prior to the Effective Time shall become the Certificate of
Incorporation of the respective Surviving Corporation from and after the
Effective Time and until thereafter amended as provided by law.
3.3. BYLAWS OF THE SURVIVING CORPORATIONS. The Bylaws of each
Contributed Subsidiary in effect immediately prior to the Effective Time shall
be the Bylaws of the respective Surviving Corporation from and after the
Effective Time and until thereafter amended as provided by law.
3.4. DIRECTORS AND OFFICERS. The directors and officers of the
Surviving Corporation shall be such persons as mutually agreed by the Company
and ZGNA immediately prior to the Effective Time.
3.5. TAX TREATMENT.
The Company and ZGNA intend to treat the transactions contemplated
by this Agreement to qualify for federal income tax purposes as a
reorganization pursuant to Sections 368(a)(1)(A)
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<PAGE>
and 368(a)(2)(E) of the Code. Neither the Company nor ZGNA shall file or
caused to be filed any tax returns which is inconsistent with this tax
treatment.
3.6. ACCOUNTING TREATMENT.
The parties acknowledge that the transactions contemplated
hereunder will not be accounted for as a pooling of interest.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to ZGNA as of the date
hereof that except as expressly set forth in the corresponding numbered
section in that certain Company Disclosure Schedule of even date
herewith by and between the Company and ZGNA:
4.1. CORPORATE ORGANIZATION.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado. The Articles of
Incorporation and Bylaws of the Company and the Certificates of Incorporation of
the Merger Subs, each as amended through the date hereof (collectively, the
"MERGER SUBS ORGANIZATIONAL DOCUMENTS"), and which have been delivered to ZGNA,
are true and correct as of the date hereof. Merger Sub I and Merger Sub III are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and Merger Sub II is a corporation duly organized,
validly existing and in good standing under the laws of New York.
(b) The Company has all requisite power and authority and has all
necessary approvals, licenses, permits and authorization to own its properties
and to carry on its business as now conducted. The Company has all requisite
power and authority to execute and deliver the Transaction Documents and to
perform its obligations hereunder and thereunder. The Merger Subs have been
organized for purposes of the Mergers and, except for transactions related to
their formation, have conducted no business. Each Merger Sub has all requisite
power and authority to execute and deliver this Agreement, to consummate the
Mergers and otherwise to perform its obligations hereunder.
(c) The Company has filed all necessary documents to qualify to do
business as a foreign corporation in, and the Company is in good standing under
the laws of each jurisdiction in which the conduct of the Company's business or
the nature of the property owned requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the business,
properties, prospects, profits or condition
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<PAGE>
(financial or otherwise) of the Company and its Subsidiaries taken as a whole
(a "COMPANY MATERIAL ADVERSE EFFECT").
4.2. SUBSIDIARIES.
Except as set forth on SECTION 4.2 OF THE COMPANY DISCLOSURE
SCHEDULE, the Company has no Subsidiaries. Each Subsidiary listed on
SECTION 4.2 OF THE COMPANY DISCLOSURE SCHEDULE has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own its properties and assets
and to conduct its business and is duly registered, qualified and
authorized to transact business and is in good standing in each
jurisdiction in which the conduct of its business or the nature of its
properties requires such registration, qualification or authorization,
except where the failure to be so registered, qualified or authorized
would not have a Company Material Adverse Effect. A list of each
jurisdiction in which the Company is qualified to do business is set
forth in SECTION 4.2 OF COMPANY DISCLOSURE SCHEDULE. All of the issued
and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable, and is
owned of record and beneficially, directly or indirectly, by the Company
free and clear of any mortgage, pledge, lien, charge, security interest,
claim or other legal or equitable encumbrance, limitation or restriction
other than the lien of The First National Bank of Boston ("BANKBOSTON")
pursuant to its Security Agreement, dated April 9, 1997, between the
Company and BankBoston. There are no outstanding options, warrants,
agreements, conversion rights, preemptive rights or other rights to
subscribe for, purchase or otherwise acquire any issued or unissued
shares of capital stock of any Subsidiary.
4.3. CAPITALIZATION.
(a) On the date hereof, the authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock and 800,000 shares of preferred
stock, par value $1.00 per share (the "PREFERRED STOCK"). On the date hereof,
the issued and outstanding shares of capital stock of the Company consists of
10,468,163 shares of Common Stock and no shares of Preferred Stock. The Company
has 201,000 shares of treasury stock. As of the date hereof, there are no
bonds, debentures, notes or other evidences of indebtedness having the right to
vote on any matters on which the Company's stockholders may vote issued or
outstanding.
(b) All the outstanding shares of capital stock of the Company have
been duly and validly issued and are fully paid and non-assessable, and were
issued in accordance with the registration or qualification requirements of the
Securities Act
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<PAGE>
and any relevant state securities laws or pursuant to valid exemptions
therefrom. Upon issuance, sale and delivery as contemplated by this
Agreement, the Shares will be duly authorized and validly issued obligations
of the Company, free and clear of any and all security interests, pledges,
liens, charges, claims, options, rights, restrictions on transfer, preemptive
rights, proxies and voting or other agreements, or other encumbrances of any
nature whatsoever, except for those provided for in the Transaction Documents
and other than restrictions on transfer imposed by federal or state
securities laws.
(c) Except for the conversion and exchange rights which attach to the
warrants, options and convertible securities which are listed on SECTION 4.3 OF
THE COMPANY DISCLOSURE SCHEDULE, there are no shares of Common Stock or any
other equity security of the Company issuable upon conversion, exchange or
exercise of any security of the Company or any Subsidiary of the Company nor are
there any rights, options, calls or warrants outstanding or other agreements to
acquire shares of Common Stock nor is the Company contractually obligated to
purchase, redeem or otherwise acquire any of its outstanding shares. No
stockholder of the Company is entitled to any preemptive or similar rights to
subscribe for shares of capital stock of the Company.
4.4. CORPORATE PROCEEDINGS, ETC.
(a) The Company has authorized the execution, delivery, and performance of
the Transaction Documents and each of the transactions and agreements
contemplated hereby and thereby. No other corporate action (other than
stockholder approval of the issuance of the Shares hereunder) is necessary
to authorize such execution, delivery and performance of the Transaction
Documents, and upon such execution and delivery by the parties thereto each
of the Transaction Documents shall constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and general principles of
equity. The Company has authorized the issuance and delivery of the Shares
in accordance with this Agreement.
(b) Each Merger Sub has authorized the execution, delivery, and
performance of this Agreement and each of the transactions contemplated
hereby. No other corporate action of a Merger Sub (including stockholder
approval) is necessary to authorize such execution, delivery and performance
of this Agreement, and upon such execution and delivery by the parties
thereto this Agreement shall constitute the valid and binding obligation of
each Merger Sub, enforceable against such Merger Sub in accordance with its
terms, except that such enforcement
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may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and
general principles of equity.
4.5. CONSENTS AND APPROVALS.
(a) The execution and delivery by the Company of the Transaction
Documents, the issuance of the Shares, the performance by the Company of its
obligations hereunder and thereunder and the consummation by the Company of
the transactions contemplated hereby and thereby do not require the Company
or any of its Subsidiaries to obtain any consent, approval, clearance or
action of, or make any filing, submission or registration with, or give any
notice to, any Person or judicial authority.
(b) Except for possible submission under the HSR, the execution and
delivery by the Merger Subs of this Agreement, the performance by the Merger
Subs of their respective obligations hereunder and the consummation by the
Merger Subs of the transactions contemplated hereby do not require the Merger
Subs to obtain any consent, approval, clearance or action of, or make any
filing, submission or registration with, or give any notice to, any Person or
judicial authority.
4.6. COMPLIANCE WITH LAW.
(a) The Company and each of its Subsidiaries are in compliance in all
material respects with, and are not in violation or default in any material
respect under, all foreign, federal, state and local laws, ordinances,
government rules and regulations applicable to their business operations,
properties, or assets, including without limitation laws or regulations relating
to: the Food and Drug Administration; the Foreign Corrupt Practices Act; the
environment; occupational health and safety; employer benefits; ERISA plans;
wages; work place safety; equal employment opportunity and race; and religious,
sex and age discrimination. No material expenditures are or will be required in
order to cause the current operations or properties of the Company or any of its
Subsidiaries to comply with any applicable laws, ordinances, governmental rules
or regulations in effect at the time of the Closing.
(b) The Company and each of its Subsidiaries have all licenses,
permits, franchises or other governmental authorizations ("APPROVALS") necessary
to the ownership of their property and to the operation of their respective
businesses, which if violated or not obtained could reasonably be expected to
have a Company Material Adverse Effect. Neither the Company nor any Subsidiary
has finally been denied any application for any such Approvals necessary for
their property or for the operation of their business. There is no action
pending, or to the best
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knowledge of the Company or any of its Subsidiaries, threatened or
recommended by appropriate local, state, federal or foreign agencies having
jurisdiction thereof, to revoke, withdraw, or suspend any such Approvals, or
which would have a material adverse effect on such Approvals.
(c) Notwithstanding anything to the contrary contained in this
Agreement and in addition to the other representations and warranties
contained herein: (i) the Company and its operations are in material
compliance with all applicable laws, regulations and other requirements of
governmental or regulatory authorities or duties under the common law
relating to toxic or hazardous substances, wastes, pollution or to the
protection of health, safety or the environment (collectively, "ENVIRONMENTAL
LAWS") and have obtained and maintained in effect all licenses, permits and
other authorizations or registrations (collectively "ENVIRONMENTAL PERMITS")
required under all Environmental Laws and are in material compliance with all
such Environmental Permits; (ii) the Company has not performed or suffered
any act which could give rise to, or has otherwise incurred, liability to any
Person (governmental or not) under CERCLA, or any other Environmental Laws,
nor has the Company received notice of any such liability or any claim
therefor or submitted notice pursuant to Section 103 of CERCLA to any
governmental agency with respect to any of its assets; (iii) no hazardous
substance, hazardous waste, contaminant, pollutant or toxic substance (as
such terms are defined in any applicable Environmental Law and collectively
referred to herein as "HAZARDOUS MATERIALS") has been released, placed,
dumped or otherwise come to be located on, at, beneath or near any of the
assets or properties owned or leased by the Company or any surface waters or
groundwaters thereon or thereunder in violation of any Environmental Laws or
that could subject the Company to liability under any Environmental Laws
(provided, however, that as to actions of Persons other than the Company and
its Subsidiaries or their predecessors this item (iii) is only to the best
knowledge of the Company); (iv) the Company does not own or operate, and has
never owned or operated, aboveground or underground storage tanks used for
storing petroleum products and which are subject to underground storage tank
removal or clean-up requirements in effect on the date hereof; (v) with
respect to any or all of the real properties leased by the Company, to the
Company's best knowledge (A) there are no asbestos-containing materials, urea
formaldehyde insulation, polychlorinated biphenyls or lead-based paints
present at any such properties, and (B) there are no wetlands as defined
under any Environmental Law located on any such properties; (vi) to the
Company's best knowledge none of the real properties leased by the Company
(A) has been used or is now used for the generation, transportation, storage,
handling, treatment or disposal of any Hazardous Materials (other than de
minimis quantities of Hazardous Materials used in the normal course of
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the Company's business in material compliance with all applicable
Environmental Laws), or (B) is identified on a federal, state or local
listing of sites which require or might require environmental cleanup; (vii)
to the best of the Company's knowledge, no condition exists on any of the
real properties leased by the Company that upon the failure to act, the
passage of time or the giving of notice would give rise to liability under
any Environmental Law; (viii) to the best of the Company's knowledge, there
are no ongoing investigations or negotiations, pending or threatened
administrative, judicial or regulatory proceedings, or consent decrees or
other agreements in effect that relate to environmental conditions in, on,
under, about or related to the Company, its operations or the real properties
leased by the Company; and (ix) neither the Company nor its operations is
subject to reporting requirements under the federal Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Section 11001 ET SEQ., or analogous
state statutes and related regulations.
4.7. LITIGATION.
Except as disclosed in the Company SEC Reports, there is no legal
action, suit, arbitration or other legal, administrative or other governmental
investigation, inquiry or proceeding (whether federal, state, local or foreign)
(collectively "PROCEEDING") pending or, to the best of the Company's knowledge,
threatened against or affecting (i) the Company or any Subsidiary or any of
their respective properties, assets or businesses, except for Proceedings that
could not reasonably be expected to have a Company Material Adverse Effect; or
(ii) the transaction contemplated hereby. To the best knowledge of the Company,
the Company is not aware of any fact which might result in or form the basis for
any such Proceeding. Neither the Company nor any Subsidiary is subject to any
order, writ, judgment, injunction, decree, determination or award of any court
or of any governmental agency or instrumentality (whether federal, state, local
or foreign) which could reasonably be expected to have a Company Material
Adverse Effect.
4.8. CHANGE IN OWNERSHIP.
Neither the acquisition of the Shares by ZGNA nor the consummation of
the transactions contemplated by this Agreement will result in (i) to the
knowledge of the Company, any material adverse change in the business operations
of the Company or any of its Subsidiaries, (ii) the acceleration of the vesting
of any outstanding option, warrant, call, commitment, agreement, conversion
right, preemptive right or other right to subscribe for, purchase or otherwise
acquire any of the shares of the capital stock of the Company or any of its
Subsidiaries, or debt securities of the Company or any of its Subsidiaries
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(collectively "COMMITMENTS", and each individually a "COMMITMENT"), (iii) any
obligation of the Company to grant, extend or enter into any Commitment, or
(iv) any right in favor of any Person to terminate or cancel any Company Key
Agreement or Instrument.
4.9. ABSENCE OF DEFAULTS, CONFLICTS, ETC.
(a) The execution and delivery of the Transaction Documents and the
issuance, exchange and delivery by the Company of any of the Shares do not, and
the fulfillment of the terms hereof and thereof by the Company will not, result
in a breach of any of the terms, conditions or provisions of, or constitute a
default under, or result in the modification of, or permit the acceleration of
rights under or termination of, any agreement, contract, commitment,
understanding, arrangement, restriction, indenture, mortgage, deed of trust,
credit agreement, note or other evidence of indebtedness, of the Company or any
of its Subsidiaries (i) involving $100,000 or more, (ii) the termination of
which is reasonably likely to have a Company Material Adverse Effect or (iii)
which is required to be filed as an exhibit to periodic reports filed by the
Company pursuant to the Exchange Act ("COMPANY KEY AGREEMENTS AND INSTRUMENTS"),
or the Organizational Documents, or any arbitration award applicable to the
Company or any of its Subsidiaries, or any law, ordinance, code, standard,
judgment, rule or regulation of any court or local, federal, state or foreign
regulatory board or body or administrative agency having jurisdiction over the
Company or any of its Subsidiaries or over their respective properties or
businesses.
(b) Neither any of the Company nor any of its Subsidiaries is in
default under or in violation of (and no event has occurred and no condition
exists which, upon notice or the passage of time (or both), would constitute a
default under) (i) the Organizational Documents, (ii) any Company Key Agreement
and Instrument, or (iii) any order, writ, injunction or decree of any court or
any Federal, state, local or other domestic or foreign governmental department,
commission, board, bureau, agency or instrumentality or arbitration award,
except, in the case of clause (ii), for defaults or violations which would not
have a Company Material Adverse Effect.
4.10. REPORTS AND FINANCIAL STATEMENTS.
The Company has furnished ZGNA with true and complete copies of the
Company's (i) Annual Reports on Form 10-K for the fiscal years ended April
30, 1997 and April 30, 1998, as filed with the Commission, (ii) Quarterly
Report on Form 10-Q for the quarter ended July 31, 1998, as filed with the
Commission, (iii) proxy statements related to all meetings of its
stockholders (whether annual or special) held since May 1, 1996, and (iv) all
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other reports filed with or registration statements declared effective by the
Commission since May 1, 1996, except registration statements on Form S-8
relating to employee benefit plans, which are all the documents (other than
preliminary material) that the Company was required to file with the
Commission since that date (clauses (i) through (iv) being referred to herein
collectively as the "COMPANY SEC REPORTS"). As of their respective dates,
the Company SEC Reports were duly filed and complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the Commission thereunder applicable
to such Company SEC Reports. As of their respective dates, the Company SEC
Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the Company SEC
Reports comply as to form in all material respects with applicable accounting
requirements of the Securities Act and with the published rules and
regulations of the Commission with respect thereto. The financial statements
included in the Company SEC Reports (i) have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent
basis (except as may be indicated therein or in the notes thereto and, in the
case of unaudited interim financial statements, the absence of all GAAP
required footnotes and normal year-end audit adjustments), (ii) present
fairly, in all material respects, the financial position of the Company and
its Subsidiaries as at the dates thereof and the results of their operations
and cash flow for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end audit adjustments
and any other adjustments described therein and the fact that certain
information and notes have been condensed or omitted in accordance with the
Exchange Act and the rules promulgated thereunder, and (iii) are in all
material respects in accordance with the books of account and records of the
Company except as indicated therein.
4.11. ABSENCE OF CERTAIN DEVELOPMENTS.
Except as disclosed in the Company SEC Reports, since April 30,
1998, there has been no (i) change or event which could reasonably be
expected to have a Company Material Adverse Effect (other than general trends
or new laws, rules, or regulations applicable to similarly situated
companies), (ii) declaration, setting aside or payment of any dividend or
other distribution with respect to the capital stock of the Company, (iii)
issuance of capital stock (other than pursuant to the exercise of options,
warrants or convertible securities outstanding on the date hereof) or options,
warrants or rights to acquire capital stock
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(other than the rights granted to ZGNA hereunder or to directors for
attending meetings and serving as directors in accordance with the historical
arrangement), (iv) material loss, destruction or damage to any property of
the Company or any Subsidiary, whether or not insured, (v) except as a result
of the new bank credit facility contemplated herein, acceleration or
prepayment of any indebtedness for borrowed money or capital leases or the
refunding of any such indebtedness, (vi) labor trouble involving the Company
or any Subsidiary or any material change in their personnel or the general
terms and conditions of employment of key employees, (vii) waiver of any
valuable right in favor of the Company or any Subsidiary, (viii) loan or
extension of credit to any officer or employee of the Company or any
Subsidiary other than advances for travel-related expenses and similar
advances to officers and employees of the Company in the ordinary course of
business, (ix) acquisition, material writedown or write-off for accounting
purposes or disposition of any material assets (or any contract or
arrangement therefor) other than a possible sale or writedown of the
paclitaxel business and assets, (x) redemption or repurchase of any capital
stock of the Company, or any other material transaction by the Company or any
Subsidiary otherwise than for fair value in the ordinary course of business
or (xi) termination of an agreement or arrangement which would be a Company
Key Agreement or Instrument if in effect on the date hereof.
4.12. MATERIAL CONTRACTS.
SECTION 4.12 OF THE COMPANY DISCLOSURE SCHEDULE sets forth a true
and complete list of each Company Key Agreement and Instrument (oral or
written) to which the Company or its Subsidiary is a party of its assets
bound other than Company Key Agreements and Instruments (i) filed as an
exhibit to a Company SEC Report and (ii) under which the Company has no
further liabilities (whether accrued, absolute, contingent, liquidated or
otherwise, whether due or to become due, whether or not known to the Company)
or obligations as of the date hereof. Each Company Key Agreement and
Instrument that is currently in effect, is valid, binding and enforceable
against the Company or such Subsidiary and, to the Company's best knowledge,
the other parties thereto, in accordance with its terms, and in full force
and effect on the date hereof. A true and complete copy of each Key
Agreement and Instrument of the Company has been delivered or made available
to ZGNA. There is no breach, violation or default by the Company and no
event (including, without limitation, the consummation of the transactions
contemplated herein) which, with notice or lapse of time or both, would (i)
constitute a breach, violation or default by the Company under any Company
Key Agreement or Instrument, or (ii) give rise to any lien or right of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration against the
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Company under any Company Key Agreement or Instrument except for breaches,
violations or defaults that would not have a Company Material Adverse Effect.
To the best of the Company's knowledge, no other party to any Company Key
Agreement or Instrument is in material breach of any such Company Key
Agreement or Instrument, no waiver or indulgence has been granted by any of
the parties thereto and no party to any such Company Key Agreement and
Instrument has repudiated any provision thereof. The Company is not a party
to, nor are any of its assets subject to, any guaranty, "make well" agreement
or other arrangement to be responsible for the obligations of another,
including any obligation to maintain the financial condition of another
person.
4.13. ABSENCE OF UNDISCLOSED LIABILITIES.
Neither the Company nor any of its Subsidiaries has any debt,
obligation or liability (whether accrued, absolute, contingent, liquidated or
otherwise, whether due or to become due, whether or not known to the Company)
arising out of any transaction entered into at or prior to Closing, or any
act or omission at or prior to Closing, or any state of facts existing at or
prior to Closing, including Taxes with respect to or based upon transactions
or events occurring at or prior to Closing, and including, without
limitation, unfunded past service liabilities under any pension, profit
sharing or similar plan, except liabilities disclosed in the Company SEC
Reports, current liabilities incurred since April 30, 1998, current
obligations (other than as a result of breach or default) under agreements
set forth on SECTION 4.12 OF THE COMPANY DISCLOSURE SCHEDULE, and obligations
under agreements which are not required to be set forth on such schedule
entered into in the usual and ordinary course of business, none of which
(individually or in the aggregate) could have a Company Material Adverse
Effect.
4.14. EMPLOYEES.
(a) The Company and its Subsidiaries are in full compliance with all
laws regarding employment, wages, hours, equal opportunity, collective
bargaining and payment of social security and other taxes except to the extent
that noncompliance would not have a Company Material Adverse Effect. Since
January 1, 1997, no complaint of any unfair labor practice or discriminatory
employment practice against the Company or any Subsidiary has been filed or, to
the best of the Company's knowledge, threatened to be filed with or by the
National Labor Relations Board, the Equal Employment Opportunity Commission or
any other administrative agency, local, foreign, federal or state, that
regulates labor or employment practices, nor is any grievance filed or, to the
best of the Company's knowledge, threatened to be filed, against the Company or
any Subsidiary by any employee pursuant to any collective bargaining or other
employment agreement to which the Company or any Subsidiary is a
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party or is bound, except as would not reasonably be expected to have a
Company Material Adverse Effect. The Company and its Subsidiaries are in
compliance with all applicable foreign, federal, state and local laws and
regulations regarding occupational safety and health standards except to the
extent that noncompliance will not have a Company Material Adverse Effect,
and, since April 30, 1996, have received no complaints from any foreign,
federal, state or local agency or regulatory body alleging violations of any
such laws and regulations. The Company is not bound or subject to any
arrangement with any labor union, and, to the Company's best knowledge no
union organizing activities are ongoing or threatened.
(b) All sums due for employee compensation and benefits and all
vacation time owing to any employees of the Company or any of its Subsidiaries
have been duly and adequately accrued on the accounting records of the Company
and its Subsidiaries.
(c) The Company is not aware that any of its executive officers or
persons whose principal occupation is the creation of intellectual property is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
executive officer's or person's best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted.
(d) The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing.
(e) Set forth on SECTION 4.14 OF COMPANY DISCLOSURE SCHEDULE is (i) a
list of employees of the Company with an annual base compensation over $50,000,
(ii) a list of all officers of the Company and (iii) a list of all employment
agreements to which the Company is a party (copies of which have been delivered
to ZGNA).
4.15. TAX MATTERS.
There are no Taxes due and payable by the Company or any of its Subsidiaries
which have not been paid except those being disputed in good faith by
appropriate proceeding with appropriate reserves being made therefore on the
accounting books of the Company. The provisions for Taxes on the audited and
unaudited balance sheets delivered by the Company to ZGNA will be sufficient for
the payment in all material respects of all accrued and unpaid Taxes of the
Company and its Subsidiaries, whether or not assessed or disputed in good faith
as of the
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respective dates of such balance sheets. The Company and its Subsidiaries
have duly filed or received extensions to filing all foreign, federal, state
and local tax returns required to have been filed by them, and there are in
effect no waivers of applicable statutes of limitations with respect to taxes
for any year except where the failure to file such returns or the existence
of waivers of applicable statutes of limitations is not reasonably likely to
have a Company Material Adverse Effect. All such returns (including those
delivered by the Company to ZGNA) are true, complete and correct in all
material respects and have been prepared from, and are in accordance with,
the books and records of the Company and its Subsidiaries. Neither the
Company nor its Subsidiaries is a party to a Tax sharing agreement or liable
for the Taxes of any other person. Neither the Company nor its Subsidiaries
have filed a consent to the application of Section 341(f) of the Code. The
Company and its Subsidiaries have made all estimated income tax deposits and
all other required Tax payments or deposits and have complied for all prior
periods with the Tax withholding provisions of all applicable foreign,
federal, state and local laws applicable to them. Neither the Company nor
any of its Subsidiaries has been subject to a foreign, federal or state tax
audit since April 30, 1996.
4.16. EMPLOYEE BENEFIT PLANS.
The Company and its Subsidiaries have no employee benefit plans
(as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974) covering former and current employees of the Company or any of its
Subsidiaries, or under which the Company or any of its Subsidiaries has any
obligation or liability. SECTION 4.16 OF THE COMPANY DISCLOSURE SCHEDULE
lists all material plans, contracts, bonuses, commissions, profit-sharing,
savings, stock options, insurance, deferred compensation, or other similar
fringe or employee benefits covering former or current employees of the
Company or any of its Subsidiaries or under which the Company or any of its
Subsidiaries has any obligation or liability (each, a "BENEFIT
ARRANGEMENT"). True and complete copies of all Benefit Arrangements have
been provided or made available to ZGNA prior to the date hereof. The
Benefit Arrangements are and have been administered in substantial
compliance with their terms and with the requirements of applicable law.
No "prohibited transaction" within the meaning of Section 4475 of the Code
or Section 406 of ERISA, has occurred with respect to any Benefit
Arrangements. All payments to current or former employees of the Company or
any of its Subsidiaries pursuant to the Benefit Arrangements are and have
been fully deductible under the Code.
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4.17. PATENTS, LICENSES, ETC.
The Company or one of its Subsidiaries owns, free and clear of all
encumbrances, restrictions, liens, security interests and charges, and has
good and marketable title to, or holds adequate licenses or otherwise
possesses all such rights as are necessary to use all patents (and
applications therefor), patent disclosures, marks, trade names, copyrights
(and applications therefor), inventions, discoveries, processes, know-how,
scientific, technical, engineering and marketing data, formulae and
techniques used or proposed to be used, in or necessary for the conduct of
its business as now conducted (collectively, "INTELLECTUAL PROPERTY").
Neither the Company nor any of its Subsidiaries has received notice
nor has knowledge of any conflict or alleged conflict with the rights of
others pertaining to the Intellectual Property described in this Section 4.17
where the effect of such conflict could have a Company Material Adverse
Effect. To the Company's best knowledge, the Company's business, as
presently conducted, and as proposed to be conducted, does not infringe upon
or violate any patent rights, copyrights, marks, names, trade names or trade
secrets of others. To the Company's best knowledge, the Company and its
Subsidiaries have the right to use all trade secrets, processes, customer
lists and other rights incident to their respective businesses as now
conducted.
To the Company's best knowledge, no employee of the Company or any
of its Subsidiaries has violated any employment agreement, non-compete
agreement or proprietary information agreement which he or she had with a
previous employer or other person, or any intellectual property policy of
such employer, or is a party to or threatened by any litigation concerning
any patents, marks, trade secrets, service names, trade names, copyrights,
licenses and the like.
4.18. TITLE TO TANGIBLE ASSETS.
The Company and its Subsidiaries have good title to their
properties and assets and good title to all their leasehold estates, in each
case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than or resulting from Taxes which have not yet become delinquent and
minor liens and encumbrances which do not in any case materially detract from
the value of the property subject thereto or materially impair the operations
of the Company and its Subsidiaries and which have not arisen otherwise than
in the ordinary course of business.
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4.19. INSURANCE.
The Company and its Subsidiaries and their respective properties
are insured in such amounts, against such losses and with such insurers as
are prudent when considered in light of the nature of the properties and
businesses of the Company and its Subsidiaries and customary in light of the
Company's exposure. No notice of any termination, threatened termination, or
denial of a material claim made since January 1, 1997, of, or under any of
such policies has been received and such policies are in full force and
effect. A summary of all such policies, including whether they are on a
"claims made" basis, is attached as SECTION 4.19 OF THE COMPANY DISCLOSURE
SCHEDULE. None of such policies will be terminated or reduced in coverage as
a result of the transactions described herein. All such policies are in full
force and effect and all premiums with respect thereto have been paid. The
Company has not failed to give any notice or present any claim under any such
insurance policy in due and timely fashion or as required by any of such
insurance policies or has not otherwise, through any act, omission or
non-disclosure, jeopardized or impaired full recovery of any claim under such
policies, and there are no claims by the Company under any of such policies
to which any insurance company is denying liability or defending under a
reservation of rights or similar clause.
4.20. TRANSACTIONS WITH RELATED PARTIES.
Neither the Company nor any Subsidiary is a party to any agreement
with any of the Company's directors, officers or, to their best knowledge
stockholders holding more than 1/2% of the Company's stock, or, to their best
knowledge, any Affiliate or family member of any of the foregoing, including
but not limited to, under which it: (i) leases any real or personal property
(either to or from such Person), (ii) licenses technology (either to or from
such Person), (iii) is obligated to purchase any tangible or intangible asset
from or sell such asset to such Person, (iv) purchases products or services
from such Person or (v) has borrowed money from or lent money to such Person.
Neither the Company nor any Subsidiary employs as an employee or engages as
a consultant any family member of any of the Company's directors or officers.
To the best knowledge of the Company and except for the Transaction
Documents, there exist no agreements among stockholders of the Company to act
in concert with respect to their voting or holding of Company securities.
4.21. REGISTRATION RIGHTS.
Except as provided in the Registration Rights Agreement executed on
the date hereof between ZGNA and the Company, and except as pursuant to its
stock option plans, the Company is not
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under any obligation to register any of its securities under the Securities
Act.
4.22. PRIVATE OFFERING.
Neither the Company nor anyone acting on its behalf has sold or has
offered any of the Shares for sale to, or solicited offers to buy from, or
otherwise approached or negotiated with respect thereto with, any prospective
purchaser of the Shares, other than ZGNA and ZBI. Neither the Company nor
anyone acting on its behalf shall offer the Shares for issue or sale to, or
solicit any offer to acquire any of the same from, anyone so as to bring the
issuance and sale of the Shares, or any part thereof, within the provisions
of Section 5 of the Securities Act. Based in part upon the representations
of ZGNA and ZBI set forth in Section 5, the offer, issuance and sale of the
Shares are and will be exempt from the registration and prospectus delivery
requirements of the Securities Act, and have been registered or qualified (or
are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities laws.
4.23. INVESTMENT.
(a) The Company is acquiring the Subsidiary Shares for its own
account for investment and not with a view towards the resale, transfer, pledge
or distribution thereof, nor with any present intention of distributing the
Subsidiary Shares other than a pledge in favor of the Company's lender pursuant
to the credit agreement referred to in Section 7.9.
(b) The Company has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of its
investment in the Contributed Subsidiaries as contemplated by this Agreement,
and is able to bear the economic risk of such investment for an indefinite
period of time. The Company has been furnished access to such information and
documents as it has requested and has been afforded an opportunity to ask
questions of and receive answers from representatives of ZGNA and the
Contributed Subsidiaries concerning the terms and conditions of this Agreement
and the Mergers contemplated hereby.
(c) The Company is an "accredited investor" as defined under
Regulation D of the Securities Act.
(d) The Company is located in Colorado and the offer and sale of the
Shares occurred in the States of Colorado and California.
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4.24. BROKERAGE.
Except for the Company's agreement with Adams, Harkness & Hill,
Inc. whose fees and expenses shall be paid by the Company, there are no
claims for brokerage commissions or finder's fees or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement made by or on behalf of the Company, and the Company agrees to
indemnify and hold ZGNA harmless against any costs or damages incurred as a
result of any such claim.
4.25. TAKEOVER STATUTE.
ZGNA is not, as a result of its execution and delivery of this
Agreement, the performance of its obligations hereunder or the acquisition of
any Shares, prohibited from entering into a business combination with the
Company or any Subsidiary pursuant to the Business Corporation Act of the
State of Colorado. To the best knowledge of the Company, no other Takeover
Statute is applicable to the transactions contemplated hereby.
4.26. MATERIAL FACTS.
This Agreement, the Company Disclosure Schedules, and the other
agreements, documents, certificates or written statements furnished or to be
furnished to ZGNA through the Closing Date by or on behalf of the Company in
connection with the transactions contemplated hereby taken as a whole, do not
contain any untrue statement by the Company of a material fact or omit to
state a material fact necessary to make the statements contained therein or
herein, in light of the circumstances in which they were made, not
misleading. There is no fact which is known to the Company and which has not
been disclosed herein or otherwise by the Company to ZGNA which is reasonably
likely to have a Company Material Adverse Effect. Projections and forecasts
prepared by or on behalf of the Company and delivered to ZGNA have been
prepared in good faith and on a basis believed by the Company's management to
be reasonable, but are not guarantees of performance.
4.27. DEBT.
As of the Closing Date, the "Debt" (as defined below) of the
Company will not exceed $10,000,000. For purposes of this Section, "Debt"
means debt for borrowed money (long term, for working capital purposes or
otherwise), obligations under letters of credit and capital lease obligations.
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4.28. COMPANY REAL PROPERTY.
(a) SECTION 4.28 OF COMPANY'S DISCLOSURE SCHEDULE lists all real
property owned or leased by the Company and its Subsidiaries. The Company
and its Subsidiaries have title to its owned real properties (collectively,
the "COMPANY OWNED REAL PROPERTIES") in each case, free and clear of all
imperfections of title and all encumbrances, except for (i) those consisting
of zoning or planning restrictions, easements, permits and other restrictions
or limitations on the use of such property or irregularities in title thereto
which, individually and in the aggregate, do not materially impair the use of
such property, (ii) warehousemen's, mechanics', carriers', landlords',
repairmen's or other similar encumbrances arising in the ordinary course of
business and securing obligations not yet due and payable, (iii) other
encumbrances which arise in the ordinary course of business and which
individually and in the aggregate do not materially impair its use of such
property or its ability to obtain financing by using such assets as
collateral, (iv) any state of facts, including, without limitation,
easements, encroachments or encumbrances, either shown by any survey or other
inspection or granted by the Company prior to the date hereof, of such
Company Owned Real Property which do not materially adversely interfere with
the occupancy or use, as presently used or occupied, of such Company Owned
Real Property, (v) liens for taxes and/or assessments not yet delinquent or
which are being contested in good faith through appropriate proceedings, (vi)
all rights or easements, if any, of any municipality or other public or
private utility company, to maintain telephone wires, pipes, conduits or
other facilities which enter or cross such Company Owned Real Property and
(vii) any state of facts, including without limitation, rights, easements,
liens, encroachments or encumbrances that any title report, title commitment
or title insurance policy would disclose (encumbrances referenced in clauses
(i) through (vii) collectively referred to as the "COMPANY PERMITTED
ENCUMBRANCES").
(b) The Company has delivered to ZGNA a true and complete list of all
of the leases and subleases to which the Company is a party as described on
SECTION 4.28 OF COMPANY'S DISCLOSURE SCHEDULE (collectively, the "COMPANY LEASED
REAL PROPERTIES," together with Company Owned Real Properties, the "COMPANY REAL
PROPERTIES"). The leases and subleases described on SECTION 4.28 OF THE COMPANY
DISCLOSURE SCHEDULE (i) have not been further modified or amended and (ii) are
in full force and effect. To the knowledge of the Company, there is no default
which remains uncured and would materially adversely interfere with the
occupancy or use, as presently used or occupied, of any Company Leased Real
Property. The Company is not obligated to purchase any Company Leased Real
Property and no Company Leased Real Property is required to be accounted for
under GAAP as a capitalized lease.
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4.29. CORPORATE MINUTE BOOKS.
The corporate records of the Company are correct and complete.
True and correct copies of all minutes of meetings or other actions by the
directors, stockholders or incorporators of the Company for the past five
years have been provided and since its inception have previously been
provided or made available to ZGNA.
4.30. GOOD CONDITION.
The buildings, facilities, machinery, equipment, furniture,
leasehold and other improvements, fixtures, vehicles, structures, any related
capitalized items and other tangible property owned by or leased to the
Company (i) are to the Company's best knowledge, in all material respects in
good operating condition and repair (normal wear and tear excepted) and, in
the case of buildings or structures located on the Company Real Properties,
free of any structural or engineering defects, and (ii) to the Company's best
knowledge, are suitable in all material respects for their current use. The
Company has not received notice of, and has no knowledge of, any pending,
threatened or contemplated condemnation proceeding or similar taking
affecting the assets of the Company (including the Company Real Properties).
4.31. MANUFACTURING CAPACITY.
The Company currently (i) has, except for drying capacity which it
may outsource, the manufacturing capacity to manufacture 500 tons of
nutraceutical extracts per year and (ii) has or can readily hire
manufacturing and support personnel reasonably necessary to support such
manufacturing capacity.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF ZGNA
ZGNA and ZBI represent and warrant to the Company as of the date
hereof that except (i) as expressly set forth in the corresponding numbered
section in that certain ZGNA Disclosure Schedule of even date herewith by and
between the Company and ZGNA, and, (ii) as to the Transaction Documents, the
representations and warranties of ZGNA and ZBI are only to the extent that
ZGNA, ZBI or a Contributed Subsidiary is a party to such Transaction
Documents:
5.1. CORPORATE ORGANIZATION.
(a) Each of ZGNA and ZBI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
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(b) Each of ZGNA and ZBI has all requisite power and authority to
execute and deliver the Transaction Documents and to perform its obligations
hereunder and thereunder.
(c) Each of ZGNA and ZBI has filed all necessary documents to qualify
to do business as a foreign corporation in, and each of ZGNA and ZBI is in good
standing under the laws of each jurisdiction in which the conduct of its
business or the nature of its property owned requires such qualification, except
where the failure to so qualify would not have a material adverse effect on the
business, properties, prospects, profits or condition (financial or otherwise)
of the Contributed Subsidiaries taken as a whole (a "SUBSIDIARY MATERIAL ADVERSE
EFFECT").
5.2. CONTRIBUTED SUBSIDIARIES.
Each Contributed Subsidiary has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has all requisite corporate power and authority to own
its properties and assets and to conduct its business and is duly registered,
qualified and authorized to transact business and is in good standing in each
jurisdiction in which the conduct of its business or the nature of its
properties requires such registration, qualification or authorization, except
where the failure to be so registered, qualified or authorized would not have
a Subsidiary Material Adverse Effect. A list of each jurisdiction in which a
Contributed Subsidiary is qualified to do business is set forth in SECTION
5.2 OF ZGNA DISCLOSURE SCHEDULE. All of the issued and outstanding capital
stock of each Contributed Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable, and is owned of record and
beneficially, directly or indirectly, by ZGNA or ZBI free and clear of any
mortgage, pledge, lien, charge, security interest, claim or other legal or
equitable encumbrance, limitation or restriction. There are no outstanding
options, warrants, agreements, conversion rights, preemptive rights or other
rights to subscribe for, purchase or otherwise acquire any issued or unissued
shares of capital stock of any Contributed Subsidiary. No Contributed
Subsidiary has a Subsidiary or interest in a general partnership or any
interest in excess of 5% of the equity interest of any other entity.
5.3. CAPITALIZATION.
(a) On the date hereof and as of the Closing, the authorized capital
stock of (i) Zuellig Botanical Extracts consists of 100 shares of common stock,
par value $0.01 per share, (ii) ZetaPharm consists of 1,000 shares of common
stock, par value $1.00 per share, and 10 shares of cumulative preferred stock,
par value $200,000 per share, and (iii) Wilcox consists of 1,000 shares of
common stock, par value $1.00 per share. On the
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date hereof, the issued and outstanding shares of capital stock of (i)
Zuellig Botanical Extracts consists of 100 shares of its common stock, (ii)
ZetaPharm consists of 960 shares of its common stock and 10 shares of its
cumulative preferred stock and (iii) Wilcox consists of 80 shares of its
common stock. There are no bonds, debentures, notes, other evidences of
indebtedness, or any person other than ZGNA as a stockholder of ZetaPharm and
Wilcox, or any person other than ZBI as a stockholder of Zuellig Botanical
Extracts, having the right to vote on any matters on which the Contributed
Subsidiaries' stockholders may vote issued or outstanding. No Contributed
Subsidiary has any accrued but unpaid dividends.
(b) There are no shares of any equity or voting security of the
Contributed Subsidiaries issuable upon conversion, exchange or exercise of any
security of the Contributed Subsidiaries nor are there any rights, options,
calls or warrants outstanding or other agreements to acquire any equity or
voting security of any Contributed Subsidiaries nor is any Contributed
Subsidiary contractually obligated to purchase, redeem or otherwise acquire any
of its outstanding shares. No stockholder of any Contributed Subsidiary is
entitled to any preemptive or similar rights to subscribe for shares of capital
stock of the Contributed Subsidiaries.
5.4. CORPORATE PROCEEDINGS, ETC.
(a) Each of ZGNA and ZBI has authorized the execution, delivery, and
performance of the Transaction Documents and each of the transactions and
agreements contemplated hereby and thereby. No other corporate action
(including stockholder approval) is necessary to authorize such execution,
delivery and performance of the Transaction Documents, and upon such
execution and delivery by the parties thereto each of the Transaction
Documents shall constitute the valid and binding obligation of ZGNA and ZBI,
enforceable against ZGNA and ZBI in accordance with its terms, except that
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and general principles of equity. Each of ZGNA and ZBI has
authorized the Mergers in accordance with this Agreement.
(b) The Contributed Subsidiaries have authorized the execution,
delivery, and performance of this Agreement and each of the transactions
contemplated hereby. No other corporate action (including stockholder
approval) is necessary to authorize such execution, delivery and performance
of this Agreement, and upon such execution and delivery by the parties
thereto this Agreement shall constitute the valid and binding obligation of
the Contributed Subsidiaries, enforceable against them in accordance with its
terms, except that such enforcement
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may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and
general principles of equity. The Contributed Subsidiaries have authorized
the Mergers in accordance with this Agreement.
5.5. CONSENTS AND APPROVALS.
Except for submissions under the HSR, the execution and delivery by
ZGNA or ZBI of the Transaction Documents, the performance by ZGNA, ZBI and
the Contributed Subsidiaries of their obligations hereunder and thereunder
and the consummation by ZGNA, ZBI and the Contributed Subsidiaries of the
transactions contemplated hereby and thereby do not require ZGNA, ZBI or any
Contributed Subsidiaries to obtain any consent, approval, clearance or action
of, or make any filing, submission or registration with, or give any notice
to, any Person or judicial authority.
5.6. COMPLIANCE WITH LAW.
(a) Each of the Contributed Subsidiaries is in compliance in all
material respects with, and is not in violation or default in any material
respect under, all foreign, federal, state and local laws, ordinances,
government rules and regulations applicable to its business operations,
properties, or assets, including without limitation laws or regulations relating
to: the Food and Drug Administration; the environment; the Foreign Corrupt
Practices Act; occupational health and safety; employer benefits; ERISA plans;
wages; work place safety; equal employment opportunity and race; and religious,
sex and age discrimination. No material expenditures are or will be required in
order to cause the current operations or properties of the Contributed
Subsidiaries to comply with any applicable laws, ordinances, governmental rules
or regulations in effect at the time of the Closing.
(b) Each of the Contributed Subsidiaries has all Approvals necessary
to the ownership of its property and to the operation of its respective
businesses, which if violated or not obtained could reasonably be expected to
have a Subsidiary Material Adverse Effect. None of the Contributed Subsidiaries
has finally been denied any application for any such Approvals necessary for its
property or for the operation of its business. There is no action pending, or
to the best knowledge of ZGNA or any of the Contributed Subsidiaries, threatened
or recommended by appropriate local, state, federal, or foreign agencies having
jurisdiction thereof, to revoke, withdraw, or suspend any such Approvals, or
which would have a material adverse effect on such Approvals.
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(c) Notwithstanding anything to the contrary contained in this
Agreement and in addition to the other representations and warranties
contained herein: (i) the Contributed Subsidiaries and their respective
operations are in material compliance with all Environmental Laws and have
obtained and maintained in effect all Environmental Permits required under
all Environmental Laws and are in material compliance with all such
Environmental Permits; (ii) the Contributed Subsidiaries have not performed
or suffered any act which could give rise to, or have otherwise incurred,
liability to any Person (governmental or not) under CERCLA, or any other
Environmental Laws, nor have the Contributed Subsidiaries received notice of
any such liability or any claim therefor or submitted notice pursuant to
Section 103 of CERCLA to any governmental agency with respect to any of their
assets; (iii) no hazardous substance, hazardous waste, contaminant, pollutant
or toxic substance (as such terms are defined in any applicable Environmental
Law) has been released, placed, dumped or otherwise come to be located on,
at, beneath or near any of the assets or properties owned or leased by the
Contributed Subsidiaries or any surface waters or groundwaters thereon or
thereunder in violation of any Environmental Laws or that could subject the
Contributed Subsidiaries to liability under any Environmental Laws (provided,
however, that as to actions of Persons other than the Contributed
Subsidiaries or their predecessors, this item (iii) is only to the best
knowledge of the Contributed Subsidiaries); (iv) the Contributed Subsidiaries
do not own or operate, and have never owned or operated, aboveground or
underground storage tanks used for storing petroleum products and which are
subject to underground storage tank removal or clean-up requirements in
effect on the date hereof; (v) with respect to any or all of the real
properties leased by the Contributed Subsidiaries, to the best knowledge of
the Contributed Subsidiary (A) there are no asbestos-containing materials,
urea formaldehyde insulation, polychlorinated biphenyls or lead-based paints
present at any such properties, and (B) there are no wetlands as defined
under any Environmental Law located on any such properties; (vi) to the best
knowledge of the Contributed Subsidiaries none of the real properties leased
by the Contributed Subsidiaries (A) has been used or is now used for the
generation, transportation, storage, handling, treatment or disposal of any
Hazardous Materials (other than de minimis quantities of Hazardous Materials
used in the normal course of the Contributed Subsidiaries' business in
material compliance with all applicable Environmental Laws), or (B) is
identified on a federal, state or local listing of sites which require or
might require environmental cleanup; (vii) to the best of ZGNA's and
Contributed Subsidiaries' knowledge, no condition exists on any of the real
properties leased by the Contributed Subsidiaries that upon the failure to
act, the passage of time or the giving of notice would give rise to
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liability under any Environmental Law; (viii) to the best of ZGNA's and
Contributed Subsidiaries' knowledge, there are no ongoing investigations or
negotiations, pending or threatened administrative, judicial or regulatory
proceedings, or consent decrees or other agreements in effect that relate to
environmental conditions in, on, under, about or related to the Contributed
Subsidiaries, their respective operations or the real properties leased by
the Contributed Subsidiaries; and (ix) none of the Contributed Subsidiaries
or their respective operations is subject to reporting requirements under the
federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Section
11001 ET SEQ., or analogous state statutes and related regulations.
5.7. LITIGATION.
There is no Proceeding (whether federal, state, local or foreign)
pending or, to the best of ZGNA's and the Contributed Subsidiaries' knowledge,
threatened against or affecting (i) any Contributed Subsidiary or any of their
respective properties, assets or businesses, except for Proceedings that could
not reasonably be expected to have a Subsidiary Material Adverse Effect; or (ii)
the transactions contemplated hereby. To the best knowledge of ZGNA and the
Contributed Subsidiaries, none of ZGNA or Contributed Subsidiaries is aware of
any fact which might result in or form the basis for any such Proceeding. None
of the Contributed Subsidiaries is subject to any order, writ, judgment,
injunction, decree, determination or award of any court or of any governmental
agency or instrumentality (whether federal, state, local or foreign) which could
reasonably be expected to have a Subsidiary Material Adverse Effect.
5.8. CHANGE IN OWNERSHIP.
The consummation of the transactions contemplated by this Agreement
will not result in (i) to the knowledge of ZGNA and the Contributed
Subsidiaries, any material adverse change in the business operations of a
Contributed Subsidiary, (ii) the acceleration of the vesting of any outstanding
option, warrant, call, commitment, agreement, conversion right, preemptive right
or other right to subscribe for, purchase or otherwise acquire any of the shares
of the capital stock of the Contributed Subsidiaries, or debt securities of the
Contributed Subsidiaries, (iii) any obligation of the Contributed Subsidiaries
to grant, extend or enter into any Commitment, or (iv) any right in favor of any
Person to terminate or cancel any Subsidiary Key Agreement or Instrument.
5.9. ABSENCE OF DEFAULTS, CONFLICTS, ETC.
(a) The execution and delivery of the Transaction Documents do not,
and the fulfillment of the terms hereof and
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thereof by ZGNA, ZBI or any Contributed Subsidiary will not, result in a
breach of any of the terms, conditions or provisions of, or constitute a
default under, or result in the modification of, or permit the acceleration
of rights under or termination of any agreement, contract, commitment,
understanding, arrangement, restriction, indenture, mortgage, deed of trust,
credit agreement, note or other evidence of indebtedness, of ZGNA, ZBI or any
of the Contributed Subsidiaries (i) involving $100,000 or more, (ii) the
termination of which is reasonably likely to have a Subsidiary Material
Adverse Effect or (iii) which is required to be filed as an exhibit to
periodic reports if ZGNA, ZBI or a Contributed Subsidiary were required to
file such reports pursuant to the Exchange Act ("SUBSIDIARY KEY AGREEMENTS
AND INSTRUMENTS") or the organizational documents of ZGNA, ZBI or any
Contributed Subsidiaries, or any arbitration award applicable to ZGNA, ZBI or
a Contributed Subsidiary, or any law, ordinance, code, standard, judgment,
rule or regulation of any court or local, federal, state or foreign
regulatory board or body or administrative agency having jurisdiction over
ZGNA, ZBI or any of the Contributed Subsidiaries or over their respective
properties or businesses.
(b) None of the Contributed Subsidiaries is in default under or in
violation of (and no event has occurred and no condition exists which, upon
notice or the passage of time (or both), would constitute a default under) (i)
the organizational documents of any Contributed Subsidiaries, (ii) any
Subsidiary Key Agreement and Instrument of any Contributed Subsidiaries, or
(iii) any order, writ, injunction or decree of any court or any Federal, state,
local or other domestic or foreign governmental department, commission, board,
bureau, agency or instrumentality, or arbitration award, except, in the case of
clause (ii), for defaults or violations which would not have a Subsidiary
Material Adverse Effect.
5.10. REPORTS AND FINANCIAL STATEMENTS.
The financial statements attached as SECTION 5.10 OF ZGNA
DISCLOSURE SCHEDULE (i) have been prepared in accordance with GAAP applied on
a consistent basis (except as may be indicated therein or in the notes
thereto and, in the case of unaudited interim financial statements, the
absence of all GAAP required footnotes and normal year-end audit
adjustments), (ii) present fairly, in all material respects, the financial
position of the Contributed Subsidiaries as at the date thereof and the
results of their operations and cash flow for the period then ended subject
to normal year-end audit adjustments and any other adjustments described
therein, and (iii) are in all material respects in accordance with the books
of account and records of the Contributed Subsidiaries except as indicated
therein. The balance sheets dated October 31, 1998 for each Contributed
Subsidiary are referred to as the "CS BALANCE SHEETS."
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5.11. ABSENCE OF CERTAIN DEVELOPMENTS.
Since March 31, 1998, there has been no (i) change or event which
could reasonably be expected to have a Subsidiary Material Adverse Effect
(other than general trends or new laws, rules, or regulations applicable to
similarly situated companies), (ii) declaration, setting aside or payment of
any dividend or other distribution with respect to the capital stock of the
Contributed Subsidiaries, (iii) issuance of capital stock or options,
warrants or rights to acquire capital stock (other than the rights granted to
the Company hereunder), (iv) material loss, destruction or damage to any
property of the Contributed Subsidiaries, whether or not insured, (v) except
as a result of the new bank credit facility referred to in Section 8.7,
acceleration or prepayment of any indebtedness for borrowed money or capital
leases or the refunding of any such indebtedness, (vi) labor trouble
involving the Contributed Subsidiaries or any material change in their
personnel or the general terms and conditions of employment of key employees,
(vii) waiver of any valuable right in favor of the Contributed Subsidiaries,
(viii) loan or extension of credit to any officer or employee of ZGNA or any
Contributed Subsidiary other than advances for travel-related expenses and
similar advances to officers and employees of ZGNA or Contributed
Subsidiaries in the ordinary course of business, (ix) acquisition, material
writedown or write-off for accounting purposes, or disposition of any
material assets (or any contract or arrangement therefor), (x) redemption or
repurchase of any capital stock of any Contributed Subsidiary, or any other
material transaction by the Contributed Subsidiaries otherwise than for fair
value in the ordinary course of business, or (xi) termination of an agreement
or arrangement which would be a Subsidiary Key Agreement or Instrument if in
effect on the date hereof.
5.12. MATERIAL CONTRACTS.
SECTION 5.12 OF ZGNA DISCLOSURE SCHEDULE sets forth a true and
complete list of each Subsidiary Key Agreement and Instrument (oral or
written) to which a Contributed Subsidiary is a party or its assets bound
other than Subsidiary Key Agreements and Instruments under which each
Contributed Subsidiary has no further liabilities (whether accrued, absolute,
contingent, liquidated or otherwise, whether due or to become due, whether or
not known to ZGNA or a Contributed Subsidiary) or obligations as of the date
hereof. Each Subsidiary Key Agreement and Instrument that is currently in
effect, is valid, binding and enforceable against such Contributed Subsidiary
and, to ZGNA's and Contributed Subsidiaries' best knowledge, the other
parties thereto, in accordance with its terms, and in full force and effect
on the date hereof. A true and complete copy of each Subsidiary Key
Agreement has been delivered or made available to
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the Company. There is no breach, violation or default by any
Contributed Subsidiary and no event (including, without limitation, the
consummation of the transactions contemplated herein) which, with notice
or lapse of time or both, would (i) constitute a breach, violation or
default by any Contributed Subsidiary under any Subsidiary Key Agreement
or Instrument, or (ii) give rise to any lien or right of termination,
modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration against any Contributed Subsidiary under any
Subsidiary Key Agreement or Instrument except for breaches, violations
or defaults that would not have a Subsidiary Material Adverse Effect. To
the best of ZGNA's and the Contributed Subsidiaries' knowledge, no other
party to any Subsidiary Key Agreement or Instrument is in material
breach of any such Subsidiary Key Agreement or Instrument, no waiver or
indulgence has been granted by any of the parties thereto and no party
to any such Subsidiary Key Agreement and Instrument has repudiated any
provision thereof. No Contributed Subsidiary is a party to, nor are any
of their assets subject to, an guaranty, "make well" agreement or other
arrangement to be responsible for the obligations of another, including
any obligation to maintain the financial condition of another person.
5.13. ABSENCE OF UNDISCLOSED LIABILITIES.
None of the Contributed Subsidiaries has any debt, obligation or
liability (whether accrued, absolute, contingent, liquidated or otherwise,
whether due or to become due, whether or not known to ZGNA or a Contributed
Subsidiary) arising out of any transaction entered into at or prior to
Closing, or any act or omission at or prior to Closing, or any state of facts
existing at or prior to Closing, including Taxes with respect to or based
upon transactions or events occurring at or prior to Closing, and including,
without limitation, unfunded past service liabilities under any pension,
profit sharing or similar plan, except as disclosed in the CS Balance Sheets,
current liabilities incurred since the date of the CS Balance Sheet, current
obligations (other than as a result of breach or default) under agreements
set forth on SECTION 5.12 OF ZGNA DISCLOSURE SCHEDULE, and obligations under
agreements which are not required to be set forth on such schedule entered
into in the usual and ordinary course of business, none of which
(individually or in the aggregate) could have a Subsidiary Material Adverse
Effect.
5.14. EMPLOYEES.
(a) The Contributed Subsidiaries are in full compliance with all laws
regarding employment, wages, hours, equal opportunity, collective bargaining and
payment of social security and other taxes except to the extent that
noncompliance would not have a Subsidiary Material Adverse Effect. Since
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January 1, 1998, no complaint of any unfair labor practice or discriminatory
employment practice against the Contributed Subsidiaries has been filed or, to
the best of ZGNA's and the Contributed Subsidiaries' knowledge, threatened to be
filed with or by the National Labor Relations Board, the Equal Employment
Opportunity Commission or any other administrative agency, local, foreign,
federal or state, that regulates labor or employment practices, nor is any
grievance filed or, to the best of ZGNA's and the Contributed Subsidiaries'
knowledge, threatened to be filed, against any Contributed Subsidiary by any
employee pursuant to any collective bargaining or other employment agreement to
which any Contributed Subsidiary is a party or is bound, except as would not
reasonably be expected to have a Subsidiary Material Adverse Effect. The
Contributed Subsidiaries are in compliance with all applicable foreign, federal,
state and local laws and regulations regarding occupational safety and health
standards except to the extent that noncompliance will not have a Subsidiary
Material Adverse Effect, and, since January 1, 1997, have received no complaints
from any foreign, federal, state or local agency or regulatory body alleging
violations of any such laws and regulations. No Contributed Subsidiary is bound
or subject to any arrangement with any labor union, and, to ZGNA's and
Contributed Subsidiaries' best knowledge no union organizing activities are
ongoing or threatened.
(b) All sums due for employee compensation and benefits and all
vacation time owing to any employees of the Contributed Subsidiaries have been
duly and adequately accrued on the accounting records of the Contributed
Subsidiaries.
(c) ZGNA and the Contributed Subsidiaries are not aware that any of
the Contributed Subsidiaries' executive officers or persons whose principal
occupation is the creation of intellectual property is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such executive
officer's or person's best efforts to promote the interests of the Contributed
Subsidiaries or that would conflict with the Contributed Subsidiaries' business
as proposed to be conducted.
(d) ZGNA and the Contributed Subsidiaries are not aware that any
officer, key employee, key purchasing personnel anticipated to provide sourcing
of biomass under the Sourcing Agency Agreement or key sales personnel
anticipated to engage in sales under the Agreement Regarding Employees or that
any group of such employees, intends to terminate their employment with any
Contributed Subsidiary, nor does any Contributed Subsidiary have a present
intention to terminate the employment of any of the foregoing.
(e) Set forth on SECTION 5.14 OF ZGNA DISCLOSURE SCHEDULE is (i) a
list of employees of a Contributed Subsidiary
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with an annual base compensation over $50,000, (ii) a list of all officers of
a Contributed Subsidiary and (iii) a list of all employment agreements to
which a Contributed Subsidiary is a party (copies of which have been
delivered to the Company).
5.15. TAX MATTERS.
There are no Taxes due and payable by the Contributed Subsidiaries
which have not been paid except those being disputed in good faith by
appropriate proceeding with appropriate reserves being made therefore on the
accounting books of the Contributed Subsidiaries. The provisions for Taxes
on the audited and unaudited balance sheets delivered by ZGNA and the
Contributed Subsidiaries to the Company will be sufficient for the payment in
all material respects of all accrued and unpaid Taxes of the Contributed
Subsidiaries, whether or not assessed or disputed in good faith as of the
respective dates of such balance sheets. The Contributed Subsidiaries have
duly filed or received extensions to filing all foreign, federal, state and
local Tax returns required to have been filed by them, and there are in
effect no waivers of applicable statutes of limitations with respect to taxes
for any year except where the failure to file such returns or the existence
of waivers of applicable statutes of limitations is not reasonably likely to
have a Subsidiary Material Adverse Effect. All such returns (including those
delivered by ZGNA to the Company) are true, complete and correct in all
material respects and have been prepared from, and are in accordance with,
the books and records of each. No Contributed Subsidiary is a party to a Tax
sharing agreement or liable for the Taxes of any other person. No Contributed
Subsidiary has filed a consent to the application of Section 341(f) of the
Code. The Contributed Subsidiaries have made all estimated income tax
deposits and all other required Tax payments or deposits and have complied
for all prior periods with the Tax withholding provisions of all applicable
foreign, federal, state and local laws applicable to them. None of the
Contributed Subsidiaries has been subject to a foreign, federal or state tax
audit since April 30, 1996.
5.16. EMPLOYEE BENEFIT PLANS.
Except as set forth on SECTION 5.16 OF ZGNA DISCLOSURE SCHEDULE,
the Contributed Subsidiaries have no employee benefit plans (as defined in
Section 3(3) of ERISA) covering former and current employees of the
Contributed Subsidiaries, or under which a Contributed Subsidiary has any
obligation or liability. SECTION 5.16 OF ZGNA DISCLOSURE SCHEDULE lists
all material plans, contracts, bonuses, commissions, profit-sharing,
savings, stock options, insurance, deferred compensation, or other similar
fringe or employee benefits covering former or current employees of the
Contributed Subsidiaries or under which the
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Contributed Subsidiaries have any obligation or liability. True and
complete copies of all Benefit Arrangements have been provided or made
available to the Company prior to the date hereof. The Benefit
Arrangements are and have been administered in substantial compliance
with their terms and with the requirements of applicable law. No
"prohibited transaction" within the meaning of Section 4475 of the Code
or Section 406 of ERISA, has occurred with respect to any Benefit
Arrangements. All payments to current or former employees of the
Contributed Subsidiaries pursuant to the Benefit Arrangements are and
have been fully deductible under the Code.
5.17. PATENTS, LICENSES, ETC.
The Contributed Subsidiaries own, free and clear of all
encumbrances, restrictions, liens, security interests and charges, and has
good and marketable title to, or holds adequate licenses or otherwise
possesses all such rights as are necessary to use all Intellectual
Property. To the knowledge of ZGNA and ZBI, one or more of the Contributed
Subsidiaries has the right to use the names "Zuellig Botanicals" (but not
"Zuellig Botanicals Powders"), and "ZetaPharm" as a trade name or mark for
the purposes for which they have been used in the United States. Set forth
on Section 5.17 of ZGNA Disclosure Schedule is a list of the significant
marks and names used by each Contributed Subsidiary.
None of the Contributed Subsidiaries has received notice nor has
knowledge of any conflict or alleged conflict with the rights of others
pertaining to the Intellectual Property described in this Section 5.17 where
the effect of such conflict could have a Subsidiary Material Adverse Effect.
To ZGNA's and the Contributed Subsidiaries' best knowledge, the Contributed
Subsidiaries' business, as presently conducted, and as proposed to be
conducted, does not infringe upon or violate any patent rights, copyrights,
marks, names, trade names or trade secrets of others. To ZGNA's and the
Contributed Subsidiaries' best knowledge, the Contributed Subsidiaries have
the right to use all trade secrets, processes, customer lists and other
rights incident to their respective businesses as now conducted.
To ZGNA's and the Contributed Subsidiaries' best knowledge, no
employee of the Contributed Subsidiaries has violated any employment
agreement, non-compete agreement, or proprietary information agreement
which he or she had with a previous employer or other person, or any
intellectual property policy of such employer, or is a party to or
threatened by any litigation concerning any patents, marks, trade
secrets, service names, trade names, copyrights, licenses and the like.
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5.18. TITLE TO TANGIBLE ASSETS.
The Contributed Subsidiaries have good title to their
properties and assets and good title to all their leasehold estates, in
each case subject to no mortgage, pledge, lien, lease, encumbrance or
charge, other than or resulting from Taxes which have not yet become
delinquent and minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or
materially impair the operations of the Contributed Subsidiaries and
which have not arisen otherwise than in the ordinary course of business.
5.19. INSURANCE.
The Contributed Subsidiaries and their respective properties
are insured in such amounts, against such losses and with such insurers
as are prudent when considered in light of the nature of the properties
and businesses of the Contributed Subsidiaries and customary in light of
such Contributed Subsidiaries' exposure. No notice of any termination
or threatened termination, or denial of a material claim made since
January 1, 1997, of, or under any of such policies has been received and
such policies are in full force and effect. A summary of all such
policies, including whether they are on a "claims made" basis, is
attached as SECTION 5.19 OF ZGNA DISCLOSURE SCHEDULE. None of such
policies will be terminated or reduced in coverage as a result of the
transactions described herein. All such policies are in full force and
effect and all premiums with respect thereto have been paid. No
Contributed Subsidiary has failed to give any notice or present any
claim under any such insurance policy in due and timely fashion or as
required by any of such insurance policies or has not otherwise, through
any act, omission or non-disclosure, jeopardized or impaired full
recovery of any claim under such policies, and there are no claims by
any Contributed Subsidiary under any of such policies to which any
insurance company is denying liability or defending under a reservation
of rights or similar clause.
5.20. TRANSACTIONS WITH RELATED PARTIES.
None of the Contributed Subsidiaries is a party to any
agreement with any of their respective directors, officers or, to their
best knowledge stockholders holding more than 1/2% of its stock, or, to
their best knowledge, any Affiliate or family member of any of the
foregoing, including but not limited to, under which it: (i) leases any
real or personal property (either to or from such Person), (ii) licenses
technology (either to or from such Person), (iii) is obligated to
purchase any tangible or intangible asset from or sell such asset to
such Person, (iv) purchases products or services from such Person or (v)
has borrowed money from or lent money to such Person. None of the
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Contributed Subsidiaries employs as an employee or engages as a
consultant any family member of any of their respective directors or
officers. There exist no agreements among stockholders of the
Contributed Subsidiaries to act in concert with respect to their voting
or holding of Contributed Subsidiary securities.
5.21. REGISTRATION RIGHTS.
The Contributed Subsidiaries are not under any obligation to
register any of their securities under the Securities Act.
5.22. PRIVATE OFFERING.
None of ZGNA, ZBI, the Contributed Subsidiaries or anyone
acting on their behalf has sold or has offered any of the Subsidiary
Shares for sale to, or solicited offers to buy from, or otherwise
approached or negotiated with respect thereto with, any prospective
purchaser of the Subsidiary Shares, other than the Company. None of
ZGNA, ZBI, the Contributed Subsidiaries or anyone acting on their behalf
shall offer the Subsidiary Shares for issue or sale to, or solicit any
offer to acquire any of the same from, anyone so as to bring the
issuance and sale of the Subsidiary Shares, or any part thereof, within
the provisions of Section 5 of the Securities Act. Based in part upon
the representations of the Company set forth in Section 4, the offer and
sale of the Subsidiary Shares are and will be exempt from the
registration and prospectus delivery requirements of the Securities Act,
and have been registered or qualified (or are exempt from registration
and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
5.23. INVESTMENT.
(a) Each of ZGNA and ZBI is acquiring the Shares for its own account
for investment and not with a view towards the resale, transfer, pledge or
distribution thereof, nor with any present intention of distributing the Shares,
other than a pledge in favor of ZGNA's lender pursuant to the credit agreement
referred to in Section 8.7 and the delivery of a portion of the Shares to the
Escrow Agent under the Escrow Agreement.
(b) Each of ZGNA and ZBI has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its investment in the Company as contemplated by this Agreement, and is
able to bear the economic risk of such investment for an indefinite period of
time. ZGNA and ZBI have been furnished access to such information and documents
as they have requested and have been afforded an opportunity to ask questions of
and receive answers from representatives of the Company concerning the terms and
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conditions of this Agreement and the purchase of the Shares contemplated hereby.
(c) Each of ZGNA and ZBI is an "accredited investor" as defined under
Regulation D of the Securities Act.
(d) ZGNA and ZBI are located in California and the offer and sale of
the Shares occurred in the States of Colorado and California.
5.24. BROKERAGE.
Except for ZGNA's agreement with The Beacon Group Capital Services,
LLC whose fees and expenses shall be paid by ZGNA, there are no claims for
brokerage commissions or finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement
made by or on behalf of ZGNA, ZBI or the Contributed Subsidiaries, and ZGNA
agrees to indemnify and hold the Company harmless against any costs or
damages incurred as a result of any such claim.
5.25. MATERIAL FACTS.
This Agreement, ZGNA Disclosure Schedules, and the other
agreements, documents, certificates or written statements furnished or
to be furnished to the Company through the Closing Date by or on behalf
of ZGNA, ZBI and the Contributed Subsidiaries in connection with the
transactions contemplated hereby taken as a whole, and the information
provided by ZGNA and ZBI for inclusion in the Company's Proxy Statement,
do not contain any untrue statement by ZGNA, ZBI or the Contributed
Subsidiaries of a material fact or omit to state a material fact
necessary to make the statements contained therein or herein, in light
of the circumstances in which they were made, not misleading. There is
no fact which is known to ZGNA, ZBI or the Contributed Subsidiaries and
which has not been disclosed herein or otherwise by ZGNA, ZBI or the
Contributed Subsidiaries to the Company which is reasonably likely to
have a Subsidiary Material Adverse Effect.
5.26. DEBT.
As of the Closing Date, the "Debt" (as defined below) of the
Contributed Subsidiaries will not exceed $22,000,000 in the aggregate.
For purposes of this Section, "Debt" means debt for borrowed money (long
term, for working capital purposes or otherwise), obligations under
letters of credit and capital lease obligations.
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5.27. FINANCIAL RECORDS.
The financial records of the Contributed Subsidiaries for the
period from April 1, 1995, up to and through the Closing Date are
readily auditable (including to allocate inter-company accounts and to
reflect the recent formation of Zuellig Botanicals Extracts) to permit
compliance with SEC reporting requirements of the Company. Such
financial records are located at Zuellig Group, N.A., Inc., 2550 El
Presidio Street, Long Beach, CA 90810; Wilcox, 755 George Wilson Road,
Boone, N.C. 28697; and ZetaPharm, 70 West 36th Street, New York, NY
10018 and Datalok Co., 15540 Del Amo Avenue, Tustin, CA 92680.
5.28. SUBSIDIARY REAL PROPERTY
(a) SECTION 5.28 OF ZGNA DISCLOSURE SCHEDULE lists all real property
owned or leased by each Contributed Subsidiary. Each Contributed Subsidiary has
title to its owned real properties and any improvements thereon (collectively,
the "SUBSIDIARY OWNED REAL PROPERTIES") in each case, free and clear of all
imperfections of title and all encumbrances, except for (i) those consisting of
zoning or planning restrictions, easements, permits and other restrictions or
limitations on the use of such property or irregularities in title thereto
which, individually and in the aggregate, do not materially impair the use of
such property, (ii) warehousemen's, mechanics', carriers', landlords',
repairmen's or other similar encumbrances arising in the ordinary course of
business and securing obligations not yet due and payable, (iii) other
encumbrances which arise in the ordinary course of business and which
individually and in the aggregate do not materially impair its use of such
property or its ability to obtain financing by using such assets as collateral,
(iv) any state of facts, including, without limitation, easements, encroachments
or encumbrances, either shown by any survey or other inspection or granted by
ZGNA prior to the date hereof, of such Subsidiary Owned Real Property which do
not materially adversely interfere with the occupancy or use, as presently used
or occupied, of such Subsidiary Owned Real Property, (v) liens for taxes and/or
assessments not yet delinquent or which are being contested in good faith
through appropriate proceedings, (vi) all rights or easements, if any, of any
municipality or other public or private utility company, to maintain telephone
wires, pipes, conduits or other facilities which enter or cross such Subsidiary
Owned Real Property and (vii) any state of facts, including without limitation,
rights, easements, liens, encroachments or encumbrances that any title report,
title commitment or title insurance policy would disclose (encumbrances
referenced in clauses (i)through (vii) collectively referred to as the
"SUBSIDIARY PERMITTED ENCUMBRANCES").
(b) ZGNA has delivered to the Company a true and complete list of all
of the leases and subleases to which the Contributed Subsidiaries are a party as
described on SECTION 5.28
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OF ZGNA DISCLOSURE SCHEDULE (collectively, the "SUBSIDIARY LEASED REAL
PROPERTIES," together with Subsidiary Owned Real Properties, the
"SUBSIDIARY REAL PROPERTIES"). The leases and subleases described on
SECTION 5.28 OF ZGNA DISCLOSURE SCHEDULE (i) have not been further
modified or amended and (ii) are in full force and effect. To the
knowledge of ZGNA and the Contributed Subsidiaries, there is no default
which remains uncured and would materially adversely interfere with the
occupancy or use, as presently used or occupied, of any Subsidiary
Leased Real Property. No Contributed Subsidiary is obligated to purchase
any Subsidiary Leased Real Property and no Subsidiary Leased Real
Property is required to be accounted for under GAAP as a capitalized
lease.
5.29. COMPANY SECURITY HOLDINGS
Neither ZGNA nor any Contributed Subsidiary holds or has held
at any time during the 270 days preceding the Closing Date any debt or
equity security of the Company (or derivative securities thereof),
except for debt or equity securities (or derivative securities thereof)
purchased pursuant to the Stock Option Agreement.
5.30. BANK ACCOUNTS; POWERS OF ATTORNEY.
SECTION 5.30 OF ZGNA DISCLOSURE SCHEDULE lists all bank, money
market, brokerage, savings and similar accounts and safe deposit boxes
of all Contributed Subsidiaries and all powers of attorney of any
Contributed Subsidiaries.
5.31. CORPORATE MINUTE BOOKS.
The corporate records of the Contributed Subsidiaries are
correct and complete. True and correct copies of all minutes of meetings
or other actions by the directors, stockholders or incorporators of the
Contributed Subsidiaries for the past five years have been provided and
since their inception have previously been provided or made available to
the Company.
5.32. SUFFICIENT ASSETS.
The assets and properties owned by, or leased to, the
Contributed Subsidiaries, and the Subsidiary Key Agreements and
Instruments, are sufficient for the conduct of the business and
operation of the Contributed Subsidiaries as presented conducted and as
presently proposed to be conducted.
5.33. GOOD CONDITION.
The buildings, facilities, machinery, equipment, furniture,
leasehold and other improvements, fixtures, vehicles, structures, any
related capitalized items and other tangible
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property owned by or leased to the Contributed Subsidiaries (i) are to
ZGNA's and the Contributed Subsidiaries' best knowledge, in all material
respects in good operating condition and repair (normal wear and tear
excepted) and, in the case of buildings or structures located on the
Subsidiary Real Properties, free of any structural or engineering
defects, and (ii) to ZGNA's and the Contributed Subsidiaries' best
knowledge, are suitable in all material respects for their current use.
ZGNA and the Contributed Subsidiaries have not received notice of, and
have no knowledge of, any pending, threatened or contemplated
condemnation proceeding or similar taking affecting the assets of the
Contributed Subsidiaries (including the Subsidiary Real Properties).
5.34. BANK COMMITMENT.
As of the date of this Agreement, ZGNA has a bank commitment
letter from a lender, a copy of which has been delivered to the Company,
to provide the new credit facility to the Company contemplated hereby,
and to ZGNA's knowledge, such commitment has not been modified or
terminated.
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1. RESALE OF SECURITIES.
(a) ZGNA and ZBI will not sell or otherwise transfer the Shares
except pursuant to an effective registration under the Securities Act and any
state securities or blue sky laws or in a transaction which, in the opinion of
counsel reasonably satisfactory to the Company, qualifies as an exempt
transaction under such laws.
(b) The Shares will bear substantially the following legend
reflecting the foregoing restrictions on the transfer of such securities:
"The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended (the "Act"), or any state
securities law, and may not be sold, transferred or otherwise disposed
of except pursuant to an effective registration under the Act or in a
transaction which, in the opinion of counsel reasonably acceptable to
the Company, is exempt from such registration."
"The securities evidenced hereby are subject to the terms of that
certain Governance Agreement, dated as of _____________, 1999, by and
among the Company, ZGNA and ZBI, as amended from time to time. A
copy of such
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Governance Agreement has been filed with the Secretary
of the Company and is available upon request."
6.2. PROXY STATEMENT.
(a) The Company shall promptly prepare and file with the
Commission preliminary and final versions of the Proxy Statement
relating to this Agreement and the transactions contemplated hereby, and
to increase size of or adopt a new stock option plan for up to 1,000,000
shares of Common Stock (the "PROXY STATEMENT"). The Company shall use
its best efforts to have the Proxy Statement cleared by the Commission
and mailed to its stockholders at the earliest practicable date. The
Company shall cooperate and consult with ZGNA with respect to the Proxy
Statement and any related Commission comments.
(b) The Company will furnish ZGNA with such information
concerning the Company and its Subsidiaries as is necessary in order to
cause the Proxy Statement, insofar as it relates to the Company and its
Subsidiaries, to comply with applicable law. None of the information
relating to the Company and its Subsidiaries supplied by the Company for
inclusion in the Proxy Statement will be false or misleading with
respect to any material fact or will omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading. The Company agrees promptly to advise ZGNA if, at
any time prior to the meeting of the stockholders of the Company
referenced herein, any information provided by it in the Proxy Statement
is or becomes incorrect or incomplete in any material respect and to
provide ZGNA with the information needed to correct such inaccuracy or
omission. The Company will furnish ZGNA and the Company's shareholders
with such supplemental information as may be necessary in order to cause
the Proxy Statement, insofar as it relates to the Company and its
Subsidiaries, to comply with applicable law after the mailing thereof to
the stockholders of the Company.
(c) ZGNA will furnish the Company with such information
concerning ZGNA, ZBI and the Contributed Subsidiaries as is necessary in
order to cause the Proxy Statement, insofar as it relates to ZGNA, ZBI
and the Contributed Subsidiaries, to comply with applicable law. None
of the information relating to ZGNA, ZBI and the Contributed
Subsidiaries supplied by ZGNA for inclusion in the Proxy Statement will
be false or misleading with respect to any material fact or will omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. ZGNA agrees promptly to
advise the Company if, at any time prior to the meeting of stockholders
of the Company referenced herein, any information provided by it in the
Proxy Statement is or becomes incorrect or incomplete in
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any material respect and to provide the Company with the information
needed to correct such inaccuracy or omission. ZGNA will furnish the
Company with such supplemental information as may be necessary in order
to cause the Proxy Statement, insofar as it relates to ZGNA, ZBI and the
Contributed Subsidiaries, to comply with applicable law after the
mailing thereof to the stockholders of the Company.
6.3. ACCESS TO INFORMATION.
The Company shall (and shall cause each of its Subsidiaries
to), and ZGNA shall and ZGNA shall cause each of ZBI and the Contributed
Subsidiaries to afford to the officers, employees, accountants, counsel
and other representatives of ZGNA or the Company, as the case may be,
access, during normal business hours during the period prior to the
Closing Date, to all its properties, books, contracts, commitments and
records and, during such period, the Company shall (and shall cause each
of its Subsidiaries to) and ZGNA shall cause the Contributed
Subsidiaries to furnish promptly to ZGNA and the Company, as the case
may be, (a) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to
the requirements of Federal securities laws and (b) all other
information concerning its business, properties and personnel as ZGNA or
the Company, as the case may be, may reasonably request.
6.4. STOCKHOLDERS MEETING.
The Company shall call a meeting of its stockholders to be
held as promptly as practicable for the purpose of voting upon this
Agreement and the election of directors as contemplated by Section 7.11
hereof. The Company will, through its Board of Directors, recommend to
its stockholders approval of this Agreement and the transactions
contemplated hereby and shall use its best efforts to hold such meeting
as soon as reasonably practicable after the date hereof; PROVIDED,
HOWEVER, that the Board of Directors shall not be so obligated if it
receives a written opinion from outside counsel to the effect that it
would be inconsistent with its fiduciary duties to recommend to its
stockholders approval of this Agreement and the transactions
contemplated hereby.
6.5. EXECUTION AND DELIVERY OF AGREEMENTS.
ZGNA or its Subsidiary a party thereto shall execute and
deliver to the Company, and the Company shall execute and deliver to
ZGNA, (i) the Governance Agreement, (ii) the Sourcing Agency Agreement,
(iii) the Escrow Agreement, (iv) the Powders Option Agreement, (v) the
Agreement Regarding Employees and (vi)
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their respective tax affidavits in the form attached hereto as Exhibit
K, at or prior to the Closing.
6.6. ORDINARY COURSE.
(a) Except as expressly contemplated by this Agreement or as set forth
on Schedule 6.6(a) and except for the possible sale of the Company's paclitaxel
business and assets, during the period from the date of this Agreement to the
Closing Date, (i) the Company shall conduct, and it shall cause its Subsidiaries
to conduct, its or their businesses in the ordinary course and consistent with
past practice, and the Company shall, and it shall cause its Subsidiaries to,
use its or their reasonable commercial efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with all persons with whom it does
business and (ii) without limiting the generality of the foregoing, neither the
Company nor any of its Subsidiaries will:
(A) amend or propose to amend its Organizational Documents in
any material respect;
(B) authorize for issuance, issue, grant, sell, pledge, dispose
of or propose to issue, grant, sell, pledge or dispose of any shares of, or
any options, warrants, commitments, subscriptions or rights of any kind to
acquire or sell any shares of, the capital stock or other securities of the
Company or any of its Subsidiaries including, but not limited to, any
securities convertible into or exchangeable for shares of stock of any
class of the Company or any of its Subsidiaries, except for (a) the
issuance of shares pursuant to the exercise of either incentive or
non-qualified stock options, including management stock options outstanding
the date of this Agreement in accordance with their present terms and (b)
grants of options pursuant to the 1999 Incentive Plan or the Company's
stock option plan for directors in effect as of the date hereof for
attendance at meetings of the Board, on terms and in amounts consistent
with past practice;
(C) split, combine or reclassify any shares of its capital stock
or declare, pay or set aside any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, other than dividends or distributions to the Company or a
Subsidiary of the Company, or directly or indirectly redeem, purchase or
otherwise acquire or offer to acquire any shares of its capital stock or
other securities;
(D) other than in the ordinary course of business consistent
with past practice, (a) create, incur or assume any debt, except
refinancings of existing obligations on
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terms that are no less favorable to the Company or its Subsidiaries than
the existing terms; (b) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, indirectly, contingently or
otherwise) for the obligations of any Person; (c) make any capital
expenditures or make any loans, advances or capital contributions to, or
investments in, any other Person (other than to a Company Subsidiary and
customary travel, relocation or business advances to employees); (d)
acquire the stock or assets of, or merge or consolidate with, any other
Person; (e) voluntarily incur any material liability or obligation
(absolute, accrued, contingent or otherwise); or (f) sell, transfer,
mortgage, pledge or otherwise dispose of, or encumber, or agree to sell,
transfer, mortgage, pledge or otherwise dispose of or encumber, any
assets or properties, real, personal or mixed, material to the Company
and its Subsidiaries taken as a whole other than to secure debt
permitted under (a) of this clause (D); and
(E) maintain in full force and effect the insurance described in
Section 4.19 or comparable insurance.
(b) Except as expressly contemplated by this Agreement, during the
period from the date of this Agreement to the Closing Date, (i) ZGNA shall cause
the Contributed Subsidiaries to conduct their businesses in the ordinary course
and consistent with past practice, and ZGNA shall cause the Contributed
Subsidiaries to use their reasonable commercial efforts to preserve intact their
business organization, to keep available the services of their officers and
employees and to maintain satisfactory relationships with all persons with whom
they do business, (ii) ZGNA will use its reasonable commercial efforts to
maintain in place the sales force of ZBI whom will be subject to the Agreement
Regarding Employees and (iii) without limiting the generality of the foregoing,
none of the Contributed Subsidiaries will:
(A) amend or propose to amend its Organizational Documents in
any material respect;
(B) authorize for issuance, issue, grant, sell, pledge, dispose
of or propose to issue, grant, sell, pledge or dispose of any shares of, or
any options, warrants, commitments, subscriptions or rights of any kind to
acquire or sell any shares of, the capital stock or other securities of the
Contributed Subsidiaries including, but not limited to, any securities
convertible into or exchangeable for shares of stock of any class of the
Contributed Subsidiaries;
(C) split, combine or reclassify any shares of its capital stock
or declare, pay or set aside any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock,
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other than dividends or distributions to the other Contributed
Subsidiaries, or directly or indirectly redeem, purchase or otherwise
acquire or offer to acquire any shares of its capital stock or other
securities;
(D) other than in the ordinary course of business consistent
with past practice, (a) create, incur or assume any debt, except
refinancings of existing obligations on terms that are no less favorable to
the Contributed Subsidiaries than the existing terms; (b) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, indirectly, contingently or otherwise) for the obligations of any
Person; (c) make any capital expenditures or make any loans, advances or
capital contributions to, or investments in, any other Person (other than
customary travel, relocation or business advances to employees);
(d) acquire the stock or assets of, or merge or consolidate with, any other
Person; (e) voluntarily incur any material liability or obligation
(absolute, accrued, contingent or otherwise); or (f) sell, transfer,
mortgage, pledge or otherwise dispose of, or encumber, or agree to sell,
transfer, mortgage, pledge or otherwise dispose of or encumber, any assets
or properties, real, personal or mixed, material to the Contributed
Subsidiaries taken as a whole other than to secure debt permitted under (a)
of this clause (D); and
(E) maintain in full force and effect the insurance described in
Section 5.19 or comparable insurance.
(c) Absent the prior written consent of ZGNA, during the two
year period following consummation of the Mergers, the Company agrees
(i) that it will not (x) liquidate Zuellig Botanical Extracts or (y)
other than in the ordinary course of business, transfer more than an
insubstantial portion of the assets of Zuellig Botanical Extracts to the
Company or an Affiliate of the Company; (ii) the Company shall take no
action, and shall cause the Contributed Subsidiaries to take no action,
if such action would jeopardize the characterization of the Mergers as
reorganizations within the meaning of Section 368(a) of the Code.
6.7. FURTHER ASSURANCES.
Upon the request of a party hereto at any time after the
Closing Date, the other party will forthwith execute and deliver such
further instruments of assignment, transfer, conveyance, endorsement,
direction or authorization and other documents as the requesting party
or its counsel may request in order to perfect title of ZGNA and the
Company and their successors and assigns to the Shares and the
Subsidiary Shares, respectively, or otherwise to effectuate the purposes
of this Agreement.
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6.8. CONFIDENTIALITY.
Except as may be required by law, (i) prior to the Closing,
the Company and ZGNA shall not, directly or indirectly, disclose to any
person or entity or use any information not in the public domain or
generally known in the industry, in any form, whether acquired prior to
or after the Closing Date, received from the Company or ZGNA, as the
case may be, relating to the business and operations of the Company and
its Subsidiaries or ZGNA and its Subsidiaries, as the case may be, and
(ii) after the Closing, ZGNA and ZBI shall not so disclose or use such
information relating to the business of the Company or the Contributed
Subsidiaries except as permitted by other agreements between ZGNA or its
affiliates and the Company.
6.9. STANDSTILL.
(a) From the date hereof through the Closing Date (or, if
this Agreement is terminated in accordance with its terms, for a period
of 18 months from the date hereof), neither ZGNA or ZBI will, without
the prior consent of the Board:
(i) acquire any of the Voting Stock or direct or indirect
rights to acquire or sell Voting Stock of the Company other than the Option
or the shares of Common Stock issuable upon exercise of the Option;
(ii) make, or in any way participate, directly or indirectly,
in any "solicitation" of "proxies" to vote (as such terms are used in the
rules under the Exchange Act), enter into any agreement to vote, or seek to
agree with, advise or influence any person or entity with respect to the
voting of any Voting Stock of the Company (except to the extent necessary to
have its three representatives on the Board);
(iii) make any public announcement with respect to any
transaction or proposed or contemplated transaction between the Company or
any of its security holders and ZGNA or any of its Affiliates, including,
without limitation, any tender or exchange offer, merger or other business
combination or acquisition of a material portion of the assets of the
Company;
(iv) disclose any intention, plan or arrangement regarding any
of the matters referred to in clauses (i), (ii) or (iii); or
(v) sell or otherwise transfer shares of Common Stock except
pursuant to a transaction approved by the Board of Directors of the Company.
(b) For a period of five years from the Closing Date, neither ZGNA
or ZBI will, without the prior consent of the Board:
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(i) acquire more than 49% of the Voting Stock or direct or
indirect rights to acquire more than 49% of the Voting Stock of the Company;
(ii) make, or in any way participate, directly or indirectly,
in any "solicitation" of "proxies" to vote (as such terms are used in the
rules under the Exchange Act), enter into any agreement to vote, or seek to
agree with, advise or influence any person or entity with respect to the
voting of any Voting Stock of the Company (except to the extent necessary to
have its three representatives on the Board);
(iii) make any public announcement with respect to any
transaction or proposed or contemplated transaction between the Company or
any of its security holders and ZGNA or any of its Affiliates, including,
without limitation, any tender or exchange offer, merger or other business
combination or acquisition of a material portion of the assets of the
Company;
(iv) disclose any intention, plan or arrangement regarding any
of the matters referred to in clauses (i), (ii) or (iii); or
(v) except in an underwritten transaction, sell or otherwise
transfer such number of shares of Common Stock to the public which is greater
than 1% of the outstanding shares of Common Stock in any two week period or
20% of weekly volume of the Common Stock.
(c) For a period of 18 months from the Closing Date, neither ZGNA
or ZBI will, without the prior consent of the Board, sell or otherwise
dispose of its shares of Common Stock, other than a pledge in favor of ZGNA's
lender pursuant to the credit agreement referred to in Section 8.7 and other
than transfers by ZBI to ZGNA or an entity wholly owned by ZGNA.
6.10. OWNERSHIP OF SHARES.
(a) In order to meet its obligations under Section 9 hereof,
ZGNA and ZBI agree to continue to own its portion of the Shares or other
Liquid Assets of approximately equivalent value to its portion of the
Shares until the later of (i) the second anniversary of the Closing
Date, or (ii) in the event the Company asserts any claims pursuant to
Section 9.4(b)(i), until the final resolution of such claims. For
purposes hereof, the term "Liquid Assets" shall mean cash, money market
funds, commercial paper of a U.S. based entity, or securities that are
publicly traded on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market.
(b) Notwithstanding the foregoing subsection (a), after the
first anniversary of the Closing Date, ZGNA's and ZBI's obligation to
hold its portion of the
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Shares or other Liquid Assets of approximately equivalent value to its
portion of the Shares shall be reduced to 60% of the initial value of
its portion of the Shares plus an amount equal to the value of the
claims made, asserted or pending under Section 9 as of such date.
(c) In the event the Company, ZBI or ZGNA shall be required to make
an indemnification payment pursuant to Section 9, they may elect to make such
payment with the shares of Common Stock in lieu of cash. The market price of
the shares of Common Stock shall be determined by the average closing price of a
share of Common Stock for the 15 consecutive trading days preceding the date of
such payment on the principal national securities exchange on which the shares
of Common Stock are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, the average of the reported bid
and asked prices during such 15 consecutive trading days on the Nasdaq National
Market or, if the shares are not listed on the Nasdaq National Market, in the
over-the-counter market or, if the shares of Common Stock are not publicly
traded, the market price for such day shall be the fair market value thereof
determined jointly by the Company and ZGNA; PROVIDED, HOWEVER, that if such
parties are unable to reach agreement within a reasonable period of time, the
market price shall be determined in good faith by an independent investment
banking firm selected jointly by the Company and ZGNA or, if that selection
cannot be made within 15 days, by an independent investment banking firm
selected by the American Arbitration Association in accordance with its rules.
All costs and expenses incurred in connection with the determination of market
price shall be borne by the party seeking to make payment in stock.
6.11. NONCOMPETITION.
(a) ZGNA shall not, and shall cause its parent corporation
and its Affiliates, for a period of five (5) years following the Closing
Date, for any reason whatsoever, directly or indirectly, or on behalf of
or in conjunction with any other person:
(i) engage in any business selling any products or services
in direct competition with the Company, including, but not limited to, the
Contributed Subsidiaries, in North America as conducted as of the Closing
Date;
(ii) engage in the business of acquiring biomass also used by
the Company for the purpose of retail or wholesale sales in North America
(including after processing) for use as a human nutraceutical; or
(iii) solicit any person who is an employee of the Company,
including, but not limited to the Contributed Subsidiaries, in a managerial,
sales or purchasing capacity for the purpose or with the intent of enticing
such employee away from or out of employ of the Company or its Subsidiaries.
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(b) Notwithstanding the above, the foregoing covenant shall
not prohibit ZGNA from acquiring as an investment not more than five
percent (5%) or continuing to own no more than the percentage ZGNA owns
on the date of this Agreement of the capital stock of a competing
business, provided that ZGNA shall not control such competing business.
(c) If any provision of this Section 6.11 relating to a time
period or geographic area shall be declared by a court of competent
jurisdiction unenforceable as unreasonable, the maximum time period or
geographic area, as applicable, that such court deems reasonable and
enforceable shall thereafter be deemed applicable and this Agreement
shall automatically be considered to have been amended and revised to
reflect such determination. This Section 6.11 may be enforced by
specific performance.
6.12. RESIGNATION OF DIRECTORS.
Effective as of the Closing Date, all directors of each
Contributed Subsidiary shall cease to be directors. ZGNA will use its
good faith effort to obtain the resignation of all directors of each
Contributed Subsidiary.
6.13. SUBSCRIPTION RIGHT.
(a) If at any time after the date hereof, the Company proposes to
issue equity securities of any kind (the term "equity securities" shall include
for these purposes any warrants, options or other rights to acquire equity
securities and debt securities convertible into equity securities) of the
Company (other than the issuance of securities (i) to the public in a firm
commitment underwriting pursuant to a registration statement filed under the
Securities Act, (ii) pursuant to the acquisition of another entity by the
Company by merger, purchase of substantially all of the assets or stock or other
form of acquisition, (iii) pursuant to an employee, consultant or director stock
option plan, stock bonus plan, stock purchase plan or other management equity
program, or (iv) as an "equity kicker" for a debt or leasing financing with an
institutional lender), then the Company shall:
(i) give written notice setting forth in reasonable detail (1)
the designation and all of the terms and provisions of the securities
proposed to be issued (the "PROPOSED SECURITIES"), including, where
applicable, the voting powers, preferences and relative participating,
optional or other special rights, and the qualification, limitations or
restrictions thereof and interest rate and maturity; (2) the price and
other terms of the proposed sale of such securities; (3) the amount of such
securities proposed to be issued; and (4) such other information as ZGNA
may reasonably request in order to evaluate the proposed issuance; and
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(ii) offer to issue to ZGNA upon the terms described in
subparagraph (i) above a portion of the Proposed Securities (the
"SUBSCRIPTION SECURITIES") equal to a percentage determined by dividing (x)
the number of shares of Common Stock beneficially owned (within the meaning
of Rule 13d-3 under the Exchange Act) by ZGNA, by (y) the total number of
shares of Common Stock beneficially owned (within the meaning of Rule 13d-3
under the Exchange Act) by all holders of Common Stock, in each case,
immediately preceding the issuance of the Proposed Securities.
(b) ZGNA must exercise its right to purchase all or any portion of
the Subscription Securities hereunder within ten (10) days after receipt of such
notice from the Company. To the extent that the Company offers two or more
securities in units, ZGNA must purchase such units as a whole and will not be
given the opportunity to purchase only one of the securities making up such
unit.
(c) Upon the expiration of the offering periods described above, the
Company will be free to sell such Subscription Securities that ZGNA has not
elected to purchase during the ninety (90) days following such expiration on
terms and conditions no more favorable to the purchasers thereof than those
offered to ZGNA. Any Subscription Securities offered or sold by the Company
after such 90 day period must be reoffered to ZGNA pursuant to this Section
6.13.
(d) The election by ZGNA not to exercise its subscription rights
under this Section 6.13 in any one instance shall not affect its right (other
than in respect of a reduction in its percentage holdings) as to any subsequent
proposed issuance.
(e) Notwithstanding the foregoing, the rights set forth in
this Section 6.13 shall terminate (i) if this Agreement is terminated in
accordance with its terms, seven months after the date hereof or (ii)
upon the Closing Date.
(f) The exercise by ZGNA of its rights under this Section
6.13 shall be subject to compliance with applicable laws, rules and
regulations, including HSR.
6.14. LETTERS OF ACCOUNTANTS.
(a) The Company shall use its reasonable best efforts to
cause to be delivered to ZGNA "comfort" letters regarding the Company of
Arthur Andersen, LLP, the Company's independent public accountants,
dated and delivered the date of the proxy statement and addressed to
ZGNA, in form and substance reasonably satisfactory to ZGNA and
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as
those contemplated by
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this Agreement consistent with procedures set forth in Exhibit 6.14
hereto.
(b) ZGNA shall use its reasonable best efforts to cause to be
delivered to the Company "comfort" letters regarding the Contributed
Subsidiaries of Deloitte & Touche LLP, ZGNA's independent public
accountants, dated and delivered the date of the proxy statement and
addressed to the Company, in form and substance reasonably satisfactory
to the Company and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions such as those contemplated by this Agreement consistent
with procedures set forth in Exhibit 6.14 hereto.
6.15. EFFORTS TO SATISFY CONDITIONS; NOTICE OF INABILITY TO MEET
CONDITIONS.
Between the date hereof and the Closing, each party shall make
a good faith effort to obtain all third party consents required for
Closing and otherwise act to cause all closing conditions to be
satisfied. If a party believes that a condition to its obligation to
close will not be satisfied by Closing, or becomes aware of an event
that causes a Company Material Adverse Effect or a Subsidiary Material
Adverse Effect, it shall promptly notify the other party including
informing it of the nature of such company's Material Adverse Effect and
steps which are being done to attempt to correct or respond to the
failure of such condition or material adverse event.
6.16. HSR.
As soon as practical after the date hereof, each of the
Company, ZGNA and, if necessary, the controlling persons of ZGNA shall
make all filings required pursuant to the HSR in connection with this
Agreement. The parties will cooperate in the preparation of all filings
and responses to all reasonable requests for additional information.
6.17. PUBLIC ANNOUNCEMENT.
Prior to the Closing and for three months thereafter, the
timing and content of all public announcements regarding any aspect of
this Agreement or the transactions contemplated hereby shall be mutually
agreed upon in advance by the Company and ZGNA, except to the extent
that legal counsel advises a party that such announcement or other
disclosure is required to be made pursuant to applicable law or the
rules of the National Association of Securities Dealers. A party shall
promptly notify the other if it has received such advise and intends to
make a public announcement that has not been mutually agreed upon.
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6.18. COOPERATION IN DEFENSE.
If prior to or within two years after the Closing, any claim,
action, investigation or governmental action is brought which questions
the validity or legality of the transactions contemplated hereunder or
seeks damages in connection therewith, the parties agree to cooperate
and use reasonable efforts to defend against such claim, action,
investigation or governmental action, and seek the removal of any
injunction preventing or restraining any transactions contemplated
hereby. This provision is not a limitation on any other obligations of
the parties in this Agreement or the Transaction Documents.
6.19. VOLKER WYPYSZYK.
Both before and after the Closing, ZGNA and its Affiliates
shall use their reasonable best efforts to cause Volker Wypyszyk, for
the first 12 months after the Closing, to devote a significant amount of
his time, and after 12 months after the Closing, to devote substantially
all of his time, to the business of the Company. For the purposes of
this Section, "reasonable best efforts" shall mean that ZGNA and its
Affiliates shall not require Volker Wypyszyk to devote his time to the
business of ZGNA or its Affiliates that would be inconsistent with this
Section.
6.20. REPAYMENT OF DEBT.
On the Closing Date, the Company shall use a portion of the
proceeds of the credit facility referred to in Section 7.9 to cause the
Contributed Subsidiaries to repay the Debt for borrowed money of the
Contributed Subsidiaries referred to in Section 5.26.
SECTION 7. ZGNA'S CLOSING CONDITIONS
The obligation of ZGNA to consummate the Mergers on the
Closing Date, as provided in Sections 2 and 3 hereof, shall be subject
to the performance in all material respects by the Company of its
agreements theretofore to be performed hereunder and to the
satisfaction, prior thereto or concurrently therewith, of the following
further conditions:
7.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and
as of the Closing Date as though such warranties and representations
were made at and as of such date, except as otherwise specifically
permitted herein.
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7.2. COMPLIANCE WITH AGREEMENT.
The Company shall have performed and complied in all material
respects with all agreements, covenants and conditions contained in this
Agreement which are required to be performed or complied with by the
Company prior to or on the Closing Date.
7.3. INJUNCTION.
There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of
competent jurisdiction or governmental body or agency of competent
jurisdiction directing that the transactions provided for herein or any
of them not be consummated as herein provided.
7.4. STOCKHOLDER APPROVAL.
This Agreement shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock.
7.5. CONSENTS AND APPROVALS.
All material consents, waivers, authorizations and approvals of any
governmental or regulatory authority, domestic or foreign shall have been duly
obtained and shall be in full force and effect on the Closing Date.
7.6. NASDAQ LISTING.
The Shares shall have been approved for listing on the NASDAQ market or any
other exchange the shares of Common Stock then trade.
7.7. ADVERSE DEVELOPMENT.
There shall have been no developments in the business of the
Company or any of its Subsidiaries which in the reasonable opinion of
ZGNA would have a Company Material Adverse Effect.
7.8. TRANSACTION DOCUMENTS.
The Company and each of the other parties thereto shall have
executed and delivered (i) the Escrow Agreement, (ii) the Powders Option
Agreement, (iii) the Governance Agreement, (iv) the Sourcing Agency
Agreement, (v) the Registration Rights Agreement and (vi) the Agreement
Regarding Employees.
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7.9. CREDIT AGREEMENTS.
The Company and ZGNA shall have entered into definitive credit
agreements with their respective lenders on terms reasonably
satisfactory to ZGNA and such credit agreements shall be in full force
and effect.
7.10. HSR ACT.
All required waiting periods applicable to this Agreement and
the transactions contemplated hereby under the HSR shall have been
expired or terminated.
7.11. ELECTION OF OFFICER AND DIRECTORS.
Mr. Volker Wypyszyk shall have been appointed as the President
and Co-Chief Executive Officer of the Company and shall have been
elected to the Board, effective upon the Closing. Mr. Dean Stull shall
have been elected as the Chairman of the Board and Co-Chief Executive
Officer. The Board shall have been constituted as of the Closing Date
as provided in Section 2 of the Governance Agreement.
7.12. OFFICER'S CERTIFICATE.
ZGNA shall have received a certificate, dated the Closing
Date, signed by the Chairman of the Board of the Company, certifying
that the conditions specified in Sections 7.1 and 7.2 of this Agreement
have been fulfilled.
7.13. COUNSEL'S OPINION.
ZGNA shall have received from the Company's counsel, Chrisman,
Bynum & Johnson, P.C., an opinion, dated the Closing Date, substantially
as set forth in Exhibit A hereto.
7.14. COMPLETION OF MERGERS. The Certificates of Merger
shall have been filed with the Secretary of State of the respective
jurisdiction of incorporation and the Mergers shall have become
effective in accordance with the laws of the respective jurisdiction of
incorporation.
7.15. APPROVAL OF PROCEEDINGS.
All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to ZGNA
and its counsel, Willkie Farr & Gallagher; and ZGNA shall have received
copies of all documents or other evidence which it and Willkie Farr &
Gallagher may request in connection with such transactions and of all
records of corporate
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proceedings in connection therewith in form and substance satisfactory
to ZGNA and Willkie Farr & Gallagher.
7.16. ACCOUNTANT'S LETTER.
ZGNA shall have received the accountant's letter referred to
in Section 6.14(a).
SECTION 8. COMPANY CLOSING CONDITIONS
The obligation of the Company to issue and deliver the Shares
and to consummate the Mergers on the Closing Date, as provided in
Sections 2 and 3 hereof, shall be subject to the performance in all
material respects by ZGNA and the Contributed Subsidiaries of their
agreements theretofore to be performed hereunder and to the
satisfaction, prior thereto or concurrently therewith, of the following
further conditions:
8.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of ZGNA, ZBI and the
Contributed Subsidiaries contained in this Agreement shall be true and
correct and in all material respects on and as of the Closing Date as
though such warranties and representations were made at and as of such
date, except as otherwise specifically permitted herein.
8.2. COMPLIANCE WITH AGREEMENT.
ZGNA and ZBI shall have performed and complied in all material
respects with, and shall have caused the Contributed Subsidiaries to
perform and comply in all material respects with, all agreements,
covenants and conditions contained in this Agreement which are required
to be performed or complied with by it prior to or on the Closing Date.
8.3. INJUNCTION.
There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of
competent jurisdiction or governmental body or agency of competent
jurisdiction directing that the transactions provided for herein or any
of them not be consummated as herein provided.
8.4. STOCKHOLDER APPROVAL.
This Agreement shall have been approved by the affirmative
vote of the holders of a majority of the outstanding shares of the
Common Stock.
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8.5. ELECTION OF OFFICER AND DIRECTORS.
Mr. Volker Wypyszyk shall have been appointed as the
President and Co-Chief Executive Officer of the Company and shall have
been elected to the Board, effective upon the Closing. Mr. Dean Stull
shall have been elected as the Chairman of the Board and Co-Chief
Executive Officer. The Board shall have been constituted as of the
Closing Date as provided in Section 2 of the Governance Agreement.
8.6. ADVERSE DEVELOPMENT.
There shall have been no developments in the business of the
Contributed Subsidiaries which in the reasonable opinion of the Company
would have a Subsidiary Material Adverse Effect.
8.7. CREDIT AGREEMENTS.
The Company and ZGNA shall have entered into definitive
credit agreements with their respective lenders on terms reasonably
satisfactory to the Company and such credit agreements shall be full
force and effect.
8.8. CONSENTS AND APPROVALS.
All material consents, waivers, authorizations and approvals of any
governmental or regulatory authority, domestic or foreign shall have been duly
obtained and shall be in full force and effect on the Closing Date.
8.9. HSR ACT.
All required waiting periods applicable to this Agreement and
the transactions contemplated hereby under the HSR shall have been
expired or terminated.
8.10. TRANSACTION DOCUMENTS.
ZGNA or its Subsidiary and each of the other parties thereto
shall have executed and delivered (i) the Escrow Agreement, (ii) the
Powders Option Agreement, (iii) the Governance Agreement, (iv) the
Sourcing Agency Agreement, (v) the Registration Rights Agreement and
(vi) the Agreement Regarding Employees.
8.11. ZGNA'S CERTIFICATES.
The Company shall have received a certificate from an
executive officer of ZGNA, dated the Closing Date, certifying that the
conditions specified in Sections 8.1 and 8.2 of this Agreement have been
fulfilled.
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8.12. COUNSEL'S OPINION.
The Company shall have received from ZGNA's counsel, Willkie
Farr & Gallagher, an opinion, dated the Closing Date, substantially as
set forth in Exhibit B hereto.
8.13. COMPLETION OF MERGERS.
The Certificates of Merger shall have been filed with the Secretary of
State of the respective jurisdiction of incorporation and the Mergers shall have
become effective in accordance with the laws of the respective jurisdiction of
incorporation.
8.14 APPROVAL OF PROCEEDINGS.
All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to the
Company and its counsel, Chrisman, Bynum & Johnson, P.C.; and the
Company shall have received copies of all documents or other evidence
which it and Chrisman, Bynum & Johnson, P.C. may request in connection
with such transactions and of all records of corporate proceedings in
connection therewith in form and substance satisfactory to the Company
and Chrisman, Bynum & Johnson, P.C.
8.15. ACCOUNTANT'S LETTER.
The Company shall have received the accountant's letter
referred to in Section 6.14(b).
8.16. EMPLOYEES.
(a) Individuals responsible for at least 75% of all sales of
products of the Contributed Subsidiaries in the 90 days prior to the
date of this Agreement shall be available to work in connection with the
Agreement Regarding Employees in substantially the same role as before
the execution of this Agreement, and not more than 25% of such
individuals shall have stated in writing to ZGNA that they intend to
stop working for the Surviving Corporation in such role.
(b) Employees responsible for at least 75% of all purchases
of biomass material of the Contributed Subsidiaries in the 90 days prior
to the date of this Agreement shall be available to work for the
Contributed Subsidiaries in substantially the same role as before the
execution of this Agreement, and not more than 25% of such individuals
shall have stated in writing to ZGNA that they intend to stop working
for a Contributed Subsidiary in such role (including after the Closing)
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if the Contributed Subsidiary offers them a salary and compensation
arrangement comparable to that currently in place as of the date hereof
and Benefit Arrangements as contemplated by this Agreement.
8.17. EXCLUSIVE DISTRIBUTORSHIP AGREEMENT.
The agreement listed under the heading "Exclusive
Distributorship Agreement" in SECTION 5.12 OF ZGNA DISCLOSURE SCHEDULE
shall have been terminated without further liability to ZBI or the
Contributed Subsidiaries, including, without limitation, any
restrictions on their ability to engage in business contained therein.
SECTION 9. TERMINATION AND INDEMNIFICATION
9.1. TERMINATION.
This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual consent of ZGNA and the Company;
(b) by ZGNA or the Company if the Closing shall not have
occurred on or before April 30, 1999, except that ZGNA and the Company
shall have the right, in their mutual discretion, to extend the time
period in this Section 9.1(b) an additional 45 days; provided that the
right to terminate this Agreement pursuant to this Section 9.1(b) shall
not be available to any party whose failure to perform any of its
obligations under this Agreement results in the failure of the Closing
to be consummated by such date;
(c) by ZGNA if the Board shall have withdrawn, modified or
amended (or resolved to withdraw, modify or amend) in any respect its
recommendation that this Agreement be approved by the Company's
stockholders; or
(d) by ZGNA or the Company, if any governmental entity shall
have threatened to, or issued, an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting any of the
material transactions contemplated hereby.
9.2. PROCEDURE AND EFFECT OF TERMINATION.
In the event of termination of this Agreement pursuant to
Section 9.1 hereof, by one party, written notice thereof shall forthwith
be given to the other party, and, except as set forth below, this
Agreement shall terminate and be void and have no effect except for the
provisions of Section 9.4 which shall
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survive such termination and the transactions contemplated hereby shall
be abandoned except for the provisions of Section 9.4 which shall
survive such termination. If this Agreement is terminated as provided
herein:
(a) ZGNA and the Company will destroy or redeliver, and will
cause its respective agents (including, without limitation, attorneys
and accountants) to destroy or redeliver all documents, electronic files
or other media containing confidential information with respect to the
Company or the Contributed Subsidiaries, as the case may be, delivered
in connection with this Agreement, unless ZGNA or the Company believes
in its reasonable judgment that such destruction could give rise to any
liability under applicable law or prevent it from reasonably asserting a
known claim hereunder;
(b) all information received by ZGNA or the Company with
respect to the business, operations, assets or financial condition of
the Company or the Contributed Subsidiaries, as the case may be, shall
remain subject to the confidentiality provision of Section 6.8; and
(c) except as otherwise expressly set forth herein, no party
to this Agreement shall have any liability hereunder to any other party,
except (i) for any intentional breach or misrepresentation by such party
of the terms and provisions of this Agreement and (ii) as stated in
paragraphs (a) and (b) of this Section 9.2.
9.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations and warranties contained in Sections
4.6(c), 4.15, 5.6(c), 5.15 and third party claims arising out of
misrepresentation of any of the representations or warranties herein
shall survive the Closing and remain in full force and effect for a
period of 24 months following the Closing Date. All representations and
warranties contained in Section 4.31 shall terminate as of the Closing.
All other representations and warranties herein or in any other
Transaction Documents shall survive the Closing and remain in full force
and effect for a period of 18 months following the Closing Date. All
covenants and agreements contained herein shall survive the Closing and
remain in full force and effect until sixty (60) days after the
expiration of the applicable statute of limitations (including any
extensions thereof).
9.4. INDEMNIFICATION.
(a) From and after the Closing, the Company shall indemnify
and hold harmless ZGNA, ZBI and their respective
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officers, directors and Affiliates (collectively, the "ZGNA INDEMNIFIED
PARTIES") from and against any liabilities, costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages
and amounts paid in settlement (collectively, "DAMAGES") arising from or
in connection with (i) any inaccuracy in any representation or the
breach of any warranty of the Company under a Transaction Document or
(ii) the failure of the Company to duly perform or observe any term,
provision, covenant or agreement to be performed or observed by the
Company pursuant to a Transaction Document.
(b) From and after the Closing, ZGNA and ZBI shall indemnify
and hold harmless the Company and its officers, directors and Affiliates
(collectively, the "COMPANY INDEMNIFIED PARTIES") from and against any
Damages to the extent they are the result of (i) any inaccuracy in any
representation or the breach of any warranty of ZGNA, ZBI or a
Contributed Subsidiary under a Transaction Document or (ii) the failure
of ZGNA, ZBI or a Contributed Subsidiary to duly perform or observe any
term, provision, covenant or agreement to be performed or observed by
ZGNA, ZBI or a Contributed Subsidiary pursuant to a Transaction Document.
(c) Notwithstanding anything herein to the contrary, no
indemnification shall be available to ZGNA Indemnified Parties under
Section 9.4(a)(i) hereof or to the Company Indemnified Parties under
Section 9.4(b)(i) hereof unless and until the aggregate amount of
Damages that would otherwise be subject to indemnification, exceeds
$750,000 (in each case, the "BASKET AMOUNT"), in which case the party
entitled to such indemnification shall be entitled to receive only the
amounts in excess of the Basket Amount. For purposes of clause (i) of
Section 9.4(a) and 9.4(b), in determining whether there has been a
breach of any representation or warranty contained herein or in the
other Transaction Documents or the amount of any Damages resulting from
such breach, such representations and warranties shall be read without
regard to any "Company Material Adverse Effect", "Subsidiary Material
Adverse Effect" or "material" qualifier contained therein except to the
extent that the term "material" is used to define "Company Key
Agreements and Instruments" and "Subsidiary Key Agreements and
Instruments."
(d) Notwithstanding anything herein to the contrary, the
maximum aggregate liability of (i) the Company to ZGNA Indemnified
Parties and (ii) ZGNA and ZBI to the Company Indemnified Parties under
this Section 9.4 hereof shall not exceed $15 million.
(e) Notwithstanding anything herein to the contrary, none of
ZGNA Indemnified Parties shall be entitled to indemnification by the
Company for any Damages arising from any
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matter of which ZGNA had knowledge at or prior to Closing by reason of
the Company having delivered written notice thereto, either in a
supplemented disclosure schedule or an officer's certificate, at or
prior to Closing, if (i) the conditions to ZGNA's obligation set forth
in Section 7 fail to be satisfied at Closing by reason of the matters
disclosed in such supplemented disclosure schedule or officer's
certificate and ZGNA waives its right not to Close unless (ii) the
Company made a knowing misrepresentation with respect to such matter on
the date of this Agreement; PROVIDED that clause (i) above shall not
apply in respect of any matter as to which the Company has the explicit
right set forth in Section 4 to notify ZGNA thereof at or prior to
Closing and modify the corresponding disclosures.
(f) Notwithstanding anything herein to the contrary, none of
the Company Indemnified Parties shall be entitled to indemnification by
ZGNA for any Damages arising from any matter of which the Company had
knowledge at or prior to Closing by reason of ZGNA having delivered
written notice thereto, either in a supplemented disclosure schedule or
an officer's certificate, at or prior to Closing, if (i) the conditions
to the Company's obligation set forth in Section 8 fail to be satisfied
at Closing by reason of the matters disclosed in such supplemented
disclosure schedule or officer's certificate and the Company waives its
right not to Close unless (ii) ZGNA made a knowing misrepresentation
with respect to such matter on the date of this Agreement; PROVIDED that
clause (i) above shall not apply in respect of any matter as to which
ZGNA has the explicit right set forth in Section 5 to notify the Company
thereof at or prior to Closing and modify the corresponding disclosures.
(g) Any calculation of Damages for purposes of this Section
9.4 shall be (i) net of any insurance recovery made by the Indemnified
Party (whether paid directly to such Indemnified Party or assigned by
the Indemnifying Party to such Indemnified Party) and (ii) reduced to
take account of any net Tax benefit realized by the Indemnified Party
arising from the deductibility of any such Damages or Tax. Any
indemnification payment hereunder shall initially be made without regard
to this paragraph and shall be reduced to reflect any such net Tax
benefit only after the Indemnified Party has actually realized such
benefit. For purposes of this Agreement, an Indemnified Party shall be
deemed to have "actually realized" a net Tax benefit to the extent that,
and at such time as, the amount of Taxes payable by such Indemnified
Party is reduced below the amount of Taxes that such Indemnified Party
would have been required to pay but for deductibility of such Damages.
The amount of any reduction hereunder shall be adjusted to reflect any
final determination (which shall include the execution of Form 870-AD or
successor form) with respect to the Indemnified Party's liability for
Taxes and, if necessary, the Company or
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ZGNA and ZBI, as the case may be, shall make payments to the other to
reflect such adjustment. Any indemnity payment under this Agreement
shall be treated as an adjustment to the consideration for Tax purposes,
unless a final determination (which shall include the execution of a
Form 870-AD or successor form) with respect to the Indemnified Party or
any of its Affiliates causes any such payment not to be treated as an
adjustment to the consideration for U.S. Federal income Tax purposes.
(h) No action, claim or setoff for Damages subject to indemnification
under this Section 9.4 shall be brought or made:
(i) with respect to claims for Damages resulting from a breach
of any covenant contained in this Agreement after the date on which such
covenant shall terminate pursuant to Section 9.3 hereof; and
(ii) with respect to claims for Damages resulting from a breach
of any representation or warranty, after the date on which such representation
or warranty shall terminate pursuant to Section 9.3 hereof;
PROVIDED, HOWEVER, that any claim made with reasonable specificity by the party
seeking indemnification (the "INDEMNIFIED PARTY") to the party from which
indemnification is sought (the "INDEMNIFYING PARTY") within the time periods set
forth above shall survive (and be subject to indemnification) until it is
finally and fully resolved.
(i) Upon receipt by the Indemnified Party of notice of any
action, suit, proceedings, claim, demand or assessment against such
Indemnified Party which might give rise to a claim for Damages, the
Indemnified Party shall give written notice thereof to the Indemnifying
Party indicating the nature of such claim and the basis therefor;
PROVIDED, HOWEVER, that failure to give such notice shall not affect the
indemnification provided hereunder except to the extent the Indemnifying
Party shall have been actually prejudiced as a result of such failure.
A claim to indemnity hereunder may, at the option of the Indemnified
Party, be asserted as soon as Damages have been threatened by a third
party orally or in writing, regardless of whether actual harm has been
suffered or out-of-pocket expenses incurred, PROVIDED the Indemnified
Party shall reasonably determine that it may be liable or otherwise
incur such Damages. The Indemnifying Party shall have the right, at its
option, to assume the defense of, at its own expense and by its own
counsel, any such matter involving the asserted liability of the
Indemnified Party as to which the Indemnifying Party shall have
acknowledged its obligation to indemnify the Indemnified Party. If any
Indemnifying Party shall undertake to compromise or defend any such
asserted liability, it
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shall promptly notify the Indemnified Party of its intention to do so,
and the Indemnified Party agrees to cooperate fully with the
Indemnifying Party and its counsel in the compromise of, or defense
against, any such asserted liability; PROVIDED, HOWEVER, that the
Indemnifying Party shall not settle any such asserted liability without
the written consent of the Indemnified Party (which consent will not be
unreasonably withheld); PROVIDED, FURTHER, however that the immediately
preceding clause shall not apply in the case of relief consisting solely
of money damages at least 80% of which shall be borne by the
Indemnifying Party after taking into account any limitation thereon.
Notwithstanding an election to assume the defense of such action or
proceeding, such Indemnified Party shall have the right to employ
separate counsel and to participate in the defense of such action or
proceeding, and the Indemnifying Party shall bear the reasonable fees,
costs and expenses of such separate counsel (and shall pay such fees,
costs and expenses at least quarterly), if (A) the use of counsel chosen
by the Indemnifying Party to represent such Indemnified Party would
present such counsel with a conflict of interest; (B) the defendants in,
or targets of, any such action or proceeding include both an Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have
reasonably concluded that there may be legal defenses available to it or
to other Indemnified Parties which are different from or additional to
those available to the Indemnifying Party (in which case the
Indemnifying Party shall not have the right to direct the defense of
such action or proceeding on behalf of the Indemnified Party); (C) the
Indemnifying Party shall not have employed counsel reasonably
satisfactory to such Indemnified Party to represent such Indemnified
Party within a reasonable time after notice of the institution of such
action or proceeding; or (D) the Indemnifying Party shall authorize such
Indemnified Party to employ separate counsel at the Indemnifying Party's
expense. In any event, the Indemnified Party and its counsel shall
cooperate with the Indemnifying Party and its counsel and shall not
assert any position in any proceeding inconsistent with that asserted by
the Indemnifying Party. All costs and expenses incurred in connection
with an Indemnified Party's cooperation shall be borne by the
Indemnifying Party. In any event, the Indemnified Party shall have the
right at its own expense to participate in the defense of such asserted
liability.
(j) The sole and exclusive remedy for any breach of any
representation, warranty, covenant or agreement shall be pursuant to
this Section 9.4, except in the case of fraud. Absent fraud, under no
circumstances shall either party be liable to other for consequential or
punitive damages.
(k) Each party hereby acknowledges and agrees that the other
party is not making any representation or warranty whatsoever, express
or implied, including, without limitation, in
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respect of their respective assets, liabilities and businesses, except
those representations and warranties explicitly set forth in the
Transaction Document or in any certificate contemplated hereby and
delivered in connection herewith.
9.5. BREAK-UP FEE.
(a) In the event that (i) upon a vote at a duly held meeting
of the stockholders of the Company or any adjournment thereof, any
stockholder approval contemplated by this Agreement shall not have been
approved or (ii) the Board shall have withdrawn, modified or amended (or
resolved to withdraw, modify or amend) in any respect its recommendation
to its stockholders that this Agreement be approved by the Company's
stockholders, the Company shall pay ZGNA all of ZGNA's reasonable
out-of-pocket expenses incurred in connection with the transactions
contemplated hereby, including fees and expenses of its counsel and
financial advisors; provided, that the Company shall not be liable for
out-of-pocket expenses in excess of $500,000.
(b) If within twelve (12) months of the termination date of this
Agreement for either of the reasons set forth in 9.5(a) the Company shall
sell such number of shares of Common Stock equal to or greater than 49% of
the issued and outstanding shares of the Common Stock (calculated by using
the number of issued and outstanding shares of Common Stock as of the date
hereof) by way of sale of securities, merger, reorganization, or shall sell
all or substantially all of its assets, the Company shall pay $1,500,000 (the
"TERMINATION FEE") to ZGNA in immediately available funds no later than two
(2) Business Days after entry into such agreement. The Company agrees that
it will not structure any transaction or agreement for the purpose of
avoiding payment of Termination Fee. The Company acknowledges that the
agreements contained in this Section 9.5 are an integral part of the
transactions contemplated in this Agreement, and that, without these
agreements, ZGNA would not enter into this Agreement; accordingly, if the
Company fails to promptly pay the amount due pursuant to this Section 9.5,
and, in order to obtain such payment, ZGNA commences a suit which results in
a judgment against the Company for the Termination Fee, the Company shall pay
to ZGNA its costs and expenses (including attorneys' fees) in connection with
such suit, together with interest on the amount of the fee at the prime rate
of Citibank, N.A. on the date such payment was required to be made.
Notwithstanding the foregoing, no Termination Fee or payment under Section
9.5(a) shall be payable if the transactions contemplated hereunder are not
consummated because (i) the Company's Board of Directors withdraws its
recommendation of this Agreement as a result of a material breach or
misrepresentation by ZGNA, (ii) the Company or ZGNA failed to enter into a
definitive credit agreement with their respective lenders, (iii) the Company
terminates this Agreement because of a material breach (including a material
breach of Section 6.9 herein) or a material misrepresentation by
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ZGNA, (iv) approval under the HSR is not obtained (assuming the Company and
ZGNA have made appropriate HSR filings) or (v) the Company terminates this
Agreement as a result of failure to satisfy Sections 8.3 (Injunction), 8.6
(Adverse Development), 8.10 (Transaction Documents), 8.11 (ZGNA's
Certificates), 8.12 (Counsel's Opinion), 8.13 (Completion of Mergers) or 8.16
(Sales Force).
(c) Notwithstanding, in the event ZGNA shall have exercised
the Option and shall thereafter sell the shares of Common Stock received
by it upon exercise of the Option, ZGNA shall pay to the Company any
fees and expenses (including Termination Fee) received by it pursuant to
this Section to the extent the net proceeds received by it in connection
with such sale exceed the exercise price for the Option.
SECTION 10. MISCELLANEOUS
10.1. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT
THAT ALL ISSUES RELATING TO THE DELAWARE MERGERS SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND
ALL ISSUES RELATING TO THE NEW YORK MERGER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
10.2. PARAGRAPH AND SECTION HEADINGS.
The headings of the sections and subsections of this Agreement
are inserted for convenience only and shall not be deemed to constitute
a part thereof.
10.3. NOTICES.
(a) All communications under this Agreement shall be in writing and
shall be delivered by hand, by facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid:
(1) if to ZGNA or ZBI, at 2550 El Presidio Street, Long Beach,
California 90810-1193 (facsimile: (310) 637-3644), marked for
attention of President, or at such other address as ZGNA may have
furnished the Company in writing (with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, NY 10019-6099, Attention:
Harvey L. Sperry, Esq. (facsimile: 212-728-8111), or at such other
address it may have furnished the Company in
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writing), or
(2) if to the Company, at 5555 Airport Boulevard, Boulder, Colorado
80301 (facsimile: (303) 441-5802) marked for attention of Dean Stull,
or at such other address as the Company may have furnished ZGNA in
writing (with a copy to Laurie Glasscock, Chrisman, Bynum & Johnson,
P.C., 1900 Fifteenth Street, Boulder, Colorado 80302 (facsimile:
(303) 449-5426) or at such other address as it may have furnished in
writing to ZGNA).
(b) Any notice so addressed shall be deemed to be given: if
delivered by hand or by facsimile, on the date of such delivery; if delivered by
courier, on the first Business Day following the date of the delivery to the
courier; and if mailed by registered or certified mail, on the third Business
Day after the date of such mailing.
10.4. EXPENSES AND TAXES.
Subject to Section 9.5, whether or not the Closing shall have
occurred, each party shall pay its own fees and expenses incurred in
connection with the transactions contemplated hereby.
10.5. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties.
10.6. ENTIRE AGREEMENT; AMENDMENT AND WAIVER.
(a) This Agreement and the agreements attached as Exhibits
hereto constitute the entire understandings of the parties hereto and
supersede all prior agreements or understandings with respect to the
subject matter hereof among such parties. This Agreement may be
amended, and the observance of any term of this Agreement may be waived,
with (and only with) the written consent of the Company and ZGNA. No
course of dealing between the Company and ZGNA nor any delay in
exercising any rights hereunder shall operate as a waiver of any rights
of either party hereto.
(b) Subject to applicable law, by agreement of the parties,
this Agreement, the Transaction Documents and other documents entered
into in connection herewith, may be terminated, amended, or the
observance of any terms waived, after the Company's stockholder approval.
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10.7. SEVERABILITY.
In the event that any part or parts of this Agreement shall be
held illegal or unenforceable by any court or administrative body of
competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force
and effect.
10.8. THIRD PARTIES.
Nothing contained in this Agreement or in any instrument or
document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have
been executed for the benefit of, any person that is not a party hereto
or thereto or a successor or permitted assign of such a party.
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10.9. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together
shall be considered one and the same agreement.
HAUSER, INC. ZUELLIG GROUP N.A., INC.
By: /s/ Dean P. Stull By: /s/ Volker Wypyszyk
-------------------------- --------------------------
Name: Dean P. Stull Name: Volker Wypyszyk
Title: CEO Title: President
QQB HOLDINGS I, INC. ZUELLIG BOTANICAL EXTRACTS,
INC.
By: /s/ Dean P. Stull By: /s/ Ralph L. Heimann
-------------------------- --------------------------
Name: Dean P. Stull Name: Ralph L. Heimann
Title: President Title: Secretary & Treasurer
QQB HOLDINGS II, INC. ZETAPHARM, INC.
By: /s/ Dean P. Stull By: /s/ Ralph L. Heimann
-------------------------- --------------------------
Name: Dean P. Stull Name: Ralph L. Heimann
Title: President Title: Secretary & Treasurer
QQB HOLDINGS III, INC. WILCOX DRUG COMPANY, INC.
By: /s/ Dean P. Stull By: /s/ Ralph L. Heimann
-------------------------- --------------------------
Name: Dean P. Stull Name: Ralph L. Heimann
Title: President Title: Secretary & Treasurer
ZUELLIG BOTANICALS, INC.
By: /s/ Ralph L. Heimann
---------------------------
Name: Ralph L. Heimann
Title: Secretary & Treasurer
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Agreement and Plan of Merger dated December 8, 1998
by and among
Zuellig Group N.A., Inc.,
Hauser, Inc. and certain other parties
EXHIBITS AND SCHEDULES FILED WITH FORM 10-Q
1. Exhibit C -- Form of Agreement Regarding Employees. Filed as Exhibit 2.2
to Form 10-Q.
2. Exhibit D -- Form of Escrow Agreement. Filed as Exhibit 2.3 to Form 10-Q.
3. Exhibit E -- Form of Governance Agreement. Filed as Exhibit 2.4 to
Form 10-Q.
4. Exhibit F -- Inventory Purchase Agreement. Filed as Exhibit 2.5 to
Form 10-Q.
5. Exhibit G -- Form of Agreement for Option to Acquire Powders Business.
Filed as Exhibit 2.6 to Form 10-Q.
6. Exhibit H -- Registration Rights Agreement. Filed as Exhibit 2.7 to
Form 10-Q.
7. Exhibit I -- Form of Sourcing Agency Agreement. Filed as Exhibit 2.8 to
Form 10-Q.
8. Exhibit J -- Agreement for Option to Acquire Common Stock of Hauser,
Inc. Filed as Exhibit 2.9 to Form 10-Q.
EXHIBITS AND SCHEDULES OMITTED FROM FORM 10-Q
1. Hauser, Inc. Disclosure Schedule.
2. ZGNA Disclosure Schedule.
3. Exhibit A -- Form of Opinion of Counsel to Hauser, Inc.
4. Exhibit B -- Form of Opinion of Counsel to ZGNA.
5. Schedules to Inventory Purchase Agreement
6. Exhibit K -- Form of Tax Certificate of Contributed Subsidiaries and Their
Shareholders.
7. Schedule 6.6(a) re employment agreements.
8. Schedule 6.14 -- Form of Accountants' Letter.
<PAGE>
Exhibit 2.2
EXHIBIT C
FORM OF AGREEMENT REGARDING EMPLOYEES
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EXHIBIT C
AGREEMENT REGARDING EMPLOYEES
AGREEMENT REGARDING EMPLOYEES, dated as of ____________, 1999 (the
"AGREEMENT"), by and between Hauser, Inc., a Colorado corporation (the
"COMPANY"), and Zuellig Botanicals, Inc., a Delaware corporation ("ZBI").
R E C I T A L S :
WHEREAS, certain employees of ZBI and its subsidiaries, as more
specifically listed on Schedule A hereto (the "EMPLOYEES"), may also be
employees of the Company or its subsidiaries; and
WHEREAS, the parties wish to set forth certain arrangements regarding
the Employees.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the Company and ZBI, agree as follows:
1. SERVICES BY THE EMPLOYEES TO ZBI
(a) Each Employee shall have the duties and responsibilities with
respect to services provided for ZBI as ZBI shall determine from time to time in
its sole discretion ("EMPLOYMENT DUTIES"). ZBI will have sole control over such
activities. ZBI shall be responsible for the payment of compensation for each
Employee with respect to Employment Duties rendered on behalf of ZBI. ZBI may
terminate an Employee at any time.
(b) The Employees shall in all respects qualify as common-law
employees of ZBI while rendering Employment Duties for ZBI. ZBI shall use its
reasonable best efforts to ensure that no Employee holds himself out to the
public as an employee, representative or agent of the Company when he is engaged
in ZBI business. ZBI shall use its reasonable best efforts to ensure that
appropriate correspondence, letterhead and business cards are used for the
relevant business being conducted, and that Employees clearly indicate to third
parties that they are acting solely on behalf of ZBI when conducting ZBI
business. Any out-of-pocket expenses that are incurred by the Employees while
engaged in the conduct of ZBI's business shall not be the Company's
responsibility.
<PAGE>
(c) ZBI and the Company will not object to the Employee
spending one-half of his or her normal working time in the active
employment of the other.
2. SERVICES BY EMPLOYEES TO THE COMPANY
(a) Each Employee shall have the duties and responsibilities with
respect to services provided for the Company as the Company shall determine from
time to time in its sole discretion ("EMPLOYMENT DUTIES"). The Company will
have sole control over such activities. The Company shall be responsible for
the payment of compensation for each Employee with respect to Employment Duties
rendered on behalf of the Company. The Company may terminate an Employee at any
time.
(b) The Employees shall in all respects qualify as common-law
employees of the Company while rendering Employment Duties for the Company. The
Company shall use its reasonable best efforts to ensure that no Employee holds
himself out to the public as an employee, representative or agent of ZBI when he
is engaged in the Company business. The Company shall use its reasonable best
efforts to ensure that appropriate correspondence, letterhead and business cards
are used for the relevant business being conducted, and that Employees clearly
indicate to third parties that they are acting solely on behalf of the Company
when conducting the Company business. Any out-of-pocket expenses that are
incurred by the Employees while engaged in the conduct of the Company's business
shall not be ZBI's responsibility.
3. BENEFITS
ZBI and the Company recognize that it is likely the Employees would
not work on a part time basis for either of them if the Employee could not
receive health, disability, life insurance, retirement and similar benefits.
Accordingly, the Employee will be provided appropriate benefits and the parties
recognize that the employer not providing the benefits will likely have to
compensate the Employee with relatively greater cash compensation in order to
secure the services of the Employee.
4. INDEMNIFICATION
Except as otherwise specifically provided for in this Agreement, the
Company agrees to indemnify ZBI against, and agrees to hold it harmless from,
any and all losses incurred or suffered as a result of: (i) any claim by any
third-party resulting from any actions of a Employee while such employee is
engaged in the conduct of the Company's business, and (ii) any claim by any
Employee resulting from any actions of the Company and its employees while such
employee is providing services in connection with the Company's business.
Except as otherwise specifically provided for in this Agreement, ZBI agrees to
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indemnify the Company against, and agrees to hold it harmless from, any
and all losses incurred or suffered as a result of: (i) any claim by
any third-party resulting from any actions of a Employee while such
employee is engaged in the conduct of ZBI's business, and (ii) any claim
by any Employee resulting from any actions of ZBI and its employees
while such employee is providing services in connection with ZBI's
business. In the event ZBI and the Company are held jointly liable in
respect of any claim by any third-party resulting from any actions of a
Employee, then the liability shall be apportioned between ZBI and the
Company based upon concepts used in applying principles of contribution
including relative fault, relative benefit, and ability to control the
actions of the Employee in the particular undertaking from which
liability arose.
5. TERMINATION
This Agreement shall terminate on the second anniversary of the date
hereof. Upon such termination, ZBI and its affiliates (except for the Company
and its subsidiaries if the Company is considered an affiliate of ZBI) will no
longer seek to employ the Employees.
6. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado applicable to contracts
made and to be performed entirely within such State.
(b) PARAGRAPH AND SECTION HEADINGS. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(c) NOTICES. All communications under this Agreement shall be in
writing and shall be delivered by hand, by facsimile or mailed by overnight
courier or by registered mail or certified mail, postage prepaid:
(1) If to ZBI, at 2550 El Presidio Street, Long Beach, California
90810-1193 (facsimile: (310) 637-3644), marked for attention of
President, or at such other address as ZBI may have furnished the
Company in writing (with a copy to Willkie Farr & Gallagher, 787
Seventh Avenue, New York, NY 10019-6099, Attention: Harvey L. Sperry,
Esq. (facsimile: 212-728-8111), or at such other address it may have
furnished the Company in writing), and
(2) If to the Company, at 5555 Airport Boulevard, Boulder, Colorado
80301 (facsimile: (303) 441-5802), marked for the attention of Dean
Stull, or at such other address as the Company may have furnished ZBI
in
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writing (with a copy to Chrisman, Bynum & Johnson, P.C., 1900
Fifteenth Street, Boulder, Colorado 80302, Attention: Laurie
Glasscock, Esq. (facsimile: 303-449-5426) or at such other address as
it may have furnished in writing).
Any notice so addressed shall be deemed to be given: if delivered by hand or by
facsimile, on the date of such delivery; if delivered by courier, on the first
business day following the date of the delivery to the courier; and if mailed by
registered or certified mail, on the third business day after the date of such
mailing.
(d) EXPENSES AND TAXES. Each party shall pay its own fees and
expenses incurred in connection with the transactions contemplated hereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
(f) ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement
constitutes the entire understandings of the parties hereto and supersede all
prior agreements or understandings with respect to the subject matter hereof
among such parties. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Company and ZBI. No course of dealing between the Company and ZBI nor
any delay in exercising any rights hereunder shall operate as a waiver of any
rights of either party hereto.
(g) SEVERABILITY. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
(h) SPECIFIC PERFORMANCE. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
(i) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
create any rights in favor of any person other than the parties hereto,
including without limitation, any Employee. Nothing contained herein is
intended to confer upon any Employee any right to continued employment by ZBI or
the Company or any of their respective subsidiaries and ZBI and the Company, or
their respective subsidiaries, shall have the right to dismiss any Employee,
with or without cause, at any time.
-4-
<PAGE>
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement the
__ day of _____, 1999.
HAUSER, INC.
By:
-----------------------------
Name:
Title:
ZUELLIG BOTANICALS, INC.
By:
-----------------------------
Name:
Title:
-6-
<PAGE>
Exhibit 2.3
EXHIBIT D
FORM OF ESCROW AGREEMENT
-76-
<PAGE>
EXHIBIT D
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of ___________, 1999, (the "AGREEMENT") by
and among Zuellig Group N.A., Inc., a Delaware corporation (the "ZGNA"), Hauser,
Inc., a Colorado corporation (the "COMPANY"), Zuellig Botanicals, Inc., a
Delaware Corporation ("ZBI") and American Securities Transfer & Trust, Inc., as
Escrow Agent (the "ESCROW AGENT").
R E C I T A L S
WHEREAS, ZGNA, ZBI, the Company and certain other parties are parties
to an Agreement and Plan of Merger (the "MERGER AGREEMENT"), dated as of
December 8, 1998, pursuant to which, among other things, the Company acquired
three subsidiaries from ZGNA and ZBI in exchange for shares of Common Stock, par
value $0.001 per share, of the Company (the "COMMON STOCK");
WHEREAS, pursuant to the Merger Agreement, the Company and
ZGNA have agreed to have the Escrow Agent hold ___________ shares of
Common Stock registered in the name of ZGNA, and ____________ shares of
Common Stock registered in the name of ZBI (the ratio of ____ to _____
being the "ZGNA-ZBI Ratio"), on the terms and subject to the conditions
set forth herein; and
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby
- -----------------
(1) This amount in total will equal the lesser of 7% of the Common
Stock after giving effect to the transactions and such number of shares
of Common Stock as will result in ZGNA and ZBI owning (excluding the
Escrow Shares) 40% of the shares of Common Stock outstanding on a fully
diluted basis after giving effect to the transaction. The shares of
Common Stock for each of ZGNA and ZBI to be deposited in escrow will be
in proportion to the shares of Common Stock received in the merger. For
purposes of this calculation, the shares of Common Stock outstanding on
a fully diluted basis shall equal the number of shares of Common Stock
issued and outstanding on the Closing Date, plus all shares of Common
Stock issuable (i) upon the exercise of all outstanding options or
warrants to acquire shares of Common Stock (whether or not then
exercisable) other than the ZGNA Option or (ii) upon conversion or
exchange of any securities convertible into or exchangeable for shares
of Common Stock.
<PAGE>
acknowledged, the parties to this Agreement hereby agree as
follows:
1. APPOINTMENT OF ESCROW AGENT; ESCROW DEPOSIT. The Company
and ZGNA hereby appoint the Escrow Agent as the escrow agent under this
Agreement, and the Escrow Agent accepts such appointment according to
the terms and conditions set forth herein. On the date hereof, the
Company, ZGNA and ZBI have deposited with the Escrow Agent, and the
Escrow Agent hereby acknowledges receipt of, certificates
("Certificates") registered in the name of ZGNA and ZBI evidencing
_________ shares and _________ shares of Common Stock, respectively (the
"ESCROW SHARES"). The Escrow Agent shall hold, manage, administer,
distribute and dispose of the Escrow Shares in accordance with the terms
and conditions of this Agreement.
2. PAYMENTS FROM ESCROW. The Escrow Agent shall hold the Escrow
Shares in escrow in accordance with this Agreement and shall make payments from
the Escrow Shares only as follows or as provided in Section 3 below:
(a) On [DATE WHICH IS 95 DAYS FROM CLOSING OF MERGERS] (the "CLAIM
EXPIRATION DATE"), the Escrow Agent shall deliver the respective Escrow Shares
to ZGNA and ZBI unless, on or prior to the Claim Expiration Date, the Escrow
Agent shall have received a Sale Notice (as defined below) from the Company.
(b) Any delivery required to be made hereunder by the Escrow Agent
shall be delivered in accordance with written instructions given to the Escrow
Agent by the party entitled under this Agreement to receive such delivery.
3. CLAIMS. The procedure for the delivery of Escrow Shares shall be
as follows:
(a) From time to time prior to the Claim Expiration Date, the Company
may provide written notice (a "SALE NOTICE") to the Escrow Agent and ZGNA to the
effect that a Paclitaxel Transaction (as defined below) has occurred. Any Sale
Notice shall set forth (i) the date on which the Paclitaxel Transaction
occurred, (ii) the gross proceeds, (iii) the amount of the Transaction Expenses
(as defined below), and (iv) the Net Proceeds (as defined below) from the
Paclitaxel Transaction, and shall be executed in good faith by the Company's
chief financial officer.
(b) For purposes hereof, (i) a "PACLITAXEL TRANSACTION" shall mean a
sale of the Company's Paclitaxel business or any substantial part thereof, (ii)
"NET PROCEEDS" shall mean the gross cash proceeds received by the Company on or
within 90 days after the Closing of the Mergers (as defined in the Merger
Agreement) in connection with the Paclitaxel Transaction, less the Transaction
Expenses related to such transaction, and less $3,000,000 (iii) "TRANSACTION
EXPENSES"
2
<PAGE>
shall mean all professional fees and expenses incurred by the Company
in connection with the Paclitaxel Transaction and all other out-of-pocket costs
or expenses incurred by the Company in connection with the Paclitaxel
Transaction.
(c) The Escrow Agent shall furnish ZGNA with a copy of any Sale
Notice received by it. If, within twenty (20) days after actual receipt by the
Escrow Agent of a Sale Notice in accordance with Section 3(a), the Escrow Agent
has not actually received written objection to such claim from ZGNA, the Net
Proceeds stated in such notice shall be conclusively deemed to be approved by
ZGNA and ZBI and the Escrow Agent shall promptly thereafter notify the Company
and the Company's transfer agent (currently American Securities Transfer &
Trust, Inc., the "TRANSFER AGENT") to cancel the Escrow Shares in an amount
equal to the number (the "CANCELED SHARES") derived by dividing the Net
Proceeds, as set forth in the Sale Notice, by $3.50 and as between ZGNA and ZBI
in the ZGNA-ZBI Ratio. The Canceled Shares shall be specified in such notice
and in the event of a fractional share the number of shares to be canceled shall
be rounded down to the next whole share. The Company shall promptly deliver
stock certificates for the balance of the Escrow Shares to the Escrow Agent,
registered in the name of ZGNA and ZBI, respectively, and bearing all legends on
the Certificates.
(d) If within said twenty (20) days the Escrow Agent shall have
actually received from ZGNA a written objection to the information set forth in
the Sale Notice, certifying the nature of and grounds for such objection (a copy
of which objection shall in each case be sent to the Company in accordance with
the provisions of Section 8 below), then the number of Escrow Shares obtained by
dividing the portion of the Net Proceeds (as set forth in the disputed Sale
Notice) which ZGNA disputes (which may be all or a portion of the Net Proceeds)
by $3.50 shall be deemed to be "Disputed Escrow Shares".
(e) If no Sale Notice is delivered by the Company, all Escrow Shares
shall be delivered to ZGNA and ZBI on the third business day following the Claim
Expiration Date. If a Sale Notice is delivered, any Escrow Shares in excess of
the Disputed Escrow Shares and the Canceled Shares shall be delivered to ZGNA
and ZBI, respectively, on the third business day following the Claim Expiration
Date. The Escrow Agent and the Company shall take all steps necessary to issue
certificates to ZGNA and ZBI in respect of such shares, and to cause residual
certificates representing the Disputed Escrow Shares to be delivered to the
Escrow Agent.
Certificates representing the Disputed Escrow Shares shall be released
by the Escrow Agent from the escrow only either (i) in accordance with a joint
written instruction by ZGNA and the Company or (ii) if and to the extent
consistent with a copy of a final judgment by or order of a court of competent
jurisdiction with respect to which any period of time to appeal
3
<PAGE>
such judgment or order shall have lapsed pertaining to the Disputed
Escrow Shares, sent to the Escrow Agent by ZGNA or the Company, in any
case accompanied by a certification that any period of time to file an
appeal of such judgment or order has lapsed and no such appeal has been
filed or is otherwise pending (a "FINAL DETERMINATION").
4. CONDITIONS TO ESCROW. The Escrow Agent agrees to hold the Escrow
Shares and to perform in accordance with the terms and provisions of this
Agreement. The Company, ZBI and ZGNA agree that the Escrow Agent does not
assume any responsibility for the failure of the Company or ZGNA to perform in
accordance with the Merger Agreement or this Agreement. The acceptance by the
Escrow Agent of its responsibilities hereunder is subject to the following terms
and conditions, which the parties hereto agree shall govern and control with
respect to the Escrow Agent's rights, duties, liabilities and immunities:
(a) The Escrow Agent may conclusively rely, and shall be protected in
acting or refraining from acting upon, any written notice, certification,
request, waiver, consent, receipt or other paper or document furnished to it,
not only as to its due execution and validity and effectiveness of its
provisions but also as to the truth and accuracy of any information therein
contained which the Escrow Agent reasonably believes to be genuine and to have
been signed and presented by the proper party or parties. Should it be
necessary for the Escrow Agent to act upon any instructions, directions,
documents or instruments issued or signed by or on behalf of any corporation,
fiduciary, or individual acting on behalf of another party hereto, it shall not
be necessary for the Escrow Agent to inquire into such corporation's,
fiduciary's or individual's authority, capacity, existence or identity. The
Escrow Agent is also relieved from the necessity of satisfying itself as to the
authority of the persons executing this Agreement in a representative capacity.
It is understood that any references herein to joint instructions or joint
written instructions or words of similar import include any instructions signed
in counterpart.
(b) The Escrow Agent shall not be liable for any error of judgment or
for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection herewith, except for its own gross negligence or willful misconduct.
(c) The Escrow Agent may consult with, and obtain advice from, legal
counsel in the event of any question as to any of the provisions hereof or the
duties hereunder, and it shall incur no liability and shall be fully protected
in acting in good faith in accordance with the opinion and instructions of such
counsel. The reasonable costs of such counsel's services shall be paid to the
Escrow Agent in accordance with Section 7 below.
4
<PAGE>
(d) The Escrow Agent shall have no duties except those which are
expressly set forth herein and it shall not be bound by (i) the Merger Agreement
or any agreement of the other parties hereto (whether or not it has any
knowledge thereof) or by any notice of a claim, or demand with respect thereto,
or (ii) any waiver, modification, amendment, termination or rescission of this
Agreement unless the Escrow Agent agrees thereto in writing.
(e) The Escrow Agent may resign and be discharged from its duties and
obligations hereunder by giving notice in writing of such resignation specifying
a date (no earlier than 30 days following the date of such notice) when such
resignation will take effect, provided, however, that until a successor escrow
agent is appointed by ZGNA and the Company and such successor accepts such
appointment, the Escrow Agent shall continue to hold the Escrow Shares and
otherwise comply with the terms of this Agreement; provided further that the
parties to this Escrow Agreement agree to use their best efforts to mutually
agree on a successor escrow agent within 30 days after the giving of Escrow
Agent's notice and if no such successor escrow agent shall be appointed within
30 days of the Escrow Agent providing its notice, the Escrow Agent may, at the
expense of the Company and ZGNA, (i) appoint a successor escrow agent which
shall be a national or state-chartered banking, trust or savings association,
(ii) petition any court of competent jurisdiction for the appointment of a
successor escrow agent or (iii) may deposit the Escrow Deposit with the Clerk of
the United States District Court for the District of Colorado, or with the
office of the clerk of registry of any other court of competent jurisdiction, at
which time the Escrow Agent's duties hereunder shall terminate. Any successor
escrow agent shall execute and deliver an instrument accepting such appointment
and it shall, without further acts, be vested with all the estates, properties,
rights, powers and duties of the predecessor escrow agent as if originally named
as escrow agent. The resigning Escrow Agent shall thereupon be discharged from
any further obligations under this Escrow Agreement.
(f) Upon delivery of all of the entire Escrow Shares to ZGNA, to the
Transfer Agent for cancellation in full, or to ZGNA after prior delivery to the
Transfer Agent, as the case may be, pursuant to the terms of Section 3 above, or
to a successor escrow agent, the Escrow Agent shall thereafter be discharged
from any further obligations hereunder. The Escrow Agent is hereby authorized,
in any and all events, to comply with and obey any and all final judgments,
orders and decrees (not subject to appeal) of any court of competent
jurisdiction which may be filed, entered or issued, and, if it shall so comply
or obey, it shall not be liable to any other person by reason of such compliance
or obedience.
(g) The Escrow Agent shall not have any responsibility or liability
for the completeness, correctness or accuracy of
5
<PAGE>
any transactions between ZGNA and ZBI, on the one hand, and the Company,
on the other hand.
(h) In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions with respect to the
Escrow Shares which, in its sole opinion, are in conflict with either other
instructions received by it or any provision of this Agreement, it shall without
liability of any kind, be entitled to hold the Escrow Shares pending the
resolution of such uncertainty to the Escrow Agent's sole satisfaction, by final
judgment of a court or courts of competent jurisdiction or otherwise, or the
Escrow Agent, at its option, may, in final satisfaction of its duties hereunder,
deposit the Escrow Shares with the Clerk of the United States District Court for
the District of Colorado or with the office of the clerk of registry of any
other court of competent jurisdiction.
5. INDEMNIFICATION. From and at all times after the date of this Escrow
Agreement, the Company, ZBI and ZGNA (the "Indemnifying Parties") shall, except
as otherwise hereinafter provided, to the fullest extent permitted by law,
indemnify and hold harmless Escrow Agent and each partner, employee, attorney,
agent and affiliate of Escrow Agent, (collectively, the "Indemnified Parties")
against any and all actions, claims (whether or not valid), losses, damages,
liabilities, costs and expenses of any kind or nature whatsoever (including
without limitation reasonable attorneys' fees, costs and expenses) incurred by
or asserted against any of the Indemnified Parties from and after the date
hereof, whether direct, indirect or consequential, as a result of or arising
from or in any way relating to any claim, demand, suit, action or proceeding
(including any inquiry or investigation) by any person, including without
limitation the Indemnifying Parties, whether threatened or initiated, asserting
a claim for any legal or equitable remedy against any person under any statute
or regulation, including, but not limited to, any federal or state securities
laws, or under any common law or equitable cause or otherwise, arising from or
in connection with the negotiation, preparation, execution, performance or
failure of performance of this Escrow Agreement or any transactions contemplated
herein, whether or not any such Indemnified Party is a party to any such action,
proceeding, suit or the target of any such inquiry or investigation; provided,
however, that no Indemnified Party shall have the right to be indemnified
hereunder for any liability finally determined by a court of competent
jurisdiction, subject to no further appeal, to have resulted solely from the
gross negligence or willful misconduct of such Indemnified Party. If any such
action or claim shall be brought or asserted against any Indemnified Party, such
Indemnified Party shall promptly notify the Indemnifying Parties in writing, and
the Indemnifying Parties shall assume the defense thereof, including the
employment of counsel and the payment of all expenses. Such Indemnified Party
shall, in its sole discretion, have the right to employ separate
6
<PAGE>
counsel, (who may be selected by such Indemnified Party in its sole
discretion) in any such action and to participate in the defense
thereof, and the fees and expenses of such counsel shall be paid by such
Indemnified Party, except that the Indemnifying Parties shall be
required to pay such fees and expenses if (i) the Indemnifying Parties
agree to pay such fees and expenses (ii) the Indemnifying Parties shall
fail, in the reasonable discretion of such Indemnified Party, to employ
counsel satisfactory to the Indemnified Party in any such action of
proceeding, (iii) the Indemnifying Parties are the plaintiff in any such
action or proceeding, or (iv)the named parties to any such action or
proceeding (including any impleaded parties) include both Indemnified
Party and the Indemnifying Parties, and the Indemnified Party shall have
been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those
available to the Indemnifying Parties, the Indemnifying Parties shall be
liable to pay fees and expenses of counsel pursuant to the preceding
sentence. All such fees and expenses payable by the Indemnifying
Parties pursuant to the foregoing sentence shall be paid from time to
time as incurred, both in advance of and after the final disposition of
such action or claim. The obligations of the Indemnifying Parties under
this SECTION 5 shall survive any termination of this Escrow Agreement
and the resignation or renewal of Escrow Agent.
6. BANKING DAYS. If any date on which the Escrow Agent is required
to make a delivery pursuant to the provisions hereof is not a banking day, then
the Escrow Agent shall make such investment or delivery on the next succeeding
banking day.
7. ESCROW COSTS; NO RIGHT OF SET-OFF. The Escrow Agent shall be
entitled to be paid a fee for its services pursuant to the attached FEE SCHEDULE
and to be reimbursed for its reasonable costs and expenses hereunder (including
reasonable counsel fees), which fees, costs and expenses shall be paid from time
to time by the Company. Nothing in this Section 7 limits the Escrow Agent's
rights against the Company and ZGNA for the payment of amounts due to the Escrow
Agent under Section 5 above or the Escrow Agent's fees, costs and expenses
hereunder.
The Escrow Agent acknowledges and agrees that it is holding the Escrow
Shares in its capacity as escrow agent and that it has no right to apply amounts
in the Escrow Deposit against any obligations of (a) the other parties to this
Agreement that do not arise under this Agreement or (b) the Company.
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of
7
<PAGE>
Colorado applicable to contracts made and to be performed entirely
within such State.
(b) PARAGRAPH AND SECTION HEADINGS. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(c) NOTICES.
(i) All communications under this Agreement shall be in writing and shall
be delivered by hand, by facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid:
(1) if to ZGNA or ZBI, at 2550 El Presidio Street, Long Beach,
California 90810-1193 (facsimile: (310) 637-3644), marked for the
attention of President, or at such other address as ZGNA may have
furnished the Company in writing (with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, NY 10019-6099, Attention:
Harvey L. Sperry, Esq. (facsimile: 212-728-8111), or at such other
address it may have furnished the Company and the Escrow Agent in
writing), or
(2) if to the Company, at 5555 Airport Boulevard, Boulder, Colorado
80301 (facsimile: (303) 441-5802), marked for the attention of Dean
Stull, or at such other address as the Company may have furnished ZGNA
in writing (with a copy to Chrisman, Bynum & Johnson, P.C., 1900
Fifteenth Street, Boulder, Colorado 80302, Attention: Laurie
Glasscock, Esq. (facsimile: 303-449-5426) or at such other address as
it may have furnished in writing to ZGNA and the Escrow Agent), or
(4) if to the Escrow Agent and Transfer Agent, at American Securities
Transfer & Trust, Inc., 938 Quail Street, Suite 101, Lakewood,
Colorado 80215 (facsimile: (303) 234-5303), marked for the attention
of Cathy Hagerty, or at such other address as it may have furnished in
writing to ZGNA, the Company and the Escrow Agent).
(ii) Any notice so addressed shall be deemed to be given: if delivered by
hand or by facsimile, on the date of such delivery; if delivered by
courier, on the first business day following the date of the delivery to
the courier; and if mailed by registered or certified mail, on the third
business day after the date of such mailing.
(d) EXPENSES AND TAXES. Each party shall pay its own fees and
expenses incurred in connection with the transactions contemplated hereby.
8
<PAGE>
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
(f) ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement
constitutes the entire understandings of the parties hereto and supersede all
prior agreements or understandings with respect to the subject matter hereof
among such parties. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Company and ZGNA. No course of dealing between the Company and ZGNA nor
any delay in exercising any rights hereunder shall operate as a waiver of any
rights of either party hereto.
(g) SEVERABILITY. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
(h) SPECIFIC PERFORMANCE. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement on the date first written above.
HAUSER, INC.
By:
----------------------------
Name:
Title:
ZUELLIG GROUP N.A., INC.
By:
----------------------------
Name:
Title:
ZUELLIG BOTANICALS, INC.
By:
----------------------------
Name:
Title:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By:
----------------------------
Name:
Title:
* * * * * *
10
<PAGE>
Exhibit 2.4
EXHIBIT E
FORM OF GOVERNANCE AGREEMENT
-77-
<PAGE>
EXHIBIT E
GOVERNANCE AGREEMENT
This GOVERNANCE AGREEMENT (this "AGREEMENT"), dated as of _________,
1999, is by and between Hauser, Inc., a Colorado corporation (the "COMPANY"),
Zuellig Group N.A., Inc. a Delaware corporation ("ZGNA") and Zuellig Botanicals,
Inc., a Delaware corporation ("ZBI").
R E C I T A L S :
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger,
dated as of December 8, 1998, between ZGNA and the Company (the "MERGER
AGREEMENT"), ZGNA and ZBI have simultaneously herewith acquired from the
Company, and the Company has issued to ZGNA and ZBI, shares of its Common Stock,
par value $.001 per share (the "COMMON STOCK"); and
WHEREAS, the parties wish to set forth certain arrangements regarding
ZGNA's and ZBI's ownership in the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements herein contained,
ZGNA, ZBI and the Company hereby agree as follows:
SECTION 1. DEFINITIONS.
The terms defined in this Section 1, whenever used herein, shall have
the following meanings for all purposes of this Agreement.
"AFFILIATE" means any Person or entity, directly or indirectly,
controlling, controlled by or under common control with such Person or entity.
"AGREEMENT" shall have the meaning set forth in the preamble hereto.
"BOARD" shall mean the board of directors of the Company.
"COMMON STOCK" shall have the meaning set forth in the recitals
hereto.
"COMPANY" shall have the meaning set forth in the preamble hereto.
<PAGE>
"CONTINUING DIRECTORS" shall mean at any date a member of the Board
(i) who was a member of the Board on the day preceding the Closing Date of the
Mergers or (ii) who was nominated or elected by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Board was recommended or endorsed by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, an
amended.
"INDEPENDENT DIRECTOR" shall mean at any date a member of the Board
(i) who at any time in the preceding five (5) years has not been an Affiliate of
or employed by, or retained as a consultant to, the Company or ZGNA or any
Affiliate of the Company or ZGNA (except to the extent such member is deemed to
be an Affiliate solely in his or her capacity as a director of the Company) and
(ii) who was nominated or elected by at least a majority of the directors who
were Independent Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Independent Directors at the time of such nomination or
election.
"MERGERS" shall mean the mergers pursuant to the Merger Agreement.
"MERGER AGREEMENT" shall have the meaning set forth in the recitals
hereto.
"PERSON" shall mean an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated organization, or
a government, agency, regulatory authority or political subdivision thereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, an amended.
"SUBSTITUTE DIRECTOR" shall have the meaning set forth in Section
2(b).
"WITHDRAWING DIRECTOR" shall have the meaning set forth in Section
2(b).
"ZBI" shall have the meaning set forth in the preamble hereto.
"ZGNA" shall have the meaning set forth in the preamble hereto.
-2-
<PAGE>
"ZGNA DIRECTOR" shall have the meaning set forth in Section 2(a).
SECTION 2. BOARD OF DIRECTORS.
(a) ELECTION OF DIRECTORS. As of the date hereof, the Board consists
of the following nine directors: Dean P. Stull, William E. Coleman, Robert F.
Saydah, Volker Wypyszyk, Peter Zuellig, Harvey L. Sperry, _________, _________,
and _________, all of whom were elected to serve as directors pursuant to the
Merger Agreement and the approval thereof at the Special Meeting of the
Company's shareholders held on _________, 1999. From and after the effective
date of the Mergers, ZGNA, ZBI and the Company shall take all action within
their respective power, including in the case of ZGNA and ZBI, the voting of all
shares of capital stock of the Company owned by them, required to cause the
Board to consist of nine (9) members, and at all times throughout the term of
this Agreement to include (i) as long as ZGNA and ZBI together own beneficially
(within the meaning of Rule 13d-3 under the Exchange Act) at least twenty
percent (20%) of the Common Stock, three (3) representatives designated by ZGNA
(each, a "ZGNA DIRECTOR"), (ii) three (3) representatives designated by the
Continuing Directors and (iii) three (3) Independent Directors. The parties
acknowledge that Messrs. Volker Wypyszyk, Peter Zuellig and Harvey L. Sperry are
the initial ZGNA Directors, Messrs. Dean P. Stull, William E. Coleman and Robert
F. Saydah are the initial Continuing Directors and Messrs. _______, _______ and
_________ are the initial Independent Directors.
(b) REPLACEMENT DIRECTORS.
(i) In the event that any ZGNA Director, Continuing
Director or Independent Director (a "WITHDRAWING DIRECTOR") designated in the
manner set forth in Section 2(a) hereof is unable to serve, or once having
commenced to serve, is removed or withdraws from the Board, such Withdrawing
Director's replacement (the "SUBSTITUTE DIRECTOR") will be designated by ZGNA,
if the Withdrawing Director is a ZGNA Director, by a vote of the remaining
Continuing Directors, if the Withdrawing Director is a Continuing Director or by
a vote of the remaining Independent Directors, if the Withdrawing Director is an
Independent Director, as the case may be. ZGNA, ZBI and the Company agree to
take all action within their respective power, including in the case of ZGNA and
ZBI, the voting of capital stock of the Company owned by them (i) to cause the
election of such Substitute Director promptly following his or her nomination
pursuant to this Section 2(b) or (ii) upon the written request of ZGNA, the
Continuing Directors or the Independent Directors, to
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<PAGE>
remove, with or without cause, ZGNA Director, the Continuing Director or
the Independent Director, as the case may be.
(ii) In the event there are no Continuing Directors
remaining to appoint Substitute Directors pursuant to Section 2(b)(i), then
ZGNA, ZBI and the Company shall take all action within their respective power,
including in the case of ZGNA and ZBI, the voting of all shares of capital stock
of the Company owned by them, required to cause the Board to consist of three
(3) ZGNA Directors and six (6) Independent Directors.
(iii) In the event there are no Independent Directors
remaining to appoint Substitute Directors pursuant to Section 2(b)(i) or (ii),
then ZGNA, ZBI and the Company shall take all action within their respective
power, including in the case of ZGNA and ZBI, the voting of all shares of
capital stock of the Company owned by them, to appoint three or six, as the case
may be, additional Independent Directors to the Board.
SECTION 3. NOTICE OF MEETINGS; QUORUM.
(a) Notice of any regular or special meeting of the Board shall be
mailed to each director addressed to him at his residence or usual place of
business at least three days before the day on which the meeting is to be held,
or if sent to him at such place by telecopy, telegraph or cable, or delivered
personally or by telephone, not later than the day before the day on which the
meeting is to be held. No notice of the annual meeting of the Board of
Directors shall be required if it is held immediately after the annual meeting
of the stockholders and if a quorum is present. Members of the Board, or any
committee designated by the Board, shall, except as otherwise provided by law or
the Articles of Incorporation of the Company, have the power to participate in a
meeting of the Board, or any 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 such participation shall constitute
presence in person at the meeting.
(b) A majority of the Board at any time in office shall constitute a
quorum. At any meeting at which a quorum is present, the vote of a majority of
the members present shall be the act of the Board unless the act of a greater
number is specifically required by law or by the Articles of Incorporation or
the By-laws of the Company; provided, however, that any proposed change to the
Articles of Incorporation or By-laws of the Company, or any transaction with the
person entitled to appoint ZGNA Directors, shall require the approval of a
majority of the entire Board. The members of the Board shall act only as
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<PAGE>
the Board and the individual members thereof shall not have any powers
as such.
SECTION 4. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado applicable to
contracts made and to be performed entirely within such State.
(b) PARAGRAPH AND SECTION HEADINGS. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(c) NOTICES.
(i) All communications under this Agreement shall be in writing and
shall be delivered by hand, by facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid:
(1) if to ZGNA or ZBI, at 2550 El Presidio Street, Long Beach,
California 90810-1193 (facsimile: (310) 637-3644),marked for attention
of President, or at such other address as ZGNA or ZBI may have
furnished the Company in writing (with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, NY 10019-6099, Attention:
Harvey L. Sperry, Esq. (facsimile: 212-728-8111), or at such other
address it may have furnished the Company in writing), or
(2) if to the Company, at 5555 Airport Boulevard, Boulder, Colorado
80301 (facsimile: (303) 441-5802), marked for the attention of Dean
Stull, or at such other address as the Company may have furnished
Investor in writing (with a copy to Chrisman, Bynum & Johnson, P.C.,
1900 Fifteenth Street, Boulder, Colorado 80302, Attention: Laurie
Glasscock, Esq. (facsimile: 303-449-5426) or at such other address as
it may have furnished in writing to ZGNA).
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand or by facsimile, on the date of such delivery; if delivered by
courier, on the first Business Day following the date of the delivery to the
courier; and if mailed by registered or certified mail, on the third Business
Day after the date of such mailing.
(d) EXPENSES AND TAXES. Whether or not the Closing shall have
occurred, each party shall pay its own fees and
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<PAGE>
expenses incurred in connection with the transactions contemplated
hereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties; provided, however, that ZGNA may only assign its rights hereunder to a
transferee of a majority of the Common Stock acquired by ZGNA and ZBI pursuant
to the Mergers and securities issued in respect thereof.
(f) ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement and the
agreements attached as Exhibits hereto constitute the entire understandings of
the parties hereto and supersede all prior agreements or understandings with
respect to the subject matter hereof among such parties. This Agreement may be
amended, and the observance of any term of this Agreement may be waived, with
(and only with) the written consent of the Company and ZGNA. No course of
dealing between the Company and ZGNA nor any delay in exercising any rights
hereunder shall operate as a waiver of any rights of either party hereto.
(g) SEVERABILITY. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
(h) TERMINATION. This Agreement shall terminate and shall be of no
further force or effect on or after the earlier of (i) the fifth anniversary of
the date hereof or (ii) the date on which ZGNA and ZBI together own less than
twenty percent (20%) of the outstanding shares of Common Stock.
(i) LOSS OF ZGNA DIRECTORSHIPS. If a court of competent jurisdiction
shall determine that ZGNA or ZBI has breached Section 6.9 of the Merger
Agreement (Standstill), ZGNA and ZBI shall automatically lose their right to
designate three (3) representatives as set forth in Section 2(a) hereof. In
such event, ZGNA and ZBI shall cause ZGNA Directors to immediately resign as
directors of the Board and shall take all action within their power to elect
three (3) nominees of the Continuing Directors to the Board. If such court's
determination shall be reversed on appeal, ZGNA's and ZBI's right to designate
three (3) representatives as set forth in Section 2(a) hereof shall be
immediately restored and the Company shall cause three (3) Continuing Directors
to immediately resign as directors of the Board and shall take all action within
its power to elect three (3) nominees of ZGNA and ZBI to the Board.
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<PAGE>
(j) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
HAUSER, INC.
By:
-------------------------
Name:
Title:
ZUELLIG GROUP N.A., INC.
By:
---------------------------
Name:
Title:
ZUELLIG BOTANICALS, INC.
By:
--------------------------
Name:
Title:
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<PAGE>
INVENTORY PURCHASE AGREEMENT
This INVENTORY PURCHASE AGREEMENT (this "AGREEMENT"), dated as of
December 8, 1998, is by and between Hauser, Inc., a Colorado corporation (the
"COMPANY"), and Zuellig Group N.A., Inc., a Delaware corporation ("ZGNA").
R E C I T A L S :
WHEREAS, the Company desires to sell to ZGNA and ZGNA desires to
purchase from the Company certain inventory upon the terms and conditions set
forth herein.
WHEREAS, ZGNA, the Company and certain other parties are parties to an
Agreement and Plan of Merger (the "MERGER AGREEMENT"), dated as of the date
hereof.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements herein contained,
ZGNA and the Company hereby agree as follows:
SECTION 1. SALE OF INVENTORY. Subject to the terms and conditions
set forth in this Agreement and in reliance upon the Company's and ZGNA's
representations set forth below, on the date hereof, the Company shall sell to
ZGNA, and ZGNA shall purchase from the Company, the raw material,
work-in-process or finished goods inventory further described on Schedule I
hereto (the "INVENTORY") for $3 million (the "PURCHASE PRICE") in cash by wire
transfer to an account of the Company designated by the Company. The Company
shall deposit the Purchase Price into its account at Norwest Bank N.A. and any
withdrawals from such account shall be made only to make payments consistent
with Section 5(a) hereof.
SECTION 2. ADDITIONAL PURCHASES BY ZGNA.
(a) So long as the Company shall not have breached its
representations and obligations hereunder and the Merger Agreement shall not
have been terminated, including without limitation, its obligations under
Section 5(a), the Company shall have the right, but not the obligation, to
require ZGNA to purchase from time to time an additional $3 million of raw
material inventory, substantially similar to the Inventory, or finished product
inventory acceptable to ZGNA in its reasonable discretion (the "ADDITIONAL
INVENTORY"). The Additional Inventory shall be purchased by ZGNA from the
Company from time to time upon written notice from the Company to ZGNA, which
written notice shall be provided not less than five (5) business
<PAGE>
days nor more than 30 business days from the date of purchase (the
"NOTICE"). Each Notice shall (i) set forth the date on which the
purchase is to occur (the "PURCHASE DATE") and the quantities for the
Additional Inventory and (b) contain a certification of the Company's
Chief Financial Officer to the effect that the representations and
warranties contained herein are true and correct in all material
respects and that the Company has complied in all material respects with
its obligations hereunder, including without limitation Section 5(a).
The prices for the Additional Inventory shall be the lower of cost to
the Company or the market price.
(b) Notwithstanding the foregoing, the first Purchase Date under
Section 2(a) shall not be prior to January 1, 1999, and in no event shall ZGNA
be obligated to purchase more than $1,000,000 of Additional Inventory in any
30-day period.
SECTION 3. PAYMENT. Payment for all Inventory sold hereunder
shall be made on the date hereof and for all Additional Inventory shall be made
on the relevant Purchase Date.
SECTION 4. DELIVERY. (a) All Inventory and Additional Inventory
purchased hereunder shall be held by the Company, on ZGNA's behalf, at such
warehouses as the Company shall reasonably determine. In the event the Merger
Agreement is terminated, the Company shall, at the Company's election, either
repurchase all or a portion of the Inventory and the Additional Inventory within
45 days of such termination or within 45 days of such termination deliver all
Inventory and Additional Inventory sold hereunder to such warehouses or plants
in the United States as ZGNA shall request in writing. The cost of shipment
(including insurance), duties and fees, if any, shall be borne by the Company.
In no event shall the Company charge or assess ZGNA for any costs or expenses
associated with the storage of any Inventory or Additional Inventory purchased
hereunder.
(b) The Company shall use commercially reasonable efforts to protect
the Inventory and Additional Inventory purchased hereunder. For purposes of
this clause, "commercially reasonable efforts" shall mean the same efforts the
Company uses to protect inventory owned or used by it.
(c) The Company shall segregate all Inventory and Additional
Inventory purchased hereunder in order to avoid commingling with inventory owned
by the Company. The Company will secure the Inventory (other than
work-in-process inventory) and Additional Inventory purchased hereunder in a
separate and locked room with the keys to such room delivered to ZGNA or, if
such a separate room is not reasonably available, in a chain linked fenced area
or other similarly secure area with signage to the effect that such inventory is
owned by ZGNA and is being held by the Company on ZGNA's behalf.
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<PAGE>
(d) The Company will not make any representation to any person to the
effect that it owns or has any right, title or interest in and to the Inventory
or the Additional Inventory (other than the repurchase rights set forth in
Section 5(c) hereof). Without limiting the generality of the foregoing, no
Inventory or Additional Inventory shall be included in any "borrowing base" or
similar certificate delivered to any lender to the Company. All Inventory and
Additional Inventory purchased hereunder shall be delivered by the Company free
and clear of all security interests, encumbrances or liens ("Liens"), including
any Liens of The First National Bank of Boston.
(e) The Company shall, at its sole cost and expense, promptly convert
all work-in-process inventory included within the Inventory to finished goods
inventory. Promptly following such conversion, such finished goods inventory
shall be secured as provided in Section 4(c) hereof.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES.
(a) USE OF PROCEEDS. The proceeds from the sale of the Inventory and
Additional Inventory shall be used by the Company only in accordance with the
five month cash flow projections attached hereto as Schedule II. In the event
the Company breaches this Section 5(a), ZGNA shall not be obligated to purchase
any Additional Inventory nor shall it be obligated to sell any Inventory or
Additional Inventory pursuant to Section 5(c).
(b) FURTHER ASSURANCES. Each party covenants and agrees that it will
do, execute and deliver, will cause to be done, executed and delivered, all such
further acts, transfers, assignments, conveyances, and assurances requested by
the other party, from time to time, for the better assuring, conveying and
confirming unto the purchaser or repurchaser, as the case may be, of the entire
right, title and interest of the seller in the Inventory and Additional
Inventory purchased or repurchased hereunder.
(c) RESALE OF INVENTORY. At any time and from time to time, the
Company may require ZGNA to sell to the Company all or a portion of the
Inventory or the Additional Inventory (the "REPURCHASED ASSETS") at the same
price at which ZGNA purchased such portion of the Inventory or the Additional
Inventory. Following such purchase of the Repurchased Assets by the Company, it
may require ZGNA to purchase raw material inventory or finished product
inventory acceptable to ZGNA in its reasonable discretion substantially similar
to the Inventory and Additional Inventory and having an equivalent value to the
Repurchased Assets.
(d) REPURCHASE BY THE COMPANY. At the closing of the Merger
Agreement, the Company shall have the right, but shall not be obligated, to
repurchase all of the Inventory and Additional
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<PAGE>
Inventory, if any, at the prices at which ZGNA purchased such Inventory
and Additional Inventory. In the event the Merger Agreement is
terminated, if the Company does not repurchase the Inventory and
Additional Inventory as provided in Section 4, ZGNA shall retain all
Inventory and Additional Inventory purchased hereunder which the Company
has not repurchased, free and clear of any claims in favor of the
Company.
(e) SALES TAX. The parties will execute, deliver and file such tax
certificates as appropriate to avoid the imposition of sales or similar taxes on
the purchases and repurchases hereunder.
SECTION 6. RISK OF LOSS. Risk of loss for all Inventory and
Additional Inventory sold hereunder shall pass from the Company to ZGNA, in the
case of Inventory, on the date hereof, and in the case of Additional Inventory,
on the relevant Purchase Date.
SECTION 7. WARRANTY OF THE COMPANY. The Company warrants to ZGNA
that the Inventory and Additional Inventory purchased hereunder will be free
from manufacturing defects. THE COMPANY MAKES NO OTHER WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, COVERING THE INVENTORY AND ADDITIONAL INVENTORY AND
DISCLAIMS THE IMPLIED WARRANTY OF MERCHANTABILITY AND THE IMPLIED WARRANTY OF
FITNESS FOR USE OR PURPOSE. The Company shall be liable for defective Inventory
or Additional Inventory, but the Company's liability for such defective
Inventory or Additional Inventory shall be limited to, at the election of the
Company, either return of the purchase price of such Inventory or Additional
Inventory or substitution of conforming inventory, plus reimbursement of freight
costs, if any. The foregoing constitutes the exclusive remedy against the
Company and the entire liability of the Company in connection with defective
Inventory or Additional Inventory. In no event shall the Company be liable for
any incidental or consequential damages.
SECTION 8. BUSINESS FORMS. Purchase orders, releases, purchase
acknowledgments, bills of lading and other routine documents which may be used
by the parties in the course of transactions hereunder shall be used for
convenience only and to the extent inconsistent herewith the terms and
provisions of this Agreement shall control and not be amended or otherwise
modified by such documents.
SECTION 9. FORCE MAJEURE. Neither the Company nor ZGNA shall be
liable to the other for any loss or damage caused by its failure to perform its
obligations under this Agreement as a result of acts of God, strikes, labor
troubles or other industrial disturbances, accidents, declared or undeclared
war, insurrections or riots, embargoes or blockades, governmental restrictions
or any other cause beyond the control of the parties. The Company and ZGNA
shall consult promptly and in good
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<PAGE>
faith with the object of minimizing the adverse effects of such event.
SECTION 10. REPRESENTATIONS AND WARRANTIES OF ZGNA. ZGNA hereby
represents and warrants to the Company as follows:
(a) CORPORATE AUTHORITY. ZGNA has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by the Board of Directors of ZGNA,
and no other corporate proceedings on the part of ZGNA are necessary to
authorize this Agreement or to consummate the transactions so
contemplated; this Agreement has been duly and validly executed and
delivered by ZGNA.
(b) NO VIOLATIONS. The execution, delivery and performance of this
Agreement does not or will not, and the consummation by ZGNA of any of the
transactions contemplated hereby will not, constitute or result in (A) a breach
or violation of, or a default under, its certificate of incorporation or
by-laws, or the comparable governing instruments of any of its subsidiaries, or
(B) a breach or violation of, or a default under, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of it or
any of its subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which it
or any of its subsidiaries is subject, that would, in any case give any other
person the ability to prevent or enjoin ZGNA's performance under this Agreement
in any material respect.
(c) OWNERSHIP BY ZGNA. ZGNA will on the relevant date of repurchase
by the Company own all of the Inventory and Additional Inventory to be conveyed
hereunder, free and clear of all Liens, except for such Liens which existed at
the time of acquisition of the Inventory or Additional Inventory by ZGNA or such
Liens resulting from the Company's action or inaction, and will, upon the
Company's request, defend its title to the assets to be conveyed hereunder
against all claims and demands of all persons, corporations, partnerships or
other entities at any time claiming the same or an interest therein and any
federal, state or local taxing authorities including sales and transfer tax
agencies of any jurisdiction, except for such claims arising from Liens existing
at the time of acquisition of the Inventory or Additional Inventory by ZGNA or
such Liens resulting from the Company's action or inaction.
SECTION 11. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to ZGNA as follows:
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<PAGE>
(a) CORPORATE AUTHORITY. The Company has full corporate power and
authority to enter into this Agreement and, subject to obtaining the approvals
referred to in this Agreement, to consummate the transactions contemplated by
this Agreement; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions so contemplated; this Agreement has been duly
and validly executed and delivered by the Company.
(b) NO VIOLATIONS. The execution, delivery and performance of this
Agreement does not or will not, and the consummation by the Company of any of
the transactions contemplated hereby will not, constitute or result in (A) a
breach or violation of, or a default under, its certificate of incorporation or
by-laws, or the comparable governing instruments of any of its subsidiaries, or
(B) a breach or violation of, or a default under, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of it or
any of its subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which it
or any of its subsidiaries is subject, that would, in any case give any other
person the ability to prevent or enjoin the Company's performance under this
Agreement in any material respect.
(c) OWNERSHIP BY THE COMPANY. The Company owns or will on the
relevant Purchase Date own all of the Inventory and Additional Inventory to be
conveyed hereunder, free and clear of all Liens, and will, upon ZGNA's request,
defend its title to the assets to be conveyed hereunder against all claims and
demands of all persons, corporations, partnerships or other entities at any time
claiming the same or an interest therein and any federal, state or local taxing
authorities including sales and transfer tax agencies of any jurisdiction.
(d) LITIGATION. There are no pending suits or actions (legal or
administrative) or governmental inquiry or investigation pending or, to the best
knowledge of the Company, threatened to which the Company is a party or to which
the Inventory or the Additional Inventory is bound which if resolved adversely
may affect the status of the Company's title to the Inventory or the Additional
Inventory or have an adverse effect on the ability of the Company to perform its
obligations hereunder.
SECTION 12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of
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<PAGE>
Colorado applicable to contracts made and to be performed entirely
within such State.
(b) PARAGRAPH AND SECTION HEADINGS. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(c) NOTICES.
(i) All communications under this Agreement shall be in writing and
shall be delivered by hand, by facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid:
(1) if to ZGNA, at 2550 El Presidio Street, Long Beach, California
90810-1193 (facsimile: (310) 637-3644), marked for attention of
President, or at such other address as ZGNA may have furnished the
Company in writing (with a copy to Willkie Farr & Gallagher, 787
Seventh Avenue, New York, NY 10019-6099, Attention: Harvey L. Sperry,
Esq. (facsimile: 212-728-8111), or at such other address it may have
furnished the Company in writing), or
(2) if to the Company, at 5555 Airport Boulevard, Boulder, Colorado
80301 (facsimile: (303) 441-5802), marked for the attention of Dean
Stull, or at such other address as the Company may have furnished
Investor in writing (with a copy to Chrisman, Bynum & Johnson, P.C.,
1900 Fifteenth Street, Boulder, Colorado 80302, Attention: Laurie
Glasscock, Esq. (facsimile: 303-449-5426) or at such other address as
it may have furnished in writing to the Investor and the Escrow
Agent), or
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand or by facsimile, on the date of such delivery; if delivered by
courier, on the first Business Day following the date of the delivery to the
courier; and if mailed by registered or certified mail, on the third Business
Day after the date of such mailing.
(d) EXPENSES AND TAXES. Whether or not the Closing shall have
occurred, each party shall pay its own fees and expenses incurred in connection
with the transactions contemplated hereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
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<PAGE>
(f) ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement and the
agreements attached as Exhibits hereto constitute the entire understandings of
the parties hereto and supersede all prior agreements or understandings with
respect to the subject matter hereof among such parties. This Agreement may be
amended, and the observance of any term of this Agreement may be waived, with
(and only with) the written consent of the Company and ZGNA. No course of
dealing between the Company and ZGNA nor any delay in exercising any rights
hereunder shall operate as a waiver of any rights of either party hereto.
(g) SEVERABILITY. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
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<PAGE>
(h) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
HAUSER, INC.
By: /s/ Dean P. Stull
----------------------------
Name: Dean P. Stull
Title: CEO
ZUELLIG GROUP N.A., INC.
By: /s/ Volker Wypyszyk
----------------------------
Name: Volker Wypyszyk
Title: President
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<PAGE>
Exhibit 2.6
EXHIBIT G
FORM OF POWDERS OPTION AGREEMENT
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<PAGE>
EXHIBIT G
AGREEMENT FOR OPTION TO ACQUIRE POWDERS BUSINESS FROM ZUELLIG BOTANICALS, INC.
AGREEMENT FOR OPTION TO ACQUIRE POWDERS BUSINESS FROM ZUELLIG
BOTANICALS, INC., dated as of ______________, 1999 (the "AGREEMENT"), by and
between Hauser, Inc., a Colorado corporation (the "COMPANY"), and Zuellig
Botanicals, Inc. ("ZBI"), a Delaware corporation.
R E C I T A L S :
WHEREAS, the Company, ZGNA, ZG Merger Sub 1 and ZG Merger Sub 3, each
of which is a Delaware corporation and wholly owned subsidiary of the Company
and ZG Merger Sub 2, a New York corporation and wholly owned subsidiary of the
Company (the "ACQUISITION SUBSIDIARIES"), and ZBI and certain other subsidiaries
of ZGNA have entered into an Agreement and Plan of Merger, dated as of December
8, 1998 (the "MERGER AGREEMENT"), which provides, upon the terms and subject to
the conditions set forth therein, for the merger of Acquisition Subsidiaries
with and into certain subsidiaries of ZGNA (the "MERGERS"); and
WHEREAS, as a condition and inducement to Company's pursuit of the
transactions contemplated by the Merger Agreement, and in consideration
therefor, ZBI has agreed to grant Company the Option (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, the Company and
ZBI, agree as follows:
1. DEFINED TERMS. Capitalized terms which are used but
not defined herein shall have the meanings ascribed to such terms in the
Merger Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions
set forth herein, ZBI hereby grants to the Company an irrevocable option
(the "OPTION") to purchase the powders business of ZBI, including without
limitation all assets related thereto and all associated liabilities, other
than the shares of capital stock of the Company held by ZBI (the
"BUSINESS"). At the request of the Company and in lieu of the exercise of
the Option, ZBI agrees to make commercially reasonable efforts to sell the
capital stock of ZBI to the Company (after distribution of the shares of
capital stock of the Company held by ZBI) so long as there is not at such
time, and will not be, any adverse tax consequences to ZGNA or ZBI arising
from the sale of stock instead of assets. The Option
<PAGE>
may be exercised at any time after twelve months from the date hereof
but not later than the second anniversary of the date hereof (the
"EXPIRATION DATE"). A list of the current employees, material assets
and contracts of the Business is contained in a schedule provided to the
Company, and the current financial statement of ZBI has been provided to
the Company.
3. EXERCISE OF OPTION.
(a) The Company may exercise the Option, in whole and not in part, at
any time and from time to time prior to the Expiration Date, by written notice
given to ZBI by the Company (the date of such exercise being referred to herein
as the "EXERCISE DATE"). Except as set forth in Section 4(a), any exercise of
the Option shall be irrevocable subject to the entering into of a satisfactory
purchase agreement as provided in the next paragraph.
(b) In the event the Company exercises the Option, ZBI and the
Company shall enter into a purchase agreement, containing substantially the same
representations, warranties, covenants and conditions concerning ZBI as the
Merger Agreement (subject to any disclosure schedules ZGNA may deliver at the
time of the execution of such agreement), and having indemnification provisions
of ZBI substantially similar to the indemnification provisions of ZGNA set forth
in the Merger Agreement. If the Company intends to use its Common Stock in
satisfaction of the Purchase Price (as defined below), the Company shall make
representations, warranties, covenants and indemnities concerning the Company
and its subsidiaries substantially the same as the representations, warranties,
covenants and indemnities made or given by it in the Merger Agreement (subject
to any disclosure schedules the Company may deliver at the time of the execution
of such agreement).
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) The purchase price for the Business (the "PURCHASE PRICE") shall
be an amount equal to the fair market value of the Business as of the Exercise
Date (the "FAIR MARKET VALUE"). In the event the Company and ZBI are unable to
agree on the Fair Market Value within 20 days of the Exercise Date, then the
Board of Directors of the Company (the "BOARD") shall request any of the
investment banking firms set forth on Schedule A hereto (the "BANKING FIRM") to
make such determination. Such determination shall be made as promptly as
practicable after the date on which the Banking Firm is notified, but in any
event within thirty (30) days of such date. The Banking Firm's determination
shall be in writing and shall be addressed to both the Company and ZBI, and
shall be binding and conclusive on the parties. All costs and expenses of the
Banking Firm shall be paid by the Company. The Company may give written notice
to ZBI revoking the exercise of the Option within ten (10) days after receipt of
the Banking
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<PAGE>
Firm's determination, in which case this Option shall expire and be of
no further force or effect.
(b) The Purchase Price shall be payable as follows: (i) by payment to
ZBI in cash, by certified or official bank check, or by wire transfer of the
Purchase Price, (ii) by delivery to ZBI a certificate evidencing shares of
Common Stock, par value $0.001 per share, of the Company ("COMMON STOCK"),
having a Market Price (as hereinafter defined) on the date of payment equal to
the Purchase Price; or (c) by a combination of the methods described in clauses
(a) and (b) above. For purposes hereof, the term "MARKET PRICE" shall mean the
average closing price of a share of Common Stock for the 15 consecutive trading
days preceding such day on the principal national securities exchange on which
the shares of Common Stock are listed or admitted to trading or, if not listed
or admitted to trading on any national securities exchange, the average of the
reported bid and asked prices during such 15 trading day period on the Nasdaq
National Market or, if the shares are not listed on the Nasdaq National Market,
in the over-the-counter market or, if the shares of Common Stock are not
publicly traded, the Market Price for such day shall be the fair market value
thereof determined jointly by the Company and ZBI; PROVIDED, HOWEVER, that if
such parties are unable to reach agreement within a reasonable period of time,
the Market Price shall be determined in good faith by an investment banking firm
set forth on Schedule A hereto which shall be selected by the Board. All costs
and expenses incurred in connection with the determination of Market Price shall
be borne by the Company.
(b) At the Closing, simultaneously with the delivery of the Purchase
Price, ZBI shall deliver to the Company a bill of sale and such other
instruments of assignment as the Company shall reasonably request, and the
Company shall execute such instruments of assumption as ZBI shall reasonably
request. At the Closing, ZBI and its assets shall not be the guarantor,
co-obligor or have any other obligations in respect of the debts, obligations or
financial condition of any affiliate of ZBI.
(c) ZBI shall pay all expenses, and any and all United States
federal, state, and local taxes and other charges that may be payable in
connection with the preparation, issuance and delivery of Business under this
Section in the name of the Company or its assignee, transferee, or designee.
(d) ZBI agrees (i) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by ZBI, and (ii) promptly to take all action as may from time to time
be required (including (A) complying with all premerger notification, reporting
and waiting period requirements and (B) in the event prior approval of or notice
to
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<PAGE>
any governmental regulatory agency is necessary before the Option may be
exercised, cooperating fully with the Company in preparing such
applications or notices and providing such information to such
Governmental Authority as it may require). Nothing provided herein
shall restrict ZBI from paying ordinary cash dividends from time to time
to ZGNA, provided such dividends do not exceed the earnings of ZBI.
5. REPRESENTATIONS AND WARRANTIES OF ZBI. ZBI hereby
represents and warrants to the Company as follows:
(a) CORPORATE AUTHORITY. ZBI has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of ZBI, and no other corporate proceedings
on the part of ZBI are necessary to authorize this Agreement or to consummate
the transactions so contemplated; this Agreement has been duly and validly
executed and delivered by ZBI.
(b) NO VIOLATIONS. The execution, delivery and performance of this
Agreement does not or will not, and the consummation by ZBI of any of the
transactions contemplated hereby will not, constitute or result in (A) a breach
or violation of, or a default under, its certificate of incorporation or
by-laws, or the comparable governing instruments of any of its subsidiaries, or
(B) a breach or violation of, or a default under, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of it or
any of its subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which it
or any of its subsidiaries is subject, that would, in any case give any other
person the ability to prevent or enjoin ZBI's performance under this Agreement
in any material respect.
(c) SUBSIDIARY. ZBI is a wholly owned Subsidiary of ZGNA.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to ZBI as follows:
(a) CORPORATE AUTHORITY. The Company has full corporate power and
authority to enter into this Agreement and, subject to obtaining the approvals
referred to in this Agreement, to consummate the transactions contemplated by
this Agreement; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company; and this Agreement
has been duly executed and delivered by the Company; provided, however, that the
exercise of the Option may
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<PAGE>
require approval of the shareholders of the Company and regulatory or
third party approvals.
7. NO CHANGES IN ZBI.
(a) ZBI shall not change the capitalization or debt structure of ZBI
in any manner that would frustrate the intent of this Agreement.
(b) During the period from the date of this Agreement to the
Expiration Date, ZBI shall use its commercial reasonable efforts to conduct the
powders business in the ordinary course and consistent with past practice, and
to preserve intact the business organization of ZBI, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with all persons with whom it does business.
(c) During the period from the date of this Agreement to the
Expiration Date, ZBI and its affiliates will not solicit or engage in
negotiations for the sale of the Business or the capital stock of ZBI with any
person other than the Company.
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado applicable to contracts
made and to be performed entirely within such State.
(b) PARAGRAPH AND SECTION HEADINGS. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(c) NOTICES.
(i) All communications under this Agreement shall be in writing and
shall be delivered by hand, by facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid:
(1) if to ZGNA, at 2550 El Presidio Street, Long Beach,
California 90810-1193 (facsimile: (310) 637-3644), marked for attention of
President, or at such other address as ZBI may have furnished the Company in
writing (with a copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York,
NY 10019-6099, Attention: Harvey L. Sperry, Esq. (facsimile: 212-728-8111), or
at such other address it may have furnished the Company in writing), or
(2) if to the Company, at 5555 Airport Boulevard, Boulder,
Colorado 80301 (facsimile: (303) 441-5802), marked for the attention of Dean
Stull, or at such other address as the Company may have furnished Investor in
writing (with a copy to
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<PAGE>
Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder,
Colorado 80302, Attention: Laurie Glasscock, Esq. (facsimile:
303-449-5426) or at such other address as it may have furnished in
writing to the Investor and the Escrow Agent), or
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand or by facsimile, on the date of such delivery; if delivered by
courier, on the first Business Day following the date of the delivery to the
courier; and if mailed by registered or certified mail, on the third Business
Day after the date of such mailing.
(d) EXPENSES AND TAXES. Each party shall pay its own fees and
expenses incurred in connection with the transactions contemplated hereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
(f) ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement
constitutes the entire understandings of the parties hereto and supersedes all
prior agreements or understandings with respect to the subject matter hereof
among such parties. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Company and ZBI. No course of dealing between the Company and ZBI nor
any delay in exercising any rights hereunder shall operate as a waiver of any
rights of either party hereto.
(g) SEVERABILITY. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
(h) SPECIFIC PERFORMANCE. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
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<PAGE>
(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
HAUSER, INC.
By:
--------------------------
Name:
Title:
ZUELLIG BOTANICALS, INC.
By:
--------------------------
Name:
Title:
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<PAGE>
SCHEDULE A
LIST OF APPROVED INVESTMENT BANKING FIRMS
Hanifen, Imhoff Inc.
NationsBanc Montgomery Securities LLC
Hambrecht & Quist LLC
Piper Jaffray Inc.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of
December 8, 1998, is by and among HAUSER, INC., a Colorado corporation (the
"COMPANY"), Zuellig Group N.A., Inc., a Delaware corporation ("ZGNA") and
Zuellig Botanicals, Inc., a Delaware corporation ("ZBI").
R E C I T A L S :
WHEREAS, on the date hereof, ZGNA has acquired an option (the
"OPTION") to acquire 2,000,000 share of Common Stock (as herein defined); and
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger (the
"MERGER AGREEMENT"), dated as of the date hereof, ZGNA and ZBI will acquire 49%
of the issued and outstanding shares of Common Stock, subject to the terms and
conditions of the Merger Agreement; and
WHEREAS, as a condition and inducement to ZGNA's pursuit of the
transactions contemplated by the Merger Agreement and the transactions
contemplated thereby, and in consideration therefor, the Company has agreed to
grant ZGNA certain registration rights, all in accordance with and subject to
the terms and conditions of this Agreement; and
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements herein contained,
ZGNA and the Company hereby agree as follows:
SECTION 1. DEFINITIONS
The terms defined in this Section 1, whenever used herein, shall have
the following meanings for all purposes of this Agreement.
"AFFILIATE" means any Person or entity, directly or indirectly,
controlling, controlled by or under common control with such Person or entity.
"AGREEMENT" shall have the meaning set forth in the preamble hereto.
"BOARD" shall mean the board of directors of the Company.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other
day on which banks in the State of New York are not required or authorized to
close.
<PAGE>
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMMON STOCK" shall mean the common stock, par value $0.001 per
share, of the Company.
"COMPANY" shall have the meaning set forth in the preamble hereto.
"DEMANDING HOLDERS" shall have the meaning set forth in Section
2.2(b).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, an
amended.
"FINAL PROSPECTUS" shall have the meaning set forth in Section 2.5(f).
"HOLDER" shall mean any holder of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section
2.5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in Section
2.5(c).
"INITIATING HOLDER" shall mean any Holder or Holders who in the
aggregate are Holders of more than 50% of the then outstanding Registrable
Securities.
"MERGER AGREEMENT" shall have the meaning set forth in the Recitals
hereto.
"OPTION" shall have the meaning set forth in the Recitals hereto.
"OTHER STOCKHOLDERS" shall have the meaning set forth in Section
2.1(b).
"PERSON" shall mean an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated organization, or
a government, agency, regulatory authority or political subdivision thereof.
"REGISTER," "REGISTERED" and "REGISTRATION" shall mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement.
"REGISTRABLE SECURITIES" shall mean (i) the shares of Common Stock
issuable upon exercise of the Option, (ii) the
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<PAGE>
shares of Common Stock issuable to ZGNA and ZBI pursuant to the Merger
Agreement, (iii) any additional shares of Common Stock, if any, acquired
by ZGNA or ZBI from the Company from time to time and (iv) any capital
stock of the Company issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, the shares of
Common Stock, if any, referred to in clause (i), (ii) or (iii). As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to
the sale of such securities has been declared effective under the
Securities Act and such securities shall have been sold in accordance
with such registration statement, or (ii) such securities shall have
been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in compliance with Sections 2.1 and 2.2 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, an amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for each of the Holders.
"ZBI" shall mean Zuellig Botanicals, Inc., a Delaware corporation and
a wholly owned subsidiary of ZGNA.
"ZGNA" shall have the meaning set forth in the preamble hereto.
SECTION 2. REGISTRATION RIGHTS
2.1. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive from an
Initiating Holder a written request that the Company effect any registration
with respect to all or a part of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders of Registrable Securities; and
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<PAGE>
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post- effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within ten (10) Business Days after written notice from the
Company is given under Section 2.1(a)(i) above; PROVIDED that the Company shall
not be obligated to effect, or take any action to effect, any such registration
pursuant to this Section 2.1:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder;
(B) After the Company has effected two (2) such
registrations pursuant to this Section 2.1 and such registrations have been
declared or ordered effective and the sales of such Registrable Securities shall
have closed; or
(C) If the Registrable Securities requested by all Holders
to be registered pursuant to such request have an anticipated aggregate public
offering price (before any underwriting discounts and commissions) of less than
$10,000,000; or
(D) If in the good faith judgment of the Board, such
registration would be seriously detrimental to the Company, the Company shall
have the right to delay or suspend the effectiveness of any registration for up
to 90 days but not more than once in any twelve month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 2.1(b) below,
include other securities of the Company which are held by Persons who, by virtue
of agreements with the Company, are entitled to include their securities in any
such registration.
The registration rights set forth in this Section 2 shall be
assignable, in whole or in part, to any transferee of Registrable Securities
(who shall be bound by all obligations of this Section 2).
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<PAGE>
(b) UNDERWRITING. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 2.1.
If holders of securities of the Company other than Registrable
Securities who are entitled, by contract with the Company or otherwise, to have
securities included in such a registration (the "OTHER STOCKHOLDERS") request
such inclusion, the Holders shall offer to include the securities of such Other
Stockholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 2. The Holders
whose shares are to be included in such Registration and the Company shall
(together with all Other Stockholders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected for
such underwriting by the Initiating Holders and reasonably acceptable to the
Company. Notwithstanding any other provision of this Section 2.1, if the
representative advises the Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by Other Stockholders shall be excluded from such registration to
the extent so required by such limitation. If, after the exclusion of such
shares, further reductions are still required, the number of shares included in
the registration by each Holder shall be reduced on a pro rata basis (based on
the number of shares held by such Holder), by such minimum number of shares as
is necessary to comply with such request. No Registrable Securities or any
other securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any of the
Holders or any Other Stockholder who has requested inclusion in such
registration as provided above disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holders. The securities so withdrawn shall
also be withdrawn from registration. If the underwriter has not limited the
number of Registrable Securities to be underwritten, the Company may include its
securities for its own account in such registration if the representative so
agrees and if the number of Rgistrable Securities which would otherwise have
been included in such registration and underwriting will not thereby be limited.
2.2. COMPANY REGISTRATION.
(a) INCLUSION IN REGISTRATION. If the Company shall determine to
register any of its Common Stock either for its own account or for the account
of a security holder or holders exercising their respective demand registration
rights, other than a registration relating solely to employee benefit plans, or
registration relating solely to a SEC Rule 145 transaction, or a registration on
any registration form which does not permit
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<PAGE>
secondary sales or does not include substantially the same information
as would be required to be included in a registration statement covering
the sale of Registrable Securities, the Company will:
(i) promptly give to each of the Holders a written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
by the Holders within fifteen (15) days after receipt of the written notice from
the Company described in clause (i) above, except as set forth in Section 2.2(b)
below. Such written request may specify all or a part of the Holders'
Registrable Securities.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 2.2(a)(i). In such event, the right of each of the
Holders to registration pursuant to this Section 2.2 shall be conditioned upon
such Holders' participation in such underwriting and the inclusion of such
Holders' Registrable Securities in the underwriting to the extent provided
herein. The Holders whose shares are to be included in such registration shall
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 2.2, if the representative
determines that marketing factors require a limitation on the number of shares
to be underwritten, the representative may (subject to the allocation priority
set forth below) limit the number of Registrable Securities to be included in
the registration and underwriting. The Company shall so advise all holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated in the following manner: the securities of the Company held by Other
Stockholders of the Company (other than Registrable Securities and other than
securities held by holders who by contractual right demanded such registration
("DEMANDING HOLDERS")) shall be excluded from such registration and underwriting
to the extent required by such limitation, and, if a limitation on the number of
shares is still required, the number of shares that may be included in the
registration and underwriting by each of the Holders and Demanding Holders shall
be reduced, on a pro rata basis (based on the number of shares held by such
Holder), by such minimum number of shares as is necessary to comply with such
limitation. If any of the Holders or any Other Stockholder disapproves of the
terms
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<PAGE>
of any such underwriting, such person may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable Securities
or other securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
2.3. EXPENSES OF REGISTRATION.
Except as provided in the next sentence, all Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Section 2 shall be borne by the Company, and all Selling
Expenses shall be borne by the holders of the securities so registered pro rata
on the basis of the number of their shares so registered. If a registration has
been requested pursuant to Section 2.1 and a registration statement is declared
effective by the Securities and Exchange Commission, but the sales of the
Registrable Securities does not close, the Holders are not considered to have
used a requested registration under Section 2.1(a)(ii)(B), but after the second
requested registration which results in the filing of a registration statement
which is declared effective (whether or not sales occur), the holders of the
Registrable Securities in any subsequent requested registration will pay all
Registration Expenses and Selling Expenses pro rata on the basis of the number
of shares so registered.
2.4. REGISTRATION PROCEDURES.
In the case of each registration effected by the Company pursuant to
this Section 2, the Company will keep the Holders, as applicable, advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(i) keep such registration effective for a period of one hundred
twenty (120) days or until the Holders, as applicable, have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; PROVIDED, HOWEVER, that such 120-day period shall be extended for
a period of time equal to the period during which the Holders, as applicable,
refrain from selling any securities included in such registration in accordance
with provisions in Section 2.8 hereof;
(ii) furnish such number of prospectuses and other documents incident
thereto as each of the Holders, as applicable, from time to time may reasonably
request;
(iii) notify each Holder of Registrable Securities covered by such
registration at any time when a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or
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<PAGE>
necessary to make the statements therein not misleading in the light of
the circumstances then existing; and
(iv) furnish, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (1) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
participating in such registration, addressed to the underwriters, if any, and
to the Holders participating in such registration and (2) a letter, dated as of
such date, from the independent certified public accountants of the Company, in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders participating in such
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders participating in such
registration.
2.5. INDEMNIFICATION.
(a) The Company will indemnify each of the Holders, as applicable,
each of its officers, directors and partners, and each person controlling each
of the Holders, with respect to each registration which has been effected
pursuant to this Section 2, and each underwriter, if any, and each person who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each of
the Holders, each of its officers, directors and partners, and each person
controlling each of the Holders, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, PROVIDED that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon
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<PAGE>
written information furnished to the Company by the Holders or
underwriter and stated to be specifically for use therein.
(b) Each of the Holders will, if Registrable Securities held by it
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter, each Other Stockholder and other Holders and each of their
officers, directors, and partners, and each person controlling such other
Stockholder against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document made by such Holder,
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements by such Holder therein
not misleading, and will reimburse the Company and such Other Stockholders and
other Holders, directors, officers, partners, persons, underwriters or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder for use therein; PROVIDED, HOWEVER, that the
obligations of each of the Holders hereunder shall be limited to an amount equal
to the net proceeds to such Holder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 2.5
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and PROVIDED, FURTHER, that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 2 unless the Indemnifying Party is materially prejudiced
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thereby. No Indemnifying Party, in the defense of any such claim or litigation
shall, except with the consent of each Indemnified Party, which shall not be
unreasonably withheld, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 2.5 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue (or alleged untrue) statement of a material fact or the
omission (or alleged omission) to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with any underwritten public offering contemplated by
this Agreement are in conflict with the foregoing provisions, the provisions in
such underwriting agreement shall be controlling.
(f) The foregoing indemnity agreement of the Company and the Holders
is subject to the condition that, insofar as they relate to any loss, claim,
liability or damage from a statement or omission made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement in question becomes effective
or the amended prospectus filed with the Commission pursuant to Commission Rule
424(b) (the "FINAL PROSPECTUS"), such indemnity agreement shall not inure to the
benefit of an underwriter if a copy of the Final Prospectus was furnished to
such underwriter and was not furnished by such underwriter to the person
asserting
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the loss, liability, claim or damage at or prior to the time such action
is required by the Securities Act.
2.6. INFORMATION BY THE HOLDERS.
Each of the Holders holding securities included in any registration
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 2.
2.7. RULE 144 REPORTING.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
to the public without registration, so long as the Company is required to file
reports pursuant to the Exchange Act, the Company agrees to:
(i) make and keep public information available as those terms are
understood and defined in Rule 144;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and
(iii) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, and of the Securities
Act and the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
2.8. "MARKET STAND-OFF" AGREEMENT.
Each of the Holders agrees, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, not to sell,
short sell, or purchase or sell derivative securities in respect of Common
Stock, or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder during the 90-day period
following the effective date of a registration statement of the Company filed
under the Securities Act, PROVIDED that all executive officers and directors of
the Company enter into similar agreements other than in respect of securities
included in such registration.
If requested by the underwriters, the Holders shall execute a separate
agreement to the foregoing effect. The
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Company may impose stop-transfer instructions with respect to the shares
(or securities) subject to the foregoing restriction until the end of
said 90-day period. The provisions of this Section 2.8 shall be binding
upon any transferee who acquires Registrable Securities, whether or not
such transferee is entitled to the registration rights provided
hereunder.
2.9. TERMINATION.
The registration rights set forth in this Section 2 shall not be
available to any Holder if, in the opinion of counsel to the Company, all of the
Registrable Securities desired to be sold by such Holder could be sold in any
90-day period pursuant to Rule 144 under the Securities Act (without giving
effect to the provisions of Rule 144(k)).
2.10. MERGER AGREEMENT.
The obligation of the Company to register Registrable Securities is
subject to Section 6.9 of the Merger Agreement in respect of limitation on sales
of Registrable Securities.
2.11. LEGEND.
The Company may place the following legend on certificates of
Registrable Securities: "The shares represented by this certificate are subject
to a Registration Rights Agreement, dated as of December 8, 1998, as amended
from time to time, a copy of which may be obtained at the office of the
Company."
SECTION 3. MISCELLANEOUS
3.1. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF COLORADO APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
3.2. PARAGRAPH AND SECTION HEADINGS.
The headings of the sections and subsections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
thereof.
3.3. NOTICES.
(a) All communications under this Agreement shall be in writing and
shall be delivered by hand, by facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid:
(1) if to ZGNA or ZBI, at 2550 El Presidio Street, Long Beach,
California 90810-1193 (facsimile: (310) 637-3644), marked
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for attention of President, or at such other address as ZGNA or ZBI may
have furnished the Company in writing (with a copy to Willkie Farr &
Gallagher, 787 Seventh Avenue, New York, NY 10019-6099, Attention:
Harvey L. Sperry, Esq. (facsimile: 212-728-8111), or at such other
address it may have furnished the Company in writing), or
(2) if to the Company, at 5555 Airport Boulevard, Boulder, Colorado
80301 (facsimile: (303) 441-5802), marked for the attention of Dean Stull, or at
such other address as the Company may have furnished Investor in writing (with a
copy to Chrisman, Bynum & Johnson, P.C., 1900 Fifteenth Street, Boulder,
Colorado 80302, Attention: Laurie Glasscock, Esq. (facsimile: 303-449-5426) or
at such other address as it may have furnished in writing to the Investor and
the Escrow Agent), or
(b) Any notice so addressed shall be deemed to be given: if
delivered by hand or by facsimile, on the date of such delivery; if delivered by
courier, on the first Business Day following the date of the delivery to the
courier; and if mailed by registered or certified mail, on the third Business
Day after the date of such mailing.
3.4. EXPENSES AND TAXES.
Whether or not the Closing shall have occurred, each party shall pay
its own fees and expenses incurred in connection with the transactions
contemplated hereby.
3.5. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
3.6. ENTIRE AGREEMENT; AMENDMENT AND WAIVER.
This Agreement and the agreements attached as Exhibits hereto
constitute the entire understandings of the parties hereto and supersede all
prior agreements or understandings with respect to the subject matter hereof
among such parties. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Company and holders of the majority of the Registrable Securities. No
course of dealing between the Company and any holder of the Registrable
Securities nor any delay in exercising any rights hereunder shall operate as a
waiver of any rights of either party hereto.
3.7. SEVERABILITY.
In the event that any part or parts of this Agreement shall be held
illegal or unenforceable by any court or administrative body of competent
jurisdiction, such determination
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shall not effect the remaining provisions of this Agreement which shall
remain in full force and effect.
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3.8. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.
HAUSER, INC.
By: /s/ Dean P. Stull
----------------------
Name: Dean P. Stull
Title: CEO
ZUELLIG GROUP N.A., INC.
By: /s/ Volker Wypyszyk
----------------------
Name: Volker Wypyszyk
Title: President
ZUELLIG BOTANICALS, INC.
By: /s/ Ralph L. Heimann
----------------------
Name: Ralph L. Heimann
Title: Secretary & Treasurer
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EXHIBIT I
FORM OF SOURCING AGENCY AGREEMENT
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Exhibit I
HAUSER, INC.
ZUELLIG BOTANICALS, INC.
SOURCING AGENCY AGREEMENT
This Sourcing Agency Agreement (this "Agreement") is made as of the
[Closing Date] (the "Effective Date") by and between Hauser, Inc. ("Hauser"), a
Colorado corporation, and Zuellig Botanicals, Inc. ("BI"), a Delaware
corporation doing business as Botanicals International, Inc. The parties are
sometimes referred to individually as a "Party" and collectively as the
"Parties." Other terms are defined in Section 1.
RECITALS
A. Hauser is in the businesses, among others, of acquiring natural
products and derivatives ("Raw Materials," as more fully defined in Section 1
(a)(5)) from sources throughout the world and processing such Raw Material in
the manufacturing and marketing of nutraceutical products. Hauser maintains a
purchasing department for the purpose of enabling it to acquire Raw Materials,
which department is capable of acting a purchasing agent for BI.
B. BI is in the business of businesses, among others, of acquiring Raw
Materials from sources throughout the world and processing such natural products
and derivatives in the manufacture and marketing of botanical powders, teas, and
spices. BI does not have a purchasing department through which to acquire Raw
Materials.
C. The Parties desire that Hauser be the exclusive purchasing agent for
BI with respect to Raw Materials, under the terms and conditions of this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Parties agree as follows:
1. DEFINITIONS. (a) In this Agreement, the following expressions, when
capitalized as indicated, shall have the meanings ascribed to them in this
Section 1 or in another section as indicated, and cognate expressions shall have
corresponding meanings.
(1) "Affiliate," with respect to either Party, means any
individual, corporation, partnership, or other entity controlling,
controlled by, or under common control with such Party. For such purpose
the terms "controls," "is controlled by," or "is under common control with"
refers to the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of an entity, whether
through the ownership of voting securities, by contract, or otherwise.
Neither Party shall be an Affiliate of the other Party.
(2) "Business Day" means a day that is not a Saturday, Sunday,
or holiday of the Federal Government of the United States of America. If
any notice is required to be given within a stated number of Business Days,
or any other action is required to be taken within a stated number of
Business Days, then the notice shall be given, or the action taken, before
5:00 Hauser Time on the last day of the stated number of Business Days.
(3) "Commission Rate" is defined in Section 3(a).
<PAGE>
(4) "Effective Date" is defined in the first paragraph of this
Agreement.
(5) "Raw Material" means natural products and derivatives that
may be used by a Party in the manufacture or marketing of the Party's
nutraceutical products, botanical powders, teas, or spices. The term does
not include energy, office supplies, shop materials, equipment or other
such items.
(6) "Raw Material Price" means the price payable by a Party for
Raw Material, excluding amounts payable for (a) transportation, (B)
insurance covering risk of loss in delivery, or sales, use, tariff,
import/export duties, excise tax, customs duties, or other taxes or
impositions, but reduced by allowances or credits for rejections, returns,
settlements, and claims.
(7) "Raw Material Quantity" means a quantity of Raw Material,
expressed in kilograms.
(8) "Sourcer" means a person, other than a Party or an Affiliate
of a Party, who may sell Raw Materials.
(9) The "Term of this Agreement" is defined in Section 8.
(b) In this Agreement, the following expressions, whether or not
capitalized, shall have the meanings ascribed to them in this Section 1(b), and
cognate expressions shall have corresponding meanings.
(1) "Offer" means offer to purchase or offer to sell, as the
context requires.
(2) "Purchase" includes every contract of purchase of, contract
to buy, or acquisition of a thing for value. "Offer to purchase" includes
every attempt or offer to acquire, or solicitation of an offer to sell, a
thing for value.
(3) "Sale" or "sell" includes every contract of sale, contract
to sell, or disposition of a thing for value. "Offer to sell" includes
every attempt or offer to dispose of, or solicitation of an offer to
purchase, a thing for value.
(4) "Third person" excludes an Affiliate of either Party.
2. HAUSER AS PURCHASING REPRESENTATIVE FOR BI. (a) Hauser shall be BI's
exclusive agent for BI's purchase of Raw Material from Sourcers.
(b) If BI desires to purchase Raw Material, it shall give notice
thereof (the "Solicitation Notice") to Hauser, which Solicitation Notice shall--
(1) State the specifications for the desired Raw Material and
state such other terms and conditions, such as Raw Material Quantity,
delivery dates, Raw Material Price, and payment terms, as BI deems
necessary or appropriate to enable Hauser to obtain offers from Sourcers to
sell Raw Material to BI on terms and conditions that may be satisfactory to
BI; and
(2) Instruct Hauser to proceed in accordance with this
Section 2.
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BI may state any or all of its terms and conditions, including specifications,
as ranges. BI shall add to or clarify the information contained in its
Solicitation Notice as Hauser may reasonably request to enable Hauser to more
efficiently or more readily acquire Sourcers' offers on terms and conditions
that will be satisfactory to BI.
(c) Upon receipt of BI's Solicitation Notice and such additional or
clarifying information as Hauser may request, Hauser shall, as purchasing
representative for BI, use its reasonable efforts to obtain offers from
Sourcers, wherever located, matching or approximating the specifications and
other terms and conditions stated by BI in the Solicitation Notice and giving
notice of, and forwarding to BI, such Sourcers' offers as are obtained.
(d) Upon its receipt of any Sourcer's offer forwarded to it by
Hauser, BI may, in its discretion, by notice given to Hauser, (A) instruct
Hauser to accept, as BI's purchasing agent, the Sourcer's offer (B) instruct
Hauser to counteroffer, as BI's purchasing agent, to the Sourcer, or determine
not to accept the offer. If BI does not give any such notice to Hauser withing
five Business Days after Hauser forwarded the Sourcer's offer to BI, then BI
shall be deemed to have determined not to accept that offer and to have
instructed Hauser to continue to pursue other offers pursuant to
Section 2(b).
(e) Notwithstanding the foregoing, if Hauser obtains a Sourcer's
offer that matches the specifications and other terms and conditions stated in
BI's Solicitation Notice (as the same may have been added to or clarified) in
all material respects, then Hauser may accept that offer on BI's behalf in lieu
of forwarding the offer to BI for its acceptance, counteroffer, or nonacceptance
under Section 2(d). Hauser shall giver prompt notice to BI of such acceptance.
(f) If BI purchases Raw Material from a Sourcer (whether or not
pursuant to an offer forwarded by Hauser to BI or accepted by Hauser on BI's
behalf pursuant to Section 2(e)), BI shall pay to Hauser a commission equal to
the product of the Commission Rate applicable at the date of delivery multiplied
by the Raw Material Quantity purchased, such commission being paid as deliveries
of the Raw Material are made to BI, whether such deliveries occur during the
Terms of this Agreement or after its termination.
(g) If, in the course of purchasing Raw Material from a Sourcer for
BI, Hauser also purchases Raw Material from the Sourcer for its own purposes,
Hauser shall share with BI, proportionately, any volume discount in the Raw
Material Price obtained by reason of the two purchases.
3. COMMISSION RATE. (a) The commission rate (the "Commission Rate")
payable by BI to Hauser for purchases made through Hauser as purchasing agent
shall be determined periodically based upon the cost to Hauser of its purchasing
department and the Raw Material Quantity purchased through that purchasing
department by Hauser and BI, such determination to be as provided in this
Section 3.
(b) An assumed Commission Rate of $0.05 per kilogram of Raw Material
Quantity purchased by BI shall initially be applied to Raw Material delivered to
BI during the partial calendar month, if any, in which the Effective Date occurs
and the first six full calendar months following the Effective Date.
(c) During the seventh full calendar month following the Effective
Date, Hauser shall determine and give BI notice of the following items,
determined for the first six full calendar months following the Effective Date--
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(1) The accountable cost ("Department Cost") of Hauser's
purchasing department, including salaries, space, share of general and
administrative expenses, and all other costs properly allocated to the
purchasing department;
(2) The aggregate Raw Material Quantity purchased through the
purchasing department for BI (the ""BI Weight");
(3) The aggregate Raw Material Quantity purchased through the
purchasing department for Hauser, for any of its Affiliates, and for
third person (if any)(the "Hauser Weight");
(4) The product obtained by multiplying the Department Cost by
a fraction the numerator of which is the BI Weight and the denominator
of which is the sum of the BI Weight and the Hauser Weight (such
product being referred to as the "BI Department Cost").
(5) The quotient obtained by dividing the BI Department Cost
by the BI Weight.
Hauser shall also provide BI with such supporting information as Hauser
reasonably deems necessary or appropriate to confirm its determination, and
such additional information as BI may reasonably request for that
confirmation.
(d) The quotient determined pursuant to Section 3(c)(5) shall be
the actual Commission Rate applicable to deliveries of Raw Material made
during the partial calendar month, if any, in which the Effective Date occurs
and the first six full calendar months following the Effective Date. The
Parties shall adjust for any difference between the assumed Commission Rate
stated in Section 3(b) and the actual Commission Rate by (1) BI paying to
Hauser any additional commission earned at the actual Commission Rate over
commissions theretofore paid at a lower assumed Commission Rate or (2) Hauser
repaying to BI any excess of actual commissions theretofore paid at a higher
assumed Commission Rate over the commissions actually earned at the actual
Commission Rate, as the case may be.
(e) The quotient determined pursuant to Section 3(c)(5) shall also
be the assumed Commission Rate applicable to deliveries of Raw Material made
during the second period of six full calendar months following the Effective
Date, and in the calendar months following the end of that second period,
Hauser shall make determinations of the Department Costs and aggregate
kilograms delivered, for such second period, as if Section 3(c) applied to
that second period. The Parties shall then apply Section 3(d) to determine
the actual Commission Rate for that second period and shall make the
adjustments in commissions paid that contemplated by the Section 3(d), in
each case as if Section 3(c) and Section 3(d) applied to that second period.
The Parties shall thereafter repeat these procedures with respect to each
successive six calendar month period thereafter so long as deliveries are
made to BI of Raw Materials purchased through Hauser.
4. TIME FOR ACTIONS; COOPERATION. (a) The Parties acknowledge that
this Agreement does not always provide specific time periods for the making
of offers and acceptances or the taking of other actions. The Parties agree
that each such action for which a specific time period is not provided shall
be taken reasonably promptly considering the circumstances as are then known
to the Party taking or required to take the action.
(b) Each Party will cooperate with the other Party in its
performance under this Agreement, to the end that the offers, acceptances,
purchases, and sales contemplated herein may be
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facilitated Without limiting the generality of the foregoing, each Party shall
promptly provide to the other such detailed information as the other Party
may request from time to time regarding the specifications of Raw Material
that is sought or offered and the terms and conditions of purchases or sales
sought or offered regarding Raw Material, in order that each Party may have a
complete understanding of such specifications, terms and conditions. In the
event Hauser is under a duty under Section 2 to seek offers from Sourcers to
sell Raw Material to BI, and Hauser determines in good faith that the Raw
Material is not available on terms and conditions that would be acceptable to
BI, it may so inform BI and decline to expend further efforts to obtain such
offers unless and until BI modifies its terms and conditions.
(c) In the event the Parties do not otherwise provide with respect
to any particular purchase of Raw Material by one Party from the other Party
pursuant to this Agreement, payment of the Raw Material Price by one Party to
the other Party shall be made within thirty days after the invoice date for
the Raw Material.
5. PLANNING, FORECASTING, REVIEWING, (a) Hauser and BI shall meet
periodically to forecast BI's needs for Raw Materials and anticipated
availabilities of Raw Materials, including such matters as availability of
Raw Material, Sourcer location, prices, qualities and the like, and to
develop plans for the acquisition of Raw Materials meeting BI's needs. It is
anticipated that such meeting shall e quarterly, but each such meeting shall
be held at a date, time, and place specified by either Party in a notice to
the other.
6. INSURANCE. Each Party shall maintain the following insurance
coverage, either (a) during the Term of this Agreement with claims-incurred
coverage or (b) during the Term of this Agreement and for a period following
the Term of this Agreement sufficient to cover all claims which may be for
events occurring during the Terms of this Agreement with claims-made coverage;
(1) Comprehensive general liability insurance, endorsed to
provide for contractual liability, with limits of $1,000,000 combined
single limit each occurrence; and
(2) Professional liability (also covering errors and
omissions), with limits of, with limits of $1,000,000 combined single
limit each occurrence.
All policies for such coverage shall be endorsed to waive subrogation in
favor of the other Party, and policies referred to in Section 6(b)(1) shall
name, as additional insureds, (except (e) above), Company, it's the other
Party and its officers, directors and employees. Each Party shall provide to
the other Party, at the other Party's request from time to time, certificates
of insurance evidencing the required coverage on terms reasonably acceptable
to the other Party. Each Party shall require its insurance carriers to give
the other Party thirty days' written notice prior to the cancellation of any
policies required hereunder.
7. BI INDEMNITY. BI shall indemnify and hold Hauser harmless from any
damage resulting to Hauser by reason of BI's failure to perform its
obligations with respect to any Sourcer's offer to sell, or any counteroffer
to purchase, that BI has made on BI's behalf, as contemplated herein.
8. TERM AND TERMINATION. (a) The term of this Agreement (the "Term of
this Agreement") shall begin on the Effective Date and shall continue until
terminated on the earliest of any of the following dates:
(1) Such date, on or after the second anniversary of the
Effective Date, that either Party may state as the date for termination
of the Term of this Agreement in notice given to the other Party at
least three months before the stated date;
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(2) Such date as the Parties may state as the date for
termination of the Term of this Agreement in a writing signed by both
Parties (which writing may be in counterparts);
(3) Such date as Hauser may state in a notice given to BI
stating that the Term of this Agreement is terminated as of such date
because control of BI has changed, if such notice is given before the
date that is sixty days after Hauser receives notice from BI of a change
of control of BI, which notice identifies the person or persons who have
acquired control of BI in the change of control that constitutes the
basis for Hauser's termination under this provision;
(4) Such date as either Party (the "Noticing Party") may
state in a notice given to the other Party (the "Other Party") at least
thirty days before such date, which notice states that the Term of this
Agreement will terminate as of that date by reason of a material breach
of this Agreement by the Other Party--which breach is identified in the
notice with sufficient specificity to enable the Other Party to
understand the nature of the breach and what, if anything, must be done
to cure it--if the Other Party has not cured such breach before that date.
(5) Such date as either Party (the "Noticing Party") may
state in a notice given to the other Party (the "Other Party") stating
that the Term of this Agreement is terminated because (A) the Other
Party has made an assignment for the benefit of creditors; (B) the Other
Party has admitted insolvency; (C) the Other Party has instituted
voluntary proceedings in bankruptcy; (D) involuntary proceedings in
bankruptcy or other insolvency proceedings have been instituted against
the Other Party, if such proceedings have not been dismissed within
sixty days after their institution; or (E) an application has been made
for receivership with respect to the Other Party or any material part of
its assets or business, if such application has been granted or has not
been dismissed within sixty days after the filing thereof.
(b) Notwithstanding the termination of the Term of this Agreement
for any reason, all obligations of a Party that have accrued prior to such
termination shall remain due and owing in accordance with the terms of this
Agreement, and the provisions of this Agreement that by their nature are to
continue after the termination of the Term of the Agreement shall remain in
full force and effect, including Section 6 through Section 22.
9. INDEPENDENT CONTRACTOR; NO AGENCY; NO DELEGATION. Nothing herein
shall be construed to make either Party a partner, agent, or employee of the
other Party. Each Party shall in all respects be an independent contractor of
the other Party in its performance under this Agreement and neither Party
shall in any way represent itself to third persons to be a partner, agent, or
employee of the Other Party.
10. CONFIDENTIALITY. (a)(1) Subject to Section 10(a)(2), "Confidential
Information" means any information that related to a Party or any of its
Affiliates (the Party or such Affiliate, or both, as the context may
require, being herein referred to as the "Discloser") or to the
business, property, products, services, operations, sales, customers,
history, or prospects of the Discloser, whether or not such information
is written or contained in tangible form, patented or patentable, or
copyrighted or subject to copyright. The term "Confidential Information"
shall include, without limitation, any and all developments;
inventories; discoveries; ideas; conceptions; creations; improvements;
trade secrets; business secrets; production or manufacturing techniques;
systems; processes; methods; formulae; experimental works; engineering
data or drawings; test results; survey results; sales or marketing data;
accounting or financial data; business information; information concerning
third person sources of intellectual property; and product or service
descriptions or information which relates to the Discloser or to the
business, property, products, services, operations, sales, customers,
licensees,
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licensors, history, or prospects of the Discloser. The term "Confidential
Information" shall also include any information of any other person
(herein, the "Third Person Discloser") which has come into the possession
of the Discloser in circumstances which, as such circumstances are known to
BI, should reasonably cause BI to conclude that a duty of confidentiality
was imposed upon the Discloser in favor of the Third Person Discloser.
(2) Notwithstanding Section 10(a)(1), the term "Confidential
Information" shall not include information which a Party shows
(A) Is now in or hereafter comes into the public domain
through no fault of that Party; or
(B) Was known to that Party prior to February 1, 1998; or
(C) Is acquired by that Party or any of its Affiliates
from persons who are not employed or engaged by, and who are not under
any duty of confidentiality for the benefit of, the Discloser or the
Third Person Discloser.
It is understood that some Confidential Information may, at least in part,
consist of a synthesis of information that is in the public domain; and it
is, therefore, understood that no exclusion contained in clause
10(a)(2)(A), 10(a)(2)(B), or 10(a)(2)(C) shall operate to exclude from the
definition of "Confidential Information" such synthesis of otherwise public
domain information, unless it can be shown that such synthesis is itself in
the public domain.
(b) The Party receiving Confidential Information shall (1) use
the Confidential Information only for purposes of performing its obligations
under this Agreement, and (2) shall not disclose any Confidential Information
in any form to any person other than to its and its and its Affiliates'
employees and agents who have a need to know the Confidential Information in
order that it can perform its obligations under this Agreement, each of whom
is under the same restrictions regarding use and disclosure of the Confidential
Information as is the Party under this Section 10.
(c) This Section 10 shall apply only to information that is
disclosed by a Discloser to the other Party during the Term of this Agreement.
This Section 10 shall continue to apply to covered information so long as the
same remains Confidential Information in fact, notwithstanding the earlier
termination of the Term of this Agreement.
(d) In the event that a Party breaches this Section 10, the
Discloser shall be entitled to injunctive relief, to such damages as it may
actually sustain as a result of such breach, and to all costs and expenses,
including attorneys' fees, incurred in enforcing this Section 10 and its rights
hereunder. The remedies provided in this Section 10 are cumulative, and not
exclusive, and are in addition to all remedies otherwise provided by law.
11. FORCE MAJEURE. (a) For purposes of this section, a "Force Majeure
Event" shall be any event or condition that (1) is not known to the Excused
Party (as defined below), as of the Effective Date, to exist, (2) is not
reasonably foreseeable as of the Effective Date, and (3) is not reasonably
within the control of the Excused Party. Without limiting the preceding
sentence, any of the following shall constitute a Force Majeure Event if the
same meets the conditions expressed in clause (2) of that sentence: natural
disaster; fire; flood; storm; war; riot; civil disturbance; malicious damage;
epidemic; accident; breakdown of plant or machinery; strike; lockout; labor
action; material shortage of, or material increase in the expense of
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obtaining, or other circumstances materially affecting the supply of,
workers, materials, transport, raw materials, or energy; or acts of
governmental authority.
(b) Any period of time in which a Party (the "Excused Party")
must perform any obligation under this Agreement shall be extended by the period
of time that a Force Majeure Event prevents such performance in whole or in
material part or renders such performance so difficult or costly that such
performance is commercially unreasonable, and the Excused Party shall not be
liable for loss or damage incurred by the other Party by reason of any delay in
such performance during such period of extension. If the Force Majeure Event is
of such a nature that the performance of the obligation will reasonably require
an additional period of time following cessation of the Force Majeure Event,
then the period of time in which the Excused Party must perform the obligation
shall be further extended by such additional period of time, and the Excused
Party shall not be liable for loss or damage incurred by the other Party by
reason of any delay in such performance during such additional period of time.
(c) The Excused Party shall promptly notify the other Party in
writing of the commencement and termination of the Force Majeure Event and shall
document any evidence of the commencement, existence, and termination of the
Force Majeure Event and of its effect on the ability of the Excused Party to
perform its obligation under this Agreement.
(d) If the period of time in which a Party must perform any
material obligation hereunder is extended for a period of more than six
consecutive months pursuant to the preceding provisions of this section, either
Party may terminate this Agreement, without liability to the other Party for
such termination, by giving notice of termination given to the other Party
prior to the end of the period of extension.
(e) The foregoing provision of this section shall not excuse
any obligation to pay any amount which becomes due under this Agreement prior
to termination of this Agreement, but payment for any performance the time
for which is extended pursuant to such provisions may be suspended until such
performance is rendered.
12. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration
administered by the American Arbitration Association under its Commercial
Arbitration Rules, and judgment on the award rendered by the arbitrator or
arbitrators may be entered in any court having jurisdiction thereof.
13. NOTICES. (a) Each notice and other communication to be given to a
recipient Party under or with respect to this Agreement (including instruments
tendered as full satisfaction of debts and other communications concerning
disputed debts) shall be in writing (including by telegraph, telex, telecopier,
and other available communication facilities providing written copy to the
recipient Party) and shall be effective--
(1) when actually delivered (A) to the individual whom
the recipient Party had last identified by notice as being authorized to
receive notices and communications under this Agreement (such individual
being referred to as the "Notice Individual"), wherever that Notice
Individual may be found, or (B) to the attention of the Notice Individual
at such address as the recipient Party last designated by notice (such
address being referred to as the "Notice Address") (any notice transmitted
by telegram, telex, telecopy or other such communication facility shall
also be delivered by mail or courier as is also permitted under this
section but shall be deemed to have been given when telegram, telex,
telecopy, or other such communication has been transmitted if that
transmission is the earliest date of delivery);
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(2) on the day delivery is guaranteed by the courier
services, after receipted delivery to a courier service which guarantees
delivery by a stated day, under circumstances in which such guaranty is
applicable, if the notice or other communication is addressed to the
Notice Individual at the Notice Address;
(3) on the earlier of (A) delivery or (B) three Business
Days after mailing by United States certified mail, postage and fees
prepaid, if the notice or other communication is addressed to the Notice
Individual at the Notice Address.
(b) Actual delivery of a notice or other communication to a
recipient Party, if made at the Notice Address for the recipient Party, shall
be deemed to have been made to the Notice Individual if (A) the Notice
Individual is identified on the notice or communication (or on a label on the
exterior of any envelope or package containing the notice or communication, as
the case may be) and (B) the delivery is made to an individual whom the
noticing or communicating Party reasonably believes is likely to transmit the
notice or communication to the Notice Individual. Delivery of a notice or
other communication to the recipient Party at a place other than the Notice
Address shall be effective only if it is to the Notice Individual for the
recipient Party. The initial Notice Addresses, and the initial designations
of Notice Individuals are as follows:
For Hauser:
Hauser, Inc.
5555 Airport Boulevard
Boulder, Colorado 80301
Attention: Martin C. Wehr, Chief Operating Officer
Facsimile: 303-441-5802
Confirming telephone: 303-443-4662
For BI:
Botanical International, Inc.
2550 El Presidio Street
Long Beach, CA 90801
Attention: Ralph Heinman, President
Facsimile: 310-669-8146
Confirming telephone: 310-637-9566
14. INTERPRETATION OF GOVERNING LAW; JURISDICTION AND SERVICE OF PROCESS.
Agreement shall be construed as though prepared by both of the Parties. This
Agreement, and the performances of the Parties hereunder, shall be governed by
the laws of the State of Colorado without giving effect to the principles of
conflicts of laws that would otherwise provide for the application of the
substantive law of another jurisdiction. Subject to Section 12, any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement must be brought against either Party in the courts of
the State of Colorado or, if it has or can obtain jurisdiction, in the United
States District Court for such state, and each Party hereby consents for itself
and its successors and assigns to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred
to in this section may be served on either Party anywhere in the world,
whether within or without the State of Colorado, and may also be served upon
either Party in the manner provided above for giving notices to a Party under
this Agreement.
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15. INUREMENT AND ASSIGNMENT. This Agreement shall be binding upon, and
shall inure to the benefit of, the Parties and their heirs, personal
representatives, successors, and assigns, but neither Party may assign this
Agreement or any right or obligation hereunder to any person without the
written consent of the other Party. No assignment of this Agreement or of any
right or obligation hereunder shall relieve the assignor of its obligations
hereunder without the written consent of the other Party.
16. NO THIRD PERSON BENEFICIARIES. This Agreement creates no rights
benefitting third persons, and no third person shall have any right to
enforce any provision hereof, except as may be specifically provided herein.
If any right benefitting a third person is specifically provided herein, the
same may be amended (including deletion) by the Parties in the manner provided
herein for amendments of this Agreement, without the consent of such third
person, notwithstanding that the third person may have justifiably changed
position in reliance on such provision prior to such amendment; and the third
person shall be bound by such amendment effective as of the date specified by
the Parties or, if no date is specified, as of the date of this Agreement.
17. MODIFICATION AND WAIVER. This Agreement may not be modified except
by a writing signed by the Party or Parties to be burdened by the effects of
the modification. Neither Party shall be deemed to have waived any right or
remedy under or with respect to this Agreement unless such waiver is expressed
in a writing signed by such Party. No waiver of any right or remedy under or
with respect to this Agreement by a Party on any occasion or in any circumstance
shall be deemed to be a waiver of any other right or remedy on that occasion
or in that circumstance nor a waiver of the same or of any other right or
remedy on any other occasion or in any other circumstance.
18. REMEDIES CUMULATIVE. The remedies provided in this Agreement are
cumulative, and not exclusive, and are in addition to all remedies otherwise
provided by law.
19. SEVERABILITY. If any provision in this Agreement is held to be
invalid or unenforceable on any occasion or in any circumstance, such holding
shall not be deemed to render the provision invalid or unenforceable on any
other occasion or in any other circumstance nor to render any other provision
hereof invalid or unenforceable, and to that extent the provisions of this
Agreement are severable; provided, however, that this provision shall not
preclude a court of competent jurisdiction from refusing so to sever any
provision if severance would be inequitable to one or more of the Parties.
20. HEADINGS AND INTERPRETATION. Headings and captions contained in
this Agreement are solely for the convenience of the Parties and are not to
be considered in interpreting or construing this Agreement or the Parties'
rights, remedies, and obligations hereunder. The words "herein", "hereof", and
"hereunder", when used in this Agreement, refer to the Agreement in its
entirety. The word "include" and its derivations mean by way of example and
not by way of exclusion or limitation. Words in the singular include the
plural and words in the plural include the singular, according to the
requirements of the context. Words importing a gender include all genders. All
references to days shall be calendar days unless otherwise expressly stated.
When the last day prescribed for performing an act falls on Saturday, Sunday or
a legal holiday, the performance of such act shall be considered timely if it
is performed on the next succeeding day which is not a Saturday, Sunday or legal
holiday. All dollar amounts referred to in this Agreement are in lawful
money of the United States of America.
21. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Parties with respect to the subject matter hereof and supersedes
all prior oral or written agreements between the Parties with respect to the
subject matter hereof. This Agreement is one of several "Transaction Documents"
as that term is defined in that certain "Acquisition Agreement" between Hauser
and Zuellig North America, Inc.
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22. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of
which together shall be deemed to constitute but one and the same instrument.
This Agreement shall be effective if each Party has executed and delivered at
least one counterpart hereof.
[Signatures follow]
IN WITNESS WHEREOF, the Parties have executed and delivered this Sourcing
Agency Agreement as of the date first stated above.
HAUSER, INC. ZUELLIG BOTANICALS, INC.
By: _______________________________ By: ___________________________________
Title: ____________________________ Title: ________________________________
Printed name: _____________________ Printed name: _________________________
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AGREEMENT FOR OPTION TO ACQUIRE COMMON STOCK OF
HAUSER, INC.
AGREEMENT FOR OPTION TO ACQUIRE COMMON STOCK OF HAUSER, INC., dated as
of December 8, 1998 (the "AGREEMENT"), by and between Hauser, Inc., a Colorado
corporation (the "COMPANY"), and Zuellig Group N.A., Inc. a Delaware corporation
("ZGNA").
R E C I T A L S :
WHEREAS, the Company, ZG Merger Sub 1 and ZG Merger Sub 3, each of
which is a Delaware corporation and wholly owned subsidiary of the Company and
ZG Merger Sub 2, a New York corporation and wholly owned subsidiary of the
Company (the "ACQUISITION SUBSIDIARIES"), ZGNA and certain subsidiaries of ZGNA
have entered into an Agreement and Plan of Merger, dated as of the date hereof
(the "MERGER AGREEMENT"), which provides, upon the terms and subject to the
conditions set forth therein, for the merger of Acquisition Subsidiaries with
and into certain subsidiaries of ZGNA (the "MERGERS"); and
WHEREAS, the Company and ZGNA have entered into an inventory purchase
agreement, dated as of the date hereof (the "INVENTORY PURCHASE AGREEMENT"),
which provides, upon the terms and subject to the conditions set forth therein,
for the purchase from time to time by ZGNA of certain inventory of the Company;
and
WHEREAS, as a condition and inducement to ZGNA's pursuit of the
transactions contemplated by the Merger Agreement and the Inventory Purchase
Agreement, and in consideration therefor, the Company has agreed to grant ZGNA
the Option (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, the Company and
ZGNA, agree as follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Merger Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth
herein, the Company hereby grants to Holder (as hereinafter defined) an
irrevocable option (the "OPTION") to purchase 2,000,000 shares of common stock,
par value $.001 per share ("COMMON STOCK"), of the Company (as adjusted as set
forth herein, the "OPTION SHARES"), at a purchase price per Option
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Share (as adjusted as set forth herein, the "PURCHASE PRICE") equal to
$4.11; PROVIDED, HOWEVER, that this Option may never be exercised for
20% or more of the Common Stock or otherwise in a fashion to require a
vote of the Company's stockholders pursuant to Rule 4310H of the NASD.
3. EXERCISE OF OPTION.
(a) Holder may exercise the Option, in whole or in part, at any time
and from time to time following the occurrence of an Exercise Event (as
hereinafter defined); PROVIDED that the Option shall terminate and be of no
further force or effect as follows:
(A) If the Mergers are consummated, upon the Effective Date;
(B) If the Merger Agreement is terminated other than as provided
in the next subsection (C), nine (9) months after the date on which such
termination occurs;
(C) If the Merger Agreement is terminated because the credit
facility contemplated by Sections 7.9 and 8.7 is not received, upon the date of
such termination; and
(D) As provided in Section 7(c) hereof.
The term "HOLDER" shall mean the holder or holders of the Option from
time to time, and which is initially ZGNA.
(b) As used herein, an "EXERCISE EVENT" shall be deemed to have
occurred if any of the following events shall occur:
(i) the Company shall have recommended to its shareholders any
merger, business combination, sale of all or substantially all of its
assets, or the issuance and sale of shares representing more than 20% of
its outstanding Common Stock, other than the Mergers (a "TAKEOVER
TRANSACTION"); or
(ii) any person (other than ZGNA or any Affiliate or associate
of ZGNA) shall have acquired beneficial ownership (as such term is defined
in Rule 13d-3 promulgated under the Exchange Act) of or the right to
acquire beneficial ownership of, or any "GROUP" (as such term is defined in
Section 13(d)(3) of the Exchange Act), other than a group of which ZGNA or
any Affiliate or associate of ZGNA is a member, shall have been formed
which beneficially owns,
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or has the right to acquire beneficial ownership of, 20% or more of the
voting power of the Company; or
(iii) any person (other than ZGNA or any Affiliate or associate
of ZGNA) shall have merged or consolidated with the Company (other than a
merger solely to change the Company's state of incorporation) or acquired
all or substantially all of the assets of the Company excluding a sale only
of the paclitaxel assets.
(c) The Company shall notify Holder promptly in writing of the
occurrence of any Exercise Event, it being understood that the giving of such
notice by the Company shall not be a condition to the right of Holder to
exercise the Option.
(d) In the event Holder wishes to exercise the Option, it shall send
to the Company a written notice (the date of which being herein referred to as
the "NOTICE DATE") specifying (i) the total number of Option Shares it intends
to purchase pursuant to such exercise and (ii) a place and date not earlier than
three (3) business days nor later than fifteen (15) business days from the
Notice Date for the closing (the "CLOSING") of such purchase (the "CLOSING
DATE"). If prior notification to or approval of any governmental regulatory
agency is required in connection with such purchase, the Company shall cooperate
with Holder in the filing of the required notice or application for approval and
the obtaining of such approval and the Closing shall occur immediately following
such regulatory approvals (and any mandatory waiting periods). Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) The purchase rights evidenced by this Option shall be exercised
by the Holder presenting this Agreement to the Company at its office in Boulder,
Colorado, accompanied by payment, of an amount (the "EXERCISE PAYMENT") equal to
the Purchase Price multiplied by the number of Option Shares being purchased
pursuant to such exercise, payable as follows: (i) by payment to the Company in
cash, by certified or official bank check, or by wire transfer of the Exercise
Payment, (ii) by surrender to the Company for cancellation of securities of the
Company having a Market Price (as hereinafter defined) on the date of exercise
equal to the Exercise Payment; or (c) by a combination of the methods described
in clauses (a) and (b) above. In lieu of exercising the Option, the Holder may
elect to receive a payment equal to the difference between (i) the Market Price
multiplied by the number of Option Shares as to which the payment is then being
elected and (ii) the exercise price with
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respect to such Option Shares, payable by the Company to the Holder only
in shares of Common Stock valued at the Market Price on the date of
exercise. For purposes hereof, the term "MARKET PRICE" shall mean the
average closing price of a share of Common Stock for the 15 consecutive
trading days preceding such day on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, the average of the reported bid and asked prices
during such 15 trading day period on the Nasdaq National Market or, if
the shares are not listed on the Nasdaq National Market, in the
over-the-counter market or, if the shares of Common Stock are not
publicly traded, the Market Price for such day shall be the fair market
value thereof determined jointly by the Company and the Holder;
PROVIDED, HOWEVER, that if such parties are unable to reach agreement
within a reasonable period of time, the Market Price shall be determined
in good faith by an independent investment banking firm selected jointly
by the Company and the Holder or, if that selection cannot be made
within 15 days, by an independent investment banking firm selected by
the American Arbitration Association in accordance with its rules. All
costs and expenses incurred in connection with the determination of
Market Price shall be borne by the Company.
(b) At each Closing, simultaneously with the delivery of the Exercise
Payment, and presentation of this Agreement as provided in Section 4(a), the
Company shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear of all liens, fully paid and nonassessable and subject to no
preemptive rights, and (B) an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the Option Shares
purchasable hereunder, if any, and the remaining rights of the Holder.
(c) In addition to any other legend that is required by applicable
law, certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities
law, and may not be sold, transferred or otherwise disposed of except
pursuant to an effective registration under the Act or in a transaction
which, in the opinion of counsel reasonably acceptable to the Company, is
exempt from such registration.
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It is understood and agreed that the portion of the above legend
relating to restrictions on transfer shall be removed by delivery of substitute
certificate(s) without such legend if Holder shall have delivered to the Company
a copy of a letter from the staff of the SEC, or an opinion of counsel in form
and substance reasonably satisfactory to the Company and its counsel, to the
effect that such legend is not required for purposes of the Securities Act.
(d) Upon the giving by Holder to the Company of the written notice of
exercise of the Option provided for under Section 3(d), the tender of the
applicable Exercise Payment and the tender of this Agreement to the Company,
Holder shall be deemed to be the holder of record of the shares of the Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of the Common Stock shall not then be actually delivered to Holder. The
Company shall pay all expenses, and any and all United States federal, state,
and local stamp and similar taxes and other similar charges that may be payable
in connection with the preparation, issuance and delivery of stock certificates
under this Section in the name of Holder or its assignee, transferee, or
designee.
(e) The Company agrees (i) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of the Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase the Common Stock,
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
the Company, and (iii) promptly to take all action as may from time to time be
required to accomplish the issuance of the Common Stock (including (A)
complying with all premerger notification, reporting and waiting period
requirements and (B) in the event prior approval of or notice to any
governmental regulatory agency is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Authority as it may require).
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to ZGNA (and Holder, if different from ZGNA) as
follows:
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(a) CORPORATE AUTHORITY. The Company has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated; this Agreement has
been duly and validly executed and delivered by the Company.
(b) SHARES RESERVED FOR ISSUANCE; CAPITAL STOCK. The Company has
taken all necessary corporate action to authorize and reserve and permit it to
issue, and at all times from the date hereof through the termination of this
Agreement in accordance with its terms, will have reserved for issuance upon the
exercise of the Option, that number of shares of the Common Stock equal to the
maximum number of shares of the Common Stock at any time and from time to time
purchasable upon exercise of the Option, and all such shares, upon issuance
pursuant to the Option, will be duly authorized, validly issued, fully paid and
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances, and security interests (other than those created by this
Agreement) and not subject to any preemptive rights.
(c) NO VIOLATIONS. The execution, delivery and performance of this
Agreement does not or will not, and the consummation by the Company of any of
the transactions contemplated hereby will not, constitute or result in (A) a
breach or violation of, or a default under, its articles of incorporation or
by-laws, or the comparable governing instruments of any of its subsidiaries, or
(B) a breach or violation of, or a default under, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of it or
any of its subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which it
or any of its subsidiaries is subject, that would, in any case give any other
person the ability to prevent or enjoin the Company' performance under this
Agreement in any material respect.
6. REPRESENTATIONS AND WARRANTIES OF ZGNA. ZGNA hereby represents
and warrants to the Company as follows:
(a) CORPORATE AUTHORITY. ZGNA has full corporate power and authority
to enter into this Agreement and, subject to obtaining the approvals referred to
in this Agreement, to consummate the transactions contemplated by this
Agreement; the
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execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of ZGNA; and this Agreement has
been duly executed and delivered by ZGNA.
(b) INVESTMENT REPRESENTATIONS.
(i) ZGNA is acquiring the Option and the Option Shares (collectively,
the "SECURITIES") for its own account for investment only, and not with a view
to, or for sale in connection with, any distribution of the Securities in
violation of the Securities Act, or any rule or regulation under the Securities
Act.
(ii) ZGNA has had such opportunity as it deems adequate to obtain from
representatives of the Company such information as is necessary to permit ZGNA
to evaluate the merits and risks of its investment in the Company.
(iii) ZGNA has sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved in the purchase of
the Securities and to make an informed investment decision with respect to such
purchase.
(iv) ZGNA acknowledges that (1) the Securities have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act and (2) the Securities cannot be
sold, transferred or otherwise disposed of unless they are subsequently
registered under the Securities Act or an exemption from registration is then
available.
(v) ZGNA is an "accredited investor" as defined in Regulation D of
the Securities Act.
(vi) ZGNA is a resident of California and the offer and sale of the
Option occurred in Colorado and California.
7. ADJUSTMENT UPON CHANGES IN THE COMPANY CAPITALIZATION, ETC.
(a) In the event of any change in the Common Stock by reason of a
stock dividend, stock split, split-up, recapitalization, combination, exchange
of shares of Common Stock for other securities of the Company, or similar
transaction, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction so that
Holder shall receive, upon exercise of
7
<PAGE>
the Option, the number and class of shares or other securities or
property that Holder would have received in respect of the Common Stock
if the Option had been exercised immediately prior to such event, or the
record date therefor, as applicable. No provision of this Section 7
shall be deemed to affect or change, or constitute authorization for any
violation of, any of the covenants or representations in the Merger
Agreement.
(b) In the event that the Company shall enter into an agreement (i)
to consolidate with or merge into any person, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any person
to merge into the Company and the Company shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding shares of
the Common Stock shall be changed into or exchanged for stock or other
securities of the Company or any other person or cash or any other property or
the outstanding shares of the Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, then, and in each such
case, the agreement governing such transaction shall make proper provisions so
that the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged for,
an option to acquire the number and class of shares or other securities or
property that Holder would have received in respect of the Common Stock if the
Option had been exercised immediately prior to such consolidation, merger, sale
or transfer, or the record date therefor, as applicable.
(c) Notwithstanding Section 7(b), in the event the Company's Board of
Directors approves a transaction involving a merger or consolidation of the
Company with, or sale of all or substantially all of its assets as a part of a
plan of liquidation to, any other corporation or entity which is not an
affiliate of the Company, the Board of Directors may require, upon written
notice to the Holder, that the Holder must exercise the Option simultaneously
with the consummation of such merger or consolidation or the option shall
terminate on the business day preceding the closing of such transaction, but if
such transaction does not close such exercise or termination shall be null and
void and the Option shall remain in effect.
8. QUOTATION; LISTING. If the Common Stock or any other securities
to be acquired in connection with the exercise of the Option are then authorized
for quotation or trading or listing on any securities exchange, the Company,
upon the request of Holder, will promptly file an application, if required, to
8
<PAGE>
authorize for quotation or trading or listing the shares of the Common Stock or
other securities to be acquired upon exercise of the Option on such securities
exchange and will use its best efforts to obtain approval, if required, of such
quotation or listing as soon as practicable.
9. DIVISION OF OPTION. This Agreement (and the Option granted
hereby) are exchangeable, without expense, at the option of Holder, upon
presentation and surrender of this Agreement at the principal office of the
Company for other Agreements providing for Options of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of the Common Stock purchasable hereunder. The terms "AGREEMENT" and
"OPTION" as used herein include any other Agreements and related Options for
which this Agreement (and the Option granted hereby) may be exchanged. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, the Company will
execute and deliver a new Agreement of like tenor and date. Subject to
fulfillment of such indemnification obligation, any such new Agreement executed
and delivered shall constitute an additional contractual obligation on the part
of the Company, whether or not the Agreement so lost, stolen, destroyed or
mutilated shall at any time be enforceable by anyone.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado applicable to
contracts made and to be performed entirely within such State.
(b) PARAGRAPH AND SECTION HEADINGS. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(c) NOTICES.
(i) All communications under this Agreement shall be in writing and
shall be delivered by hand, by facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid:
(1) if to ZGNA, at 2550 El Presidio Street, Long Beach, California
90810-1193 (facsimile: (310) 637-3644),
9
<PAGE>
marked for attention of President, or at such other address as ZGNA
may have furnished the Company in writing (with a copy to Willkie Farr
& Gallagher, 787 Seventh Avenue, New York, NY 10019-6099, Attention:
Harvey L. Sperry, Esq. (facsimile: 212-728-8111), or at such other
address it may have furnished the Company in writing), or
(2) if to the Company, at 5555 Airport Boulevard, Boulder, Colorado
80301 (facsimile: (303) 441-5802), marked for the attention of Dean
Stull, or at such other address as the Company may have furnished
Investor in writing (with a copy to Chrisman, Bynum & Johnson, P.C.,
1900 Fifteenth Street, Boulder, Colorado 80302, Attention: Laurie
Glasscock, Esq. (facsimile: 303-449-5426) or at such other address as
it may have furnished in writing to the Investor and the Escrow
Agent), or
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand or by facsimile, on the date of such delivery; if delivered by
courier, on the first Business Day following the date of the delivery to the
courier; and if mailed by registered or certified mail, on the third Business
Day after the date of such mailing.
(d) EXPENSES AND TAXES. Each party shall pay its own fees and
expenses incurred in connection with the transactions contemplated hereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties. ZGNA may only assign its rights hereunder to an Affiliate of ZGNA.
(f) ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement
constitutes the entire understandings of the parties hereto and supersede all
prior agreements or understandings with respect to the subject matter hereof
among such parties. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Company and ZGNA. No course of dealing between the Company and ZGNA nor
any delay in exercising any rights hereunder shall operate as a waiver of any
rights of either party hereto.
(g) SEVERABILITY. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such
10
<PAGE>
determination shall not effect the remaining provisions of this
Agreement which shall remain in full force and effect.
(h) SPECIFIC PERFORMANCE. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
11
<PAGE>
(i) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
HAUSER, INC.
By: /s/ Dean P. Stull
-------------------------
Name: Dean P. Stull
Title: CEO
ZUELLIG GROUP N.A., INC.
By: /s/ Volker Wypyszyk
-------------------------
Name: Volker Wypyszyk
Title: President
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 2ND QUARTER 10-Q FOR FISCAL 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 2,502,432
<SECURITIES> 0
<RECEIVABLES> 7,957,952
<ALLOWANCES> (252,263)
<INVENTORY> 10,440,734<F1>
<CURRENT-ASSETS> 23,722,959
<PP&E> 45,710,451
<DEPRECIATION> (24,057,454)
<TOTAL-ASSETS> 72,384,446
<CURRENT-LIABILITIES> 12,178,640
<BONDS> 0
0
0
<COMMON> 10,468
<OTHER-SE> 59,566,076
<TOTAL-LIABILITY-AND-EQUITY> 72,384,446
<SALES> 8,337,968
<TOTAL-REVENUES> 16,650,447
<CGS> 6,001,826
<TOTAL-COSTS> 11,939,746
<OTHER-EXPENSES> 5,615,981
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (179,478)
<INCOME-PRETAX> (992,913)
<INCOME-TAX> 0
<INCOME-CONTINUING> (992,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (992,913)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
<FN>
<F1>EXCLUDES 18,398,250 OF LONG-TERM INVENTORY
</FN>
</TABLE>
