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THE HAIN FOOD GROUP, INC. ARROWHEAD MILLS, INC.
GARDEN OF EATIN', INC.
PROSPECTUS CONSENT AND
INFORMATION STATEMENT
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1,728,260 Shares of Common Stock,
Par Value $.01 Per Share
------------------------
This Prospectus, Consent and Information Statement (the
"Prospectus/Information Statement") relates to the proposed merger of each of
Arrowhead Mills, Inc., a Texas corporation ("AMI"), and Garden of Eatin', Inc.,
a California corporation ("GOE" and together with AMI, the "Companies"), with
and into Hain Acquisition Corp., a Delaware Corporation ("Hain Subsidiary") and
a wholly owned subsidiary of The Hain Food Group, Inc., a Delaware corporation
("Hain"), formed solely for the purpose of consummating the transactions
contemplated by the Agreement and Plan of Merger, dated as of April 24, 1998, by
and between Hain and AMI (the "AMI Merger Agreement") and the Agreement and Plan
of Merger, dated as of April 24, 1998, by and between Hain and GOE, as amended,
(the "GOE Merger Agreement" and, together with the AMI Merger Agreement, the
"Merger Agreements"). In the mergers contemplated by the Merger Agreements
(collectively, the "Merger"), each outstanding share of common stock of AMI, par
value $.01 per share ("AMI Common Stock"), and each outstanding share of common
stock of GOE, no par value ("the GOE Common Stock"), will be converted into the
right to receive a combination of cash and shares of common stock of Hain, par
value $.01 per share ("Hain Common Stock"), as allocated by Hain, subject to
certain limitations, on the third day prior to the day of the closing of the
Merger (the "Closing Date"). In addition, cash will be paid in lieu of any
fractional share of Hain Common Stock.
To effect the Merger, Hain proposes to issue up to 1,728,260 shares of Hain
Common Stock (assuming a price of $23.00 per share). Approximately 1,336,956
shares of Hain Common Stock will be issued in connection with the Merger upon
conversion of the outstanding shares of AMI Common Stock, including 40,897
shares to be issued upon the cancellation of options to purchase AMI Common
Stock, and approximately 391,304 shares of Hain Common Stock will be issued in
connection with the Merger upon conversion of the outstanding shares of GOE
Common Stock.
This Prospectus/Information Statement also constitutes the Prospectus of
Hain and for the Selling Stockholders (as defined herein) with respect to the
shares of Hain Common Stock to be issued in connection with the Merger. Hain
Common Stock is traded on the Nasdaq National Market ("Nasdaq") under the symbol
"HAIN." On June 18, 1998, the closing sale price for Hain Common Stock as
reported on Nasdaq was $23 1/4 per share.
Under the Texas Business Corporation Act ("TBCA") and AMI's Articles of
Incorporation, approval of the Merger by AMI shareholders requires the consent
of the holders of at least two-thirds of the AMI Common Stock. Pursuant to a
Voting Agreement and Irrevocable Proxy dated April 24, 1998, holders of 67.64%
of the AMI Common Stock have agreed to consent to the Merger. Non-consenting AMI
shareholders have dissenters' rights under the TBCA.
Under the California General Corporation Law ("CGCL") and GOE's Certificate
of Incorporation, approval of the GOE Merger by GOE shareholders requires the
consent of at least a majority of the GOE Common Stock. Pursuant to a Voting
Agreement and Irrevocable Proxy dated April 24, 1998, holders of all of the
outstanding GOE Common Stock have agreed to consent to the Merger.
This Prospectus/Information Statement is being delivered to the AMI
shareholders and GOE shareholders for consent and information purposes on or
about June 22, 1998.
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY AMI SHAREHOLDERS AND GOE SHAREHOLDERS.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS/INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS/INFORMATION STATEMENT IS JUNE 22, 1998.
------------------------
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TABLE OF CONTENTS
FOR PROSPECTUS/INFORMATION STATEMENT
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AVAILABLE INFORMATION...................................................................................... vi
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ vi
NOTE REGARDING FORWARD-LOOKING STATEMENTS.................................................................. vii
SUMMARY OF PROSPECTUS/INFORMATION STATEMENT................................................................ 1
The Hain Food Group, Inc............................................................................... 1
Arrowhead Mills, Inc................................................................................... 2
Garden of Eatin', Inc.................................................................................. 2
Hain Acquisition Corp.................................................................................. 3
The Merger............................................................................................. 3
Calculation of the Per Share Merger Consideration...................................................... 3
Effective Time of the Merger........................................................................... 5
Conditions to the Merger............................................................................... 5
Termination; Breakup Fees.............................................................................. 5
Shareholders Written Consent........................................................................... 5
Dissenters' Rights..................................................................................... 6
Reasons for the Merger................................................................................. 6
Hain's Reasons for the Merger........................................................................ 6
AMI's and GOE's Reasons for the Merger............................................................... 6
Fairness Opinion of AMI's Financial Advisor............................................................ 7
Interests of Certain Persons in the Merger............................................................. 7
Surrender of Certificates.............................................................................. 7
Accounting Treatment................................................................................... 7
Material Federal Income Tax Consequences............................................................... 8
Regulatory Matters..................................................................................... 8
Reoffering by the Selling Stockholders................................................................. 8
Summary Unaudited Pro Forma Combined Financial Data.................................................... 9
Equivalent Per Common Share Data....................................................................... 10
Market And Market Prices For Hain Common Stock......................................................... 11
RISK FACTORS............................................................................................... 12
Integration of Acquisitions.......................................................................... 12
Uncertainties Related to Combined Operations After the Merger........................................ 12
Uncertainty of Allocation of Merger Consideration; Transaction Costs................................. 12
Prior Approval of the AMI Merger and the GOE Merger.................................................. 13
Acquisition Strategy................................................................................. 13
Evolving Customer Preferences........................................................................ 13
Competition.......................................................................................... 14
Limited Management; Dependence on Key Personnel...................................................... 14
Reliance on Independent Distributors and Brokers..................................................... 14
Reliance on Independent Manufacturers and Co-Packers................................................. 14
Trademark Ownership.................................................................................. 15
Government Regulation................................................................................ 15
Product Liability.................................................................................... 15
Reliance on Certification............................................................................ 15
Control by Current Stockholders, Officers and Directors.............................................. 16
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Authorization and Discretionary Issuance of Preferred Stock.......................................... 16
No Dividends......................................................................................... 16
Fluctuations in Operating Results; Fluctuations in Quarterly Results................................. 16
Forward-Looking Statements........................................................................... 16
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION.................................................... 17
Selected Historical and Pro Forma Financial Information for Hain....................................... 17
Selected Historical Financial Information for Arrowhead................................................ 18
Selected Historical Financial Information for Terra.................................................... 19
Selected Historical Financial Information for GOE...................................................... 20
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.......................................................... 21
Pro Forma Condensed Combined Balance Sheet............................................................. 22
Pro Forma Condensed Statement of Income for the Year Ended June 30, 1997 .............................. 23
Pro Forma Condensed Statement of Income for the Nine Months Ended March 31, 1998....................... 24
Pro Forma Condensed Combined Financial Information..................................................... 25
Combining Condensed Balance Sheet of Acquired Companies................................................ 27
Historical Combining Statements of Income of the Acquired Companies.................................... 28
AMI SHAREHOLDERS WRITTEN CONSENT........................................................................... 29
GOE SHAREHOLDERS WRITTEN CONSENT........................................................................... 29
THE MERGER................................................................................................. 30
Description............................................................................................ 30
Background of the Merger............................................................................... 30
Reasons for the Merger................................................................................. 32
General.............................................................................................. 32
Hain's Reasons for the Merger........................................................................ 32
AMI's Reasons for the Merger......................................................................... 33
GOE's Reasons for the Merger......................................................................... 34
Fairness Opinion of AMI's Financial Advisor............................................................ 34
Material U.S. Federal Income Tax Consequences.......................................................... 37
Accounting Treatment................................................................................... 39
Interests of Certain Persons In The Merger............................................................. 39
Dissenters' Rights..................................................................................... 39
THE MERGER AGREEMENTS...................................................................................... 40
Effective Time of the Merger........................................................................... 40
Conversion of Shares................................................................................... 40
Calculation of the Per Share Merger Consideration...................................................... 41
Exchange of Stock Certificates......................................................................... 42
AMI's and GOE's Conduct of Business Pending the Merger................................................. 43
Nonsolicitation of Alternative Transactions............................................................ 44
Corporate Structure and Related Matters After the Merger............................................... 44
Certain Covenants...................................................................................... 45
Conditions to the Merger............................................................................... 45
Indemnity.............................................................................................. 46
Termination; Breakup Fees.............................................................................. 46
Treatment of Outstanding AMI Options................................................................... 47
Fees and Expenses...................................................................................... 47
Confidentiality........................................................................................ 48
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Amendment to Senior Credit Facility.................................................................... 48
INFORMATION CONCERNING HAIN................................................................................ 49
Business............................................................................................... 49
Recent Acquisitions.................................................................................... 49
Recent Developments.................................................................................... 50
Industry and Market Overview........................................................................... 50
Natural and Organic Foods............................................................................ 50
Medically-Directed/Weight Management Foods........................................................... 50
Kosher Foods......................................................................................... 50
Supermarket Distribution Channel..................................................................... 50
Business Strategy...................................................................................... 51
Continue Growth Through Mergers and Acquisitions..................................................... 51
Invest in Brands and Consumer Awareness.............................................................. 51
Outsource Manufacturing.............................................................................. 51
Leverage Economies of Scale in Production and Logistics.............................................. 51
Develop Export Opportunities......................................................................... 51
Products............................................................................................... 52
Customers.............................................................................................. 52
Sales and Marketing Structure.......................................................................... 53
Marketing and Category Management...................................................................... 53
Manufacturing.......................................................................................... 53
Technical Services..................................................................................... 53
Quality Assurance and Control........................................................................ 53
Research and Development............................................................................. 54
Competition............................................................................................ 54
Government Regulations................................................................................. 54
Employees.............................................................................................. 54
Properties............................................................................................. 54
Legal Proceedings...................................................................................... 55
HAIN MANAGEMENT............................................................................................ 56
Directors and Executive Officers....................................................................... 56
DESCRIPTION OF HAIN CAPITAL STOCK.......................................................................... 59
General................................................................................................ 59
Hain Common Stock...................................................................................... 59
Hain Preferred Stock................................................................................... 59
Warrants............................................................................................... 59
INFORMATION CONCERNING AMI................................................................................. 60
INFORMATION CONCERNING ARROWHEAD........................................................................... 60
General................................................................................................ 60
Products............................................................................................... 60
Customers.............................................................................................. 60
Distribution........................................................................................... 60
Marketing.............................................................................................. 60
Competition............................................................................................ 61
Suppliers.............................................................................................. 61
Manufacturing.......................................................................................... 61
Employees.............................................................................................. 61
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Litigation............................................................................................. 61
Arrowhead's Change in Auditors......................................................................... 62
ARROWHEAD MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.......... 62
Seven Month Period Ended February 28, 1998 Compared to the Seven Month Period Ended February 28,
1997.................................................................................................. 62
Fiscal Year 1997 Compared to Fiscal Year 1996.......................................................... 63
Fiscal Year 1996 Compared to Fiscal Year 1995.......................................................... 63
Liquidity and Capital Resources........................................................................ 64
INFORMATION CONCERNING TERRA............................................................................... 66
General................................................................................................ 66
Products............................................................................................... 66
Customers.............................................................................................. 66
Distribution........................................................................................... 66
Marketing.............................................................................................. 67
Competition............................................................................................ 67
Suppliers.............................................................................................. 67
Manufacturing.......................................................................................... 68
Employees.............................................................................................. 68
Legal Proceedings...................................................................................... 68
Terra's Change in Auditors............................................................................. 68
TERRA MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION................ 69
Seven Month Period Ended February 28, 1998 Compared to the Seven Month Period Ended February 1997...... 69
Seven Months Ended July 31, 1997 Compared to Seven Months Ended July 31, 1996.......................... 69
Fiscal Year 1996 Compared to Fiscal Year 1995.......................................................... 70
Liquidity and Capital Resources........................................................................ 71
AMI VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS........................................................... 72
INFORMATION CONCERNING GOE................................................................................. 73
General................................................................................................ 73
Products............................................................................................... 73
Customers.............................................................................................. 73
Distribution........................................................................................... 74
Marketing.............................................................................................. 74
Competition............................................................................................ 74
Suppliers.............................................................................................. 74
Employees.............................................................................................. 74
Legal Proceedings...................................................................................... 74
GOE MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.................. 75
Period from December 24, 1997 Ended February 28, 1998 Compared to Two Months Ended February 28, 1997... 75
Period Ended December 23, 1997 Compared to Fiscal Year 1996............................................ 75
Fiscal Year 1996 Compared to Fiscal Year 1995.......................................................... 76
Liquidity and Capital Resources........................................................................ 77
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GOE VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS........................................................... 78
SELLING STOCKHOLDERS....................................................................................... 79
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 80
Voting Rights.......................................................................................... 80
Amendments to Charter and Bylaws....................................................................... 80
Board of Directors..................................................................................... 81
Removal of Directors................................................................................... 81
Newly Created Directorships and Vacancies.............................................................. 82
Special Meetings of Stockholders....................................................................... 82
Action By Written Consent.............................................................................. 83
Vote Required For Merger............................................................................... 83
Vote Required for Sale of Assets....................................................................... 84
Business Combinations.................................................................................. 84
Preemptive Rights; Cumulative Voting................................................................... 85
Supermajority Voting Provisions........................................................................ 85
Dissenters' Rights..................................................................................... 86
Limitations on Directors Liability..................................................................... 86
Indemnification........................................................................................ 87
Dividends.............................................................................................. 88
LEGAL MATTERS.............................................................................................. 89
EXPERTS.................................................................................................... 89
STOCKHOLDER PROPOSALS...................................................................................... 89
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
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LIST OF ANNEXES
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Annex A Agreement and Plan of Merger by and between The Hain Food Group, Inc.
and Arrowhead Mills, Inc. dated April 24, 1998
Annex B Agreement and Plan of Merger by and between The Hain Food Group, Inc.
and Garden of Eatin', Inc. dated April 24, 1998
Annex C Fairness Opinion of Wasserstein Perella & Co., Inc. dated April 21,
1998
Annex D Articles 5.11 through 5.13 of the Texas Business Corporation Act
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v
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AVAILABLE INFORMATION
Hain is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and is required to file periodic
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission") relating to its business, financial statements and
other matters. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511 and at
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained from the Commission at prescribed rates from the
public reference section of the Commission, Washington, D.C. 20549. Such reports
and other information can be reviewed through the Commission's Electronic Data
Gathering Analysis and Retrieval System, which is publicly available through the
Commission's web site (http://www.sec.gov).
Hain has filed a Registration Statement on Form S-4/S-3 with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Hain Common Stock offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus/Information Statement omits
certain information contained in the Registration Statement. For further
information, reference is made to the Registration Statement, including the
financial schedules and exhibits incorporated therein by reference or filed as a
part thereof. Statements made in this Prospectus/Information Statement as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement shall be deemed qualified in its
entirety by such reference.
AMI is a privately held company and is not subject to the information
requirements or the proxy rules contained in or adopted pursuant to the Exchange
Act.
GOE is a privately held company and is not subject to the information
requirements or the proxy rules contained in or adopted pursuant to the Exchange
Act.
All information contained in this Prospectus/Information Statement relating
to AMI has been furnished by AMI and all information contained in this
Prospectus/Information Statement relating to GOE has been furnished by GOE, and
Hain is relying upon the accuracy of that information. All information contained
in this Prospectus/Information Statement relating to Hain has been furnished by
Hain, and AMI and GOE are relying upon the accuracy of that information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by Hain with the Commission and are
hereby incorporated by reference in this Prospectus/Information Statement and
made a part hereof:
(1) The description of Hain's Common Stock contained in Hain's
Registration Statement on Form 8-A/A dated November 12, 1993 and any
amendment or report filed for the purpose of updating such description;
(2) Hain's annual report on Form 10-K filed with Commission for the
fiscal year ended June 30, 1997;
(3) Hain's quarterly reports on Form 10-Q filed with the Commission for
the three-month periods ended September 30, 1997, December 31, 1997 and
March 31, 1998;
(4) Hain's current reports on Form 8-K dated September 8, 1997,
September 12, 1997, October 29, 1997 and April 24, 1998;
vi
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(5) Westbrae Natural, Inc.'s annual report on Form 10-K filed with
Commission (under Westbrae's prior name of Vestro Natural Foods, Inc.) for
the fiscal year ended December 31, 1996 (the "Vestro 10-K"); and
(6) Westbrae Natural Inc.'s quarterly reports on Form 10-Q filed with
the Commission for the three-month periods ended March 31, 1997 and June 30,
1997.
All documents subsequently filed by Hain with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this Prospectus/Information Statement and to
be a part hereof from the date of filing such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus/Information Statement to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus/Information Statement.
No person has been authorized in connection with the offering made hereby to
give any information or make any representation not contained in this
Prospectus/Information Statement and, if given or made, such information or
representation must not be relied upon as having been authorized by Hain or any
other person. This Prospectus/Information Statement does not constitute an offer
to sell or solicitation of any offer to buy any of the securities offered hereby
in any jurisdiction in which it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus/Information Statement nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
HAIN WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS
PROSPECTUS/INFORMATION STATEMENT IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST
OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS FOR SUCH
COPIES SHOULD BE DIRECTED TO THE PRESIDENT, THE HAIN FOOD GROUP, INC., 50
CHARLES LINDBERGH BOULEVARD, UNIONDALE, NEW YORK 11553, (516) 237-6200.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus/Information Statement contains certain forward-looking
statements within the meaning of the United States Private Securities Litigation
Reform Act of 1995 regarding future financial condition and results of
operations and Hain's business operations. The words "expect," "estimate,"
"anticipate," "predict," "intend," and similar expressions are intended to
identify forward-looking statements. Such statements involve risks,
uncertainties and assumptions, including but not limited to industry and
economic conditions and customer actions and other factors discussed in this
Prospectus/Information Statement (including but not limited to statements under
the caption "Risk Factors") and in Hain's filings with the Commission. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated.
vii
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SUMMARY OF PROSPECTUS/INFORMATION STATEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS/INFORMATION STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THIS PROSPECTUS/INFORMATION STATEMENT AND THE
ANNEXES HERETO. SHAREHOLDERS OF AMI AND GOE ARE URGED TO READ THIS
PROSPECTUS/INFORMATION STATEMENT AND THE ACCOMPANYING ANNEXES IN THEIR ENTIRETY.
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY THE
SHAREHOLDERS OF AMI AND GOE.
THE HAIN FOOD GROUP, INC.
Hain markets and sells dry, refrigerated and frozen specialty food products
under brand names which are sold as "better-for-you" products. The product
categories encompass natural and organic foods, medically-directed foods, weight
management and portion-control foods, and kosher foods. These products are sold
primarily to specialty and natural food distributors and are marketed nationally
to supermarkets, natural food stores, and other retail classes of trade. Hain's
products are produced by independent food processors ("co-packers") using
proprietary specifications and formulations controlled by Hain.
Hain was organized in May 1993 to acquire certain specialty food brands.
Since its formation, Hain has completed several acquisitions of companies or
brands. In March 1997, Hain entered into a licensing agreement with Weight
Watchers Gourmet Food Company ("Weight Watchers"), a subsidiary of H.J. Heinz
Company ("Heinz"), pursuant to which Hain manufactures, markets and sells Weight
Watchers dry and refrigerated products. In May 1997, Hain acquired The Boston
Popcorn Company ("Boston Better Snacks"), a marketer of high quality popcorn and
chip snack products. In July 1997, Hain acquired the Alba brand of dry milk,
shake and cocoa products from Heinz. In October 1997, Hain acquired Westbrae
Natural Inc. ("Westbrae"), a marketer of over 300 high quality natural and
organic food and snack products. In addition, on May 27, 1998, Hain entered into
a distribution and licensing agreement with Heinz U.S.A., a division of Heinz,
to market and sell the "Earth's Best" line of organic baby food products to the
natural food channel in the United States. See "Information Concerning
Hain--Recent Developments."
As a leading natural and organic food company, Hain sells a full line of
products under its "Hain Pure Foods", "Westbrae Natural", "Westsoy", "Little
Bear", "Bearitos" and "Farm Foods" brands. Hain's specialty food products
include cooking oil and condiment products under its "Hollywood" brand; sugar-
free, medically-directed food products under its "Estee" brand (all of which
carry the logo of the American Diabetes Association); low-sodium food products
under its "Featherweight" brand; weight management and portion-control foods
under the "Weight Watchers" brand; frozen kosher food products under its
"Kineret" and "Kosherific" brands; regular and reduced fat snack products under
its "Boston Better Snacks" brand; natural snack products under the "Harry's
Premium Snacks" brand; and dry milk products under the "Alba" brand. Hain's
brand names are well-recognized in the various market categories they serve.
Hain has acquired these brands over the past four years and will seek future
growth through internal expansion, as well as the acquisition of complementary
brands.
Hain's mission is to be the leading marketer and seller of specialty food
products, with a strong commitment to total quality management in all
departments. Hain intends to increase sales and improve operating results by
investing in product development and building brand equity. Key elements of
Hain's business strategy are to (i) continue growth through mergers and
acquisitions, (ii) invest in brands and consumer awareness, (iii) outsource
manufacturing, (iv) leverage economies of scale in production and logistics and
(v) develop export opportunities.
Hain's corporate headquarters are located at 50 Charles Lindbergh Boulevard,
Uniondale, New York 11553. Its telephone number is (516) 237-6200. See
"Information Concerning Hain."
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ARROWHEAD MILLS, INC.
ARROWHEAD MILLS, INC. ("AMI") IS A HOLDING COMPANY WHOSE TWO DIRECT
SUBSIDIARIES ARE AMI OPERATING, INC. ("ARROWHEAD") AND DANA ALEXANDER INC.
("TERRA"). UNLESS OTHERWISE NOTED, REFERENCES TO ARROWHEAD MEAN AMI OPERATING,
INC., INCLUDING ITS SUBSIDIARY DEBOLES NUTRITIONAL FOODS, INC. FINANCIAL AND
CERTAIN OTHER INFORMATION RELATING TO AMI INCLUDED IN THIS
PROSPECTUS/INFORMATION STATEMENT IS PRESENTED FOR ARROWHEAD AND ITS SUBSIDIARIES
AND TERRA ON A STAND-ALONE BASIS, INCLUDING UNDER "ARROWHEAD MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION" AND
"TERRA MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND
FINANCIAL CONDITION." AMI MANAGEMENT BELIEVES THAT SUCH INFORMATION REFLECTS THE
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF AMI ON A CONSOLIDATED
BASIS.
Arrowhead, founded in 1960, is a leading supplier of natural and organic
whole grain products to the natural foods industry. Arrowhead was a pioneer in
the natural foods industry and has produced consistently high-quality
organically grown foods for over 35 years. In 1995, Arrowhead acquired DeBoles
Nutritional Foods, Inc. ("DeBoles"), a leading pasta producer in the natural
foods industry for 65 years. Arrowhead utilizes a good-tasting and
"good-for-you" marketing approach to attract health conscious consumers and
those with special dietary concerns.
Arrowhead produces over 360 stock-keeping units ("SKUs") in nine major
categories, including ready-to-eat cold cereals, hot cereals, pasta, flour,
baking mixes, packaged grains, nut butters, nutritional oils and soups/chilies.
Arrowhead's product line includes one of the widest arrays of organic products
in the natural foods industry. The products are considered "natural" because
they do not contain any artificial additives or preservatives. Consistent with
Arrowhead's policy of strict adherence to federal guidelines, Arrowhead's
organic label products are independently certified as such by an officially
recognized third party certification organization.
In November 1997, AMI acquired Terra for approximately $20.0 million in cash
and stock. Terra is a leading manufacturer of specialty snacks in the premium
snack category. Terra markets its premium lines of all natural gourmet vegetable
chips under the Terra Chips-Registered Trademark- (meaning "chips of the earth")
and Yukon Gold-Registered Trademark- brand names. Terra, headquartered in
Brooklyn, New York, was founded in 1989 by chefs Dana Sinkler and Alexander
Dzieduszycki. The chips are produced utilizing a variety of root vegetables
which provide a wide array of colors, flavors and textures. Terra's products
appeal to health conscious consumers because they are significantly lower in fat
and cholesterol than traditional potato chips. Terra has expanded from selling
its products exclusively in New York to selling three separate products lines
and 12 flavors throughout the United States. Terra has earned the prestigious
NASFT (National Association for the Specialty Food Trade) awards for
"Outstanding Snack Food" and "Outstanding Food Service Product."
AMI's corporate headquarters are located at 110 South Lawton, Hereford,
Texas 79045. Its telephone number is (806) 364-0730. See "Information Concerning
AMI."
GARDEN OF EATIN', INC.
GOE, founded in 1971, is a marketer of organic tortilla chips and a variety
of specialty breads. GOE's primary products include blue or red corn tortilla
chips in salted and unsalted varieties, and in a number of package sizes. GOE's
product offerings are distributed nationally through the natural foods channel.
GOE's products are also available in specialty and mainstream grocery retailers.
At December 31, 1997, approximately 90% of GOE's total product sales were
tortilla chip products. The remainder was split between bread products (7%),
salsa (2%) and dessert items (1%). Certain of the bread products and all of the
salsa and dessert items were discontinued in 1998.
GOE's corporate headquarters are located at 5300 Santa Monica Boulevard, Los
Angeles, California 90029. Its telephone number is (213) 462-5406. See
"Information Concerning GOE."
2
<PAGE>
HAIN ACQUISITION CORP.
Hain Acquisition Corp., a Delaware corporation ("Hain Subsidiary") was
recently organized by Hain for the purpose of effecting the acquisition of AMI
and GOE. It has no material assets and has not engaged in any activities except
in connection with the Merger. Its corporate headquarters are located at 50
Charles Lindbergh Boulevard, Uniondale, New York 11553. Its telephone number is
(516) 237-6200.
THE MERGER
As a result of the Merger, AMI will be merged (the "AMI Merger") and GOE
will be merged (the "GOE Merger") with and into Hain Subsidiary, and Hain
Subsidiary shall continue its corporate existence under the laws of the State of
Delaware. The AMI Merger and the GOE Merger will be effected pursuant to the
terms of the AMI Merger Agreement and the GOE Merger Agreement, respectively,
and each of the AMI Merger and the GOE Merger is subject to the consummation of
the other transaction.
At the Effective Time (as defined herein) of the Merger; (i) each
outstanding share of AMI Common Stock shall be converted into and become the
right to receive the AMI Pro Rata Amount (as defined herein) of the AMI Merger
Consideration (as defined herein), consisting of a combination of shares of Hain
Common Stock (the "AMI Stock Merger Consideration") and cash (the "AMI Cash
Merger Consideration"); and (ii) each outstanding share of GOE Common Stock
shall be converted into and become the right to receive the GOE Pro Rata Amount
(as defined herein) of the GOE Merger Consideration (as defined herein),
consisting of a combination of shares of Hain Common Stock (the "GOE Stock
Merger Consideration" and, together with the AMI Stock Merger Consideration, the
"Stock Merger Consideration") and cash (the "GOE Cash Merger Consideration" and,
together with the AMI Cash Merger Consideration, the "Cash Merger
Consideration"). The allocation of Merger Consideration (as defined herein)
between Stock Merger Consideration and Cash Merger Consideration shall be
determined at the sole option of Hain, by written notice to the Companies on the
third day prior to the Closing Date (as defined herein), subject to certain
restrictions set forth in the Merger Agreements. See "The Merger
Agreements--Conversion of Shares." If the Merger Consideration for the AMI
Merger or the GOE Merger consists solely of Cash Merger Consideration, it is
contemplated that the AMI Merger Agreement or the GOE Merger Agreement, as the
case may be, will be amended to provide for AMI or GOE to survive the Merger
such that no corporate-level gain or loss will be recognized as a result of the
Merger.
CALCULATION OF THE PER SHARE MERGER CONSIDERATION
AMI MERGER. As a result of the AMI Merger, each AMI shareholder will be
entitled to receive a portion of the AMI Merger Consideration in proportion to
that shareholder's percentage of ownership of the outstanding AMI Common Stock.
The portion of the AMI Merger Consideration to which each AMI shareholder will
be entitled is referred to herein as that shareholder's "AMI Pro Rata Amount."
The AMI Merger Consideration is the total payment that Hain must make to the AMI
shareholders in order to consummate the AMI Merger. Hain has the option to make
this payment all in cash or in a combination of cash and Hain Common Stock.
Regardless of whether Hain chooses to make this payment all in cash or in a
combination of cash and stock, the total value of the payment must be equal to
$45.75 million (i) minus an amount equal to the amount that AMI's indebtedness
for borrowed money net of cash exceeds $20.0 million (or plus an amount equal to
the amount such AMI indebtedness net of cash is under $20.0 million) and (ii)
minus certain fees, costs and expenses related to the Merger for which the AMI
shareholders are responsible. AMI's net debt is estimated to be approximately
$20.0 million.
The fees, costs and expenses to be borne by the AMI shareholders include the
fees and expenses of AMI's investment bankers and financial advisors and certain
fees and expenses of AMI's lawyers (the "AMI Transaction Costs") as well as the
cost of canceling or buying out stock options held by Charles Lynch and Mark
Novak (the "Optionholders"). The stock options held by the Optionholders, if
exercised,
3
<PAGE>
would entitle them to purchase a total of 22,536 shares of AMI stock (the
"Number of Shares Subject to Option") for $32 per share (the "Exercise Price").
In order to cancel these options, AMI must pay the Optionholders the "Option
Cancellation Cost," which is the difference between the value of each AMI share
(the "AMI Share Value") and the Exercise Price, multiplied by the Number of
Shares Subject to Option.
Assuming AMI's debt is $20.0 million, AMI Merger Consideration would equal
(i) $45.75 million (ii) minus AMI Transaction Costs and (iii) minus Option
Cancellation Cost. Therefore, higher AMI Transaction Costs will result in lower
AMI Merger Consideration values. Lower AMI Merger Consideration values result in
correspondingly lower AMI Share Value. However, because the Option Cancellation
Cost increases as AMI Share Value rises, there would not be a dollar-for-dollar
reduction in AMI Merger Consideration as AMI Transaction Costs increase. For
every additional dollar of AMI Transaction Costs, AMI Merger Consideration
decreases slightly less than a dollar due to the corresponding slight decrease
in Option Cancellation Cost. Therefore, while the relationship between AMI Share
Value and AMI Merger Consideration is proportional, there is not a proportional
relationship between AMI Share Value and AMI Transaction Costs.
Because the fees and expenses of AMI's and GOE's investment bankers and
financial advisors and certain fees and expenses of AMI's and GOE's lawyers (the
"Transaction Costs") associated with the AMI Merger and the GOE Merger are
likely to be difficult to segregate, certain of these costs will be allocated
according to the relative values of the companies, taking into account AMI debt.
Therefore, AMI Transaction Costs not directly attributable to either AMI or GOE
are deemed to be 82.5% of Transaction Costs. Using this formula, AMI Transaction
Costs are likely to be between $3.25 million and $3.75 million. Assuming AMI
debt of $20.0 million and assuming AMI Transaction Costs between $3.25 million
and $3.75 million, AMI Share Value is likely to be between $73.50 and $72.25 per
share. However, there can be no assurance that the AMI Share Value will be
within this range.
GOE MERGER. The per share consideration to be received by holders of GOE
Common Stock is calculated in a manner consistent with the calculation under the
AMI Merger Agreement described above. Each GOE shareholder will be entitled to
receive a portion of the GOE Merger Consideration in proportion to that
shareholder's percentage of ownership of the outstanding GOE stock. The portion
of the GOE Merger Consideration to which each GOE shareholder will be entitled
is referred to herein as that shareholder's "GOE Pro Rata Amount." Hain has the
option to make this payment all in cash or in a combination of cash and Hain
stock. Regardless of whether Hain chooses to make this payment all in cash or in
a combination of cash and stock, the total value of the payment must be equal to
$14.0 million minus certain fees, costs and expenses related to the GOE Merger
for which the GOE shareholders are responsible. The amount paid in the GOE
Merger will also be reduced by a $2.0 million payment required to be made to Al
H. Jacobson (the "Jacobson Payment") in recognition of an existing obligation to
purchase 20% of GOE's outstanding shares from Mr. Jacobson. The GOE Merger
Consideration will then be allocated 75% to TSG2 (as defined herein), or its
successors, and 25% to Mr. Jacobson, which represents the relative ownership of
GOE's shares after taking into account the $2.0 million payment.
The fees, costs and expenses to be borne by the GOE shareholders include the
fees and expenses of GOE's investment bankers and financial advisors and certain
fees and expenses of GOE's lawyers, as well as a payment to a former consultant
(the "GOE Transaction Costs"). Because there are no outstanding options to
purchase GOE Common Stock that must be canceled, for every dollar increase in
GOE Transaction Costs, the aggregate GOE Merger Consideration will decline by
one dollar, and the value of each share of GOE stock will decline
proportionally. GOE Transaction Costs not directly attributable to either AMI or
GOE are deemed to be 17.5% of Transaction Costs. Using this formula, GOE
Transaction Costs are likely to be between $650,000 and $750,000 and the value
of each GOE share is likely to be between $555.00 and $563.00. However, there
can be no assurance that the GOE share value will be within this range.
4
<PAGE>
While Hain may determine whether the Merger Consideration will be paid in
cash or in a combination of cash and Hain Common Stock, the Merger Agreements
set certain limits to the amounts of stock and cash which may be used if Hain
elects to make part of the payment in stock. Pursuant to the Merger Agreements,
if any of the Merger Consideration is stock, then at least 50% of the Merger
Consideration must be stock. Conversely, at least $15.0 million of the AMI
Merger Consideration must be cash and at least $5.0 million of the GOE Merger
Consideration must be in cash. Hain Common Stock paid as consideration will be
valued at the average closing price per share for the 10 most recent trading
days ending on the third day before the Effective Time (the "Hain Stock Price").
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreements, the parties thereto will file
articles or certificates of merger with the Secretaries of State of each of
Delaware, Texas and California. The Merger will become effective at the time of
those filings (the "Effective Time"). It is anticipated that the Merger will
occur in June 1998.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of a number of
conditions, including but not limited to: (i) listing of up to 1,728,260 shares
of Hain Common Stock issued in connection with the Merger on the Nasdaq National
Market; (ii) the absence of any restrictive court orders or any other legal
restraints or prohibitions, and of any pending governmental proceedings,
preventing or making illegal the consummation of the Merger; (iii) the accuracy
in all material respects of the representations and warranties made in the
Merger Agreements on and as of the Effective Time; and (iv) the receipt by Hain,
AMI and GOE of certain opinions regarding tax and other matters. In addition,
the consummation of each of the AMI Merger and the GOE Merger are conditioned on
the simultaneous consummation of the other. See "The Merger
Agreements--Conditions to the Merger."
Each of AMI and GOE has agreed that it will not encourage, initiate or
solicit alternative acquisition proposals, subject to the exercise of directors'
fiduciary duties. See "The Merger Agreements--Nonsolicitation of Alternative
Transactions."
TERMINATION; BREAKUP FEES
The Merger Agreements may be terminated and the Merger may be abandoned
prior to the Effective Time under the circumstances specified in the Merger
Agreements, including by mutual written agreement at any time or by either party
if the Merger is not consummated by August 31, 1998. Under certain termination
circumstances, an aggregate breakup fee, plus certain expenses, of $1.0 million
is payable by AMI and GOE. See "The Merger Agreements--Termination; Breakup
Fees."
SHAREHOLDERS WRITTEN CONSENT
Approval of the AMI Merger by AMI shareholders will be obtained upon receipt
of the written consent of the holders of at least two-thirds of the AMI Common
Stock. See "AMI Shareholders Written Consent". Pursuant to a Voting Agreement
and Irrevocable Proxy dated April 24, 1998 (the "AMI Voting Agreement"), holders
of 67.64% of the AMI Common Stock have agreed to consent in writing to the AMI
Merger.
Approval of the GOE Merger by GOE shareholders will be obtained upon receipt
of the written consent of at least a majority of the GOE Common Stock. See "GOE
Shareholders Written Consent." Pursuant to a Voting Agreement and Irrevocable
Proxy dated April 24, 1998 (the "GOE Voting Agreement"), holders of all of the
outstanding GOE Common Stock have agreed to consent in writing to the Merger.
5
<PAGE>
Approval of the Merger by Hain stockholders is not required under the
Delaware General Corporation Law ("DGCL").
DISSENTERS' RIGHTS
The Texas Business Corporation Act ("TBCA") provides holders of AMI Common
Stock with dissenters' rights in connection with the Merger. Because holders of
all of the outstanding shares of GOE Common Stock have agreed to consent to the
Merger, it is not anticipated that dissenters' rights under the California
General Corporation Law ("CGCL") will be exercised in connection with the
Merger. See "The Merger--Dissenters' Rights."
REASONS FOR THE MERGER
HAIN'S REASONS FOR THE MERGER
The Merger will constitute a significant milestone in Hain's stated mission
of becoming the leading marketer and seller of specialty food products. The
Merger also offers Hain the possibility of achieving improved operating
efficiencies through elimination of duplicate efforts and increased purchasing
and distribution leverage.
The Board of Directors of Hain believes the combined business of Hain, AMI
and GOE will have the potential to realize increased market share and improved
operating and financial performance compared to the entities operated
independently. In addition, Hain anticipates the acquisitions of AMI and GOE
will add to the current profitability of Hain's existing product lines, as well
as the addition of experienced and talented managers and executives to
complement Hain's existing management team.
AMI'S AND GOE'S REASONS FOR THE MERGER
In approving the AMI Merger and the AMI Merger Agreement, and recommending
that AMI shareholders consent to adoption of the AMI Merger Agreement and
approval of the transactions contemplated thereby, AMI's Board of Directors
considered several factors, including, the opinion of Wasserstein Perella & Co.,
Inc. ("Wasserstein Perella") to the effect that the total cash and stock
consideration to be received by holders of the shares of AMI Common Stock
pursuant to the AMI Merger Agreement was fair to such holders from a financial
point of view; AMI's and Hain's historical financial results, as well as Hain's
historical stock prices; the likelihood that the AMI Merger would be
consummated; the terms and conditions of the AMI Merger Agreement; the free
tradeability of any shares of Hain Common Stock to be received in the AMI
Merger; the tax-free nature of the AMI Merger unless the Merger Consideration
consists entirely of cash; the interests of certain members of AMI's Board of
Directors and management in the Merger; and a review of other strategic
alternatives, including an initial public offering.
In approving the GOE Merger and the GOE Merger Agreement, and recommending
that GOE shareholders consent to the adoption of the GOE Merger Agreement and
approval of the transactions contemplated thereby, GOE's Board of Directors
considered several factors, including GOE's and Hain's historical financial
results, as well as Hain's historical stock prices; the likelihood that the GOE
Merger would be consummated; the terms and conditions of the GOE Merger
Agreement; the free tradeability of any shares of Hain Common Stock to be
received in the GOE Merger; the tax-free nature of the GOE Merger unless the GOE
Merger Consideration consists entirely of cash; the interests of certain members
of GOE's Board of Directors and management in the Merger; and a review of other
strategic alternatives, including an initial public offering.
6
<PAGE>
FAIRNESS OPINION OF AMI'S FINANCIAL ADVISOR
In its role as financial advisor to AMI, Wasserstein Perella was asked to
render its opinion to the AMI Board of Directors as to the fairness, from a
financial point of view, to the shareholders of AMI, of the total cash and stock
consideration to be received by such shareholders in the Merger. On April 21,
1998, Wasserstein Perella delivered its oral opinion to the AMI Board of
Directors (that was confirmed in writing later that day) that the total cash and
stock consideration to be received by the AMI shareholders in the AMI Merger is
fair to such shareholders from a financial point of view.
A copy of the Wasserstein Perella opinion is attached hereto as Annex C.
Holders of AMI Common Stock are urged to read the opinion in its entirety for a
summary of the assumptions made, procedures followed, other matters considered
and the limits of the review by Wasserstein Perella. The summary of the
Wasserstein Perella opinion set forth in this Prospectus/Information Statement
is qualified in its entirety by reference to the full text of such opinion. The
Wasserstein Perella opinion (i) was prepared for the AMI Board of Directors,
(ii) is directed only to the fairness to AMI shareholders, from a financial
point of view, as of April 21, 1998, of the total cash and stock consideration
to be received by such shareholders and (iii) does not constitute a
recommendation to any shareholders with regard to the Merger. See "The
Merger--Fairness Opinion of AMI's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
All unvested portions of options granted to certain of AMI's officers will
be accelerated as a result of the AMI Merger. An affiliate of TSG2 is providing
certain advisory services to AMI and GOE in connection with the Merger and will
receive as compensation for such services total fees of $1.5 million related to
its provision of services to AMI and $280,000 relating to its provision of
services to GOE. The amount of such fees will constitute expenses that reduce
the net amount of Merger Consideration available for distribution to the
shareholders of AMI and GOE. In the case of AMI, such amounts will also be
reduced by the aggregate "spread" paid to the AMI officers upon cancellation of
their options. See "The Merger--Interests of Certain Persons in the Merger."
SURRENDER OF CERTIFICATES
If the Merger becomes effective, Hain will cause Continental Stock Transfer
& Trust Company (the "Exchange Agent") to mail a letter of transmittal (the
"Letter of Transmittal") and other documents, with instructions to all holders
of record of AMI Common Stock and GOE Common Stock as of the Effective Time for
use in surrendering their stock certificates in exchange for certificates and
cash representing AMI Merger Consideration and GOE Merger Consideration, as the
case may be, and a cash payment in lieu of fractional shares.
The Letter of Transmittal will provide for, among other things, transmittal
of each recordholder's certificates for shares of AMI Common Stock or GOE Common
Stock, as the case may be, to the Exchange Agent. See "The Merger
Agreements--Conversion of Shares." In the alternative, the exchange of GOE
Common Stock for GOE Merger Consideration may be effected directly by Hain upon
instructions to the Exchange Agent.
CERTIFICATES SHOULD NOT BE SURRENDERED BY AMI SHAREHOLDERS OR GOE
SHAREHOLDERS UNTIL THE LETTER OF TRANSMITTAL AND OTHER DOCUMENTS DESCRIBED ABOVE
HAVE BEEN RECEIVED.
ACCOUNTING TREATMENT
The AMI Merger and the GOE Merger are expected to be accounted for as
purchase transactions in accordance with Accounting Principles Board Opinion No.
16. See "The Merger--Accounting Treatment" and "The Merger
Agreements--Conditions to the Merger."
7
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
If the Merger Consideration consists solely of Cash Merger Consideration, a
holder of AMI Common Stock or GOE Common Stock, as the case may be, will
recognize gain or loss as a result of the Merger equal to the difference between
the amount of the Cash Merger Consideration received and the such holder's
adjusted basis in the AMI Common Stock or GOE Common Stock surrendered in the
Merger.
If the Merger Consideration consists of a combination of Cash Merger
Consideration and Stock Merger Consideration, the Merger is intended to qualify
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). In a reorganization, holders of AMI Common
Stock and GOE Common Stock would not recognize loss upon the exchange and would
only recognize gain to the extent of the lesser of the Cash Merger Consideration
received or the gain realized by such shareholder on the exchange. Such
shareholder would also recognize gain or loss, if any on cash received in lieu
of fractional shares of Hain Common Stock. See "The Merger--Material U.S.
Federal Income Tax Consequences."
REGULATORY MATTERS
No regulatory approval, including under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended, is required in connection with the Merger.
REOFFERING BY THE SELLING STOCKHOLDERS
This Prospectus/Information Statement also provides for the reoffering of
the shares of Hain Common Stock received by certain AMI shareholders and GOE
shareholders as Stock Merger Consideration (collectively upon consummation of
the Merger, the "Selling Stockholders"). See "Selling Stockholders."
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined
financial data which are presented to give effect to the Merger under the
purchase method of accounting as if the Merger had occurred at the beginning of
each period presented for purposes of the statements of income information and
on March 31, 1998 for purposes of the balance sheet information. The unaudited
pro forma combined financial data do not reflect any cost savings and other
synergies anticipated by Hain management as a result of the Merger and are not
necessarily indicative of the results of operations or the financial position
which would have occurred had the Merger been consummated at the beginning of
the earliest period presented, nor are they necessarily indicative of future
results of operations or financial position. The unaudited pro forma combined
financial data should be read in conjunction with the historical consolidated
financial statements of Hain, Westbrae, Arrowhead, Terra and GOE, including the
notes thereto, included elsewhere or incorporated by reference in this
Information Statement/Prospectus and the unaudited pro forma combined financial
statements, including the notes thereto, contained elsewhere herein. See
"Unaudited Pro Forma Combined Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
------------- ------------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
STATEMENTS OF INCOME INFORMATION
Net Sales.................................................................... $ 151,136 $ 125,467
Operating Income............................................................. 9,475 11,246
Net Income................................................................... 2,075 3,862
Net Income per common share:
Diluted.................................................................... $ 0.19 $ 0.30
Basic...................................................................... 0.20 0.33
Common equivalent shares:
Diluted.................................................................... 10,721 13,080
Basic...................................................................... 10,422 11,590
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
---------------
<S> <C>
BALANCE SHEET INFORMATION
Working capital................................................................................ $ 18,951
Total assets................................................................................... 171,460
Total debt..................................................................................... 62,097
Total stockholders' equity..................................................................... 91,540
Common shares outstanding(1)................................................................... 13,241
</TABLE>
- ------------------------
(1) Assumes 1.728 million shares of Hain Common Stock are issued in connection
with the Merger.
9
<PAGE>
EQUIVALENT PER COMMON SHARE DATA
The following table sets forth selected historical per common share data for
Hain, AMI and GOE, pro forma data per share of Hain Common Stock, and equivalent
pro forma data per share of AMI Common Stock and GOE Common Stock after giving
effect to the proposed Merger on a purchase accounting basis, assuming the
Merger had been effective during all the periods presented. The pro forma
equivalent data for AMI and GOE are based on the historical amounts per share,
multiplied by the AMI Conversion Ratio (as defined herein) and the GOE
Conversion Ratio (as defined herein). The data should be read in conjunction
with the consolidated financial statements and notes thereto and other financial
information with respect to Hain, Arrowhead, Terra and GOE set forth elsewhere
or incorporated by reference in this Prospectus/Information Statement, and such
data are qualified in their entirety by reference thereto.
There is no established public trading market for AMI Common Stock or GOE
Common Stock. The following conversion ratios are based upon the number of
shares to be issued by Hain to AMI and GOE shareholders and do not consider the
value of cash to be paid by Hain to the AMI and GOE shareholders at the
Effective Time. The following amounts for AMI Common Stock were determined by
multiplying the price of Hain Common Stock by 2.268, which represents the
conversion ratio of Hain Common Stock to AMI Common Stock as of April 24, 1998,
and rounded to three places (the "AMI Conversion Ratio"). The following amounts
for GOE Common Stock were determined by multiplying the price of Hain Common
Stock by 19.565, which represents the conversion ratio of Hain Common Stock to
GOE Common Stock as of April 24, 1998, and rounded to three places (the "GOE
Conversion Ratio"). Because AMI and GOE have agreed to not issue any more shares
of capital stock or stock options, the parties do not expect the following table
to change prior to Closing.
<TABLE>
<CAPTION>
LATEST FISCAL NINE MONTHS ENDED
YEAR (2) MARCH 31, 1998
------------- ------------------
<S> <C> <C>
HAIN COMMON STOCK(1)
Diluted net income per share:
Historical................................................................... $ 0.12 $ 0.26
Pro forma combined........................................................... 0.19 0.30
Book value per share at period-end:
Historical................................................................... 2.92 4.50
Pro forma combined........................................................... -- 6.91
AMI COMMON STOCK(1)
Diluted net income per share:
Historical................................................................... 1.20 1.46
Pro forma equivalent......................................................... 0.43 0.68
Book value per share at period-end:
Historical................................................................... 11.36 3.63
Pro forma equivalent......................................................... -- 15.67
GOE COMMON STOCK(1)
Diluted net income (loss) per share:
Historical................................................................... 3.95 (4.25)
Pro forma equivalent......................................................... 3.72 5.87
Book value per share at period-end:
Historical................................................................... 52.75 55.70
Pro forma equivalent......................................................... -- 135.19
</TABLE>
- ------------------------
(1) None of Hain, AMI or GOE paid any cash dividends for either of the periods
presented.
(2) The latest fiscal years are as follows: Hain - June 30, 1997; AMI - July 31,
1997; GOE - December 23, 1997.
10
<PAGE>
MARKET AND MARKET PRICES FOR HAIN COMMON STOCK
Hain Common Stock is traded on the Nasdaq National Market under the symbol
"HAIN." At March 31, 1998 there were 11,512,499 shares of Hain Common Stock
outstanding. The information presented in the table below represents the high
and low sales prices per share for Hain Common Stock for the periods indicated.
Following the Merger, Hain Common Stock will continue to be traded on the Nasdaq
National Market.
<TABLE>
<CAPTION>
PRICE
----------------------
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDED JUNE 30, 1996
First quarter................................................................ $ 4 1/2 $ 3 1/2
Second quarter............................................................... 3 3/4 2 15/16
Third quarter................................................................ 3 11/16 2 15/16
Fourth quarter............................................................... 4 1/8 3 1/16
YEAR ENDED JUNE 30, 1997
First quarter................................................................ $ 4 $ 3 1/16
Second quarter............................................................... 4 3 1/4
Third quarter................................................................ 5 3/4 3 3/8
Fourth quarter............................................................... 5 5/16 4 1/8
YEAR ENDING JUNE 30, 1998
First quarter................................................................ $12 1/16 $ 4 27/32
Second quarter............................................................... 12 13/16 7 7/8
Third quarter................................................................ 20 3/4 9
Fourth quarter (through June 18, 1998)....................................... 23 7/8 20 1/2
</TABLE>
On April 23, 1998, the last full trading day prior to public announcement of
the Merger, the closing price for Hain Common Stock was $21.00. On June 18,
1998, the last reported sale price of the Common Stock on the Nasdaq National
Market was $23 1/4 per share. Neither AMI Common Stock nor GOE Common Stock are
traded on an established public market.
AMI SHAREHOLDERS AND GOE SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR HAIN COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE
MARKET PRICE FOR HAIN COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE MERGER
IS CONSUMMATED. THE MARKET PRICE FOR HAIN COMMON STOCK WILL FLUCTUATE BETWEEN
THE DATE OF THIS PROSPECTUS/ INFORMATION STATEMENT AND THE DATE ON WHICH THE
MERGER IS CONSUMMATED AND THEREAFTER.
11
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN ADDITION TO THE
OTHER INFORMATION PRESENTED IN THIS PROSPECTUS/INFORMATION STATEMENT. THIS
PROSPECTUS/INFORMATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. HAIN'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF SUCH
RISKS AND UNCERTAINTIES, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS
AND ELSEWHERE IN THIS PROSPECTUS/INFORMATION STATEMENT.
INTEGRATION OF ACQUISITIONS
Since its formation, Hain has completed several acquisitions of companies
and brands, including the recent acquisitions of Westbrae in October 1997 and
Boston Better Snacks in May 1997. In addition, in March 1997, Hain entered into
a licensing agreement with Weight Watchers, a subsidiary of Heinz, pursuant to
which Hain will manufacture, market and sell Weight Watchers dry and
refrigerated products and in May 1998 entered into a distribution and licensing
agreement with Heinz U.S.A., a division of Heinz, to market and sell the
"Earth's Best" line of baby food products to the natural food channel in the
United States. In July 1997, Hain acquired the Alba brand from Heinz.
Hain's future success may be dependent upon its ability to effectively
integrate these companies and brands, including its ability to realize
potentially available marketing opportunities and cost savings, some of which
may involve operational changes. There can be no assurance as to the timing or
number of marketing opportunities or amount of cost savings that may be realized
as the result of the integration process. Further, there can be no assurance
that Hain will not experience difficulties with customers, personnel or other
parties as a result of these acquisitions, that these acquisitions will enhance
Hain's competitive position and business prospects or that the combination of
Hain and these acquisitions will be successful.
There can be no assurance that Hain will be successful in integrating its
own distribution channels with those of AMI and GOE, in coordinating the
activities of the Hain, AMI and GOE sales forces or in selling AMI's or GOE's
products to Hain's customer base, in integrating AMI and GOE into Hain's
management information systems or in integrating AMI's and GOE's products so
that they can be fully integrated with Hain. In addition, Hain is in the process
of integrating the business of Westbrae, which was acquired by Hain in October
1997. Integrating these businesses will require management resources and may
divert Hain management from Hain's day-to-day operations. There can be no
assurance that Hain can effectively integrate AMI or GOE into Hain's operations.
UNCERTAINTIES RELATED TO COMBINED OPERATIONS AFTER THE MERGER
While the acquisition of the Companies by Hain offers the possibility of
achieving operating efficiencies, it also entails the diversion of management's
attention to the assimilation of operations of the Companies, which might have
possible adverse short-term effects on Hain's operating results. There can be no
assurance that the combined companies will retain their respective key personnel
or customers, the same volume of business from such customers, or that Hain will
realize any of the potential benefits of the Merger.
UNCERTAINTY OF ALLOCATION OF MERGER CONSIDERATION; TRANSACTION COSTS
In accordance with the Merger Agreements, the allocation of Merger
Consideration to be paid in cash and shares of Hain Common Stock will be
determined by Hain at its sole discretion three days prior to the date the
Merger becomes effective; PROVIDED, if any of the AMI Merger Consideration is
paid in Hain Common Stock, then at least 50% of such consideration must be Hain
Common Stock and at least $15,000,000 of such consideration must be cash and, if
any of the GOE Merger Consideration is paid in Hain Common Stock, then at least
50% of such consideration must be Hain Common Stock and at least $5,000,000 of
such consideration must be cash. Hain's allocation of the Merger Consideration
will be based
12
<PAGE>
on several factors, including the price of the Hain Common Stock on the Nasdaq
National Market at the time such allocation is determined. There can be no
assurance that Hain will issue shares of Hain Common Stock as AMI Merger
Consideration or GOE Merger Consideration or, if Hain Common Stock is issued,
the allocation of cash and stock selected. See "The Merger--Material U.S.
Federal Income Tax Consequences."
In addition, the total AMI Merger Consideration to be paid by Hain is
subject to certain fees, costs and expenses to be borne by AMI, including the
AMI Transaction Costs and the cost of canceling or buying out stock options held
by the Optionholders. Assuming, for example, AMI debt of $20,000,000 and AMI
Transaction Costs between $3,250,000 and $3,750,000, AMI Share Value is likely
to be between $73.50 and $72.25. Similarly, based on GOE Transaction Costs
between $650,000 and $750,000, GOE share value is likely to be between $667.50
and $661.25. However, there can be no assurance that the AMI Share Value or GOE
share value will be within these ranges.
PRIOR APPROVAL OF THE AMI MERGER AND THE GOE MERGER
While Hain and AMI are seeking the consent of all AMI shareholders to the
Merger, pursuant to the AMI Voting Agreement, Hain and AMI have received
agreement to consent to the Merger from the holders of the number of shares
required to effect the Merger in accordance with the TBCA and AMI's Articles of
Incorporation in lieu of a shareholder meeting, and thus the consent of AMI
shareholders receiving this Prospectus/Information Statement who are not party
to such agreement is not required to effect the Merger; PROVIDED, the TBCA
provides holders of AMI Common Stock with dissenters' rights in connection with
the Merger. Similarly, Hain and GOE have received agreement to consent to the
Merger from holders of all of the outstanding GOE Common Stock.
ACQUISITION STRATEGY
Hain's acquisition strategy is based on identifying and acquiring businesses
with products and/or brands that complement Hain's existing product mix. Hain
will evaluate specific acquisition opportunities based on prevailing market and
economic conditions. There can be no assurance that Hain will be able to
successfully identify suitable acquisition candidates, obtain necessary
financing, complete acquisitions or integrate acquired businesses into its
operations. Acquisitions may not achieve acceptable levels of operating results
or otherwise perform as expected. Acquisitions also involve special risks,
including risks associated with unanticipated problems, liabilities and
contingencies, diversion of management attention and possible adverse effects on
earnings resulting from increased goodwill amortization, increased interest
costs, the issuance of additional securities and difficulties related to the
integration of the acquired business. Hain may encounter increased competition
for acquisitions in the future, which could result in acquisition prices Hain
does not consider acceptable. In addition, the Senior Credit Facility (as
defined) contains restrictions that limit Hain's ability to make acquisitions.
Hain is unable to predict whether or when any prospective acquisition candidate
will become available or the likelihood that any acquisition will be completed.
EVOLVING CUSTOMER PREFERENCES
Hain's business is limited to specialty food products in niche markets
geared to consumers of natural foods, medically-directed and weight management
food products, kosher foods and other specialty food items. Hain is subject to
evolving consumer preferences for these products. While Hain continues to
diversify its product offerings, there can be no assurance that demand for
Hain's products will continue at current levels or increase in the future. A
significant shift in consumer demand away from Hain's products or failure to
maintain its current market position would have a material adverse effect on
Hain's financial statements. For example, sales of Hain's rice cakes declined
from approximately $22 million during fiscal year 1996 to approximately $12
million in fiscal year 1997 due in part to competition from other snack products
and an overall decline in rice cake demand. Hain has other significant product
categories, such as
13
<PAGE>
cooking oils and non-dairy beverages, which, if consumer demand for such
categories were to decrease, could have a material adverse effect on Hain's
business, results of operations and financial condition.
COMPETITION
The geographic and product markets in which Hain operates are highly
competitive. Hain faces competition in all of its markets from larger, more
established companies that have greater financial, managerial, sales and
technical resources than Hain, and some of Hain's markets are dominated by such
large firms. There can be no assurance that Hain can successfully compete for
sales to distributors or stores that purchase from such larger competitors.
Larger competitors also may be able to benefit from economies of scale, pricing
advantages or the introduction of new products that compete with Hain's
products. There can be no assurance that Hain will achieve the market
penetration that it seeks in order to implement its business strategy. There can
be no assurance that competitors will not introduce other products in the future
that compete with Hain's products or that such competitive products will not
have an adverse effect on Hain's business, results of operations and financial
condition.
LIMITED MANAGEMENT; DEPENDENCE ON KEY PERSONNEL
Hain is highly dependent upon the services of Irwin D. Simon, its President
and Chief Executive Officer. Although Hain has entered into an employment
agreement with Mr. Simon and maintains $1.0 million of key man life insurance on
the life of Mr. Simon, the loss of the services of Mr. Simon could have a
material adverse effect on Hain's business, results of operations and financial
condition. In addition, Hain's ability to develop and market its products and to
achieve and maintain a competitive position depends, in large part, on its
ability to attract and retain qualified operations, sales and marketing
personnel.
RELIANCE ON INDEPENDENT DISTRIBUTORS AND BROKERS
Hain relies upon sales efforts made by or through non-affiliated food
brokers to distributors and other customers. The success of its business
depends, in large part, upon the establishment of a strong distribution network.
Food brokers act as selling agents representing specific brands on a
non-exclusive basis under oral or written agreements generally terminable at any
time on 30 days notice and receive a percentage of net sales as compensation.
Distributors purchase directly for their own account for resale. Two
distributors, United Natural Foods and Tree of Life, accounted for approximately
18% and 14%, respectively, of Hain's pro forma fiscal year 1997 sales. The loss
of, or business disruption at, one or more of these distributors or brokers may
have a material adverse effect on Hain's business, results of operations and
financial condition. If Hain were required to obtain additional or alternative
distribution and food brokerage agreements or arrangements in the future, there
can be no assurance it will be able to do so on satisfactory terms or in a
timely manner. The inability to enter into satisfactory brokerage agreements may
inhibit Hain's ability to implement its business plan or to establish markets
necessary to develop its products successfully. See "Information Concerning
Hain--Sales and Marketing Structure" and
"--Customers."
RELIANCE ON INDEPENDENT MANUFACTURERS AND CO-PACKERS
Hain does not manufacture, produce or package any of the products or brands
which it currently markets, although it develops and owns the formulas and
recipes and designs the packaging for its products. Accordingly, Hain is
dependent upon independent manufacturers and co-packers to produce and package
its products. In addition, currently one manufacturer accounted for the
manufacture of approximately 91% of GOE's products in its fiscal 1997. The loss
of one or more of these manufacturers or co-packers, or the failure by Hain to
retain manufacturers and co-packers for products or brands acquired pursuant to
the Merger, could have a material adverse effect on Hain's financial statements
until such time as an alternate source of supply could be secured, which may be
on less favorable terms.
14
<PAGE>
Hain obtains substantially all of its rice cake requirements from two
suppliers, all of its non-dairy products from two suppliers, a substantial
portion of its Weight Watchers refrigerated products from one supplier, and all
of its Hollywood cooking oils from one supplier. Failure to obtain in a timely
manner and on comparable terms other suppliers if a present supplier terminated
its relationship with Hain could have a material adverse effect on Hain's
business, results of operations and financial condition.
TRADEMARK OWNERSHIP
Hain owns the principal trademarks for its products, including HAIN PURE
FOODS(R), HOLLYWOOD-Registered Trademark-, KINERET-Registered Trademark-,
KOSHERIFIC-Registered Trademark-, FARM FOODS-Registered Trademark-,
ESTEE-Registered Trademark-, FEATHERWEIGHT-Registered Trademark-, WESTBRAE
NATURALS-Registered Trademark-, WESTSOY-Registered Trademark-, LITTLE
BEAR-Registered Trademark-, BEARITOS-Registered Trademark- and
ALBA-Registered Trademark- and owns a number of other trademarks used on
individual products, such as those for ICE BEAN-Registered Trademark-,
PIZSOY-Registered Trademark-, and BOSTON LITE-Registered Trademark-. Hain
believes that such trademarks are important to the marketing of Hain's products.
In connection with the licensing agreement between Weight Watchers and Hain,
Hain obtained the right to use the WEIGHT WATCHERS-Registered Trademark- and
certain other trademarks. Hain's inability to use these trademarks could have a
material adverse effect on Hain's business, results of operations and financial
condition.
GOVERNMENT REGULATION
The manufacture, marketing, distribution and sale of Hain's specialty food
products are subject to various federal, state and local laws and regulations
governing the production, sale, safety, advertising, labeling and ingredients of
such products. In addition, Hain's kosher food products are subject to
additional regulation and inspection. There can be no assurance that Hain, its
manufacturers, distributors and co-packers will be able to comply with all such
laws and regulations in the future or that new governmental laws and regulations
will not be introduced which could result in additional compliance costs,
seizures, confiscation, recall or monetary fines, any of which could prevent or
inhibit the development, distribution and sale of Hain's products or have a
material adverse effect on Hain's business, results of operations and financial
condition. In addition, product recalls could adversely affect sales of other of
Hain's products.
PRODUCT LIABILITY
As a marketer of food products, Hain is subject to a risk of claims for
product liability. Hain maintains product liability insurance and generally
requires that its co-packers maintain product liability insurance with Hain as a
co-insured. There is no assurance that such coverage will be sufficient to
insure against claims which may be brought against Hain, or that Hain will be
able to maintain such insurance or obtain additional insurance covering existing
or new products. If a product liability claim exceeding Hain's insurance
coverage were to be successfully asserted against Hain, it could have a material
adverse effect on Hain's business, results of operations and financial
condition.
RELIANCE ON CERTIFICATION
Hain must comply with the requirements of independent organizations or
certification authorities in order to make certain statements on the labels of
its products. For example, for Hain's Estee products to carry the logo of the
American Diabetes Association (the "ADA"), the packaging must meet the standards
of the ADA. In addition, Hain's kosher foods are certified kosher by the
Orthodox Union of Rabbis. The loss of any such independent certifications or
permissions could adversely affect the marketing position and goodwill afforded
such products, which could have a material adverse effect on Hain's business,
results of operations and financial condition.
15
<PAGE>
CONTROL BY CURRENT STOCKHOLDERS, OFFICERS AND DIRECTORS
Upon completion of the Merger, Mr. Simon, Hain's President and Chief
Executive Officer, together with the other officers and directors of Hain, will
beneficially own an aggregate of 22.7% of Hain Common Stock, on a fully diluted
basis (assuming 1,728,260 shares of Hain Common Stock are issued in connection
therewith at a value of $23.00 per share). Accordingly, the officers and
directors of Hain will be in a position to influence the election of Hain's
directors and otherwise influence stockholder action. In addition, according to
a Schedule 13D filed with the Commission dated May 11, 1998, certain
unaffiliated stockholders of Hain beneficially own, prior to the Merger, an
aggregate of 20.37% of the outstanding Hain Common Stock.
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK
Hain's Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of "blank check" preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividends, liquidation, conversion,
voting or other rights which could decrease the amount of earnings and assets
available for distribution to holders of Hain Common Stock and adversely affect
the relative voting power or other rights of the holders of Hain Common Stock.
In the event of issuance, the preferred stock could be used, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of Hain. Although Hain has no present intention to issue any shares of
its preferred stock, there can be no assurance that Hain will not do so in the
future. See "Description of Hain Capital Stock."
NO DIVIDENDS
Hain has not paid any dividends on Hain Common Stock to date and does not
anticipate declaring or paying any dividends in the foreseeable future. The
ability of Hain to pay dividends is currently restricted by the Senior Credit
Facility. See "Market And Market Prices For Hain Common Stock."
FLUCTUATIONS IN OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY RESULTS
Hain's operating results have fluctuated in the past and will fluctuate in
the future based on many factors. These factors include failure to adequately
integrate acquired companies, fluctuations in the general economy, increased
competition, changes in operating expenses, expenses related to acquisitions,
the potential adverse effect of acquisitions, the size and timing of customer
orders, new product introductions, changes in customer preferences and market
acceptance of new products. Many of these factors are outside the control of
Hain. Due to these and many unforeseen factors, it is likely that in some future
quarter Hain's operating results will be below the expectations of public market
analysts and investors. In such event, the price of Hain Common Stock would
likely be materially adversely affected.
FORWARD-LOOKING STATEMENTS
This Prospectus/Information Statement contains certain forward-looking
statements regarding future financial condition and results of operations and
Hain's business operations. The words "expect," "estimate," "anticipate,"
"predict," "intend," and similar expressions are intended to identify forward-
looking statements. Such statements involve risks, uncertainties and
assumptions, including but not limited to industry and economic conditions and
customer actions and the other factors discussed in this Prospectus/Information
Statement (including but not limited to statements under the caption "Risk
Factors") and in Hain's filings with the Commission. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated.
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION FOR HAIN
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected historical financial information for
Hain for the periods indicated and selected pro forma financial information
reflecting the Westbrae acquisition as if it had occurred at the beginning of
each period presented for purposes of the statements of income information and
on March 31, 1998 for purposes of the balance sheet information. The selected
historical financial information for each fiscal year in the five-year period
ended June 30, 1997 is derived from the audited consolidated financial
statements of Hain for each such year. The selected historical financial
information as of March 31, 1998 and for the nine-month periods ended March 31,
1997 and 1998 is derived from the unaudited financial statements of Hain for
such periods. In the opinion of Hain management, all adjustments consisting of
normal recurring accruals considered necessary for a fair presentation have been
made. The results of operations for the nine months ended March 31, 1998 are not
necessarily indicative of the actual results for the full fiscal year ending
June 30, 1998. The selected pro forma financial information is not necessarily
representative of Hain's results of operations or financial position had the
Westbrae acquisition in fact occurred at the beginning of each period presented
and is not intended to project Hain's results of operations for any future
period or date. The selected financial information should be read in conjunction
with the financial statements of Hain and the related notes thereto and the
financial statements and the related notes thereto of Westbrae incorporated by
reference in this Prospectus/ Information Statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------------------------------------- --------------------
PRO FORMA
FOR WESTBRAE
ACQUISITION
1993 1994 1995 1996 1997 1997 1997 1998
--------- --------- --------- --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF INCOME INFORMATION
Net sales.............................. $ 137 $ 14,963 $ 58,076 $ 68,606 $ 65,353 $ 98,247 $ 46,117 $ 73,224
Cost of Sales.......................... 91 9,812 36,220 40,884 40,781 60,800 28,840 43,604
--------- --------- --------- --------- --------- ------------- --------- ---------
Gross Profit......................... 46 5,151 21,856 27,722 24,572 37,447 17,337 29,620
Selling, general and administrative
expenses............................. 120 3,976 15,334 20,905 19,651 29,317 13,632 21,364
Depreciation of property and
equipment............................ 57 158 184 178 272 131 183
Amortization of goodwill and other
intangibles.......................... 1 208 474 651 740 1,283 558 927
--------- --------- --------- --------- --------- ------------- --------- ---------
Operating income (loss).............. (75) 910 5,890 5,982 4,003 6,575 3,016 7,146
Interest expense(1) --....... 1,095 1,351 1,745 1,639 3,638 1,240 1,706
Amortization of deferred financing
costs --....... 97 419 473 509 491 378 396
--------- --------- --------- --------- --------- ------------- --------- ---------
Income (loss) before income taxes...... (75) (282) 4,120 3,764 1,855 2,446 1,398 5,044
Provision for income taxes --....... 220 1,755 1,630 786 1,027 601 2,118
--------- --------- --------- --------- --------- ------------- --------- ---------
Net income (loss)...................... $ (75) $ (502) $ 2,365 $ 2,134 $ 1,069 $ 1,419 $ 797 $ 2,926
--------- --------- --------- --------- --------- ------------- --------- ---------
--------- --------- --------- --------- --------- ------------- --------- ---------
Net income (loss) per common share:
Diluted.............................. $ (0.08) $ (0.19) $ 0.28 $ 0.24 $ 0.12 $ 0.16 $ 0.09 $ 0.26
Basic................................ (0.08) (0.19) 0.30 0.24 0.12 0.16 0.09 0.30
Common equivalent shares:
Diluted.............................. 920 2,694 8,597 8,964 8,993 8,993 8,961 11,352
Basic................................ 920 2,694 7,862 8,887 8,694 8,694 8,725 9,862
<CAPTION>
PRO FORMA
FOR WESTBRAE
ACQUISITION
1998
-------------
<S> <C>
(UNAUDITED)
STATEMENT OF INCOME INFORMATION
Net sales.............................. $ 83,863
Cost of Sales.......................... 49,850
-------------
Gross Profit......................... 34,013
Selling, general and administrative
expenses............................. 24,730
Depreciation of property and
equipment............................ 185
Amortization of goodwill and other
intangibles.......................... 1,063
-------------
Operating income (loss).............. 8,035
Interest expense(1) 2,183
Amortization of deferred financing
costs 391
-------------
Income (loss) before income taxes...... 5,461
Provision for income taxes 2,295
-------------
Net income (loss)...................... $ 3,166
-------------
-------------
Net income (loss) per common share:
Diluted.............................. $ 0.28
Basic................................ 0.32
Common equivalent shares:
Diluted.............................. 11,352
Basic................................ 9,862
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
---------------
ACTUAL
(UNAUDITED)
---------------
<S> <C>
BALANCE SHEET INFORMATION
Working capital................................................................................... $ 12,219
Total assets...................................................................................... 84,816
Total debt........................................................................................ 20,819
Total stockholders' equity........................................................................ 51,790
</TABLE>
- ------------------------
(1) Interest expense in 1994 includes $650 with respect to financing costs
incurred in connection with bridge notes which were repaid with the proceeds
of Hain's initial public offering.
17
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION FOR ARROWHEAD
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected historical financial information for
Arrowhead for the periods indicated. The selected historical financial
information for the fiscal year ended July 31, 1993 through 1997 is derived from
the audited consolidated financial statements of Arrowhead for such year. The
selected historical financial information as of July 31, 1995, February 28, 1998
and for the seven-month periods ended February 28, 1997 and 1998 is derived from
the unaudited financial statements of Arrowhead for such periods. The selected
historical information since September 1994 reflects the September 1994
acquisition of DeBoles by TSG2, which was accounted for as a purchase business
combination. The September 1995 acquisition of DeBoles by Arrowhead was
accounted for in a manner similar to a pooling of interests and accordingly, the
operations of DeBoles since September 1994 are included in Arrowhead's results
of operations. The results of operations for the seven months ended February 28,
1998 are not necessarily indicative of the actual results for the full fiscal
year ending July 31, 1998. The selected financial information should be read in
conjunction with the financial statements of Arrowhead and the related notes
thereto included elsewhere in this Prospectus/Information Statement.
<TABLE>
<CAPTION>
SEVEN
MONTHS
ENDED
FEBRUARY
YEAR ENDED JULY 31, 28,
----------------------------------------------------- ---------
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF INCOME INFORMATION
Net sales................................................. $ 14,616 $ 16,378 $ 22,426 $ 24,628 $ 25,977 $ 15,051
Cost of sales............................................. 11,228 12,783 15,844 18,323 19,436 11,357
--------- --------- --------- --------- --------- ---------
Gross profit............................................ 3,388 3,595 6,582 6,305 6,541 3,694
Management fee to shareholder............................. -- 85 177 240 140
Selling, general and administrative expenses.............. 2,403 2,895 8,668 5,882 4,547 2,258
--------- --------- --------- --------- --------- ---------
Operating income (loss)................................. 985 700 (2,171) 246 1,754 1,296
Interest expense, net..................................... 24 28 264 322 394 212
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes......................... 961 672 (2,435) (76) 1,360 1,084
Provision for income taxes................................ 330 232 409 122 570 455
--------- --------- --------- --------- --------- ---------
Net income (loss)....................................... $ 631 $ 440 $ (2,844) $ (198) $ 790 $ 629
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Earnings (loss) per share, diluted and basic.............. $ 631 $ 440 $ (2,844) $ (198) $ 790 $ 629
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Weighted-average shares, diluted and basic................ 1 1 1 1 1 1
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
1998
---------
<S> <C>
STATEMENT OF INCOME INFORMATION
Net sales................................................. $ 16,427
Cost of sales............................................. 11,787
---------
Gross profit............................................ 4,640
Management fee to shareholder............................. 140
Selling, general and administrative expenses.............. 2,580
---------
Operating income (loss)................................. 1,920
Interest expense, net..................................... 199
---------
Income (loss) before income taxes......................... 1,721
Provision for income taxes................................ 741
---------
Net income (loss)....................................... $ 980
---------
---------
Earnings (loss) per share, diluted and basic.............. $ 980
---------
---------
Weighted-average shares, diluted and basic................ 1
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, AS OF
----------------------------------------------------- FEBRUARY 28,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
BALANCE SHEET INFORMATION
Working capital......................................... $ 1,423 $ 2,662 $ 1,913 $ 773 $ 2,793 $ 5,261
Total assets............................................ 4,574 5,628 10,413 11,238 12,379 11,906
Total long-term debt.................................... -- -- 2,951 1,582 1,817 3,147
Total shareholders' equity.............................. 2,987 7,626 4,781 4,672 5,743 6,289
</TABLE>
18
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION FOR TERRA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected historical financial information for
Terra for the periods indicated. The selected historical financial information
as of July 31, 1997 and for the period commencing January 1, 1997 through July
31, 1997 is derived from the audited financial statements of Terra for such
period. Terra changed its fiscal year end to July 31 effective January 1, 1997.
The selected historical financial information as of and for the fiscal years
ended December 31, 1996 and 1995 is derived from the audited financial
statements of Terra for such years. The selected historical financial
information as of and for the seven months ended February 28, 1998 and the
fiscal years ended December 31, 1993 and 1994 and for the seven months ended
February 28, 1997, the periods from August 1, 1997 through November 17, 1997,
the date of the acquisition of Terra by AMI, and November 18, 1997 through
February 28, 1998 is derived from the unaudited financial statements of Terra
for such periods. The seven month period ended February 28, 1998 is presented
for informational purposes only. The results of operation for the periods from
August 1, 1997 through November 17, 1997 and November 18, 1997 through February
28, 1998 are not necessarily indicative of the actual results for the full
fiscal year ending July 31, 1998. The selected financial information should be
read in conjunction with the financial statements of Terra and the related notes
thereto included elsewhere in this Prospectus/Information Statement.
<TABLE>
<CAPTION>
PRE-ACQUISITION
---------------------------------------------------------------------------------
SEVEN PERIOD FROM
SEVEN MONTHS AUGUST 1,
MONTHS ENDED 1997
YEAR ENDED DECEMBER 31, ENDED FEBRUARY THROUGH
------------------------------------------ JULY 31, 28, NOVEMBER 17,
1993 1994 1995 1996 1997 1997 1997
--------- --------- --------- --------- --------- ----------- -------------
(UNAUDITED) (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME INFORMATION
Net sales............................ $ 2,848 $ 4,330 $ 5,604 $ 10,493 $ 7,765 $ 7,106 $ 3,937
Cost of Sales........................ 1,756 2,655 3,221 5,643 4,360 4,060 2,287
--------- --------- --------- --------- --------- ----------- -------------
Gross Profit..................... 1,092 1,675 2,383 4,850 3,405 3,046 1,650
Selling, general and administrative
expenses........................... 911 1,744 1,976 3,428 2,265 2,397 1,516
Amortization of goodwill............. -- -- -- -- -- --
Management fee to shareholder........ -- 75 245 105 195 40
Other operating income............... 4 30 8 192 -- -- --
--------- --------- --------- --------- --------- ----------- -------------
Operating income (loss).......... 185 (39) 340 1,369 1,035 454 94
Interest expense..................... 26 44 65 46 30 8 8
--------- --------- --------- --------- --------- ----------- -------------
Income before income taxes....... 159 (83) 275 1,323 1,005 446 86
Provision for income taxes........... 16 9 191 555 483 207 44
--------- --------- --------- --------- --------- ----------- -------------
Net income (loss)................ 143 $ (92) $ 84 $ 768 $ 522 $ 239 $ 42
--------- --------- --------- --------- --------- ----------- -------------
--------- --------- --------- --------- --------- ----------- -------------
Basic earnings (loss) per share,
diluted and basic.................. $ 715 $ (460) $ 393.81 $3,520.03 $2,392.52 $1,095.43 $ 192.50
--------- --------- --------- --------- --------- ----------- -------------
--------- --------- --------- --------- --------- ----------- -------------
Weighted average shares-diluted and
basic.............................. .200 .200 .21330 .21818 .21818 .21818 .21818
--------- --------- --------- --------- --------- ----------- -------------
--------- --------- --------- --------- --------- ----------- -------------
<CAPTION>
POST-
ACQUISITION
------------- SEVEN
PERIOD FROM MONTHS
NOVEMBER 18, ENDED
1997 THROUGH FEBRUARY
FEBRUARY 28, 28,
1998 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF INCOME INFORMATION
Net sales............................ $ 4,306 $ 8,243
Cost of Sales........................ 2,564 4,851
------------- -----------
Gross Profit..................... 1,742 3,392
Selling, general and administrative
expenses........................... 975 2,491
Amortization of goodwill............. 80 80
Management fee to shareholder........ -- 40
Other operating income............... -- --
------------- -----------
Operating income (loss).......... 687 781
Interest expense..................... 380 388
------------- -----------
Income before income taxes....... 307 393
Provision for income taxes........... 178 222
------------- -----------
Net income (loss)................ $ 129 $ 171
------------- -----------
------------- -----------
Basic earnings (loss) per share,
diluted and basic.................. $ 591.25 $ 783.76
------------- -----------
------------- -----------
Weighted average shares-diluted and
basic.............................. .21818 .21818
------------- -----------
------------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------
1993 1994 1995 1996
------------ --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
Working capital (deficiency)........................................... $ 181 $ (48) $ 221 $ 192
Total assets........................................................... 1,018 1,270 1,799 2,851
Total long-term debt................................................... 390 607 567 115
Total shareholders' equity............................................. 336 244 413 1,181
<CAPTION>
AS OF JULY
31, AS OF FEBRUARY 28,
------------- ------------------
1997 1998
------------- ------------------
<S> <C> <C>
BALANCE SHEET INFORMATION
Working capital (deficiency)........................................... $ 646 $ (1,534)
Total assets........................................................... 3,421 14,475
Total long-term debt................................................... 89 15,571
Total shareholders' equity............................................. 1,702 (4,151)
</TABLE>
19
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION FOR GOE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth selected historical financial information for GOE
for the period indicated. The selected historical financial information as of
and for the fiscal period ended December 23, 1997 is derived from the audited
consolidated financial statements of GOE for such period. The selected
historical financial information as and for the fiscal years ended December 31,
1993, 1994, 1995 and 1996, for the two months ended February 28, 1997 and the
period from December 24, 1997 through February 28, 1998 and as of February 28,
1998 is derived from the unaudited financial statements of GOE for such period.
The results of operation for the period from December 24, 1997 through February
28, 1998 are not necessarily indicative of the actual results for the full
fiscal year ending December 31, 1998. The selected financial information should
be read in conjunction with the financial statements of GOE and the related
notes thereto included elsewhere in this Prospectus/Information Statement.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TWO MONTHS PERIOD FROM
YEAR ENDED DECEMBER 31, THROUGH ENDED DECEMBER 24, 1997
------------------------------------------ DECEMBER 23, FEBRUARY 28, THROUGH
STATEMENT OF INCOME INFORMATION 1993 1994 1995 1996 1997 1997 FEBRUARY 28, 1998
--------- --------- --------- --------- --------------- ------------ -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 10,743 $ 10,412 $ 11,923 $ 13,588 $ 13,616 $ 2,135 $ 2,411
Cost of Sales....................... 8,084 7,778 8,917 9,843 9,465 1,482 1,704
--------- --------- --------- --------- --------------- ------------ --------
Gross Profit.................... 2,659 2,634 3,006 3,745 4,151 653 707
Selling, general and administrative
expenses.......................... 2,322 2,286 2,683 3,339 3,667 553 561
Management fees to shareholder...... -- -- 420 -- 42
--------- --------- --------- --------- --------------- ------------ --------
Operating income................ 337 348 323 406 64 100 104
Interest expense, net............... 111 111 117 106 60 15 5
--------- --------- --------- --------- --------------- ------------ --------
Income before income taxes........ 226 237 206 300 4 85 99
Provision for income taxes.......... 30 67 67 87 83 34 40
--------- --------- --------- --------- --------------- ------------ --------
Net income (loss)................. $ 196 $ 170 $ 139 $ 213 $ (79) $ 51 $ 59
--------- --------- --------- --------- --------------- ------------ --------
--------- --------- --------- --------- --------------- ------------ --------
Earnings (loss) per share, diluted
and basic......................... $ 9.80 $ 8.50 $ 6.95 $ 10.65 $ (3.95) $ 2.55 $ 2.95
--------- --------- --------- --------- --------------- ------------ --------
--------- --------- --------- --------- --------------- ------------ --------
Weighted average shares, diluted and
basic............................. 20 20 20 20 20 20 20
--------- --------- --------- --------- --------------- ------------ --------
--------- --------- --------- --------- --------------- ------------ --------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF AS OF
------------------------------------------ DECEMBER 23, FEBRUARY 28,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
Working capital..................................... $ 118 $ 402 $ 925 $ 497 $ 836 $ 840
Total assets........................................ 2,365 2,486 2,610 2,636 2,732 2,696
Total long-term debt................................ 639 995 772 490 102 101
Total shareholders' equity.......................... 192 362 501 714 1,055 1,114
</TABLE>
20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are
presented to give effect to the Merger and the resulting acquisition of
Arrowhead, Terra and GOE (collectively, the "Acquired Companies") under the
purchase method of accounting. The income statements for the period ended June
30, 1997 and nine months ended March 31, 1998 assume that the Merger and the
related acquisition of the Acquired companies had been consummated on July 1,
1997. The balance sheet assumes that the Merger had been consummated on March
31, 1998. Hain management anticipates that it will be able to achieve
significant cost synergies and savings as a result of the Merger. However, in
accordance with the rules for presentation of pro forma financial information,
no effect to such cost savings has been included herein. The pro forma financial
statements are not necessarily indicative of the results of operations or the
financial position which would have occurred had the Merger been consummated at
such times, nor are they necessarily indicative of future results of operations
or financial position. The unaudited pro forma combined financial statements
should be read in conjunction with the historical consolidated financial
statements of Hain and Westbrae, including the notes thereto, incorporated by
reference herein and the financial statements of the Acquired Companies,
including the notes thereto, included in this Information Statement/Prospectus.
21
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
<S> <C> <C> <C> <C>
PRO FORMA
ACQUIRED ------------------------
HAIN COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 295 $ 722 $ (722)(1) $ 295
Trade accounts receivable, net............................... 12,926 5,119 18,045
Inventories.................................................. 12,291 5,117 17,408
Receivables-sales of equipment............................... 175 -- 175
Other current assets......................................... 1,750 959 2,709
--------- ----------- ----------- -----------
TOTAL CURRENT ASSETS....................................... 27,437 11,917 (722) 38,632
Property, plant and equipment, net............................. 873 4,957 (2,457)(2) 3,373
(10,772)(3)
Goodwill and other intangible assets, net...................... 52,697 10,772 72,266(4) 124,963
(1,348)(5)
Unamortized financing costs and other assets................... 3,809 1,431 600(6) 4,492
--------- ----------- ----------- -----------
TOTAL ASSETS............................................... $ 84,816 $ 29,077 $ 57,567 $ 171,460
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................ $ 8,460 $ 3,954 250 (10 $ 12,664
Current portion of revolving credit.......................... 3,500 -- (722)(1) 2,778
Current portion of senior term loan.......................... 1,310 -- 1,310
Current portion of other long-term debt...................... 195 2,415 (2,415)(7) 195
Income taxes payable......................................... 1,753 981 2,734
--------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES...................................... 15,218 7,350 (2,887) 19,681
LONG-TERM DEBT, LESS CURRENT PORTION:
Senior credit facility....................................... 8,195 -- 42,000(8) 50,195
Subordinated debentures...................................... 7,447 -- 7,447
Other........................................................ 172 18,044 (18,044)(7) 172
--------- ----------- ----------- -----------
TOTAL LONG-TERM DEBT....................................... 15,814 18,044 23,956 57,814
--------- ----------- ----------- -----------
OTHER LIABILITIES.............................................. 1,442 -- 1,442
DEFERRED INCOME TAXES.......................................... 552 431 -- 983
--------- ----------- ----------- -----------
TOTAL LIABILITIES.......................................... 33,026 25,825 21,069 79,920
STOCKHOLDERS' EQUITY:
Preferred stock -- -- -- --
(438)(9)
Common stock................................................. 116 438 17 (10 133
(6,950)(9)
Additional paid in capital................................... 44,032 6,950 39,733 (10 83,765
Retained earnings............................................ 7,917 (4,136) 4,136(9) 7,917
Treasury stock............................................... (275) -- -- (275)
--------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................. 51,790 3,252 36,498 91,540
--------- ----------- ----------- -----------
TOTAL LIABILITIES AND EQUITY............................... $ 84,816 $ 29,077 $ 57,567 $ 171,460
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma financial statements.
22
<PAGE>
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR
HISTORICAL WESTBRAE ACQUISITION PRO FORMA
---------------------- PRO FORMA OF WESTBRAE ACQUIRED --------------------------
HAIN WESTBRAE ADJUSTMENTS NATURAL, INC. COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 65,353 $ 32,894 -- $ 98,247 $ 52,889 -- $ 151,136
Cost of Sales...................... 40,781 20,019 -- 60,800 37,031 97,831
--------- ----------- ------------- ------------- ----------- ------------- -----------
Gross Profit....................... 24,572 12,875 -- 37,447 15,858 -- 53,305
Management fees to stockholder..... 510 (510)(1) --
Selling, general and administrative
expenses......................... 19,651 10,809 $ (1,143)(1) 29,317 10,587 -- 39,904
Depreciation of property and
equipment........................ 178 94 -- 272 1,128 (564)(2) 836
Amortization of goodwill and other (213)(2)
intangible assets................ 740 213 543(3) 1,283 -- 1,807(4) 3,090
--------- ----------- ------------- ------------- ----------- ------------- -----------
20,569 11,116 (813) 30,872 12,225 733 43,830
--------- ----------- ------------- ------------- ----------- ------------- -----------
Operating income................... 4,003 1,759 813 6,575 3,633 (733) 9,475
Interest expense................... 1,639 213 1,786(4) 3,638 534 (534)(5) 5,278
1,640(6)
Amortization of deferred financing
costs............................ 509 0 (18)(5) 491 -- -- 491
--------- ----------- ------------- ------------- ----------- ------------- -----------
2,148 213 1,768 4,129 534 1,106 5,769
--------- ----------- ------------- ------------- ----------- ------------- -----------
Income before income taxes......... 1,855 1,546 (955) 2,446 3,099 (1,839) 3,706
Provision for income taxes......... 786 206 35(6) 1,027 1,347 (743)(7) 1,631
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income....................... $ 1,069 $ 1,340 $ (990) $ 1,419 $ 1,752 $ (1,096) $ 2,075
--------- ----------- ------------- ------------- ----------- ------------- -----------
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income per common share:
Diluted.......................... $ 0.12 $ 0.16 $ 0.19
Basic............................ 0.12 0.16 0.20
Common equivalent shares:
Diluted.......................... 8,993 8,993 10,721
Basic............................ 8,694 8,694 10,422
</TABLE>
23
<PAGE>
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1998
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR
HISTORICAL WESTBRAE ACQUISITION PRO FORMA
---------------------- PRO FORMA OF WESTBRAE ACQUIRED --------------------------
HAIN WESTBRAE ADJUSTMENTS NATURAL, INC. COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 73,224 $ 10,639 -- $ 83,863 $ 41,604 -- $ 125,467
Cost of Sales...................... 43,604 6,246 -- 49,850 27,733 -- 77,583
--------- ----------- ------------- ------------- ----------- ------------- -----------
Gross Profit....................... 29,620 4,393 -- 34,013 13,871 0 47,884
Management fees to stockholder..... 693 $ (693)(1) --
Selling, general and administrative
expenses......................... 21,364 3,652 $ (286)(1) 24,730 8,966 -- 33,696
Depreciation of property and
equipment........................ 183 2 -- 185 678 (339)(2) 524
Amortization of goodwill and other (54)(2) (103)(3)
intangible assets................ 927 54 136(3) 1,063 103 1,355(4) 2,418
--------- ----------- ------------- ------------- ----------- ------------- -----------
Operating income................. 7,146 685 204 8,035 3,431 (220) 11,246
1,776(6)
Interest expense................... 1,706 34 443(4) 2,183 769 (769)(5) 3,959
Amortization of deferred financing
costs............................ 396 -- (5)(5) 391 -- -- 391
--------- ----------- ------------- ------------- ----------- ------------- -----------
Income before income taxes......... 5,044 651 (234) 5,461 2,662 (1,227) 6,896
Provision for income taxes......... 2,118 99 78(6) 2,295 1,268 (529)(7) 3,034
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income......................... $ 2,926 $ 552 $ (312) $ 3,166 $ 1,394 $ (698) $ 3,862
--------- ----------- ------------- ------------- ----------- ------------- -----------
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income per common share:
Diluted.......................... $ 0.26 $ 0.28 $ 0.30
Basic............................ $ 0.30 $ 0.32 $ 0.33
Common equivalent shares:
Diluted.......................... 11,352 11,352 13,080
Basic............................ 9,862 9,862 11,590
</TABLE>
24
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
NOTES -- WESTBRAE ACQUISITION:
GENERAL
On October 14, 1997, the Company completed the acquisition of Westbrae
Natural, Inc. ("Westbrae") in a transaction that has been accounted for as a
purchase. The cost of the acquisition (including closing costs) and the
repayment of the Company's existing credit facility with IBJ Schroder Bank and
Trust Company ("IBJ") and the repayment of Westbrae debt was funded by the
Senior Credit Facility (as defined herein) with IBJ providing for a $30 million
senior term loan and a $10 million revolving credit facility.
Details of the pro forma adjustments relating to the acquisition and the
financing are set forth below.
PRO FORMA STATEMENT OF INCOME ADJUSTMENTS:
<TABLE>
<C> <S>
(1) Adjustment to give effect to the reduction of certain costs and expenses associated
with the elimination of the principal corporate offices of Westbrae.
(2) Elimination of Westbrae historical amortization of goodwill.
(3) Goodwill amortization with respect to goodwill acquired in the acquisition of Westbrae.
(4) Increase in interest costs resulting from the financing of the Westbrae acquisition.
(5) Adjustment of amortization of financing costs resulting from the Senior Credit
Facility.
(6) Adjustment to historical provision for income taxes to eliminate the effect of net
operating loss carryforwards utilized by Westbrae and to adjust income taxes to the
expected effective tax rate following acquisition.
</TABLE>
NOTES -- ACQUIRED COMPANIES:
GENERAL
On April 24, 1998, Hain executed the Merger Agreement whereby it agreed to
acquire all of the outstanding capital stock of AMI and GOE. AMI is a holding
company whose two operating subsidiaries are Arrowhead and Terra. DeBoles is a
wholly owned subsidiary of Arrowhead.
The consideration to be paid for the Acquired Companies is $80 million, less
the assumption of not more than $20 million of indebtedness for borrowed money
net of cash. The pro forma financial statements assume that $40 million of the
merger consideration is to be paid through the issuance of Hain Common Stock and
that Hain will borrow $40 million from its bank to fund the balance of the
purchase price and to repay up to $20 million of existing debt of the Acquired
Companies. Closing of this transaction is expected to occur in late June 1998.
Details of the pro forma adjustments are set forth below.
PRO FORMA BALANCE SHEET ADJUSTMENTS:
<TABLE>
<C> <S>
(1) Cash of Acquired Companies utilized to pay down revolving credit.
(2) Adjustment of book amount of property, plant and equipment of Acquired Companies to
estimated fair value at date of acquisition.
</TABLE>
25
<PAGE>
<TABLE>
<C> <S>
(3) Elimination of goodwill of Acquired Companies at date of acquisition.
(4) Excess of the cost of acquisition of the Acquired Companies over the fair value of the
net tangible assets at date of acquisition.
(5) Elimination of unamortized financing expenses and deferred charges of the Acquired
Companies.
(6) Estimated financing costs to be incurred in connection with the financing of the cash
portion of the purchase price of the Acquired Companies.
(7) Debt of Acquired Companies at date of acquisition to be paid off with proceeds of new
Senior Term Loan as defined herein financing.
(8) Proceeds of a new Senior Term Loan to be used to finance the cash portion of the
purchase price of the Acquired Companies and to repay existing debt of the Acquired
Companies.
(9) Elimination of equity accounts of Acquired Companies at date of acquisition.
(10) Portion of purchase price of Acquired Companies to be paid by the issuance of 1.728
million shares of Hain Common Stock (based on an estimated fair market value of $23 per
share).
</TABLE>
PRO FORMA STATEMENT OF INCOME ADJUSTMENTS:
<TABLE>
<C> <S>
(1) Elimination of management fees that will not be applicable following the acquisition.
(2) Adjustment of depreciation expense based on revaluation of fixed assets of the Acquired
Companies.
(3) Elimination of historical goodwill amortization of the Acquired Companies.
(4) Goodwill amortization arising from the acquisition of the Acquired Companies.
(5) Elimination of historical interest expense of the Acquired Companies.
(6) Adjustment of historical interest expense to reflect the additional long-term debt and
that will be incurred in connection with the acquisition of the Acquired Companies.
(7) Adjustment of income taxes to give effect to the pro forma pretax adjustments, and to
adjust for the expected effective income tax rate following acquisition.
</TABLE>
26
<PAGE>
PRO FORMA FINANCIAL STATEMENT INFORMATION:
The following unaudited combining balance sheet combines the balance sheets
of the Acquired Companies as of February 28, 1998.
COMBINING CONDENSED BALANCE SHEETS OF ACQUIRED COMPANIES
FEBRUARY 28, 1998
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ARROWHEAD TERRA GOE COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash............................................................ $ 166 $ 208 $ 348 $ 722
Accounts receivable, net........................................ 2,536 1,134 1,449 5,119
Inventories..................................................... 4,151 709 257 5,117
Other current assets............................................ 463 238 258 959
----------- ---------- ----------- -----------
Total current assets............................................ 7,316 2,289 2,312 11,917
Property, plant & equipment, net.................................. 3,743 956 258 4,957
Intangibles, net of accumulated amortization...................... -- 10,772 -- 10,772
Other assets...................................................... 847 458 126 1,431
----------- ---------- ----------- -----------
Total assets.................................................... 11,906 14,475 2,696 29,077
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Liabilities and Stockholders' Equity Current Liabilities:
Accounts payable and accrued expenses........................... 1,519 1,155 1,280 3,954
Note payable and current portion of long-term debt.............. -- 2,408 7 2,415
Income taxes payable............................................ 536 260 185 981
----------- ---------- ----------- -----------
Total current liabilities....................................... 2,055 3,823 1,472 7,350
Long-term debt, less current portion.............................. 3,147 14,803 94 18,044
Deferred income taxes............................................. 415 0 16 431
----------- ---------- ----------- -----------
5,617 18,626 1,582 25,825
Stockholders' Equity:
Common stock.................................................... 1 1 436 438
Paid in Capital................................................. 2,376 4,574 -- 6,950
Retained earnings/(deficit)(1).................................. 3,912 (8,726) 678 (4,136)
----------- ---------- ----------- -----------
Total stockholders' equity...................................... 6,289 (4,151) 1,114 3,252
----------- ---------- ----------- -----------
$ 11,906 $ 14,475 $ 2,696 $ 29,077
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
- ------------------------
(1) Retained earnings has been reduced by the excess of consideration paid over
consideration received, amounting to $8,855. See the financial statements of
Terra, and the notes thereto, included elsewhere herein.
27
<PAGE>
HISTORICAL COMBINING STATEMENTS OF INCOME OF THE ACQUIRED COMPANIES
FOR THE FISCAL YEAR ENDED JULY 31, 1997
(UNAUDITED)
The following unaudited combining statement of income combines the results of
operations of the acquired companies for the fiscal year ended July 31, 1997.
The fiscal years of Terra and GOE previously ended on dates other than July 31;
consequently the amounts shown below for those companies have been recast to
conform with the fiscal year end of Arrowhead which substantially conform to the
fiscal year end of Hain, which is June 30.
<TABLE>
<CAPTION>
ARROWHEAD TERRA GOE COMBINED
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 25,977 $ 12,911 $ 14,001 $ 52,889
Cost of sales................................................. 19,436 7,487 10,108 37,031
------- ----------- ----------- -----------
Gross profit.................................................. 6,541 5,424 3,893 15,858
Management fees............................................... 240 270 -- 510
Selling, general and administrative expenses.................. 4,547 3,748 3,420 11,715
------- ----------- ----------- -----------
Operating income.............................................. 1,754 1,406 473 3,633
Interest expense, net......................................... 394 42 98 534
------- ----------- ----------- -----------
Income before income taxes.................................... 1,360 1,364 375 3,099
Provision for income taxes.................................... 570 641 136 1,347
------- ----------- ----------- -----------
Net income.................................................... $ 790 $ 723 $ 239 1,752
------- ----------- ----------- -----------
------- ----------- ----------- -----------
</TABLE>
28
<PAGE>
AMI SHAREHOLDERS WRITTEN CONSENT
Approval of the Merger by AMI's shareholders will be obtained upon receipt
of executed written consents from the holders of at least two-thirds of the
outstanding shares of AMI Common Stock, in lieu of a shareholders' meeting.
Article 9.10 of the TBCA and Article Ten of AMI's Articles of Incorporation
provide that any action required by the TBCA to be taken at any annual or
special meeting of shareholders, or any action which may be taken at an annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing, setting
forth the action to be taken, shall be signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to take
such action at a meeting at which the holders of all shares entitled to vote on
the action were present and voted. Three AMI shareholders, who in the aggregate
hold 67.64% of the outstanding shares of AMI Common Stock, have agreed, pursuant
to a Voting Agreement and Irrevocable Proxy dated April 24, 1998 (the "AMI
Voting Agreement"), to execute a written consent. The number of shares owned by
each consenting shareholder and the percentage of all shares outstanding
represented by that ownership are as follows: (i) Alexander Dzieduszycki (30,165
shares; 5.32%); (ii) The George Dana Sinkler, Jr. Revocable Living Trust (the
"GDS Trust") (60,331 shares; 10.64%); and (iii) TSG2 (293,048 shares; 51.68%).
Mr. Dzieduszycki and Dana Sinkler, grantor and trustee of the GDS Trust, are
founders and executive officers of Terra. It is a condition of the AMI Merger
Agreement that the AMI Voting Agreement be in full force and effect as of the
Closing Date.
Directors, officers and employees of AMI will communicate in person or by
telephone with the AMI shareholders regarding the consents, without additional
compensation. Written consents given may be revoked until AMI obtains written
consents from the holders of at least two-thirds of the outstanding shares of
AMI Common Stock and the notice required by the TBCA has been mailed to all AMI
shareholders. Consents may be revoked by duly executing a later written
revocation and delivering it to AMI, Attention: Chief Operating Officer, at 110
South Lawton, Hereford, Texas 79045.
GOE SHAREHOLDERS WRITTEN CONSENT
Approval of the Merger by GOE's shareholders will be obtained upon receipt
of executed written consents from the holders of at least a majority of the
outstanding shares of GOE Common Stock, in lieu of a shareholders' meeting.
Section 603 of the CGCL provides that any action which may be taken at any
annual or special meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action to be
taken, shall be signed by the holders of shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote on the action were present and
voted. Two GOE shareholders, who in the aggregate hold all (100%) of the
outstanding GOE Common Stock, have agreed, pursuant to a Voting Agreement and
Irrevocable Proxy dated April 24, 1998 (the "GOE Voting Agreement" and, together
with the AMI Voting Agreement, the "Voting Agreements"), to execute a written
consent. The number of shares owned by each consenting shareholder and the
percentage of all shares outstanding represented by that ownership are as
follows: Al. H. Jacobson (9,000 shares; 45%); and TSG2 (11,000 shares; 55%). It
is a condition of the GOE Merger Agreement that the GOE Voting Agreement be in
full force and effect as of the Closing Date.
29
<PAGE>
THE MERGER
DESCRIPTION
Under the Merger Agreements, each of AMI and GOE will be merged with and
into Hain Subsidiary with Hain Subsidiary continuing as the surviving
corporation. At the Effective Time, each outstanding share of AMI Common Stock
and GOE Common Stock will be converted into the right to receive a combination
of cash and Hain Common Stock as allocated by Hain, subject to certain
limitations described below, on the third day prior to the Closing Date.
BACKGROUND OF THE MERGER
Hain's mission is to be the leading marketer and seller of specialty food
products, with a strong commitment to total quality management in all
departments. Hain intends to increase sales and improve operating results by
investing in product development and building brand equity. Key elements of
Hain's business strategy are: (i) to continue growth through mergers and
acquisitions; (ii) to invest in brands and consumer awareness; (iii) to
outsource manufacturing; (iv) to leverage economies of scale in production and
logistics; and (v) to develop export opportunities.
Hain was organized in May 1993 to acquire certain specialty food brands.
Since its formation, Hain has completed several acquisitions of companies or
brands. In October 1997, Hain acquired Westbrae, a marketer of over 300 high
quality natural and organic food and snack products. In March 1997, Hain entered
into a licensing agreement with Weight Watchers, pursuant to which Hain
manufactures, markets and sells Weight Watchers dry and refrigerated products.
In May 1997, Hain acquired Boston Better Snacks, a marketer of high quality
popcorn and chip snack products. In July 1997, Hain acquired the Alba brand of
dry milk, shake and cocoa products from Heinz. In addition, on May 27, 1998,
Hain entered into a distribution and licensing agreement with Heinz U.S.A., a
division of Heinz, to market and sell the "Earth's Best" line of organic baby
food products to the natural food channel in the United States. See "Information
Concerning Hain--Recent Developments."
AMI is a newly formed holding company whose two direct subsidiaries are
Arrowhead and Terra. Arrowhead, founded in 1960, is a leading supplier of
natural and organic whole grain products to the natural foods industry. After
being acquired by TSG2 L.P. ("TSG2") in 1994, Arrowhead acquired DeBoles in
1995. In November 1997, AMI acquired Terra, a leading manufacturer of specialty
snacks in the premium snack category, for approximately $20.0 million in cash
and stock.
In March 1997, Arrowhead and Terra each retained Wasserstein Perella as its
exclusive financial advisor to explore the possible sale of the two companies.
Wasserstein Perella conducted an auction to determine whether there were any
prospective purchasers that would be willing to pay an acceptable price to
purchase either or both of these companies (the "1997 Auction"). At the time,
Terra was an independent company and was not a subsidiary of AMI. However, TSG2
owned a majority of the outstanding shares of common stock of both Arrowhead and
Terra.
During the course of the 1997 Auction, Wasserstein Perella contacted a
number of strategic and financial buyers. Prospective purchasers were invited
either to bid on Arrowhead or Terra separately, or to bid on both Arrowhead and
Terra. Several of these prospective purchasers, including Hain, executed
confidentiality agreements with both Arrowhead and Terra (the "1997 Hain
Confidentiality Agreements").
After final bids for Arrowhead and Terra were received, the two companies
analyzed the proposals made by prospective purchasers. Hain submitted a
preliminary indication of interest for Arrowhead, but did not submit such an
indication for Terra. However, because of the timing of Hain's then pending
acquisition of Westbrae, Hain did not submit a final bid for Arrowhead.
The Board of Directors of Arrowhead determined that the bids for Arrowhead
were not sufficient and decided not to proceed with the sale of Arrowhead at
that time. The Board then began to give serious
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consideration to the possibility of an initial public offering for Arrowhead
(the "Initial Public Offering") as an alternative to a sale of Arrowhead to a
third party.
The Board of Directors of Arrowhead also proposed to the shareholders of
Terra that the two companies be combined. Pursuant to the proposed transaction
(the "Terra Acquisition"), AMI would acquire Terra in exchange for a total
consideration of $20 million, consisting of $15.5 million in cash and $4.5
million in AMI Common Stock (112,500 shares, valued at $40 per share of AMI
Common Stock). The Terra Acquisition was consummated in November 1997.
In connection with its approval of the Terra Acquisition, the Board of
Directors of AMI determined that the Terra Acquisition would improve the
feasibility of the Initial Public Offering because the acquisition would give
AMI another strong brand and another profitable line of business.
In December 1997, TSG2 acquired 55% of the outstanding GOE Common Stock from
the founder of GOE for aggregate cash consideration of $4 million. Under the
terms of TSG2's agreement with the founder, TSG2 agreed to purchase an
additional 20% of GOE Common Stock for $2 million in cash on or prior to the
second anniversary of the December 1997 closing of the initial purchase.
After TSG2's initial purchase of GOE Common Stock, TSG2 began to discuss
with the AMI Board of Directors the possible combination of GOE and AMI (which
now included Terra) in preparation for the Initial Public Offering. In
connection with these preparations, Arrowhead and Terra began to provide certain
administrative services for GOE.
Also in preparation for the Initial Public Offering, on March 2, 1998 the
AMI Board of Directors elected Charles A. Lynch to serve as its Chairman of the
Board and Chief Executive Officer. The Board believed that Mr. Lynch's extensive
experience as a food industry executive would greatly benefit AMI in the Initial
Public Offering. Mr. Lynch immediately began to review AMI's operations and to
meet with prospective underwriters to discuss the proposed Initial Public
Offering.
Shortly after Mr. Lynch became Chief Executive Officer of AMI, Mr. J. Gary
Shansby and Mr. Charles H. Esserman learned that Hain might be interested in
acquiring AMI and GOE as an alternative to the Initial Public Offering.
Accordingly, Mr. Esserman requested that Wasserstein Perella contact Mr. Irwin
Simon of Hain to determine Hain's level of interest in such a transaction.
On March 31, 1998, Mr. Shansby, Mr. Esserman and John H. Simpson of
Wasserstein Perella met with Mr. Simon and M. Mark Albert of Bear, Stearns & Co.
Inc. Mr. Esserman indicated to Mr. Simon that AMI believed that the Initial
Public Offering was in the best interests of its shareholders. However, Mr.
Esserman informed Mr. Simon that AMI would consider a sale to Hain as an
alternative to the Initial Public Offering if the aggregate purchase price for
AMI and GOE (including assumed debt of approximately $20 million) was at least
$80 million.
On April 2, 1998, Hain entered into a supplemental confidentiality agreement
with AMI, pursuant to which Hain agreed to treat GOE's information
confidentially with the same force and effect as if GOE had been an original
beneficiary of the 1997 Hain Confidentiality Agreements. The supplemental
confidentiality agreement also contained customary "standstill" provisions
pursuant to which Hain agreed, among other things, not to acquire, or seek to
acquire, any voting securities of AMI or GOE, or to propose any business
combination with AMI or GOE, in each case for 12 months after the date of the
supplemental confidentiality agreement.
On April 6, Hain submitted a preliminary term sheet for the acquisition of
AMI and GOE. From April 6 to April 20, Hain, AMI and GOE, and their respective
legal and financial advisors negotiated the price and other terms of the Merger,
including the form of definitive merger agreements relating to the Merger. As
part of these discussions, the parties agreed upon an allocation of the purchase
price between AMI and GOE. During the same period, Hain conducted due diligence
with respect to AMI's and GOE's
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operations. On April 16, AMI's legal counsel distributed to the AMI Board of
Directors the then-current draft of the AMI Merger Agreement.
On April 18, the Hain Board of Directors held a special meeting to discuss
the proposed Merger, prior to which Hain distributed the then-current draft of
the AMI Merger Agreement and other relevant materials. Mr. Simon and Jack
Kaufman, Hain's Chief Financial Officer, presented the material terms of the
Merger and certain other legal matters. Representatives of Cahill Gordon &
Reindel, Hain's legal counsel, and Bear, Stearns & Co. Inc., Hain's financial
advisor, were present at the meeting. After consideration of these
presentations, and a discussion of the proposed Merger, the Hain Board of
Directors approved the Merger and determined it to be in the best interests of
the Hain stockholders.
On April 20, the GOE Board of Directors held a special meeting in Los
Angeles. At the GOE Board meeting, the GOE Board of Directors unanimously
approved the GOE Merger and determined it to be in the best interests of GOE's
shareholders.
On April 21, the Board of Directors of AMI held a special meeting in Dallas,
Texas to discuss the proposed transaction. The AMI Board received a presentation
from Wasserstein Perella with respect to the financial aspects of the AMI
Merger, as well as a presentation from Vinson & Elkins L.L.P., AMI's legal
counsel, with respect to the material terms of the AMI Merger Agreement and
certain other legal matters. After consideration of these presentations, as well
as a discussion of the impact of the proposed transaction on AMI and the plans
for the Initial Public Offering, the Board of Directors unanimously approved the
AMI Merger and determined it to be in the best interests of AMI's shareholders.
On the morning of April 24, the AMI Merger Agreement and the GOE Merger
Agreement were executed by the parties to those agreements. Later in the morning
on April 24, Hain issued a press release announcing the Merger.
REASONS FOR THE MERGER
GENERAL
The Merger will effect a combination of each of AMI's and GOE's business
with Hain's business on terms that have been carefully considered by the Boards
of Directors of each of Hain, AMI and GOE and which are believed by them to be
fair and in the best interests of their respective shareholders. The Merger
Agreements are the result of arm's length negotiations among Hain, AMI and GOE
and their representatives and represent a consideration of many factors,
including a judgment as to the nature and potential of the businesses in which
the companies are engaged and a judgment as to the potential for the combined
operations.
The Boards of Directors of each of Hain, AMI and GOE believe that the
activities of the companies are compatible and that the Merger will enhance the
product development potential of the combined operations.
HAIN'S REASONS FOR THE MERGER
The Merger constitutes a significant milestone in Hain's stated mission to
become the leading marketer and seller of specialty food products. The Merger
also offers the possibility of achieving improved operating efficiencies through
elimination of duplicate efforts and increasing purchasing and distribution
leverage. In connection with the Merger, Hain has retained Bear, Stearns & Co.
Inc. as its financial advisor.
The Board of Directors of Hain believes the combined business of Hain, AMI
and GOE will have the potential to realize increased market share and improved
operating and financial performance compared to the entities operated
independently. In addition, Hain anticipates that the acquisitions of AMI and
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GOE will add to the current profitability of Hain's existing product lines, as
well as bring aboard experienced and talented managers and executives to
complement Hain's existing management team.
AMI'S REASONS FOR THE MERGER
In approving the AMI Merger and the AMI Merger Agreement, and recommending
that shareholders vote for adoption of the AMI Merger Agreement and approval of
the transactions contemplated thereby, AMI's Board of Directors consulted with
AMI's legal and financial advisors, as well as AMI's management. The following
are material factors considered by AMI's Board of Directors in reaching its
recommendation:
1. The opinion of Wasserstein Perella to the AMI Board of Directors dated
April 21, 1998 to the effect that, as of such date and based upon and subject to
the assumptions made, matters considered and limitations on the review
undertaken set forth therein, the total cash and stock consideration to be
received by holders of the shares of AMI Common Stock pursuant to the AMI Merger
Agreement was fair to such holders from a financial point of view; the full text
of the opinion of Wasserstein Perella is attached as Annex C hereto and is
incorporated herein by reference and should be read in its entirety;
2. AMI's and Hain's historical financial results, as well as Hain's
historical stock prices;
3. The likelihood that the Merger would be consummated, as well as the
effects on AMI's business, operations, financial condition and the proposed
Initial Public Offering, should it not be possible to consummate the AMI Merger
following public announcement that the AMI Merger Agreement had been entered
into;
4. The terms and conditions of the AMI Merger, the AMI Merger Agreement and
the transactions contemplated thereby, which were the product of arm's length
negotiations, including the parties' representations, warranties and covenants
(and the fact that the representations by AMI will not survive the Effective
Time of the AMI Merger), the conditions to their respective obligations, and the
limited ability of Hain to terminate the AMI Merger Agreement;
5. The fact that the consideration to be received in the Merger consists
solely of cash and shares of Hain Common Stock, which shares will be freely
tradeable immediately upon the Effective Time of the AMI Merger;
6. The fact that the transactions contemplated by the AMI Merger Agreement
would constitute a tax-free reorganization within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"), unless the Merger Consideration
consists entirely of cash;
7. AMI's Board of Directors recognition that certain members of AMI's Board
of Directors and management have interests in the Merger that are in addition
to, and not necessarily aligned with, the interests in the AMI Merger of other
holders of shares of AMI Common Stock;
8. A review of the strategic alternatives available to AMI (including
continuing AMI's business in its present configuration without significant
changes and implementing the Initial Public Offering, which would involve
significant expense and be subject to changes in conditions in the financial
markets), none of which AMI's Board of Directors believed to be as favorable to
AMI's shareholders as the AMI Merger; and
9. The provisions of the AMI Merger Agreement relating to potential
competing transactions, including the ability of AMI to entertain unsolicited
competing bids (provided that AMI's Board of Directors determines that such is
required by its fiduciary duties to AMI and its shareholders and subject to a
termination fee), to provide information to such competing bidders, to negotiate
with such competing bidders, to withdraw its recommendation with respect to the
AMI Merger, and to terminate the AMI Merger Agreement in favor of a transaction
with a competing bidder upon payment of a termination fee.
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The foregoing discussion of the factors considered by AMI's Board is not
intended to be exhaustive. In view of the wide variety of factors considered in
connection with its evaluation of the AMI Merger, AMI's Board of Directors did
not find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determinations. Rather, AMI's Board made its determination based on the total
mix of information available to it, and the judgments of individual directors
may have been influenced to a greater or lesser degree by differing factors.
GOE'S REASONS FOR THE MERGER
In approving the GOE Merger and the GOE Merger Agreement, and recommending
that shareholders vote for adoption of the GOE Merger Agreement and approval of
the transactions contemplated thereby, GOE's Board of Directors consulted with
GOE's legal and financial advisors, as well as GOE's management. The following
are material factors considered by GOE's Board of Directors in reaching its
recommendation:
1. GOE's and Hain's historical financial results, as well as Hain's
historical stock prices;
2. The likelihood that the Merger would be consummated, as well as the
effects on GOE's business, operations and financial condition;
3. The terms and conditions of the GOE Merger, the GOE Merger Agreement and
the transactions contemplated thereby, which were the product of arm's length
negotiations including the parties' representations, warranties and covenants
(and the fact that the representations by GOE will not survive the Effective
Time of the GOE Merger), the conditions to their respective obligations, and the
limited ability of Hain to terminate the GOE Merger Agreement;
4. The fact that the consideration to be received in the Merger consists
solely of cash and shares of Hain Common Stock, which shares will be freely
tradeable immediately upon the Effective Time of the GOE Merger;
5. The fact that the transactions contemplated by the GOE Merger Agreement
would constitute a tax-free reorganization within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"), unless the Merger Consideration
consists entirely of cash;
6. The provisions of the GOE Merger Agreement relating to potential
competing transactions, including the ability of GOE to entertain unsolicited
competing bids (provided that the GOE Board of Directors determines that such is
required by its fiduciary duties to GOE and its shareholders and subject to
termination fee), to provide information to such competing bidders, to negotiate
with such competing bidders, to withdraw its recommendation with respect to the
GOE Merger, and to terminate the GOE Merger Agreement in favor of a transaction
with a competing bidder upon payment of the Termination Fee.
The foregoing discussion of the factors considered by GOE's Board of
Directors is not intended to be exhaustive. In view of the wide variety of
factors considered in connection with its evaluation of the GOE Merger, GOE's
Board of Directors did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determinations. Rather, GOE's Board of Directors made its
determination based on the total mix of information available to it, and the
judgments of individual directors may have been influenced to a greater or
lesser degree by differing factors.
FAIRNESS OPINION OF AMI'S FINANCIAL ADVISOR
AMI retained Wasserstein Perella to act as AMI's financial advisor in
connection with the Merger. On April 21, 1998, Wasserstein Perella delivered its
oral opinion to the AMI Board of Directors (which was confirmed in writing later
that day) that, as of such date and subject to certain considerations set forth
in
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the written opinion, the total cash and stock consideration to be received by
the holders of shares of AMI Common Stock pursuant to the AMI Merger Agreement
was fair from a financial point of view to such holders.
THE FULL TEXT OF THE FAIRNESS OPINION DATED APRIL 21, 1998 (THE "WASSERSTEIN
PERELLA FAIRNESS OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS PROSPECTUS/ INFORMATION STATEMENT.
AMI SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE WASSERSTEIN PERELLA FAIRNESS
OPINION CAREFULLY AND IN ITS ENTIRETY. THE WASSERSTEIN PERELLA FAIRNESS OPINION
WAS PROVIDED TO THE AMI BOARD OF DIRECTORS AND IS DIRECTED ONLY TO THE FAIRNESS
OF THE CASH AND STOCK CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF SHARES OF
AMI COMMON STOCK PURSUANT TO THE AMI MERGER AGREEMENT, FROM A FINANCIAL POINT OF
VIEW TO SUCH HOLDERS, AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER.
THE SUMMARY OF THE WASSERSTEIN PERELLA FAIRNESS OPINION SET FORTH IN THE
PROSPECTUS/INFORMATION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
In connection with rendering its written opinion, Wasserstein Perella, among
other things: (i) reviewed and analyzed certain business and financial
information relating to AMI and certain publicly available business and
financial information relating to Hain; (ii) reviewed certain internal financial
and operating information prepared by or on behalf of AMI or Hain; (iii)
analyzed certain financial forecasts, analyses, projections, and certain
estimates and synergies, and certain estimates of the amount and timing of the
revenue enhancements, cost savings and related expenses and synergies expected
to result from the AMI Merger (the "Expected Synergies") in each case as
prepared by or on behalf of AMI or Hain and provided to Wasserstein Perella for
purposes of its analysis; (iv) reviewed and discussed AMI's and Hain's
respective businesses, operations, assets, financial condition and future
prospects with senior management of AMI and certain members of management of
Hain; (v) compared the financial performance of AMI and Hain with that of
certain other comparable publicly-traded companies; (vi) reviewed and considered
the financial terms of certain comparable recent acquisitions and business
combination transactions in the specialty foods industry specifically and in
other industries generally; reviewed and considered certain financial and stock
market data relating to AMI and Hain, including, among other things, historical
stock prices and trading volumes relating to Hain, and compared such data with
similar data for certain other comparable companies, which are publicly traded;
(vii) reviewed a substantially final draft of the AMI Merger Agreement and
certain related documents; and (viii) performed such other analyses and
considered such other factors as it considered appropriate.
In rendering its opinion, Wasserstein Perella assumed and relied upon,
without independent verification, the accuracy and completeness of all the
financial and other information provided to or discussed with them or that was
publicly available. Wasserstein Perella did not assume any responsibility for
independent verification of any of such information. It also relied upon the
reasonableness and accuracy of the financial forecasts, analyses, projections
and the Expected Synergies provided to them and assumed, with AMI's consent,
that such financial forecasts, analyses, projections and Expected Synergies were
reasonably prepared in good faith reflecting the best currently available
judgments and estimates of AMI and Hain's respective management and that such
forecasts, analysis, projections and Expected Synergies will be realized in the
amounts and as the times currently estimated by AMI and Hain. Wasserstein
Perella expressed no opinion with respect to such forecasts, analyses,
projections or Expected Synergies or the assumptions upon which they were based.
Wasserstein Perella assumed that the AMI Merger would be completed according to
the terms described in the AMI Merger Agreement without any modification and
that obtaining the necessary regulatory approvals and third party consents for
the AMI Merger would not
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have an adverse impact on Hain, on the Expected Synergies or any other
anticipated benefits of the AMI Merger.
The Wasserstein Perella Fairness Opinion does not address the fairness to
GOE, its shareholders or any other person or entity of the consideration to be
received by the GOE shareholders in the GOE Merger or any other aspect of the
GOE Merger. In addition, Wasserstein Perella was not involved in establishing
the relative amount of total consideration that AMI shareholders would receive
in the AMI Merger and the total consideration that GOE shareholders would
receive in the GOE Merger and expressed no opinion as to the relationship
between the relative amounts of such consideration, without limiting the opinion
set forth in the final paragraph of the Wasserstein Perella Fairness Opinion.
Additionally, Wasserstein Perella did not review any of the books and
records of AMI or Hain, or assume any responsibility for conducting a physical
inspection of the properties or facilities of AMI or Hain, or make or obtain an
independent valuation or appraisal of the assets or liabilities of AMI or Hain,
and no such independent valuations or appraisals were provided them. The
Wasserstein Perella Fairness Opinion does not constitute a recommendation to any
AMI shareholder as to how such holder should vote with respect to the AMI
Merger, and should not be relied upon by any such shareholder as such.
Wasserstein Perella's opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by them as
of the date thereof. They expressed no opinion as to the prices at or trading
ranges in which the securities of Hain (including the Hain Common Stock) would
actually trade at any time.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Wasserstein Perella considered the results of all its
analyses as a whole and did not attribute any particular weight to any analysis
or factor considered by it. The Wasserstein Perella Fairness Opinion does not
address AMI's underlying business decision to effect the transactions
contemplated by the AMI Merger Agreement, nor does it address the merits of the
AMI Merger relative to any alternative transaction or business strategy that may
be available to AMI.
As described above, the Wasserstein Perella Fairness Opinion and the
information provided by Wasserstein Perella to the AMI Board of Directors were
two of a number of factors taken into consideration by the AMI Board of
Directors in making its determination to recommend approval of the Merger.
Consequently, the Wasserstein Perella analyses described above should not be
viewed as determinative of the opinion of the entire AMI Board of Directors or
the view of the management with respect to the value of AMI. The total cash and
stock consideration to be received by the holders of shares of AMI Common Stock
pursuant to the AMI Merger Agreement was determined through negotiations between
AMI and its advisors and Hain, and was approved by the entire AMI Board of
Directors.
The AMI Board of Directors retained Wasserstein Perella based upon its
experience and expertise. Wasserstein Perella is an investment banking and
advisory firm. In the ordinary course of its business, Wasserstein Perella may
actively trade the securities of Hain for their own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities. In the past, Wasserstein Perella has provided advisory services
to AMI and other entities controlled by the Shansby Group for which services
Wasserstein Perella received customary fees.
Pursuant to a Letter dated April 20, 1998, AMI has agreed to pay Wasserstein
Perella an advisory fee contingent upon the consummation of the Merger. In
addition, AMI has agreed, among other things, to reimburse Wasserstein Perella
for all expenses incurred in connection with the services provided by
Wasserstein Perella, and to indemnify and hold harmless Wasserstein Perella and
certain related parties from and against certain liabilities and expenses, which
may include certain liabilities under the federal securities laws, in connection
with its engagement.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax
consequences of the Merger that are generally applicable to Hain, Hain
Subsidiary, AMI, GOE, holders of AMI Common Stock and holders of GOE Common
Stock. This discussion is based on current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing regulations thereunder
(including final, temporary or proposed), and current administrative rulings and
court decisions as of the date of this Prospectus/Information Statement, all of
which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences described herein.
The following discussion is intended only as a summary of the material
principal U.S. federal income tax consequences of the Merger and does not
purport to be a complete analysis or listing of all of the potential tax
effects. In particular, this discussion does not address all U.S. federal income
tax considerations that may be relevant to particular AMI shareholders or GOE
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, corporations, trusts, financial institutions,
insurance companies or tax-exempt organizations, or AMI shareholders or GOE
shareholders who are subject to the "golden parachute" provisions of Section
280G of the Code, who hold their shares as part of a "straddle" or "conversion
transaction," who are subject to the alternative minimum tax provisions of the
Code, who are foreign persons, or who acquired their shares in connection with
stock option or stock purchase plans or in other compensatory transactions. In
addition, the following discussion does not address the tax consequences of the
Merger under foreign, state or local tax laws or the tax consequences of
transactions effectuated prior to or after the Merger (whether or not such
transactions are in connection with the Merger), including without limitation
transactions in which shares of AMI Common Stock or GOE Common Stock are
acquired or shares of Hain Common Stock are disposed. This discussion assumes
that the AMI shareholders and GOE shareholders hold their AMI Common Stock and
GOE Common Stock, respectively, as capital assets within the meaning of Section
1221 of the Code.
EACH AMI SHAREHOLDER AND GOE SHAREHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
The tax treatment of each of the AMI Merger and the GOE Merger will be
determined separately and will depend upon whether the Merger Consideration for
such merger consists solely of Cash Merger Consideration or a combination of
Cash Merger Consideration and Stock Merger Consideration.
If the Merger Consideration consists solely of Cash Merger Consideration, a
holder of AMI Common Stock or GOE Common Stock, as the case may be, will
recognize gain or loss as a result of the Merger equal to the difference between
the amount of the Cash Merger Consideration received and the holder's adjusted
basis in the AMI Common Stock or GOE Common Stock surrendered in the Merger.
Such gain will be capital gain if the AMI Common Stock or GOE Common Stock
surrendered in the Merger are capital assets at the Effective Time, and will be
long term capital gain if such AMI Common Stock or GOE Common Stock was held for
more than one year. Moreover, if the Merger Consideration for the AMI Merger or
the GOE Merger consists solely of Cash Merger Consideration, it is contemplated
that the AMI Merger Agreement or the GOE Merger Agreement will be amended to
provide for AMI or GOE, as the case may be, to survive the Merger such that no
corporate-level gain or loss will be recognized as a result of the Merger.
If the Merger Consideration consists of a combination of Cash Merger
Consideration and Stock Merger Consideration, the Merger is intended to qualify
as a reorganization under U.S. federal income tax law. Under these
circumstances, it is a condition to the obligations of Hain to consummate the
Merger that Cahill Gordon & Reindel, counsel to Hain, render at the Closing an
opinion to Hain, and it is a condition of the obligation of each of AMI and GOE
to consummate the Merger that Vinson & Elkins, L.L.P., counsel for each of AMI
and GOE, render at the closing an opinion to AMI and GOE that the Merger, if
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consummated on the terms of the Merger Agreements as described in this
Prospectus/Information Statement, will constitute a reorganization under Section
368(a) of the Code and that Hain, Hain Subsidiary, AMI and GOE will each be "a
party to a reorganization" within the meaning of Section 368(b) of the Code. In
rendering such opinion, counsel has relied in part upon certain written
representations, warranties and covenants of Hain, AMI and GOE. No ruling,
however, has been sought from the Internal Revenue Service as to the U.S.
federal income tax consequences of the Merger, and the opinion of counsel is not
binding on the Internal Revenue Service or any court. There is no assurance that
the IRS will not successfully assert a contrary position.
Assuming the Merger Consideration consists of Cash Merger Consideration and
Stock Merger Consideration and that the Merger qualifies as a reorganization
under Section 368(a) of the Code, the following federal income tax consequences
will occur:
(a) no gain or loss will be recognized by Hain, Hain Subsidiary, AMI or
GOE in connection with the Merger.
(b) no loss will be recognized as a result of the exchange of such AMI
Common Stock or GOE Common Stock for the Stock Merger Consideration and the
Cash Merger Consideration pursuant to the Merger;
(c) a holder of AMI Common Stock or GOE Common Stock will recognize gain
as a result of the Merger to the extent of the lesser of the amount of the
Cash Merger Consideration received by such holder and the gain realized by
such holder as a result of the exchange (i.e., the excess, if any, of (i)
the fair market value of the Stock Merger Consideration and the amount of
the Cash Merger Consideration, over (ii) such holder's adjusted basis in the
AMI Common Stock or GOE Common Stock surrendered in the Merger). Such
recognized gain will be capital gain provided that (i) the AMI Common Stock
or GOE Common Stock surrendered in the Merger was held as a capital asset
and (ii) the payment of the Cash Merger Consideration does not have the
effect of a distribution of a dividend (which would be treated as ordinary
income);
(d) the aggregate basis of the shares of Hain Common Stock received by a
holder of AMI Common Stock or GOE Common Stock in the Merger (including any
fractional share deemed received) will be the same as the aggregate basis of
the shares of AMI Common Stock or GOE Common Stock surrendered in exchange
therefor increased by the amount of any gain recognized as a result of the
Merger and decreased by the amount of the Cash Merger Consideration received
by such holder;
(e) the holding period of the shares of Hain Common Stock to be received
by a holder of AMI Common Stock or GOE Common Stock in the Merger will
include the holding period of the AMI Common Stock or GOE Common Stock
surrendered in exchange therefor, provided that such shares of AMI Common
Stock or GOE Common Stock are as capital assets at the Effective Time; and
(f) a holder of AMI Common Stock or GOE Common Stock receiving cash in
lieu of a fractional share will recognize gain or loss upon such payment
equal to the difference, if any, between such stockholder's basis in the
fractional share (as described in paragraph (c) above) and the amount of
cash received. Such gain or loss will be a capital gain or loss if the Hain
Common Stock is held as a capital asset at the Effective Time.
For federal income tax purposes the Jacobson Payment should be treated as
being paid to TSG2 and thereafter by TSG2 to Mr. Jacobson as payment for a
portion of Mr. Jacobson's GOE Common Stock under the existing acquisition
agreements between TSG2 and Mr. Jacobson. As a result, TSG2 should be treated as
having acquired 20% of the GOE Common Stock from Mr. Jacobson in exchange for
the Jacobson Payment immediately prior to the Merger and exchanging such GOE
Common Stock for the Merger Consideration pursuant to the Merger. The Jacobson
Payment should be included in the amount realized by TSG2 in the Merger, and the
Cash Merger Consideration received by TSG2 should include the portion
represented by the Jacobson Payment. Mr. Jacobson should be treated as having
sold 20% of the GOE Common Stock to TSG2 for the Jacobson Payment in a taxable
transaction separate from the Merger.
A holder of AMI Common Stock who perfects such shareholder's dissenters'
rights under Article 5.12 of the TBCA will recognize gain or loss equal to the
difference between the amount realized by such
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shareholders in the statutory appraisal proceeding and such shareholder's
adjusted tax basis in his or her AMI Common Stock.
ACCOUNTING TREATMENT
The Merger is expected to be treated as a purchase transaction for
accounting purposes in accordance with Accounting Principles Board Opinion No.
16.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Options to purchase 17,536 shares of AMI Common Stock at an exercise price
of $32.00 per share, which were granted to Charles A. Lynch pursuant to a stock
option agreement dated March 1, 1998, will become fully exercisable upon the
consummation of the Merger. As of the date of this Prospectus/ Information
Statement, none of the options are exercisable.
Options to purchase 5,000 shares of AMI Common Stock at an exercise price of
$32.00 per share which were granted to Mark Novak pursuant to a stock option
agreement dated April 17, 1996, became fully exercisable upon the approval by
the AMI Board of Directors of the Merger. Prior to such approval, 2,500 of the
options were exercisable.
An affiliate of TSG2 is providing certain advisory services to AMI in
connection with the transactions contemplated by the AMI Merger Agreement and
will receive as compensation for such services a fee of $1.5 million. This
affiliate is also providing certain advisory services to GOE in connection with
the transactions contemplated by the GOE Merger Agreement and will receive as
compensation for such services a fee of $280,000. The amount of such fees, as
well as the "spread" on the employee stock options described above as it relates
to AMI Merger Consideration, will constitute expenses that reduce the net amount
of Merger Consideration available for distribution to the shareholders of AMI
and GOE. See "The Merger Agreements--Calculation of the Per Share Merger
Consideration."
DISSENTERS' RIGHTS
Under Article 5.11 of the TBCA, a shareholder of a Texas corporation
generally has the right to dissent from any merger to which the corporation is a
party, from any sale of all or substantially all assets of the corporation, or
from any plan of exchange and to receive fair value for his or her shares.
Under the AMI Merger Agreement, AMI shareholders desiring to dissent from
the Merger and obtain payment of the fair value of their shares of AMI Common
Stock immediately before the consummation of the Merger in lieu of the Merger
Consideration may exercise their dissenters' rights under the provisions set
forth at Articles 5.11 through 5.13 of the TBCA, attached as Annex D to this
Information Statement/Prospectus. Shares of AMI Common Stock which are issued
and outstanding as of the Effective Time and held by any shareholder who has, in
accordance with Article 5.12 of the TBCA, delivered a payment demand accompanied
by the required certification and deposit of shares shall not be converted but
shall from and after the Effective Time represent only the right to receive such
consideration as may be determined to be due under the TBCA. Under the terms of
the AMI Merger Agreement, Hain's obligation to consummate the AMI Merger (and,
because the Mergers are conditioned upon each other, the GOE Merger) is subject
to the condition that the number of shares of AMI Common Stock with respect to
which dissenters' rights have been exercised shall not exceed 15% of the
outstanding shares of AMI Common Stock. See "The Merger Agreements --Conditions
to the Merger."
Under Section 1300 of the CGCL, if the approval of the outstanding shares of
a corporation is required for reorganization under a specific provision of the
CGCL, each shareholder of the corporation entitled to vote on the transaction
may require the corporation in which the shareholder holds shares to purchase
for cash at their fair market value the shares owned by the shareholder which
are dissenting shares, except that shares listed on a national securities
exchange or listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve are not entitled to dissenters' rights. Because
holders of all of the outstanding shares of GOE Common Stock have agreed to
consent to the Merger under the GOE Merger Agreement, it is not anticipated that
dissenters' rights under the CGCL will be exercised in connection with the
Merger.
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THE MERGER AGREEMENTS
The following paragraphs summarize, among other things, the material terms
of the AMI Merger Agreement, which is attached hereto as Annex A and
incorporated by reference herein, and the GOE Merger Agreement, which is
attached hereto as Annex B and incorporated by reference herein. Except as
provided below, the following summary reflects the terms of both the AMI Merger
Agreement and the GOE Merger Agreement. Recipients of this
Prospectus/Information Statement are urged to read each of the AMI Merger
Agreement and the GOE Merger Agreement in its entirety for a more complete
description of the Merger.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreements, the parties thereto will file
articles or certificates of merger with the Secretaries of State of Delaware,
Texas and California. The Merger will become effective upon such filings (the
"Effective Time").
CONVERSION OF SHARES
At the Effective Time, (i) each outstanding share of AMI Common Stock shall
be converted into and become the right to receive the AMI Pro Rata Amount (as
defined herein) of the AMI Merger Consideration (as defined herein) consisting
of a combination of shares of Hain Common Stock (the "AMI Stock Merger
Consideration") and cash (the "AMI Cash Merger Consideration") and (ii) each
outstanding share of GOE Common Stock shall be converted into and become the
right to receive the GOE Pro Rata Amount (as defined herein) of the GOE Merger
Consideration (as defined herein), consisting of a combination of shares of Hain
Common Stock (the "GOE Stock Merger Consideration" and, together with the AMI
Stock Merger Consideration, the "Stock Merger Consideration") and cash (the "GOE
Cash Merger Consideration" and, together with the AMI Cash Merger Consideration,
the "Cash Merger Consideration"). As used herein, "AMI Merger Consideration"
means the AMI Stock Merger Consideration and the AMI Cash Merger Consideration,
"GOE Merger Consideration" means the GOE Stock Merger Consideration and the GOE
Cash Merger Consideration, and "Merger Consideration" means the AMI Merger
Consideration and the GOE Merger Consideration.
The allocation of Merger Consideration between Stock Merger Consideration
and Cash Merger Consideration shall be determined at the sole option of Hain, by
written notice to the Companies on the third day prior to the Closing Date (as
defined herein), subject to certain restrictions; PROVIDED, HOWEVER, that (i) if
any of the Merger Consideration is comprised of Stock Merger Consideration, then
at least 50% of the Merger Consideration shall be comprised of Stock Merger
Consideration, subject to adjustment, and (ii) the AMI Cash Merger Consideration
shall be at least $15.0 million in the aggregate and the GOE Cash Merger
Consideration shall be at least $5.0 million in the aggregate. The Stock Merger
Consideration shall consist of the number of shares of Hain Common Stock having
an aggregate market value based on the Closing Date Market Price (as defined
herein). With respect to any share of AMI Common Stock, "AMI Pro Rata Amount"
means the product of the AMI Merger Consideration multiplied by a fraction, the
numerator of which is one and the denominator of which is the aggregate number
of all issued and outstanding shares of the AMI Common Stock at the Effective
Time, allocated between AMI Stock Merger Consideration and AMI Cash Merger
Consideration in the proportion specified by Hain as set forth above. With
respect to any share of the GOE Common Stock, "GOE Pro Rata Amount" means the
product of the GOE Merger Consideration multiplied by a fraction, the numerator
of which is one and the denominator of which is the aggregate number of all
issued and outstanding shares of the GOE Common Stock at the Effective Time,
allocated between GOE Stock Merger Consideration and GOE Cash Merger
Consideration in the proportion specified by Hain as set forth above. "Closing
Date Market Price" means, with respect to each share of Hain Common Stock, the
average closing price for such share as reported on
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the National Market System of The Nasdaq Stock Market, Inc. for the 10 most
recent trading days ending on the third day prior to the Effective Time.
The aggregate amount of Cash Merger Consideration is subject to certain
reductions immediately prior to the Effective Time, including a reduction in the
AMI Cash Merger Consideration by an amount equal to any excess of the aggregate
indebtedness for borrowed money of AMI (net of cash and cash equivalents) as of
the Closing Date over $20.0 million. In addition, the aggregate amount of AMI
Cash Merger Consideration will be increased by the amount that $20.0 million
exceeds the aggregate indebtedness for borrowed money of AMI (net of cash and
cash equivalents) as of the Closing Date.
CALCULATION OF THE PER SHARE MERGER CONSIDERATION
AMI MERGER. As a result of the AMI Merger, each AMI shareholder will be
entitled to receive a portion of the AMI Merger Consideration in proportion to
that shareholder's percentage of ownership of the outstanding AMI Common Stock.
The AMI Merger Consideration is the total payment that Hain must make to the AMI
shareholders in order to consummate the AMI Merger. Hain has the option to make
this payment all in cash or in a combination of cash and Hain Common Stock.
Regardless of whether Hain chooses to make this payment all in cash or in a
combination of cash and stock, the total value of the payment must be equal to
$45.75 million (i) minus an amount equal to the amount that AMI's indebtedness
for borrowed money net of cash exceeds $20.0 million (or plus an amount equal to
the amount that AMI's such indebtedness net of cash is under $20.0 million) and
(ii) minus certain fees, costs and expenses related to the Merger for which the
AMI shareholders are responsible. AMI's net debt is estimated to be
approximately $20.0 million.
The fees, costs and expenses to be borne by the AMI shareholders include the
fees and expenses of AMI's investment bankers and financial advisors and certain
fees and expenses of AMI's lawyers (the "AMI Transaction Costs") as well as the
cost of canceling or buying out stock options held by Charles Lynch and Mark
Novak (the "Optionholders"). The stock options held by the Optionholders, if
exercised, would entitle them to purchase a total of 22,536 shares of AMI stock
(the "Number of Shares Subject to Option") for $32 per share (the "Exercise
Price"). In order to cancel these options, AMI must pay the Optionholders the
"Option Cancellation Cost," which is the difference between the value of each
AMI share (the "AMI Share Value") and the Exercise Price, multiplied by the
Number of Shares Subject to Option.
Assuming AMI's debt is $20.0 million, AMI Merger Consideration would equal
(i) $45.75 million (ii) minus AMI Transaction Costs and (iii) minus Option
Cancellation Cost. Therefore, higher AMI Transaction Costs will result in lower
AMI Merger Consideration values. Lower AMI Merger Consideration values result in
correspondingly lower AMI Share Value. However, because the Option Cancellation
Cost increases as AMI Share Value rises, there would not be a dollar-for-dollar
reduction in AMI Merger Consideration as AMI Transaction Costs increase. For
every additional dollar of AMI Transaction Costs, AMI Merger Consideration
decreases slightly less than a dollar due to the corresponding slight decrease
in Option Cancellation Cost. Therefore, while the relationship between AMI Share
Value and AMI Merger Consideration is proportional, there is not a proportional
relationship between AMI Share Value and AMI Transaction Costs.
Because the fees and expenses of AMI's and GOE's investment bankers and
financial advisors and certain fees and expenses of AMI's and GOE's, lawyers
(the "Transaction Costs") associated with the AMI Merger and the GOE Merger are
likely to be difficult to segregate, certain of these costs will be allocated
according to the relative values of the companies, taking into account AMI debt.
Therefore, AMI Transaction Costs not directly attributable to either AMI or GOE
are deemed to be 82.5% of Transaction Costs. Using this formula, AMI Transaction
Costs are likely to be between $3.25 million and $3.75 million. Assuming AMI
debt of $20.0 million and assuming AMI Transaction Costs between $3.25 million
and
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$3.75 million, AMI Share Value is likely to be between $73.50 and $72.25 per
share. However, there can be no assurance that the AMI Share Value will be
within this range.
GOE MERGER. The per share consideration to be received by holders of GOE
Common Stock is calculated in a manner consistent with the calculation under the
AMI Merger Agreement described above. Each GOE shareholder will be entitled to
receive a portion of the GOE Merger Consideration in proportion to that
shareholder's percentage of ownership of the outstanding GOE stock. The portion
of the GOE Merger Consideration to which each GOE shareholder will be entitled
is referred to herein as that shareholder's "GOE Pro Rata Amount." Hain has the
option to make this payment all in cash or in a combination of cash and Hain
Common Stock. Regardless of whether Hain chooses to make this payment all in
cash or in a combination of cash and stock, the total value of the payment must
be equal to $14.0 million minus certain fees, costs and expenses related to the
GOE Merger for which the GOE shareholders are responsible. The amount paid in
the GOE Merger will also be reduced by a $2.0 million payment required to be
made to Al H. Jacobson in recognition of an existing obligation to purchase 20%
of GOE's outstanding shares from Mr. Jacobson. The GOE Merger Consideration will
then be allocated 75% to TSG2, or its successors, and 25% to Mr. Jacobson, which
represents the relative ownership of GOE's shares after taking into account the
$2.0 million payment.
The fees, costs and expenses to be borne by the GOE shareholders include the
fees and expenses of GOE's investment bankers and financial advisors and certain
fees and expenses of GOE's lawyers, as well as a payment to a former consultant
(the "GOE Transaction Costs"). Because there are no outstanding options to
purchase GOE Common Stock that must be cancelled, for every dollar increase in
GOE Transaction Costs, the aggregate GOE Merger Consideration will decline by
one dollar, and the value of each share of GOE stock will decline
proportionally. GOE Transaction Costs not directly attributable to either AMI or
GOE are deemed to be 17.5% of Transaction Costs. Using this formula, GOE
Transaction Costs are likely to be between $650,000 and $750,000 and the value
of each GOE share value is likely to be between $555.00 and $563.00. However,
there can be no assurance that the GOE share value will be within this range.
While Hain may determine whether the Merger Consideration will be paid in
cash or in a combination of cash and Hain Common Stock, the Merger Agreement
sets certain limits to the amounts of stock and cash which may be used if Hain
elects to make part of the payment in stock. Pursuant to the Merger Agreements,
if any of the Merger Consideration is stock, then at least 50% of the
consideration must be stock. Conversely, at least $15.0 million of the AMI
Merger Consideration must be cash and at least $5.0 million of the GOE Merger
Consideration must be paid in cash. Hain Common Stock paid as consideration will
be valued at the average closing price per share for the 10 most recent trading
days ending on the third day before the Effective Time (the "Hain Stock Price").
EXCHANGE OF STOCK CERTIFICATES
Continental Stock Transfer & Trust Company has been designated as the
Exchange Agent ("Exchange Agent") in the Merger. As promptly as practicable
after the Effective Time, Hain will cause the Exchange Agent to mail to each AMI
shareholder and each GOE shareholder who is a shareholder of record as of the
Effective Time, transmittal material for use in exchanging certificates of AMI
Common Stock for AMI Merger Consideration and GOE Common Stock for GOE Merger
Consideration, as the case may be. The transmittal materials will contain
information and instructions with respect to the surrender of AMI Common Stock
certificates and GOE Common Stock certificates in exchange for Merger
Consideration consisting of new certificates representing Hain Common Stock,
Cash Merger Consideration and cash in payment for any fractional shares
resulting from the exchange.
The form of transmittal letter to be signed by each AMI shareholder and GOE
shareholder provides for, among other things, transmittal of such shareholder's
shares of AMI Common Stock or GOE Common Stock, as the case may be, to the
Exchange Agent and the appointment of the shareholder
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representatives to act on behalf of such shareholder in connection with the
Merger and the transactions in connection therewith. In the alternative, the
exchange of GOE Common Stock for GOE Merger Consideration may be effected
directly by Hain upon instructions to the Exchange Agent.
AMI SHAREHOLDERS AND GOE SHAREHOLDERS SHOULD NOT SURRENDER ANY AMI COMMON
STOCK CERTIFICATES OR GOE STOCK CERTIFICATES UNTIL THE LETTER OF TRANSMITTAL AND
OTHER DOCUMENTS DESCRIBED ABOVE HAVE BEEN RECEIVED.
Fractional shares of Hain Common Stock will not be issued in the Merger.
Instead, each shareholder of AMI or GOE who would otherwise be entitled to a
fraction of a share will receive, in lieu thereof, an amount of cash (rounded to
the nearest whole cent) equal to the product of such fraction and the Closing
Date Market Price.
AMI'S AND GOE'S CONDUCT OF BUSINESS PENDING THE MERGER
Except as contemplated by the Merger Agreements, or as expressly agreed to
in writing by Hain, during the period from the date of the Merger Agreements to
the Effective Time, each of the Companies and each of their respective
subsidiaries will conduct their respective operations according to its ordinary
course of business consistent with past practice, and will use all commercially
reasonable efforts to maintain satisfactory relationships with suppliers,
distributors and customers having business relationships with it and will take
no action which would materially adversely affect the ability of the parties to
consummate the transactions contemplated by the Merger Agreements, including:
(a) amend its certificate or articles of incorporation or organization or
by-laws; (b) authorize for issuance, issue, sell, deliver, grant any options
for, or otherwise agree or commit to issue, sell or deliver any shares of any
class of its capital stock or any securities convertible into shares of any
class of its capital stock, including the filing or processing of a registration
statement under the Securities Act in connection with an initial public
offering; (c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock or
purchase, redeem or otherwise acquire any shares of its own capital stock or of
any of its subsidiaries; (d) (i) except as otherwise contemplated by the
applicable Merger Agreement, create, incur, assume, maintain or permit to exist
any debt for borrowed money other than under existing lines of credit in the
ordinary course of business consistent with past practice in an amount not to
exceed $1,000,000 in the aggregate, in the case of the AMI Merger Agreement, and
$50,000 in the aggregate, in the case of the GOE Merger Agreement; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except for
its wholly owned subsidiaries in the ordinary course of business and consistent
with past practices and subclause (i) above; or (iii) make any loans, advances
or capital contributions to, or investments in, any other person; (e) (i)
increase in any manner the compensation of (x) any employee except in the
ordinary course of business consistent with past practice or (y) any of its
directors or officers; (ii) pay or agree to pay any pension, retirement
allowance or other employee benefit not required, or enter into or agree to
enter into any agreement or arrangement with such director or officer or
employee, whether past or present, relating to any such pension, retirement
allowance or other employee benefit, except as required under currently existing
agreements, plans or arrangements; (iii) except as otherwise set forth in the
Merger Agreements, grant any severance or termination pay to, or enter into any
employment or severance agreement with, (x) any employee except in the ordinary
course of business consistent with past practice or (y) any of its directors or
officers; or (iv) except as may be required to comply with applicable law,
become obligated (other than pursuant to any new or renewed collective
bargaining agreement) under any new pension plan, welfare plan, multiemployer
plan, employee benefit plan, benefit arrangement, or similar plan or
arrangement, which was not in existence on the date hereof, including any bonus,
incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement or other benefit
plan, agreement or arrangement, or employment or consulting agreement with or
for the benefit of any person, or amend any of such plans or any of such
agreements in existence on the date
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hereof; (f) except as otherwise expressly contemplated by the Merger Agreements,
enter into any other material agreements, commitments or contracts, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business consistent with past practice; (g)
authorize, recommend, propose or announce an intention to authorize, recommend
or propose, or enter into any agreement in principle or an agreement with
respect to, any plan of liquidation or dissolution, any acquisition of a
material amount of assets or securities, any sale, transfer, lease, license,
pledge, mortgage, or other disposition or encumbrance of a material amount of
assets or securities or any material change in its capitalization; (h) make any
change in its accounting methods or accounting practices; (i) settle or
compromise any material federal, state, local or foreign tax liability, make any
new material tax election, revoke or modify any existing tax election, or
request or consent to a change in any method of tax accounting; (j) unless the
Merger Consideration consists solely of Cash Merger Consideration, take, cause
or permit to be taken any action, whether before or after the Effective Date,
that could reasonably be expected to prevent the Merger from constituting a
"reorganization" within the meaning of Section 368(a) of the Code; or (k) agree
to do any of the foregoing.
NONSOLICITATION OF ALTERNATIVE TRANSACTIONS
Each of the Companies has agreed that it will not directly or indirectly
encourage, initiate or solicit any inquiries or the submission of any proposals
or offers from any person relating to any merger, consolidation, sale of all or
substantially all of its assets or similar business transaction (each, an
"Acquisition Transaction"). Each of the Companies has further agreed that,
except as described below, it will not participate in any negotiations
regarding, furnish to any other person any information with respect to or
otherwise assist or participate in, any attempt by any third party to propose or
effect any such transaction. Notwithstanding, nothing in the Merger Agreements
is intended to prohibit (i) either Company from furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited proposal of an Acquisition Transaction if and to the extent that
(a) the Board of Directors of such Company determines in good faith, upon advice
of legal counsel, that such action is required for the directors of such Company
to fulfill their fiduciary duties and obligations under applicable law and (b)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, such Company provides prompt written
notice to Hain to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity, or (ii) the Board
of Directors of such Company from acting to withdraw or modify its approval of
the Merger following receipt of an unsolicited proposal for an Acquisition
Transaction if it determines in good faith, upon advice of legal counsel, that
such action is required for the directors of such Company to fulfill their
fiduciary duties under applicable law.
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, each of the Companies shall be merged with and into
Hain Subsidiary as provided herein. Thereupon, the corporate existence of Hain
Subsidiary, with all its purposes, powers and objects, shall continue unaffected
and unimpaired by the Merger, and the corporate identity and existence, with all
the purposes, powers and objects, of the Companies shall be merged with and into
Hain Subsidiary, and Hain Subsidiary as the corporation surviving the Merger
(the "Surviving Corporation") shall continue its corporate existence under the
laws of the State of Delaware under the name Arrowhead Mills, Inc.
The Certificate of Incorporation of Hain Subsidiary shall be the Certificate
of Incorporation of the Surviving Corporation. The By-Laws of Hain Subsidiary
shall be the By-Laws of the Surviving Corporation until the same shall
thereafter be altered, amended or repealed in accordance with applicable law,
said Certificate of Incorporation or said By-Laws. The directors of Hain
Subsidiary immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of Hain
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Subsidiary immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
CERTAIN COVENANTS
The Merger Agreements contain mutual covenants of Hain and the Companies to
use their commercially reasonable efforts to secure all consents and approvals
required for the Merger and to cooperate with respect to publicity.
In addition to covenants relating to the conduct of its business described
above (see "The Merger Agreements--AMI's and GOE's Conduct of Business Pending
the Merger"), the Companies also covenant to give Hain and its agents access to
their respective books and records, to obtain necessary shareholder approvals
and to provide information in connection with the preparation of this
Prospectus/Information Statement.
Hain covenants, among other things, (a) to not take or omit to take any
action that could reasonably be anticipated to have a material adverse effect on
Hain, (b) to take necessary actions in connection with the filing and
effectiveness of this Registration Statement, (c) to promptly list up to
1,728,260 shares of Hain Common Stock in the Nasdaq National Market System and
(d) after the Effective Time, to issue stock certificates representing shares of
Hain Common Stock to be issued in the Merger.
CONDITIONS TO THE MERGER
The respective obligation of each party to effect the Merger is subject to
the satisfaction or waiver on or prior to the Closing Date of certain
conditions, including: requisite approval of the Merger and the transactions
contemplated thereby shall have been obtained from the Companies' shareholders;
no material judgment, order, decree, statute, law, ordinance, rule or regulation
entered, enacted, promulgated, enforced or issued by any court or other
governmental entity of competent jurisdiction or other legal restraint or
prohibition (collectively, "Restraints") shall be in effect preventing the
consummation of the Merger; the Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order and no stop order or similar
restraining order shall be threatened or entered by the Commission or any state
securities administration preventing the Merger; the shares of Hain Common Stock
issuable to the Companies' shareholders shall have been approved for listing on
the National Market System of The Nasdaq Stock Market, Inc., subject to official
notice of issuance; all necessary consents and approvals of any United States or
any other governmental authority or any other third party required for the
consummation of the transactions contemplated by the Merger Agreements shall
have been obtained, except for such consents and approvals the failure to obtain
which individually or in the aggregate would not have a material adverse effect
on the Surviving Corporation; and all of the conditions precedent to the
obligations of the parties pursuant to both the AMI Merger Agreement and the GOE
Merger Agreement shall have been satisfied or waived by the parties thereto.
The obligation of Hain to effect the Merger is further subject to
satisfaction or waiver of the following conditions: the representations,
warranties and covenants of the Companies set forth in the merger Agreements
shall be true and correct in all respects; the Companies shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date; each Company shall have delivered an
affidavit stating, under penalty of perjury, that (A) neither of the Companies
is nor has been at any time during the five-year period prior to the Effective
Time a "United States real property holding corporation," as defined for
purposes of section 897(c)(2) of the Code and (B) as of the Effective Time, Hain
shall have received an opinion of Cahill Gordon & Reindel, counsel to Hain,
dated on or about the Closing Date, based upon such representations and
assumptions as counsel may reasonably deem relevant, relating to certain tax
matters; Hain shall have received an opinion from Vinson & Elkins L.L.P.,
counsel to AMI and GOE; the AMI Voting Agreement and the GOE Voting
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Agreement pursuant to which the requisite shareholders of the outstanding AMI
Common Stock and GOE Common Stock agreed to vote in favor of the Merger and the
transactions related thereto shall be in full force and effect as of the Closing
Date; and ownership of Hain Common Stock by certain AMI shareholders and GOE
shareholders will be subject to certain limitations.
The obligation of the Companies to effect the Merger is further subject to
satisfaction or waiver of the following conditions: the representations,
warranties and covenants of Hain set forth in the Merger Agreements shall be
true and correct in all respects; Hain and Hain Subsidiary shall have performed
in all material respects all obligations required to be performed by them under
the Merger Agreements at or prior to the Closing Date; such Company shall have
received an opinion of Vinson & Elkins L.L.P., counsel to such Company, dated on
or about the Closing Date, relating to certain tax matters; the Companies shall
have received an opinion from Cahill Gordon & Reindel; and, in the event any of
the Merger Consideration consists of Stock Merger Consideration, then at least
50% of the Merger Consideration shall be comprised of Stock Merger Consideration
and aggregate Cash Merger Consideration will be greater than or equal to $15.0
million in the case of the AMI Merger and $5.0 million in the case of the GOE
Merger.
INDEMNITY
The Merger Agreements provide that, from and after the Effective Time, Hain
shall, to the fullest extent such person could have been indemnified under the
DGCL or under the Hain Charter (as defined herein) or the Hain Bylaws (as
defined herein) in effect immediately prior to the Effective Time, indemnify,
defend and hold harmless the present and former directors, officers and
management employees of the parties hereto and their respective subsidiaries
(each an "Indemnified Party" and, collectively, the "Indemnified Parties")
against (i) all losses, expenses (including reasonable attorneys' fees and
expenses), claims, damages, costs, liabilities, judgments or (subject to certain
restrictions) amounts that are paid in settlement of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or management employee of such party or any subsidiary
thereof, whether pertaining to any matter existing or occurring at or prior to
or after the Effective Time and whether asserted or claimed prior to, at or
after the Effective Time and (ii) all liabilities based in whole or in part on,
or arising in whole or in part out of, or pertaining to the Merger Agreements or
the transactions contemplated thereby; provided, the indemnification
contemplated in this subclause (ii) shall not apply to any claim based on
fraudulent misrepresentation or willful breach. In addition, Hain and the
Surviving Corporation agree that, except as may be limited by applicable laws,
for seven (7) years from and after the Effective Time, the indemnification
obligations set forth in the Companies' respective charter documents, or in any
indemnification agreement to which either Company is a party as of March 31,
1998, will survive the Merger and will not be amended, repealed or otherwise
modified after the Effective Time in any manner that would adversely affect the
rights thereunder of the individuals who on or at any time prior to the
Effective Time were entitled to indemnification thereunder with respect to
matters occurring at or prior to the Effective Time.
TERMINATION; BREAKUP FEES
Each of the Merger Agreements may be terminated at any time prior to the
Effective Time, whether before or after approval thereof by the shareholders of
the Company party thereto: (a) by mutual written consent of such Company and
Hain; (b) by either such Company or Hain: (i) if the Merger shall not have been
consummated by August 30, 1998; provided, however, that the right to terminate
the applicable Merger Agreement pursuant to such clause (i) is not be available
to any party whose failure to perform any of its obligations under such
Agreement results in the failure of the Merger to be consummated by such time;
or (ii) if any Restraint having any of the effects set forth under "--Conditions
to the Merger" above shall be in effect and shall have become final and
nonappealable; (c) by Hain, if the Board of Directors of such Company shall
withdraw, modify or change its recommendation of the applicable Merger Agreement
or the Merger in a manner adverse to Hain; (d) by Hain, if such Company shall
have breached or failed to
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perform in any material respect any of its representations, warranties,
covenants or other agreements contained in the applicable Merger Agreement
(which breach is not cured within 15 business days after receipt by such Company
of a written notice of such breach from Hain specifying the breach and
requesting that it be cured) or if the applicable Voting Agreement ceases to be
in full force and effect; (e) by such Company, if Hain shall have breached or
failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in the applicable Merger
Agreement (which breach is not cured within 15 business days after receipt by
such Company of a written notice of such breach from Hain specifying the breach
and requesting that it be cured); (f) by such Company, if, prior to the
Effective Time, the Board of Directors of such Company approves an agreement to
effect an Acquisition Transaction if the Board of Directors has determined in
good faith, upon advice from its outside counsel, that failure to approve such
agreement and terminate the applicable Merger Agreement would constitute a
breach of the fiduciary duties of such Company's Board (and so advised Hain) and
such Board of Directors reasonably believes that such Acquisition Transaction is
more favorable to such Company's shareholders than the transaction contemplated
by the applicable Merger Agreement; or (g) by such Company, if the Registration
Statement is not declared effective by July 15, 1998.
In the event of the termination of either Merger Agreement in accordance
with the preceding paragraph, such Merger Agreement shall become void and have
no effect, with no liability on the part of any party (except as provided in the
next sentence) or its shareholders or stockholders, directors or officers in
respect thereof except for agreements which survive the termination of the
applicable Merger Agreement and except for liability that Hain or such Company
might have arising from a breach of the applicable Merger Agreement. In the
event of a termination of the applicable Merger Agreement by such Company
pursuant to clause (f) of the preceding paragraph, then the Company terminating
the applicable Merger Agreement shall within two business days of such
termination pay Hain by wire transfer of immediately available funds to an
account specified by Hain, (i) up to $600,000 to reimburse Hain (aggregated
together with amounts provided therefor under the Merger Agreements) for its
documented fees and expenses (including the fees and expenses of counsel,
accountants, consultants and advisors) incurred in connection with the Merger
and the transactions contemplated thereby and (ii) a fee of $770,000, in the
case of the AMI Merger Agreement, and $230,000, in the case of the GOE Merger
Agreement, in each case as liquidated damages.
TREATMENT OF OUTSTANDING AMI OPTIONS
At the Effective Time, AMI shall have taken all such action necessary to
cause all outstanding options to purchase shares of AMI Common Stock (the "AMI
Options") to be canceled as of the Effective Time (irrespective of whether such
options are then exercisable pursuant to the provisions thereof) in
consideration for the right to receive from Hain at the Effective Time for each
optionee (i) an amount of cash per share equal to the excess, if any, of (x) the
AMI Cash Merger Consideration that such optionee would have received if such
optionee had exercised his AMI Option in full immediately prior to the Effective
Time over (y) the aggregate exercise price under such AMI Option for such shares
and (ii) the amount of AMI Stock Merger Consideration (including any cash in
lieu of fractional shares) that such optionee would have received if such
optionee had exercised his AMI Option in full immediately prior to the Effective
Time.
FEES AND EXPENSES
Except as set forth above (see "--Termination; Breakup Fees"), all fees and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses, whether
or not the Merger is consummated, except that the Companies (and therefore the
shareholders of the Companies) will pay certain broker and finder fees and fees
in connection with the termination of an advisory agreement entered into by AMI.
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Hain will pay fees and expenses, including certain attorneys' fees, incurred
in relation to the filing of the Prospectus/Information Statement, the
Registration Statement and any amendments or supplements thereto.
CONFIDENTIALITY
Each party to the Merger Agreement has agreed to keep confidential, pursuant
to the Confidentiality Agreements dated May 14, 1997 and May 21, 1997, as
amended on May 2, 1998 (collectively, the "Confidentiality Agreements"),
information provided to the other party pursuant to the Merger Agreements with
respect to the business, properties and personnel of the party furnishing such
information. The Confidentiality Agreements contain terms restricting the
disclosure and use of confidential information exchanged between the parties in
evaluating the Merger and otherwise.
AMENDMENT TO SENIOR CREDIT FACILITY
In connection with the Merger, Hain will amend its Second Amended and
Restated Revolving Credit and Term Loan Agreement with IBJ Schroder Bank & Trust
Company, as issuer and agent for the lenders named therein (as amended, the
"Senior Credit Facility"), to increase the term loan portion (the "Senior Term
Loan") of the Senior Credit Facility from $18.6 million to $60.0 million and
also provide for a revolving line of credit of $15.0 million. Consummation of
the Merger is not conditioned on the consummation of the amendment to the Senior
Credit Facility.
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INFORMATION CONCERNING HAIN
BUSINESS
Hain markets and sells dry, refrigerated and frozen specialty food products
under brand names which are sold as "better-for-you" products. The product
categories encompass natural and organic foods, medically-directed foods, weight
management and portion-control foods, and kosher foods. These products are sold
primarily to specialty and natural food distributors and are marketed nationally
to supermarkets, natural food stores, and other retail classes of trade. Hain's
products are produced by co-packers using proprietary specifications and
formulations controlled by Hain.
As a leading natural and organic food company, Hain sells a full line of
products under its "Hain Pure Foods", "Westbrae Natural", "Westsoy", "Little
Bear", "Bearitos" and "Farm Foods" brands. Specialty food products include
cooking oil and condiment products under its "Hollywood" brand; sugar-free,
medically-directed food products under its "Estee" brand (all of which carry the
logo of the American Diabetes Association); low-sodium food products under its
"Featherweight" brand; weight management and portion-control foods under the
"Weight Watchers" brand; frozen kosher food products under its "Kineret" and
"Kosherific" brands; regular and reduced fat snack products under its "Boston
Better Snacks" brand; natural snack products under the "Harry's Premium Snacks"
brand; and dry milk products under the "Alba" brand. Hain's brand names are
well-recognized in the various market categories they serve. Hain has acquired
these brands over the past four years, and seeks to grow through internal
expansion, as well as the acquisition of complementary brands in the future.
RECENT ACQUISITIONS
Hain was organized in 1993 for the purpose of acquiring and marketing
specialty food brands. The following is a description of Hain's acquisitions in
1997.
WESTBRAE. In October 1997, Hain acquired Westbrae, a marketer of over
300 high quality natural and organic food and snack products. Westbrae is
the natural food industry market leader in milk substitute beverages, the
largest single natural food category. Westbrae's and Hain Pure Foods'
complementary products combine to lead six of the fifteen top-selling
natural food categories. The combination provides for economies of scale in
production, marketing and distribution.
WEIGHT WATCHERS. In March 1997, Hain entered into agreements for the
rights to manufacture, market and sell substantially all Weight Watchers
brand dry and refrigerated products, as well as to introduce new products,
under license from Heinz. The licensing agreement with Heinz is for five
years and is renewable under certain circumstances. Weight Watchers dry
grocery weight management products have enhanced Hain's position in one of
its key specialty food market segments. They are sold and merchandised in
similar channels and sections as Hain's Estee and Featherweight brands.
According to ACNielsen syndicated research, Hain now has approximately a 60%
market share of the medically-directed/weight management section of
supermarkets on a national basis.
ALBA. Hain acquired the Alba brand from Heinz in July 1997. Alba
markets dry milk, shake, and cocoa products. Alba is marketed primarily
through specialty food distributors and has its greatest strength on the
East Coast. It is frequently merchandised in the same section as Weight
Watchers, Estee and Featherweight, although it also has penetrated other
supermarket sections carrying powdered beverages. Heinz marketed Alba
through its weight management centers for many years, affording it consumer
brand synergy with Weight Watchers.
BOSTON BETTER SNACKS. In May 1997, Hain acquired the assets of Boston
Better Snacks, a marketer of high-quality popcorn and chip snack products.
Boston Better Snacks' direct-store-delivery ("DSD") route system primarily
serves the New England and Mid-Atlantic regions and provides new
distribution opportunities for other Hain brands. Boston Better Snacks' DSD
route system is primarily
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conducted through Snyder's of Hanover, a large snack food company. This
system provides just-in-time inventory replenishment for all of Boston
Better Snacks' products.
RECENT DEVELOPMENTS
On April 15, 1998, Hain redeemed all of its outstanding 12-1/2% Senior
Subordinated Debentures due April 14, 2004, in the principal amount of
$8,500,000, plus a prepayment fee of $612,000. The Senior Credit Facility was
amended as of such date to provide the necessary funds to complete the
redemption.
On May 27, 1998, Hain entered into a distribution and licensing agreement
with Heinz U.S.A., a division of Heinz, to market and sell the "Earth's Best"
line of organic baby food products to the natural food channel in the United
States. Heinz will continue to market and sell the Earth's Best line of products
to supermarkets and other mass market channels.
INDUSTRY AND MARKET OVERVIEW
NATURAL AND ORGANIC FOODS
Natural foods are defined as foods which are minimally processed, completely
free of artificial ingredients, preservatives, and other non-naturally occurring
chemicals, and in general are as near to their whole, natural state as possible.
Organic products are certified to be grown without the use of pesticides,
bio-engineering, or any other adulteration. Retail sales in the natural products
market are estimated by Natural Foods Merchandiser at $11.5 billion in 1996,
including vitamin and mineral supplements, grocery products, produce, and health
and beauty care. The market for organic products is growing at an annual rate of
over 20% according to Supermarket News. Hain believes that this growth is being
driven by several factors, including (i) consumer concern over the purity and
safety of foods due to the presence of pesticide residues, artificial
ingredients and other chemicals, (ii) consumer awareness of the link between
diet and health, and (iii) consumer awareness of environmental issues.
Independent research reveals that 62% of all adults are highly concerned about
food content and that 58% of all adults purchased at least one natural food item
in the last year. According to ACNielsen, natural food consumers are generally
better educated and more affluent, as well as brand-loyal.
MEDICALLY-DIRECTED/WEIGHT MANAGEMENT FOODS
The market for medically-directed/weight management foods is growing as the
average age of the American population and the number of overweight Americans
increase. Over 90 million people attempted to diet in 1996, 25% above 1995. Over
70% of all food and drug shoppers seek to improve their diets, and over 80% of
all adults aged 50 and over seek to limit their sugar and salt intake. The
American Diabetes Association now advocates a low-fat diet for people with
diabetes. Continued demand for sugar-and sodium-restricted foods is expected to
fuel growth of the $90 million medically-directed/weight management dry grocery
supermarket category.
KOSHER FOODS
Consumers who specifically purchase food products labeled with a Kosher
symbol represent a $2.3 billion market. The appeal of kosher foods now
transcends the historic consumer base of consumers buying kosher foods for
religious reasons, growing to include those who buy kosher foods because they
perceive them to be more healthful.
SUPERMARKET DISTRIBUTION CHANNEL
Supermarkets typically acquire many of their specialty food products through
distributors. According to Arthur D. Little, Inc., this is due to demand for
variety and service, while minimizing inventory and handling costs. During 1997
several distributors consolidated, providing increased distribution capabilities
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in broader geographic areas, allowing Hain to streamline its sales efforts.
Specialty foods appeal to supermarkets for the following reasons: (i) the
ability of distributors to supply continuous retail replenishment, (ii) the need
for supermarkets to expand product assortments, (iii) the higher profit margins
associated with specialty foods as opposed to mainstream grocery products, and
(iv) the reduced labor costs for services specialty foods distributors can
provide.
BUSINESS STRATEGY
Hain's mission is to be the leading marketer and seller of specialty food
products, with a strong commitment to total quality management in all
departments. Hain intends to build sales and improve operating results by
investing in product development and building brand equity. The combined
strength of its growing portfolio of brands has increased its importance with
manufacturers, brokers, distributors and retailers. Hain believes it therefore
has competitive advantages. The following are key elements of Hain's business
strategy:
CONTINUE GROWTH THROUGH MERGERS AND ACQUISITIONS
Hain is committed to pursuing acquisitions, joint ventures, and strategic
alliances that are synergistic with its current portfolio of brands, both
domestically and internationally. This will increase Hain's importance to its
customers. The fragmented nature of the specialty foods industry provides
opportunities for favorable acquisitions. However, there can be no assurance
that Hain will consummate any such agreement.
INVEST IN BRANDS AND CONSUMER AWARENESS
The core of Hain's success is the endurance and growth potential of its
brands. Hain will continue to invest in its brand equity in order to increase
consumer awareness and market share. Each acquisition to date has been of brands
with strong consumer loyalty. Hain plans for the timely introduction of new
products, repositioning of products poised for growth, improvement of product
formulations and support of core product categories. For example, Estee's new
line of Smart Treats products are low-fat and sugar-free foods and snacks
marketed to both diabetic and mainstream consumers.
OUTSOURCE MANUFACTURING
Prior to the Merger, Hain outsourced all manufacturing in order to enhance
margins and return on capital, enabling Hain to seek the most proficient
manufacturers of specific products. Hain utilizes more than one source for
products in most key categories. Hain controls standardized formulations and
maintains strong quality assurance and control procedures, to assure a
consistent product and source of supply.
LEVERAGE ECONOMIES OF SCALE IN PRODUCTION AND LOGISTICS
Many of Hain's key product categories are shared among two or more of its
brands. This increases production economies, as well as leverage with
co-packers, as product quantities are substantially greater than for one brand
alone. This strategy promotes higher profit margins and general co-packer
cooperation. Economies of scale in ingredients, packaging and other
product-related costs are sought and aggressively managed. Costs are similarly
managed at all public warehouse facilities, and deliveries of multiple brands
are similarly coordinated to reduce freight and improve product competitiveness.
DEVELOP EXPORT OPPORTUNITIES
Hain increased its focus on export opportunities in 1997 and has met with
increasing demand throughout North America, South America, Europe and Asia. Hain
will focus on export opportunities not requiring significant investment in
custom packaging until sales are well established, as well as those where
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product demand is already high. Hain anticipates continuing the use of
distributors for delivery of its products to these export markets.
PRODUCTS
Hain has over 700 stock keeping units ("SKUs") which target a broad range of
consumer preferences. Hain's products are divided into the following main
categories:
<TABLE>
<CAPTION>
PRODUCT LINE BRAND NAME PRODUCT DESCRIPTION
- ------------------------------- ------------------------------- -----------------------------------------------
<S> <C> <C>
Natural and Organic Foods (1) Hain Pure Foods All natural dry, refrigerated and frozen foods,
including rice cakes, expeller-pressed oils,
condiments and snacks, and selected organic
products. Founded in 1926.
(2) Farm Foods All natural frozen foods, including Pizsoy
non-dairy pizza. Frozen chili made with organic
beans was introduced in 1997. Ice Bean
non-dairy ice cream products in pints and
novelties.
(3) Westbrae Natural/ Westsoy Organic soy and rice non-dairy beverages, as
well as soups, beans and snacks.
(4) Little Bear/Bearitos Organic snack foods and canned products.
Medically-Directed/Weight (1) Estee Complete line of sugar-free foods and snacks.
Management Foods
(2) Featherweight Low-sodium products for people on
sodium-restricted diets.
(3) Alba Dry milk, shake, and cocoa products.
(4) Weight Watchers Dry and refrigerated portion controlled foods.
Kosher Foods Kineret Frozen kosher foods which meet the requirements
of the Orthodox Union of Rabbis.
Other Specialty Foods (1) Hollywood Vitamin E-enhanced cooking oils, as well as
carrot juice, mayonnaise and margarine.
(2) Boston Better Snacks High-quality popcorn and chip snacks; primarily
New England and Mid-Atlantic distribution.
(3) Harry's Premium Snacks High quality pretzels, chips and other snacks;
primarily in New York and strategically located
food stores.
</TABLE>
CUSTOMERS
Hain's customers include retail and wholesale classes of trade nationally,
consisting principally of specialty and natural food distributors, grocery
retailers and wholesalers, and kosher food distributors. Hain also has increased
its presence in chain drug, mass merchandisers, and military segments during
1997.
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United Natural Foods and Tree of Life accounted for approximately 18% and 14%,
respectively, of Hain's pro forma fiscal year 1997 sales.
SALES AND MARKETING STRUCTURE
Hain is currently organized into three strategic business units: the
Specialty Foods Division, the Natural Foods Division, and the Snack Foods
Division. In connection with the Merger, Hain is evaluating the consolidation of
these divisions. Hain will continue to sell its products through its regional
sales manager network and its strategic broker network, and each of the brands
will be supported by brand management representation.
MARKETING AND CATEGORY MANAGEMENT
Hain's advertising and promotional programs have grown Hain's brand
awareness and equity by using
a customized campaign of integrated marketing communications. These elements
include packaging, trade and consumer advertising and sales promotion including
couponing, public relations, and interactive marketing. The Hain Pure Foods
brand has launched a new initiative called "HEY! Read our Labels!"-SM- to
capitalize on growing consumer concern with food ingredients. Hain will also
benefit from the marketing efforts of Heinz for its Weight Watchers centers,
involving the launch of a new weight management program called 1-2-3 Success.
This program will be referenced on all new Weight Watchers packaging. Sarah
Ferguson, the former Duchess of York, is the spokesperson for Weight Watchers
International in a campaign which began in September 1997.
The industry's emphasis on category management and efficient consumer
response has been addressed by Hain's investment in syndicated sales data. This
data is accumulated by ACNielsen and other third-party research firms, primarily
using point-of-purchase scanner technology. This data is then developed by
Company personnel into proprietary category management programs for customers.
These programs are designed to improve profitability of the sections occupied by
Hain's brands. Hain has been appointed "category captain" by certain major
grocery chains, indicating Hain's responsibility to develop planograms, often
involving four feet of shelf space per brand, to maximize retailer profits.
MANUFACTURING
Prior to the Merger, all of Hain's products were manufactured by
non-affiliated co-packers. The co-packers produce, supply or package Hain
products and must comply with strict ingredient and processing standards
established by Hain. Hain selectively consolidates its co-packing arrangements
for its products to obtain efficiencies. Pursuant to its co-packing
arrangements, Hain purchases substantially all of its products as finished
goods. Accordingly, Hain's inventories of raw materials and packaging are not
significant.
Hain presently obtains all of its requirements for Hain rice cakes from two
co-packers, all of its non-dairy products from two co-packers, a substantial
portion of its Weight Watchers refrigerated products from one co-packer and all
of its Hollywood cooking oils from one co-packer. Hain believes that alternative
sources of supply are available if co-packing arrangements with its suppliers
were to be terminated by Hain or the co-packers. However, there can be no
assurance that alternative sources of supply would be able to meet the
requirements of Hain.
TECHNICAL SERVICES
QUALITY ASSURANCE AND CONTROL
Hain has dedicated itself to conforming to GMP (Good Manufacturing Practice)
standards at all of its co-packing facilities. Systematic procedures are in
place and regulated by an experienced technical staff based on-site at Hain and
supplemented by independent laboratory analysis.
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Hain audits and inspects all co-packing facilities and warehouses. Hain uses
both open- and Julian code dating on all products, and products are retained
from each production run. Products are not released from co-packers to
warehouses until the quality control team has evaluated and released the
product.
RESEARCH AND DEVELOPMENT
Research and development, located in Carson, California, works to develop
new products and improve existing products. A seven-person team averaging 20
years of experience works together to keep Hain innovative in product
development.
COMPETITION
Hain faces competition in marketing all of its brands and competes with
small specialty food companies in specific categories, large grocery products
companies and suppliers of private label products. Hain Pure Foods and Westbrae
compete with a variety of other natural food companies, including Health Valley.
The Hain Pure Foods business also competes with Quaker Oats and Orville
Redenbacher in its rice cake business. Hollywood competes with other mainstream
oils, but retains its leadership in safflower and peanut oils. Canola oil is a
price-driven commodity in which Hollywood faces strong competition. Estee has
one major competitor which markets largely duplicative products. It faces strong
competition in sugar-free candy, which is marketed outside the
medically-directed section of supermarkets. Weight Watchers competes for its
share of consumer spending with the many companies offering reduced fat foods.
Kineret competes with other frozen food companies, and faces its strongest
competition in fish and potato products. Boston Better Snacks faces competition
from a variety of popcorn and chip manufacturers.
GOVERNMENT REGULATIONS
Hain's products are subject to various federal, state and local laws
governing the production, sale, advertising, labeling and ingredients of food
products. Although Hain believes it and its distributors and co-packers are
currently in compliance with all material federal, state and local governmental
laws and regulations, there can be no assurance that Hain, its distributors and
co-packers will be able to comply with such laws and regulations in the future
or that new governmental laws and regulations will not be introduced which would
prevent or temporarily inhibit the development, distribution and sale of Hain's
products to consumers. If any of Hain's distributors or co-packers were to
violate any such law or regulation, it could result in fines, recalls, seizure
or confiscation of products marketed by Hain.
Hain has, to its knowledge, complied with all current food labeling and
packaging requirements, including significant labeling requirements that became
effective during 1994.
Hain has not experienced any regulatory problems in the past and has not
been subject to any fines or penalties. No assurance can be given, however, that
future changes in applicable law, regulations or the interpretation thereof will
not necessitate significant expenditures or otherwise have a material adverse
impact on Hain, particularly if Hain alters its strategy and directly
manufactures its own products.
EMPLOYEES
As of March 31, 1998, Hain employed approximately 100 full-time employees.
Hain's employees are not represented by any labor union. Hain believes that its
relations with its employees are good.
PROPERTIES
Hain's corporate headquarters are located in 10,000 square feet of leased
office space located at 50 Charles Lindbergh Boulevard, Uniondale, New York.
This lease commenced on August 15, 1994 and, during 1997, was extended to
February 2002. The current annual rental is approximately $231,000. Hain's
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Kineret Foods 7,000 square foot warehouse and distribution center is located in
East Hills, New York. This lease, which provides for annual net rental of
approximately $40,000, was renewed during 1997 and expires in August 1999.
Hain's Boston Better Snacks 10,000 square foot warehouse and distribution center
is located in Foxboro, Massachusetts. This lease is for a three-year term and
commenced on June 1, 1997. The current annual rental is approximately $73,000.
Approximately 4,000 square feet of this space is sub-leased to a major
distributor of Hain's Boston Popcorn business for the same three-year term at a
current annual rental of $31,000.
Hain has recently leased a 100,000 square foot facility in Compton,
California which Hain intends to use for its West Coast offices, research and
development, quality assurance and the distribution of its products in the
Western United States. The lease is for five years and the current annual rental
in approximately $360,000.
Hain currently warehouses its products (other than its Boston Better Snacks
and Kineret products) in bonded public warehouses from which it makes deliveries
to customers.
LEGAL PROCEEDINGS
Hain is from time to time involved in litigation incidental to the conduct
of its business. Hain is not currently a party to any litigation which in the
opinion of management is likely to have a material adverse effect on Hain's
business, results of operations or financial condition.
Westbrae entered into a financial advisory services agreement with a
financial advisor on October 24, 1995, which provided that, if a "sale" of
Westbrae were consummated during its term or within one year thereafter, such
financial advisor would be entitled to certain fees. Pursuant to a letter dated
August 8, 1996, Westbrae provided notice of non-renewal of such agreement, and
pursuant to the terms of such agreement, all obligations thereunder terminated
twelve months thereafter. Notwithstanding the foregoing, the financial advisor
delivered an invoice for fees and expenses of approximately $1.0 million, and
Hain responded setting forth its belief that no amounts are due and owing other
than possibly certain expenses incurred during the term of Westbrae's engagement
of such financial advisor. Hain was subsequently contacted by counsel for such
financial advisor further disputing the non-payment of such invoice. There can
be no assurance that legal proceedings will not arise in connection with such
dispute or that such proceedings, if commenced, would be resolved in a manner
favorable to Hain. Hain intends to vigorously contest any claim made against it,
and Hain does not believe that the outcome of this matter will have a material
adverse effect on Hain's financial statements. In accordance with the position
taken by Westbrae prior to the Acquisition, no provision has been made by Hain
for any fee that may be payable in connection with such financial services
agreement.
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HAIN MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of Hain as of April 24, 1998:
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
Irwin D. Simon President, Chief Executive Officer and Director
Jack Kaufman Chief Financial Officer, Treasurer and Assistant Secretary
Benjamin Brecher Vice President-Operations
Ellen Deutsch Senior Vice President-Sales and Marketing
Andrew Jacobson President-Natural Foods Division
Myron Cooper Vice President-Technical Services
Andrew R. Heyer Chairman of the Board of Directors
Beth L. Bronner Director
William A. Carmichael Director
William J. Fox Director
Jack Futterman Director
James S. Gold Director
Barry Gordon Director
Steven S. Schwartzreich Director
</TABLE>
Mr. Simon has been a Director, President and Chief Executive Officer of Hain
since its inception and is its founder. From December 1990 through December
1992, Mr. Simon was employed in various marketing capacities with Slim-Fast
Foods Company ("Slim Fast"), a national marketer of meal replacement and weight
loss food supplements with annual revenues in excess of $500 million. His duties
initially involved sales and marketing for the frozen and dairy divisions of
Slim Fast, which included establishing and implementing marketing strategies and
establishing a distribution system throughout the United States. In March 1992,
Mr. Simon became Vice President of Marketing for Slim Fast. From 1986 through
1990, Mr. Simon was employed by The Haagen-Dazs Company, a division of Grand
Metropolitan, plc. Haagen-Dazs is a manufacturer and distributor of premium ice
cream and related products. Mr. Simon held a number of sales and marketing
positions, including Eastern Regional Director of Haagen-Dazs Shops, the entity
managing a majority of the franchisee system and all company-owned retail shops.
Mr. Kaufman is a certified public accountant and has been Chief Financial
Officer, Treasurer and Assistant Secretary of Hain since February 1994. During
1992 and part of 1993, Mr. Kaufman was a financial executive for JWP Inc. From
1988 to 1991, Mr. Kaufman was Executive Vice President of Sterling Commercial
Capital, Inc., a small business investment company, and from 1976 to 1987 he was
Chief Financial Officer of Waldbaum, Inc., a regional supermarket chain.
Mr. Brecher has been Vice President-Operations of Hain since November 1993.
Mr. Brecher was an officer and director of Kineret Kosher Foods from 1974 until
its acquisition by Hain in November 1993.
Ms. Deutsch has been Senior Vice President-Marketing of Hain since April
1996 and Senior Vice President-Sales and Marketing since April 1997. Prior to
May 1996, Ms. Deutsch was a principal of F&D Advertising Agency of Westbury, New
York.
Mr. Jacobson became President of the Natural Foods Division of Hain upon
consummation of the Westbrae acquisition in October 1997. From November 1992
until October 1997, Mr. Jacobson was President of Westbrae Natural Foods, Inc.
and Little Bear Organic Foods, Inc. Prior to November 1992, Mr. Jacobson spent
eight years in various divisional and corporate positions with Tree of Life,
Inc., a major natural and specialty foods distributor. Mr. Jacobson serves on
the board of the National Natural Foods Association.
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Mr. Cooper has been Vice President - Technical Services of Westbrae and,
following the Westbrae acquisition, Hain since 1988. Mr. Cooper is a member of
the California Organic Advisory Board and the Institute of Food Technologies and
serves on the board of Soy Foods Association of America.
Mr. Heyer has been Chairman of the Board of Directors since he became a
Director in November 1993 and a member of the Compensation Committee since 1994.
Mr. Heyer has been a Managing Director of CIBC Oppenheimer Corp., an affiliate
of the Canadian Imperial Bank of Commerce and the successor to the Argosy Group,
L.P. since August 1995. From February 1990 until August 1995, Mr. Heyer was a
Managing Director of the Argosy Group, L.P., an investment banking firm that
specialized in merger, acquisition, divestiture, financing, refinancing and
restructuring transactions. Mr. Heyer also serves as a director of Hayes Wheels
International, Inc. and Niagara Corporation.
Ms. Bronner has been a Director since November 1993 and a member of the
Compensation Committee since 1995. Ms. Bronner joined Citibank, N.A. in
September 1996 as Vice President and Director of Marketing for the United States
and Europe. From July 1994 to August 1996, Ms. Bronner was Vice
President-Emerging Markets of American Telephone & Telegraph Company Consumer
Communication Services business. Ms. Bronner was President of the Professional
Products Division of Revlon, Inc. from May 1993 until June 1994. From February
1992 to May 1993 she was Executive Vice President of the Beauty Care and
Professional Products Division of Revlon, Inc. Ms. Bronner also serves as a
director of Fortis, Inc.
Mr. Carmichael has been a director since December 1995 and a member of the
Audit Committee since 1996. Mr. Carmichael is a certified public accountant and
member of the Illinois State Bar. He was Senior Vice President & Chief
Accounting Officer of Sara Lee Corporation from 1991 until his retirement in
1993. From 1988 to 1990 he was Senior Vice President & Chief Financial Officer
of the Beatrice Company. Mr. Carmichael is a director of several other
companies, including Health O Meter Products, Inc., Cobra Electronics
Corporation and The Golden Rule Insurance Company.
Mr. Fox has been a Director since December 1996 and a member of the Audit
Committee since December 1996. Mr. Fox has been President, Strategic and
Corporate Development, Revlon Worldwide, Revlon, Inc. and Revlon Consumer
Products Corporation ("RCPC") (together "Revlon") and Chief Executive Officer,
Revlon Technologies, a division of Revlon, since January 1998. He has been
Senior Executive Vice President since January 1997 and Chief Financial Officer
of Revlon and its predecessor from 1991 to 1998, Executive Vice President from
1991 to 1997, and Vice President from 1987 to 1991. Mr. Fox was elected as a
director in November 1995 of Revlon Inc. and in September 1994 of RCPC. He has
been Senior Vice President of MacAndrews & Forbes Holding Inc. ("MacAndrews")
since August 1990 and was Treasurer from February 1987 to September 1992. From
April 1983 to February 1987, he held various positions at MacAndrews or its
affiliates. Prior to April 1983, Mr. Fox was a certified public accountant at
the international auditing firm of Coopers & Lybrand. Mr. Fox is vice chairman
of the board and a director of The Cosmetics Center, Inc.
Mr. Futterman has been a Director since December 1996 and a member of the
Compensation Committee since December 1996. Mr. Futterman retired as Chairman
and Chief Executive Officer of the Pathmark Supermarket chain in March 1996. He
joined Pathmark in 1973 as Vice President of its drugstore and general
merchandise divisions and occupied a number of positions before becoming
Chairman and Chief Executive Officer. Mr. Futterman is a registered pharmacist
and former Chairman of the National Association of Chain Drugstores. He is a
director of Del Labs, Inc. and Party City, Inc., as well as several
not-for-profit organizations.
Mr. Gold has been a Director since March 1998. Mr. Gold is a Managing
Director in the Banking Group of Lazard Freres & Co LLC. Since joining Lazard
Freres & Co LLC in 1977, Mr. Gold has been involved in a broad range of
investment banking activities, particularly relating to the consumer products
and food industries. Mr. Gold is also a director of Smart & Final Inc.
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Mr. Gordon has been a Director since November 1993 and a member of the Audit
Committee since 1995. Mr. Gordon has been President and a director of American
Fund Advisors, Inc., a money management firm since 1980, and was elected
Chairman of the Board thereof in 1987. In addition, Mr. Gordon is President of
The John Hancock Global Technology Fund (a mutual fund specializing in
telecommunications and technology securities) and a director of Winfield Capital
Corporation, Robocom Systems, Inc. and Skyland Park Management, Inc., all of
which are publicly traded companies.
Mr. Schwartzreich has been a Director since November 1993. Mr. Schwartzreich
has been Vice President and a director of Nassau Suffolk Frozen Food Co., Inc.,
a distributor of frozen food, ice cream and bakery products to retail stores,
since 1973. He is currently the Chairman and President of the Hunts Point
Cooperative Market located in New York City.
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DESCRIPTION OF HAIN CAPITAL STOCK
GENERAL
As of April 24, 1998, the authorized capital stock of Hain is 40,000,000
shares of common stock, $.0l par value per share, of which 11,512,499 shares are
outstanding, and 5,000,000 shares of preferred stock, $.0l par value per share
("Hain Preferred Stock"), none of which had been issued.
The following description is qualified in all respects by reference to the
Certificate of Incorporation (the "Hain Charter") and the bylaws (the "Hain
Bylaws") of Hain.
HAIN COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of the stockholders. Since the holders of Hain
Common Stock do not have cumulative voting rights, holders of more than 50% of
the outstanding shares can elect all of the directors of Hain then being elected
and holders of the remaining shares by themselves cannot elect any directors.
The holders of Hain Common Stock do not have preemptive rights or rights to
convert their Hain Common Stock into other securities. Holders of Hain Common
Stock are entitled to receive ratably such dividends as may be declared by the
Hain Board of Directors out of funds legally available therefor. In the event of
a liquidation, dissolution or winding up of Hain, holders of the Hain Common
Stock have the right to a ratable portion of the assets remaining after payment
of liabilities. All outstanding shares of Hain Common Stock are fully paid and
nonassessable.
HAIN PREFERRED STOCK
Hain is authorized by the Hain Charter to issue a maximum of 5,000,000
shares of Hain Preferred Stock, in one or more series and containing such
rights, privileges and limitations including voting rights, dividend rates,
conversion privileges, redemption rights and terms, redemption prices and
liquidation preferences, as the Hain Board of Directors may, from time to time,
determine.
The issuance of shares of Hain Preferred Stock pursuant to the Hain Board of
Directors' authority described above could decrease the amount of earnings and
assets available for distribution to holders of Hain Common Stock, and otherwise
adversely affect the rights and powers, including voting rights, of such holders
and may have the effect of delaying or preventing a change in control of Hain.
Hain is not required by the DGCL to seek stockholder approval prior to any
issuance of authorized but unissued stock and the Hain Board of Directors does
not currently intend to seek stockholder approval prior to any issuance of
authorized but unissued stock, unless otherwise required by law.
WARRANTS
Warrants to purchase an aggregate of 1,214,294 shares of Hain Common Stock
have been issued by Hain and are currently outstanding. Each Warrant entitles
the holder to purchase one share of common stock, subject to anti-dilution
adjustments, at an exercise price ranging from $3.25 to $12.69 per share. The
Warrants have expiration dates ranging from April 14, 2000 to October 14, 2004.
59
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INFORMATION CONCERNING AMI
ARROWHEAD MILLS, INC. ("AMI") IS A NEWLY FORMED HOLDING COMPANY WHOSE TWO
DIRECT SUBSIDIARIES ARE AMI OPERATING, INC. ("ARROWHEAD") AND DANA ALEXANDER
INC. ("TERRA"). UNLESS OTHERWISE NOTED, REFERENCES TO ARROWHEAD MEAN AMI
OPERATING, INC. INCLUDING ITS SUBSIDIARY DEBOLES NUTRITIONAL FOODS, INC.
FINANCIAL AND CERTAIN OTHER INFORMATION RELATING TO AMI INCLUDED IN THIS
PROSPECTUS/INFORMATION STATEMENT IS PRESENTED FOR EACH OF ARROWHEAD AND TERRA ON
A STAND-ALONE BASIS, INCLUDING UNDER "ARROWHEAD MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL RESULTS OF OPERATIONS AND FINANCIAL CONDITION" AND "TERRA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION." AMI MANAGEMENT BELIEVES THAT SUCH INFORMATION REFLECTS THE BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF AMI ON A CONSOLIDATED BASIS.
INFORMATION CONCERNING ARROWHEAD
GENERAL
Arrowhead was founded in 1960 to produce organically grown foods that are
healthy and more protective to the environment. Arrowhead has developed a strong
tradition for quality and product innovation and has grown from a Company that
offered two products in the local Texas market to a leading United States
supplier of natural and organically grown foods. To expand Arrowhead's product
offering, Arrowhead acquired DeBoles, a leading supplier of pasta in the natural
foods industry, in 1995.
PRODUCTS
Arrowhead produces over 360 SKUs in nine major categories: ready-to-eat cold
cereals, hot cereals, pasta, flour, baking mixes, soups and chilis, packaged
grains, nut butters and nutritional oils.
CUSTOMERS
Arrowhead's customers include a variety of retailers as well as distributors
with concentrations in natural foods products. Sales are generally to
distributors who ultimately sell to the food stores. In addition, Arrowhead
markets directly to retailers through food brokers and its sales force. Because
a majority of Arrowhead's sales are to natural foods distributors, Arrowhead
avoids establishing expensive national distribution facilities. Arrowhead's top
retail customers include Whole Foods, Fresh Fields and Wild Oats. Arrowhead's
top distributors are United Natural Foods (Cornucopia, Stow Mills Mountain
People's and Rainbow), Tree of Life, Texas Health and Nature's Best. Cornucopia
and Stow Mills represent Arrowhead's two largest customers' accounting for 10.8%
and 10.2% of net sales, respectively.
DISTRIBUTION
Arrowhead products are distributed through a network of natural foods
distributors to natural foods stores throughout the United States. In addition,
conventional supermarkets are increasingly interested in expanding natural and
health foods offerings. Arrowhead's national presence and broad product line
strengthen its ability to compete with other natural foods producers and enhance
its growth opportunities.
MARKETING
To increase awareness of its products and reach a growing number of
consumers interested in natural and organic food products, Arrowhead attempts to
coordinate its advertising and promotional campaigns with its retailers and
regularly participates in consumer circular programs within its distribution
network. Arrowhead has an aggressive retail program, which includes offering
"Mix & Match" case promotions designed to expand Arrowhead's shelf presence.
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COMPETITION
Arrowhead's broad product line and well-established national distribution
network strengthen its ability to compete with other natural foods producers,
many of whom offer substantially fewer products on a regional basis only.
Arrowhead has established itself as a leading natural foods manufacturer in the
natural foods industry for natural pasta, flour, baking mixes, nut butters,
packaged grain, and hot cereal categories. Competitors utilize both price and
various promotional programs, especially distributor discounts, to compete for
shelf space and market share.
SUPPLIERS
Arrowhead purchases its raw materials and ingredients directly from
approximately 100 growers throughout the United States and Canada, minimizing
its exposure to seasonal/supply shortages and production interruption.
Arrowhead's raw material suppliers include growers in Texas, Colorado, Kansas,
Oklahoma, Idaho, California and North Dakota. Approximately, 80% to 90% of
Arrowhead's raw materials are contracted in annual agreements, while other
materials are purchased on an as-needed basis or during favorable buying
opportunities. Typically, Arrowhead enters into confirming agreements up to
eight months in advance of product delivery to fix price and volume of raw
materials. Historically, Arrowhead has not participated in hedging programs but
has endeavored to minimize the impact of commodity price volatility through
entering into fixed contracts with suppliers as well as passing on rising raw
material prices on bulk and packaged commodity products.
Arrowhead's primary raw materials consist of wheat and corn. Wheat is
harvested in the spring while corn is harvested in the fall. These raw materials
are trucked in from various suppliers and stocked in grain bins located on the
manufacturing premises. As Arrowhead anticipates raw material price fluctuation,
it actively changes prices on its commodity products such as flour. However,
ready-to-eat packaged products have less flexibility in price as Arrowhead sets
prices to meet competitive retail price points. If raw material prices remain
elevated, packaged product prices ultimately are increased.
MANUFACTURING
Arrowhead is among the largest certified organic food processors in the
United States and currently produces 70% of its products at two manufacturing
facilities located in Hereford, Texas and Shreveport, Louisiana. Arrowhead's
plant in Hereford, Texas performs primary processing on over 20 different
agricultural commodities and is able to convert grain into flour, grits, rolled
flakes or ready-to-eat cereal. The DeBoles plant in Shreveport is similarly
capable of performing a wide range of functions including manufacturing long and
short pasta and packaging it in bulk or carton containers.
Those products not prepared at Arrowhead's facilities are produced on an
as-needed basis under co-packing arrangements. The co-packing arrangements allow
Arrowhead to enter new markets at lower cost, while at the same time maintaining
product quality and integrity.
EMPLOYEES
As of April 24, 1998, Arrowhead had approximately 146 full-time non-union
employees with approximately 40 at the Shreveport facility and the remainder
associated with Arrowhead in Hereford.
LITIGATION
Arrowhead is from time to time involved in litigation incidental to the
conduct of its business. Arrowhead is not currently a party to any litigation
which in the opinion of management is likely to have a material adverse effect
on Arrowhead's business, results of operations or financial condition.
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ARROWHEAD'S CHANGE IN AUDITORS
On July 16, 1997, McGladrey & Pullen, LLP, was engaged and McGinty &
Associates was dismissed by Arrowhead as Arrowhead's auditors. The report of
McGinty & Associates on the financial statements for the years ended July 31,
1996 and 1995 did not contain any adverse opinion or disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope, or accounting
principles. Arrowhead's decision to change auditors was approved by Arrowhead's
Board of Directors. McGinty & Associates did not identify any reportable
conditions in connection with its audits. During the period between July 31,
1994 and the date on which McGinty & Associates were dismissed, there were no
disagreements between Arrowhead and McGinty & Associates on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope and procedure, which, if not resolved to the satisfaction of McGinty &
Associates would have caused it to make a reference to the subject matter of the
disagreement in connection with its reports.
ARROWHEAD MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
SEVEN MONTH PERIOD ENDED FEBRUARY 28, 1998 COMPARED TO THE SEVEN MONTH PERIOD
ENDED FEBRUARY 28, 1997
Arrowhead's net sales increased 9.1% to $16.4 million in the seven months
ended February 28, 1998 from $15.1 million in the comparable period of 1997. The
net sales increase was due primarily to additional distribution of Arrowhead's
products into mainstream grocery outlets. Certain ready-to-eat category product
sales experienced strong increases due to successful promotion programs. A
similar increase in net sales was due to stronger sales of Arrowhead's milled
products during 1998. A minor fire at Arrowhead's facility during the 1997
period caused production and supply issues and thereby lower sales during the
period.
Arrowhead's gross profit increased 25.6% to $4.6 million in the seven months
ended February 28, 1998 from $3.7 million in the comparable period of 1997.
Arrowhead's gross margin percentage increased to 28.2% in the seven months ended
February 28, 1998 from 24.5% in the comparable period in the prior year. The
increase in Arrowhead's gross margin percentage was attributable to consistently
lower commodity costs and lower cost product formulations that were introduced
during the 1998 period.
Arrowhead's selling, general and administrative expenses, including
management fee to shareholder, increased 13.4% to $2.7 million in the seven
months ended February 28, 1998 from $2.4 million in the comparable period of
1997. Selling, general and administrative expenses as a percentage of net sales
increased to 16.6% in the seven months ended February 28, 1998 from 15.9% in the
comparable period in the prior year. The increase in selling, general and
administrative expenses was due to planned increases in selling expenses
including accruals for major account promotional activity and additional co-op
spending with Arrowhead's retail customers. Higher payroll and benefit costs
were also experienced following a modest wage increase and higher than expected
health insurance costs during the period.
Arrowhead's interest expense decreased 6.1% to $199,000 in the seven months
ended February 28, 1998 from $212,000 in the comparable period of 1997. Interest
expense as a percentage of net sales decreased to 1.2% in the seven months ended
February 28, 1998 from 1.4% in the comparable period in the prior year. The
decrease in interest expense was due primarily to a decline in the average rate
paid on borrowings. A portion of the interest expense paid by Arrowhead Mills,
Inc. to its lender was paid by Arrowhead during the period ended February 28,
1998. In addition, lower interest expense was related to the repayment of
amounts outstanding under Arrowhead's line of credit prior to the Terra
acquisition.
Arrowhead's provision for income taxes was $741,000 for the seven months
ended February 28, 1998, an increase of $286,000 or 62.9% from $455,000 for the
comparable period in 1997. The increase in 1998
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results from an increase in income before income taxes. Income before income
taxes was $1,721,000 for the seven months ended February 28, 1998, an increase
of $637,000 or 58.8% from the $1,084,000 for the comparable period in 1997. The
provision for income taxes was 43.1% and 42.0%, respectively, of income before
income taxes for the seven months ended February 28, 1998 and 1997.
Arrowhead's net income increased 20.0% to $980,000 in the seven months ended
February 28, 1998 from $629,000 in the comparable period of 1997. Net income as
a percentage of net sales increased to 6.0% in the seven months ended February
28, 1998 from 5.4% in the comparable period in the prior year. Net income
increased primarily due to gross profit margin increases.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Arrowhead's net sales for 1997 increased by $1.4 million to $26.0 million as
compared with $24.6 million in 1996. The increase in net sales was largely
attributable to expanded distribution within existing channels and new product
introductions.
Arrowhead's gross profit for 1997 increased by $236,000 to $6.5 million as
compared with $6.3 million in 1996. Arrowhead's gross margin percentage
decreased to 25.2% in 1997 from 25.6% in 1996 due primarily to unfavorable
commodity pricing and higher cost spot price buying utilized by Arrowhead as
certain commodities sold better than had been expected.
Arrowhead's selling, general and administrative expenses, including
management fee to shareholder, for 1997 decreased by $1.3 million to $4.8
million as compared with $6.1 million in 1996. Selling, general and
administrative expenses as a percentage of net sales decreased to 18.4% in 1997
from 24.6% in 1996. The decrease in selling, general and administrative expenses
was due primarily to the closure of the DeBoles corporate office and the
restructuring of management at Arrowhead.
Arrowhead's interest expense for 1997 increased by $68,000 to $394,000 from
$326,000 in 1996. Interest expense as a percentage of net sales increased to
1.5% in 1997 from 1.3% in 1996. The increase in interest expense was due to
higher borrowings under Arrowhead's revolving credit facility and interest
expense related to debt incurred with respect to the completion of the Arrowhead
distribution center.
Arrowhead's provision for income taxes was $570,000 in 1997, an increase of
$448,000 from $122,000 in 1996. The increase in 1997 results from an increase in
income before income taxes. Income before income taxes was $1,360,000 in 1997,
an increase of $1,436,000 from the loss before income taxes of $(76,000) in
1996. The provision for income taxes was 41.9% of income before income taxes for
the year ended July 31, 1997. The provision for income taxes in 1996 is greater
than expected due to $155,000 of tax related to a prior year business
combination.
Arrowhead's net income for 1997 increased by $1.2 million to $790,000 from a
loss of $433,000 in 1996. Net income as a percentage of net sales increased to
3.0% in 1997 from a negative 0.8% in 1996. The increase in net income was
primarily due to improved operating margins, the absence of certain one-time
charges and higher net sales.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Arrowhead's net sales for 1996 increased by $2.2 million to $24.6 million as
compared with $22.4 million in 1995. The increase in net sales was largely
attributable to expanded distribution within existing channels and new product
introductions. The largest portion of the sales increase was due to sales
attributable to DeBoles products.
Arrowhead's gross profit for 1996 decreased by $276,000 to $6.3 million as
compared with $6.6 million in 1995. Arrowhead's gross margin percentage
decreased to 25.6% in 1996 from 29.3% in 1995 due primarily to due to additional
costs of promotional activity.
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Arrowhead's selling, general and administrative expenses for 1996 decreased
by $2.7 million to $6.1 million as compared with $8.8 million in 1995. Selling,
general and administrative expenses as a percentage of net sales decreased to
24.6% in 1996 from 39.0% in 1995. The decrease in selling, general and
administrative expenses was due primarily to write-offs associated with the
DeBoles acquisition in 1995.
Arrowhead's interest expense for 1996 increased by $59,000 to $323,000 from
$264,000 in 1995. Interest expense as a percentage of net sales increased to
1.3% in 1996 from 1.2% in 1995. The increase in interest expense was due to debt
associated with the DeBoles acquisition and higher borrowings under Arrowhead's
revolving credit facility.
Arrowhead's provision for income taxes was $122,000 in 1996, a decrease of
$288,000 or 70.2% from $410,000 in 1995. The decrease in 1996 results from a
decrease in taxable income after the nondeductible goodwill expense in 1995.
Arrowhead's net income for 1996 increased by $2.6 million to a loss of
$198,000 from a loss of $2.8 million in 1995. Net income as a percentage of net
sales decreased to negative 1.8% in 1996 from 4.4% in 1995. The increase in net
income was primarily due to restructuring charges associated with the
acquisition of DeBoles and charges associated with the restructuring of
Arrowhead's management.
LIQUIDITY AND CAPITAL RESOURCES
Arrowhead's working capital requirements have increased since the fiscal
year ended July 31, 1995 due to the introduction of new ready-to-eat products
that have required significant developmental costs and higher than average
inventory than traditionally experienced in Arrowhead's core product line. Prior
to November 1997, Arrowhead incurred certain indebtedness related to the
purchase of equipment through three term loans and the financing of its working
capital needs through a $2 million line of credit. All of this indebtedness was
repaid at the time of AMI's acquisition of Terra.
Currently, all non-trade financing of Arrowhead and Terra is provided by AMI
and any excess cash balances that Arrowhead and Terra are transferred to AMI.
Accordingly, short-term working capital requirements above operating cash flow
capabilities are paid through the AMI Line of Credit. Management expects that
the cash flows from operations will be and have been adequate to pay the
principal and interest payments as they come due in accordance with the various
agreements it is party to with its bank.
Arrowhead has traditionally maintained a working capital line with a bank to
fund minor seasonal cash flow fluctuations in its business. Arrowhead uses
organically grown grains in the course of its primary business. These
commodities are typically harvested once annually with few growers possessing
storage facilities on their farms. As a result, Arrowhead buys most of its
grains at harvest, and must inventory these materials until they are used in the
production of Arrowhead's finished products. The fact that Arrowhead typically
purchases and stores a portion of the raw ingredients used in the production of
its finished products during relatively short periods of time throughout the
year creates greater than normal cash requirements at certain times. In order to
meet these needs, Arrowhead has maintained a line of credit with a bank. In
April 1997, Arrowhead's existing line of credit was refinanced in connection
with Arrowhead's refinancing of DeBoles acquisition related indebtedness. From
April 1997 through November 1997, Arrowhead maintained an approximately $2
million line of credit with a bank. The current AMI Line of Credit (as defined
herein) is being used for short-term working capital requirements in lieu of
Arrowhead's prior line of credit.
In addition, in 1996, Arrowhead borrowed approximately $1 million from a
bank for the construction of its warehouse. All principal amounts outstanding
under this loan were repaid at November 1997 concurrent with AMI's acquisition
of Terra. Subsequent to the acquisition of Terra, Arrowhead has only entered
into trade related debt agreements.
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Arrowhead is required under the AMI Line of Credit (as defined herein) and
the AMI Term Loan (as defined herein) to fund AMI principal and interest
commitments. Accordingly, Arrowhead has paid dividends of $434,000 from the
period November 17, 1997 through February 28, 1998. Management expects cash flow
from operations at Arrowhead and Terra to meet these principal and interest
commitments.
Net cash provided by operating activities for the seven month period ended
February 28, 1998 increased from $506,000 to $1.9 million, an increase of $1.3
million or 270%. The increase was primarily attributable to an increase in sales
related to new product introductions and new distribution combined with a $1.2
million increase in accounts receivable in the seven months ended February 28,
1997.
Net cash used in investing activities for the seven month period ended
February 28, 1998 decreased from $420,000 to $349,000, a decrease of $71,000 or
17%. This decrease is primarily attributable to lower discretionary spending on
capital items and lower spending associated with package design.
Net cash used in financing activities for the seven month period ended
February 28, 1998 increased from $111,000 to $1.4 million, and increase of $1.3
million. This increase was attributable primarily to repayments of principal
under Arrowhead's indebtedness and cash dividends paid to AMI.
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
Arrowhead experiences a minimal degree of seasonality in its sales. In terms
of sales, minor increases in volume occur in during the months of October,
November, February and March. Management believes that this increase corresponds
with consumers generally cooking and baking more of their own breads and grain
based products during these months. Accordingly, sales of Arrowhead's grains and
flours tend to increase during these months. Minor sales decreases occur in the
months of May and June when retailers and wholesalers begin to adjust their
products from ingredients to pre-prepared meals and ready-to-eat products.
INFLATION AND CHANGES IN PRICES
The cost of ingredients for Arrowhead's products rises and falls in line
with their value in the commodity markets. Arrowhead endeavors to insulate
itself from wide variations in prices by entering into supply agreements on an
annual basis for the majority of the raw ingredients used in the production of
its products. Generally, increases in raw material prices are recovered through
periodic price increases.
YEAR 2000 RISKS
Prior to the Year 2000, Hain intends to integrate Arrowhead's computer
systems and software applications with Hain's existing systems, which Hain
believes to be "Year 2000" compliant. The ability of third parties with whom
Hain transacts business to adequately address their Year 2000 issues is outside
of Hain's control. There can be no assurance that the failure of such third
parties to adequately address their Year 2000 issues will not have a material
adverse effect on Hain's business, financial condition, cash flows and results
of operations.
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INFORMATION CONCERNING TERRA
GENERAL
In November 1997, AMI acquired Terra for approximately $20.0 million in cash
and shares of AMI Common Stock. Terra, formed in March 1989 by chefs Dana
Sinkler and Alexander Dzieduszycki, is a producer of all natural gourmet
vegetable chips. Terra produces an all natural chip out of five different
vegetables including taro, parsnip, yucca, sweet potato and batata. The gourmet
chips are up to 50% lower in fat than traditional potato chips. Terra has
achieved rapid sales growth in multiple channels as a result of its unique
product offering. The products appeal to consumers in the specialty snack
segment due to their unique taste, reduced fat, all natural ingredients and
variety of flavors. Continued growth in demand in the snack food industry, in
addition to increasing demand within the low-fat chip segment, provide
opportunities to expand Terra's product line and distribution channels. Since
Terra was 100% acquired by AMI on November 17, 1997, the financial statements of
Terra have applied push down accounting, and the assets of Terra have been
revalued and the excess purchase price has been recorded on Terra's balance
sheet.
PRODUCTS
Terra produces 48 SKU's ranging from a three-quarter-ounce airline pack size
to a 12 ounce bag sold primarily through club stores. Terra's products include
Terra Original, Yukon Gold and Sweet Potato. The Terra Original chips are made
from five different vegetables including taro, parsnip, yucca, batata and sweet
potato ruby taro. The Sweet Potato line is comprised of only sweet potatoes, but
is offered in a variety of flavors including spiced sweet potato, mesquite BBQ,
jalapeno, salsa, cinnamon spiced and nacho cheese. The Yukon Gold line, made
from yukon gold potatoes is also offered in several flavors such as original,
barbecue, onion and garlic, and salt and vinegar. While Terra Original and Sweet
Potato product lines are produced using traditional deep frying methods the
Yukon Gold line is manufactured through a vacuum fried method making the chips
up to 50% lower in fat than traditional potato chips. All products are all
natural and do not contain any hydrogenated oils, artificial colors, flavors or
preservatives.
CUSTOMERS
Terra's products are sold in the United States as well as several
international markets such as Canada, Japan and Puerto Rico. While Terra's
primary market area is in the Northeastern United States, sales have steadily
grown throughout the United States, particularly on the West Coast where natural
foods products have strong consumer appeal. Terra products are targeted at
consumers willing to pay a premium for low fat alternatives to potato chips as
well as those seeking gourmet all natural products. PriceCostco represents
Terra's single largest customer, representing 28% of its sales for the seven
months ended July 31, 1997.
DISTRIBUTION
Terra sells its products through a variety of channels including clubs,
natural foods stores, grocery retailers, foodservice, and airlines enabling it
to reach a broad consumer base. Terra's sales executives work directly with 35
commissioned food brokers to execute its marketing and distribution programs.
Terra's sales force sells directly to club stores, airlines and other grocery
retail customers and uses distributors for the remaining channels.
Club stores comprised 26% of Terra's sales in calendar 1997, as Terra has
arrangements with a number of leading club stores in the United States,
including PriceCostco, BJ's and Sam's. Terra's products are also sold through
natural foods distributors and retailers and are serviced by a nationwide
network of natural food brokers. Terra also distributes through foodservice
distributors that sell to upscale bars, restaurants and hotels. For example,
Terra recently entered into an agreement with Au Bon Pain to provide its premium
vegetable chips. In addition, Terra has a relationship with three airlines
(American, Continental
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and Horizon) which serve the products as snacks to passengers further increasing
Terra's visibility among consumers.
Terra's expansion strategy is to capitalize on continued growth in the
natural foods industry with the emergence of natural foods supermarket chains
such as Whole Foods, maintain strong relationships with its club store
connections, gain a higher product awareness in conventional grocery stores
through a more focused marketing and promotional program, and actively research
new ways to expand Terra's product offering.
MARKETING
Terra emphasizes developing new products and offering a variety of flavors
to appeal to changing consumer demands. Terra introduced the Yukon Gold product
line in 1996 to offer vegetable chips that are up to 50% lower in fat than
traditional chips as a result of Terra's vacuum fried method of production. Over
the last three years, Terra has concentrated its new products on expanding its
three existing product lines with various flavors such as barbecue, onion and
garlic, salt and vinegar, mesquite barbecue, jalapeno, salsa, cinnamon spiced
and nacho cheese to appeal to a broad customer base. All of Terra's products
have been developed internally.
Terra intends to continue its product development program by reviewing
expansion opportunities into other premium snack food categories such as
pretzels, popcorn, tortilla chips, crackers, cookies and dips.
Terra actively participates in trade shows, which provide access to a
variety of distributors as well as expansion opportunities into new distribution
channels. Terra also manufactures three-quarter-ounce size Terra chips used as
demos for retailers and distributors. Terra is also involved in rack placements,
case stack programs and end-cap programs for several grocers as a way of
increasing product exposure to consumers. For example, Terra has developed a
pallet display program to promote sales in club stores. Finally, Terra's
distinctive black packaging remains a key differentiating characteristic
relative to its competitors.
COMPETITION
Terra's products compete in both the specialty snack segment of the natural
foods industry as well as the chips, pretzels and snacks category. Terra has
attempted to differentiate its Original and Sweet Potato lines from the products
of its competitors in the specialty snack segment by offering all natural
vegetable chips with its variety of flavors.
SUPPLIERS
Terra purchases raw materials from select growers in the United States and
Latin America. Terra's primary raw materials consist of sweet potato, taro,
yucca, batata, parsnips, beets and canola oil. Terra's top five supplier
locations include North Carolina, New York, Dominican Republic, Costa Rica and
south Florida. Taro and yucca are grown in Costa Rica and the Dominican Republic
and imported using primarily food brokers. Terra has recently initiated direct
contracting with growers in Latin America to reduce cost volatility. Terra has
also managed commodity price risk by establishing annual pricing guidelines for
all domestic commodities as well as maintaining strong relationships with import
brokers.
Although raw material prices have remained relatively stable over the past
three years, Terra experienced a temporary increase in taro root prices
beginning in October 1997 driven by drought in the Dominican Republic. Terra
estimates its cost for taro root will normalize in 1998 as prices have already
started a trend downward due to a significant crop in the Dominican Republic and
the benefits from contracting directly with growers.
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MANUFACTURING
Terra has a co-packing agreement that is renewable annually and that
currently expires December 31, 1998. Under the contract, Terra is required to
take minimum quantity amounts with pricing based on order sizes. Terra believes
that alternative sources of supply are available if co-packing arrangements with
its suppliers were to be terminated by Terra or the co-packers. However, there
can be no assurance that alternative sources of supply would be able to meet the
requirements of Terra.
EMPLOYEES
As of April 24, 1998, Terra had 88 full-time non-union employees.
LEGAL PROCEEDINGS
Terra is from time to time involved in litigation incidental to the conduct
of its business. Terra is not currently a party to any litigation which in the
opinion of management is likely to have a material adverse effect on AMI's
business, results of operations or financial condition. Terra is in the process
of discovery relating to an employee lawsuit. The employee claims damages of
$800,000. Management believes the outcome of this suit will not have a material
effect on the financial statements.
TERRA'S CHANGE IN AUDITORS
On December 1, 1997 McGladrey & Pullen, LLP was engaged and Katz & Bloom,
LLC was dismissed by Terra as Terra's auditors. The report of Katz & Bloom, LLC
on the financial statements for each of the years ended December 31, 1996 and
1995 did not contain any adverse opinion or disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
Terra's decision to change auditors was approved by Terra's Board of Directors.
Katz & Bloom, LLC did not identify any reportable conditions in connection with
its audits. During the period between January 1, 1995 and the date on which Katz
& Bloom, LLC was dismissed, there were no disagreements between Terra and Katz &
Bloom, LLC on any matter of accounting principles or practices, financial
statement disclosure or auditing scope and procedure, which, if not resolved to
the satisfaction of Katz & Bloom LLC, would have caused it to make a reference
to the subject matter of the disagreement in connection with its reports.
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TERRA MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SEVEN MONTH PERIOD ENDED FEBRUARY 28, 1998 COMPARED TO THE SEVEN MONTH PERIOD
ENDED FEBRUARY 28, 1997
Terra's net sales increased 16.0% to $8.2 million in the seven months ended
February 28, 1998 from $7.1 million in the comparable period of 1997. The net
sales increase was due to expanded distribution in existing sales channels,
sales growth in new products and within both the grocery/specialty and club
channels.
Terra's gross profit increased 11.4% to $3.4 million in the seven months
ended February 28, 1998 from $3.0 million in the comparable period of 1997.
Terra's gross margin percentage decreased to 41.2% in the seven months ended
February 28, 1998 from 42.9% in the comparable period in the prior year. The
decrease in Terra's gross margin percentage was attributable to increased sales
of the lower margin Yukon Gold product. In addition, Terra experienced a
temporary increased in certain of its raw material prices during the period.
Terra's selling, general and administrative expenses increased 0.7% to $2.6
million in the seven months ended February 28, 1998 from $2.6 million in the
comparable period of 1997. Selling, general and administrative expenses as a
percentage of net sales decreased to 31.7% in the seven months ended February
28, 1998 from 36.5% in the comparable period in the prior year. The nominal
increase in selling, general and administrative expenses in dollar terms was due
to increased bonuses and amortization which was partially offset by a decline in
management fees.
Terra's interest expense increased to $388,000 in the seven months ended
February 28, 1998 from $8,000 in the comparable period of 1997. Interest expense
as a percentage of net sales increased to 4.7% in the seven months ended
February 28, 1998 from 0.1% in the comparable period in the prior year. The
increase in interest expense is related to the push down of AMI debt on Terra's
balance sheet on November 17, 1997.
Terra's provision for income taxes was $222,000 for the seven months ended
February 28, 1998, an increase of $15,000 or 7.2% from $207,000 for the
comparable period in 1997. The increase in 1998 is attributable to the
nondeductibility of $80,000 of amortization of goodwill in 1998. Income before
income taxes was $393,000 for the seven months ended February 28, 1998, a
decrease of $53,000 or 11.9% from the $446,000 for the comparable period in
1997. The provision for income taxes was 56.5% and 46.4%, respectively, of
income before income taxes for the seven months ended February 28, 1998 and
1997. In 1998, the provision for income taxes includes a tax effect of $37,000
related to the nondeductible amortization of goodwill.
Terra's net income decreased 28.5% to $171,000 in the seven months ended
February 28, 1998 from $239,000 in the comparable period of 1997. Net income as
a percentage of net sales decreased to 2.1% in the seven months ended February
28, 1998 from 3.4% in the comparable period in the prior year. Net income
decreased primarily due to an increase in interest expense and one-time bonuses
paid to officers of Terra.
SEVEN MONTHS ENDED JULY 31, 1997 COMPARED TO SEVEN MONTHS ENDED JULY 31, 1996
Terra's net sales increased 45.5% to $7.8 million in the seven months ended
July 31, 1997 from $5.3 million in the comparable period of 1996. The net sales
increase was due to expanded distribution in existing sales channels, sales
growth in new products and within both the grocery/specialty and club channels.
Terra's gross profit increased 29.7% to $3.4 million in the seven months
ended July 31, 1997 from $2.6 million in the comparable period of 1996. Terra's
gross margin percentage decreased to 43.9% in the seven months ended July 31,
1997 from 49.2% in the comparable period in the prior year. The decrease in
Terra's gross margin percentage was attributable to increased sales of the lower
margin Yukon Gold product.
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Terra's selling, general and administrative expenses increased 29.7% to $2.4
million in the seven months ended July 31, 1997 from $1.8 million in the
comparable period of 1996. Selling, general and administrative expenses as a
percentage of net sales decreased to 30.5% in the seven months ended July 31,
1997 from 34.2% in the comparable period in the prior year. The increase in
selling, general and administrative expenses was due to higher variable costs
associated with selling Terra's products, the hiring of additional employees and
increased overhead costs.
Terra's interest expense decreased 14.3% to $30,000 in the seven months
ended July 31, 1997 from $35,000 in the comparable period of 1996. Interest
expense as a percentage of net sales decreased to 0.4% in the seven months ended
July 31, 1997 from 0.7% in the comparable period in the prior year. The decrease
interest expense was due to lower borrowings under Terra's line of credit and
lower outstanding debt balances.
Terra's other income decreased from $187,000 in the seven months ended July
31, 1996 to $0 in the comparable 1997 period. Other income in 1996 was related
to income earned from the sale of Terra's local distribution rights to a third
party. No such sale occurred in the 1997 period.
Terra's provision for income taxes was $483,000 for the seven months ended
July 31, 1997, an increase of $99,000 or 25.8% from $384,000 for the comparable
period in 1996. The increase in 1997 results from an increase in income before
income taxes in 1997. Income before income taxes was $1,005,000 for the seven
months ended July 31, 1997, an increase of $56,000 or 5.9% from the $949,000 for
the comparable period in 1996.
Terra's net income decreased 7.4% to $522,000 in the seven months ended July
31, 1997 from $564,000 in the comparable period of 1996. Net income as a
percentage of net sales decreased to 6.7% in the seven months ended July 31,
1997 from 10.6% in the comparable period in the prior year. Net income decreased
primarily due to an increase in selling, general and administrative expenses and
lower gross profit margins.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Terra's net sales for 1996 increased by $4.9 million to $10.5 million as
compared with $5.6 million in 1995. The increase in net sales was largely
attributable to expanded distribution within existing channels, establishment of
a national broker network in the natural foods channel, new distribution into
warehouse clubs, new product introductions and the hiring of a Vice President of
Sales.
Terra's gross profit for 1996 increased by $2.5 million to $4.9 million as
compared with $2.4 million in 1995. Terra's gross margin percentage increased to
46.2% in 1996 from 42.5% in 1995 due primarily to increases in the productivity
of factory personnel, increased automation and increased volume purchasing
economies.
Terra's selling, general and administrative expenses for 1996 increased by
$1.7 million to $3.6 million as compared with $2.0 million in 1995. Selling,
general and administrative expenses as a percentage of net sales decreased to
35.0% in 1996 from 36.6% in 1995. The increase in selling, general and
administrative expense was due primarily to an increase in net sales and the
hiring of additional personnel.
Terra's interest expense for 1996 decreased by $19,000 to $46,000 from
$65,000 in 1995. Interest expense as a percentage of net sales decreased to 0.4%
in 1996 from 1.2% in 1995. The reduction in interest expense was due to lower
borrowings under Terra's credit facilities.
Terra's provision for income taxes was $555,000 for the year ended December
31, 1996, an increase of $364,000 or 190.6% from $191,000 for 1995. The increase
in 1997 results from an increase in income before income taxes. Income before
income taxes was $1,323,000 for the year ended December 31, 1996, an increase of
$1.0 million or 381.1% from the $275,000 in 1995. The provision for income taxes
was 42.0% and 69.5%, respectively, of income before income taxes for the year
ended December 31, 1996 and 1995. The provision for income taxes includes the
tax effect of $64,000 due to a change in tax status in 1995.
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Terra's net income for 1996 increased by $684,000 to $768,000 from $84,000
in 1995. Net income as a percentage of net sales increased to 7.3% in 1996 from
1.5% in 1995. The increase in net income as primarily due to improved operating
margins and higher net sales.
LIQUIDITY AND CAPITAL RESOURCES
Terra's working capital requirements have increased since December 1995 due
largely to increases in sales and the associated increases in inventories and
costs associated with the development and introduction of product line
extensions. Additionally, Terra's working capital requirements increased due to
its entry into new channels of trade and the costs associated with establishing
broker networks therein. Specifically, Terra has spent substantial effort in the
warehouse club channel. Indebtedness has decreased at Terra since the
acquisition of Terra by TSG2. Currently, all non-trade financing of Arrowhead
and Terra is provided by AMI and any excess cash balances that Arrowhead and
Terra accrue are transferred to AMI. Accordingly, short term working capital
requirements above operating cash flow capabilities are paid through the AMI
Line of Credit. Management expects that the cash flows from operations will be
and have been adequate to pay the principal and interest payments as they come
due in accordance with the various agreements it is party to with its bank.
In connection with the acquisition of Terra by TSG2 in April 1995, Terra
entered into an agreement with a bank for a $1 million line of credit. Interest
on the line of credit was at the bank's prime rate plus 0.5%. The line of credit
was used primarily to fund seasonal cash requirements and was eventually used to
repay amounts outstanding under certain loans payable to officers of Terra. At
the close of the acquisition, Terra borrowed approximately $225,000. The
outstanding principal balance of this line of credit was refinanced at November
1997 in connection with the acquisition of Terra by AMI.
In addition, Terra entered into an agreement with the same bank for a
$108,000 term loan due in April 2000. Interest on the loan was at the bank's
prime rate plus 1%. Terra made monthly principal payments of $1,800 per month
through November 1997. Also in connection with the acquisition of Terra by TSG2,
Terra entered into agreements with certain shareholders of Terra for total loans
made by these shareholders for total principal of $338,000. These loans were
repaid by Terra under its existing credit facility in November of 1996.
During 1993, Terra had entered into an agreement with the New York State
Urban Development Corporation for two loans totaling approximately $125,000.
Both of these loans bore interest at 1%, increasing to 4% in 1994. The first
loan was repaid at the expiration of its term in March 1997. The second loan was
repaid in connection with Terra's acquisition by AMI in November 1997.
Indebtedness incurred in connection with the Terra acquisition under the AMI
Line of Credit and the AMI Term Loan are reflected in the financial statement of
Terra in accordance with push-down accounting (See Note 8 to the Terra unaudited
financial statements as of February 28, 1998).
The acquisition of Terra occurred on November 17, 1997. To finance the
purchase of Terra, AMI entered into an agreement with a bank for an
approximately $6 million secured line of credit (the "AMI Line of Credit"). Of
the total available $6 million AMI Line of Credit, AMI borrowed approximately $2
million at the consummation of the acquisition. Interest on the AMI Line of
Credit is at the bank's LIBOR rate (5.625% at February 28, 1998) plus 2.5% (the
"LIBOR Rate") or at the higher of (a) the bank's prime rate plus 1.5% or (b) the
Federal Funds Rate plus 2.0% (the higher of the rates referred to in (a) and
(b), the "Base Rate"), at AMI's option. As of February 28, 1998, $2.0 million
was outstanding under the AMI Line of Credit at the bank's LIBOR Rate.
As of February 28, 1997, AMI had $4 million available under the AMI Line of
Credit. The AMI Line of Credit expires on October 31, 2003. The AMI Line of
Credit agreement includes covenants requiring the achievement of minimum
profitability and the maintenance of certain financial ratios.
In addition, AMI entered into an agreement with the same bank for an
approximately $19 million secured term loan (the "AMI Term Loan"). The AMI Term
Loan is divided into two tranches, A and B
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(the "AMI Term Loan A" and the "AMI Term Loan B"). Interest on the AMI Term Loan
A is at the bank's LIBOR rate (5.625% at February 28, 1998) plus 2.5% (the
"LIBOR Rate") or at the higher of (a) the bank's prime rate plus 1.5% or (b) the
Federal Funds Rate plus 2.0% (the higher of (a) or (b), the "Base Rate"), at
AMI's option. As of February 28, 1998, $12 million was outstanding under the AMI
Term Loan A at the bank's LIBOR rate plus the applicable margin. The AMI Term
Loan A agreement expires at October 31, 2003. The AMI Term Loan A agreement
contains covenants similar to those contained in the AMI Line of Credit
agreement.
Interest on the AMI Term Loan B is at the bank's LIBOR rate (5.625% at
February 28, 1998) plus 3.0% or at the higher of (a) the bank's prime rate plus
2.0% or (b) the Federal Funds Rate plus 2.5%, at AMI's option. As of February
28, 1997 the outstanding principal under the AMI Term Loan B was $7 million at
the bank's applicable LIBOR rate. The AMI Term Loan B agreement expires at
October 31, 2004. The AMI Term Loan B agreement contains covenants similar to
those contained in the AMI Line of Credit agreement.
Net cash provided by operating activities for the seven month period ended
February 28, 1998 increased from $450,000 to $702,000, an increase of $252,000
or 56.0%. This increase was primarily due to higher sales during the period
without a corresponding increase in accounts receivable.
Net cash used in investing activities for the seven month period ended
February 28, 1998 decreased from $427,000 to $248,000, a decrease of $179,000 or
41.9%. This decrease was primarily due to lower purchases of capital equipment
during the period.
Net cash used in financing activities for the seven month period ended
February 28, 1998 increased from $264,000 to $313,000, an increase of $49,000 or
18.6%. This increase was attributable to principal payments on long term debt.
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
Terra experiences a minimal degree of seasonality in its sales. In terms of
sales, Terra experiences minor increases in volume during the fourth quarter of
its fiscal year (ending December). Terra management believes this increase is
due to the established popularity of Terra's original mix product during the
holidays. Terra expects that the minor fluctuations caused in monthly sales may
lessen as Terra's other products (Yukon Gold and Sweet Potato lines) increase in
volume.
INFLATION AND CHANGES
The cost of ingredients for Terra's products rises and falls in line with
their value in the commodity markets. Terra insulates itself from wide
variations in prices by working with a variety of brokers and suppliers
throughout the world to ensure competitive pricing. In general, long term
increases in raw material prices are recovered through periodic price increases.
See "Information Concerning Terra-- Suppliers."
YEAR 2000 RISKS
Prior to the year 2000, Hain intends to integrate Terra's computer systems
and software applications with Hain's existing systems, which Hain believes to
be "Year 2000" compliant. The ability of third parties with whom Hain transacts
business to adequately address their Year 2000 issues is outside of Hain's
control. There can be no assurance that the failure of such third parties to
adequately address their Year 2000 issues will not have a material adverse
effect on Hain's business, financial condition, cash flows and results of
operations.
AMI VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
AMI Common Stock is the only outstanding authorized voting security of AMI.
On April 24, 1998 there were 566,990 shares of AMI Common Stock outstanding,
entitled to one vote per share. AMI Common Stock does not have cumulative voting
rights.
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The following table sets forth certain information with respect to the
beneficial ownership of AMI Common Stock as of April 24, 1998 by (i) each person
who is known by AMI to own beneficially more than 5% of the outstanding shares
of AMI Common Stock, (ii) each director of AMI who owns AMI Common Stock, (iii)
each of the executive officers who own AMI Common Stock, and (iv) all executive
officers and directors of AMI as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF AMI AMI COMMON
NAME COMMON STOCK STOCK
- -------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
TSG2 L.P.................................................................. 293,048 51.68%
The George Dana Sinkler, Jr. Revocable Living Trust....................... 60,331 10.64%
Alexander Dzieduszycki.................................................... 30,165 5.32%
Charles A. Lynch (1)...................................................... 0 *
Mark Novak (1)............................................................ 2,600(3) *
Gary Schultz (1).......................................................... 754 *
Gordon Dore (2)........................................................... 10,000(4) 1.8%
Charles H. Esserman (2)................................................... 311,973(5) 55.0%
J. Gary Shansby (2)....................................................... 308,267(5) 54.4%
Donna West (2)............................................................ 0 *
Directors and Executive Officers as a Group (7 persons)................... 325,327(3 (5) 57.1%
</TABLE>
- ------------------------
* Indicates less than 1%.
(1) Executive Officers.
(2) Non-Officer Director.
(3) Includes 2,500 shares relating to the portion of Mr. Novak's stock option
exercisable within 60 days.
(4) Represents shares owned by Supreme Rice Mill, Inc., which is wholly owned by
Mr. Dore.
(5) Includes 293,048 shares and 15,219 shares owned by TSG2 and TSG Ventures,
respectively. Mr. Esserman and Mr. Shansby are each a (i) a managing member
of the limited liability company that acts as general partner of TSG2, and
(ii) the general partner of TSG Ventures.
INFORMATION CONCERNING GOE
GOE is a marketer of organic tortilla chips and a variety of specialty
breads.
GENERAL
GOE was founded in 1971. GOE's primary products include blue or red corn
tortilla chips in salted and unsalted varieties, and in a number of package
sizes. GOE's product offerings are distributed nationally to the natural foods
channel. GOE's products are also available in specialty and mainstream grocery
retailers.
PRODUCTS
GOE's blue chip product line includes blue corn tortilla chips, spicy blue
corn tortilla chips, and sesame and sunflower flavored blue corn tortilla chips.
All of GOE's products are natural. At December 31, 1997, approximately 90% of
GOE's total product sales were tortilla chip products. The remainder was split
between bread products (7%), salsa (2%) and dessert items (1%). Certain of the
bread products and all of the salsa and dessert items were discontinued in 1998.
CUSTOMERS
GOE's products are distributed throughout the United States. GOE's two
largest customers, Mountain People's Warehouse and Trader Joe's, accounted for
approximately 12% and 9% of net sales, respectively. Mountain People's Warehouse
is separated into separate buying groups depending upon its regional location,
and, each individual warehouse maintains inventory and products based upon the
needs of retailers within its particular region.
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DISTRIBUTION
GOE sells its products through a variety of channels including natural food
stores, specialty and grocery retailers, foodservice and on private label basis.
GOE sells directly to certain specialty and grocery retailers, including Trader
Joe's. GOE uses distributors for the majority of its sales to the natural foods
channel.
Natural foods distributors and retailers comprised approximately 57% of
GOE's fiscal 1997 net sales. Approximately 29 percent of sales are in specialty
grocery stores (not including Trader Joe's).
MARKETING
GOE promotes its products using discounts and allowances, trade shows and
demonstrations. GOE is also involved in rack placements, case stack programs and
end cap programs for grocers as a way of increasing product exposure to
consumers.
GOE recently discontinued certain of its bread products and all of its salsa
and dessert items in an effort to focus its efforts on its popular and
successful tortilla chip lines. GOE anticipates introducing a number of
additional tortilla chip varieties.
COMPETITION
GOE's primary products compete in the specialty snack segment of the natural
foods industry as well as the chips, pretzels and snacks category of the broader
food market. GOE's blue and red corn tortilla products differentiate themselves
from competing products due to the use of organic ingredients as well as the
unique taste combinations, color schemes, heat levels and spice combinations of
their chips.
SUPPLIERS
GOE purchases its raw materials for its tortilla chips from select growers
in the United States. GOE's primary raw materials are blue, yellow and red corn
(masa and whole kernel) and vegetable oils, and are used for the vast majority
of GOE's product processes. GOE purchases its key raw materials through one-year
contracts with selected growers. The contracts typically provide for volume and
pricing limits to be utilized during the course of the year.
GOE uses contract manufacturers for the production of its products. Its
primary manufacturer, Anita's, located in San Bernadino, California,
manufactured approximately 91% of GOEs products for its 1997 fiscal year. In
most instances, GOE supplies its manufacturers with the raw materials necessary
to manufacture product. GOE purchases the finished product for a designated
price determined in advance of production. Currently, there are no formal
co-packing agreements with GOE's manufacturers. GOE believes that alternative
sources of supply are available if co-packing arrangements with its suppliers
were to be terminated by GOE or the co-packers. However, there can be no
assurance that alternative sources of supply would be able to meet the
requirements of GOE.
EMPLOYEES
As of May 3, 1998, GOE had 16 full-time non-union employees.
LEGAL PROCEEDINGS
GOE is from time to time involved in litigation incidental to the conduct of
its business. GOE is not currently party to any litigation which in the opinion
of its management is likely to have a material adverse effect on GOE's business,
results of operations or financial condition.
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GOE MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
PERIOD FROM DECEMBER 24, 1997 ENDED FEBRUARY 28, 1998 (THE "INTERIM PERIOD")
COMPARED TO TWO MONTHS ENDED FEBRUARY 28, 1997
GOE's net sales increased 12.9% to $2.4 million in the Interim Period from
$2.1 million in the two months ended February 28, 1997. The sales increase was
largely attributable to expanded distribution within the mainstream and
specialty grocery channels. Sales increases were driven primarily by GOE's line
of blue and red corn tortilla chip products.
GOE's gross profit increased 8.3% to $707,000 in the Interim Period from
$653,000 in the two months ended February 28, 1997. GOE's gross margin
percentage decreased to 29.3% in the Interim Period from 30.6% in the 1997
period. The increase in gross profit was attributable to higher sales numbers
associated with the extra week for the Interim Period. The slight decrease in
gross margin percentage was due to higher promotions and higher costs at GOE's
vendors.
GOE's selling, general and administrative expenses increased 9.0% to
$603,000 in the Interim Period from $553,000 in the two months ended February
28, 1997. Selling, general and administrative expenses as a percentage of net
sales decreased to 25.0% in the Interim Period from 25.9% in the comparable
period in the prior year. The increase in selling, general and administrative
expenses primarily as a result of higher expense numbers associated with the
extra week for the Interim Period and management fees payable to a stockholder
of GOE which is offset by an $81,000 reduction in compensation to terminated
employees.
GOE's interest expense decreased slightly to $5,000 in the Interim Period
from $15,000 in the two months ended February 28, 1997. Interest expense as a
percentage of net sales decreased to 0.2% in the Interim Period from 0.7% in the
comparable period of the prior year. The decrease in interest expense was due
primarily to the elimination of indebtedness owed to a stockholder of GOE.
GOE's provision for income taxes was $40,000 for the Interim Period, an
increase of $6,000 or 17.6% from the $34,000 for the two months ended February
28, 1997. The increase in the Interim Period results from an increase in income
before income taxes. Income before income taxes was $99,000 for the Interim
Period, an increase of $14,000 or 16.5% from $85,000 for the two months ended
February 28, 1997. The provision for income taxes was 40.4% and 40.0%,
respectively, of income before income taxes for the Interim Period and the two
months ended February 28, 1997.
GOE's net income increased 15.7% to $59,000 in the Interim Period from
$51,000 in the two months ended February 28, 1997. Net income as a percentage of
net sales remained flat at 2.4% in the Interim Period and in the comparable
period of the prior year.
PERIOD ENDED DECEMBER 23, 1997 COMPARED TO FISCAL YEAR 1996
GOE's net sales for the fifty-one week period ended December 23, 1997
increased by $28,000 to $13.6 million as compared with $13.6 million for a full
year in 1996. Net sales for the eight days ending December 31, 1997 were
$272,000. The full year of 1997 net sales increased over 1996 by $300,000 or
2.2%. The net sales increase was due primarily to expanded distribution into
mainstream and specialty grocery channels.
GOE's gross profit for 1997 increased by $406,000 to $4.2 million as
compared with $3.7 million in 1996. GOE's gross margin percentage increased to
30.5% in 1997 from 27.6% in 1996 due primarily to continued growth in higher
margin tortilla chips, operating efficiencies gained through higher volumes and
lower costs at GOE's contract manufacturers.
GOE's selling, general and administrative expenses for 1997 increased by
$748,000 to $4.1 million as compared with $3.3 million in 1996. Selling, general
and administrative expenses as a percentage of net sales increased to 30.0% in
1997 from 24.6% in 1996. The increase in selling, general and administrative
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expenses was due principally to management fees and reimbursements paid to
shareholders of GOE and compensation and severance paid to former employees of
GOE whose positions were eliminated. Selling, general and administrative
expenses as a percentage of net sales excluding the aforementioned payments
increased to 21.4% in 1997 from 19.9% in 1996.
GOE's interest expense for 1997 decreased by $46,000 to $60,000 from
$106,000 in 1996. Interest expense as a percentage of net sales decreased to
0.4% in 1997 from 0.8% in 1996. The decrease in interest expense was due to
lower borrowings under GOE's line of credit during fiscal 1997 and the reduction
of principal outstanding owed under notes payable to shareholders.
GOE's provision for income taxes was $83,000 for the period ended December
23, 1997, a decrease of $4,000 or 4.6% from $87,000 in 1996. The decrease in
1997 results from a decrease in income before income taxes which is offset by an
$82,000 provision for nondeductible expenses. Income before income taxes was
$4,000 for the period ended December 23, 1997, a decrease of $296,000 from the
$300,000 in 1996. The effective tax rate is lower than expected for 1996 due to
local state tax credits.
GOE's net income for 1997 decreased by $292,000 to a loss of $79,000 from
$213,000 in 1996. Net income as a percentage of net sales decreased to a
negative 0.6% in 1997 from 1.6% in 1996. The net loss is attributable mainly to
nonrecurring expenses and reimbursements paid to former employees and
shareholders of GOE.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
GOE's net sales for 1996 increased by $1.7 million to $13.6 million as
compared with $11.9 million in 1995. The increase in net sales was attributable
primarily to strong growth in new and existing tortilla chip product sales in
mainstream and specialty grocery channels. The majority of the gains made were
through the introduction of new products. Smaller gains were made in salsa
products and other ancillary items.
GOE's gross profit for 1996 increased by $739,000 to $3.7 million as
compared with $3.0 million in 1995. GOE's gross margin percentage increased to
27.6% in 1996 from 25.2% in 1995 due primarily to a growth in product mix
towards higher margin tortilla chips and lower costs at GOE's contract
manufacturers.
GOE's selling, general and administrative expenses for 1996 increased by
$656,000 to $3.3 million as compared with $2.7 million in 1995. Selling, general
and administrative expenses as a percentage of net sales increased to 24.6% in
1996 from 22.5% in 1995. The increase in selling, general and administrative
expenses was due primarily to an increase in compensation paid to a shareholder
and the former general manager of GOE. Commission expenses, advertising and
other variable expenses also increased as a result of higher net sales.
GOE's interest expense for 1996 decreased by $11,000 to $106,000 from
$117,000 in 1995. Interest expense as a percentage of net sales decreased to
0.8% in 1996 from 1.0% in 1995. The reduction of interest expense was due to a
reduction in principal outstanding on notes payable to a shareholder of GOE.
GOE's provision for income taxes was $87,000 in 1996, an increase of $20,000
or 29.9% from the $67,000 in 1995. The increase in 1996 results from an increase
in income before income taxes. Income before income taxes was $300,000 in 1997,
an increase of $94,000 or 45.6% from the $206,000 in 1995. The provision for
income taxes was 29.0% and 32.5%, respectively, of income before income taxes in
1996 and 1995. The effective tax rate is lower than expected for 1996 and 1995
due to local state tax credits.
GOE's net income for 1996 increased by $74,000 to $213,000 from $139,000 in
1995. Net income as a percentage of net sales increased to 1.6% in 1996 from
0.6% in 1995. The increase in net income was primarily due to improved operating
margins.
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LIQUIDITY AND CAPITAL RESOURCES
GOE's working capital requirements have increased since 1995 with increases
in sales related to new products, increased lines of distribution and the
proliferation of GOE's products into specialty and mainstream grocery. GOE's
indebtedness has decreased since 1995 due to the repayment of borrowings under
various credit agreements with banks and shareholders.
GOE has traditionally operated with a line of credit for working capital
purposes since 1993. When first consummated in 1993, GOE entered into an
agreement with a bank for an approximately $150,000 secured line of credit (the
"GOE Line of Credit"). The GOE Line of Credit was subsequently increased to
$250,000 in 1994. Interest under the GOE Line of Credit was at the bank's prime
rate plus between 1.0% and 1.5%. The GOE Line of Credit was guaranteed by Mr.
Al. H. Jacobsen, GOE's founder and former sole shareholder. The GOE Line of
Credit was last used in February 1997 for operating capital. No amounts were
outstanding under the GOE Line of Credit at December 1997. The GOE Line of
Credit agreement is scheduled to expire in June 1998. GOE does not anticipate
the need to use another line of credit due to the contribution of $420,000 by
GOE shareholders at January 1998 for working capital purposes.
In 1992, GOE entered into an agreement with Mr. Jacobsen to borrow
approximately $340,000 (the "Jacobsen Note"). During subsequent years, GOE
reduced amounts owed to Mr. Jacobsen under the Jacobsen Note through weekly
principal payments. Ultimately, the principal outstanding under the Al Jacobsen
Note of $28,930 together with accrued interest was repaid in December 1997 in
connection with the acquisition of GOE by TSG2.
GOE has entered into an agreement with Bankers Leasing Association, Inc. to
lease approximately $110,000 of computer equipment under a lease that expires in
November 2001. Monthly payments, which began in December 1997, are approximately
$4,300 (including interest).
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
GOE experiences a minimal degree of seasonality in its sales. In terms of
sales, GOE experiences minor increases in its sales volume from April through
October. Management believes that the increased sales in the summer months are a
function higher consumption patterns of snack products in the summer months. GOE
does not experience substantial fluctuations in its cash flow as a result of
these minor fluctuations in sales.
INFLATION AND CHANGES IN PRICES
The cost of ingredients for GOE's products rises and falls in line with
their value in the commodity markets. GOE endeavors to insulate itself from side
variations in prices by entering into supply agreements on an annual basis for
the majority of the raw ingredients used in the production of its products.
Generally, increases in raw material prices are recovered through periodic price
increases.
YEAR 2000 RISKS
Prior to the year 2000, Hain intends to integrate GOE's computer systems and
software applications with Hain's existing systems, which Hain believes to be
"Year 2000" compliant. The ability of third parties with whom Hain transacts
business to adequately address their Year 2000 issues is outside of Hain's
control. There can be no assurance that the failure of such third parties to
adequately address their Year 2000 issues will not have a material adverse
effect on Hain's business, financial condition, cash flows and results of
operations.
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GOE VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
GOE Common Stock is the only outstanding authorized voting security of GOE.
On April 24, 1998 there were 20,000 shares of GOE Common Stock outstanding,
entitled to one vote per share. GOE Common Stock does not have cumulative voting
rights.
The following table sets forth certain information with respect to the
beneficial ownership of GOE Common Stock as of April 24, 1998 by (i) each person
who is known by GOE to own beneficially more than 5% of the outstanding shares
of GOE Common Stock, (ii) each director of GOE who owns GOE Common Stock, (iii)
each of the executive officers who own GOE Common Stock, and (iv) all executive
officers and directors of GOE as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OF GOE GOE
COMMON STOCK COMMON STOCK
--------------- ---------------
<S> <C> <C>
TSG2 L.P................................................................ 11,000 55%
Charles H. Esserman(1).................................................. 11,000(3) 55%
J. Gary Shansby(2)...................................................... 11,000(3) 55%
Al H. Jacobson(2)....................................................... 9,000(4) 45%
All executive officers and directors as a group (3 persons)............. 20,000 100%
</TABLE>
- ------------------------
* Indicates less than 1%.
(1) Executive Officer and Director.
(2) Non-Officer Director.
(3) Represents shares beneficially owned by TSG2 L.P., but does not include
4,000 shares that TSG2 L.P. is obligated to purchase from Mr. Jacobson for
an aggregate cash consideration of $2,000,000 on or before December 23,
1999. Mr. Shansby and Mr. Esserman are each a member of the limited
liability company that serves as general partner of TSG2 L.P.
(4) Includes 4,000 shares that Mr. Jacobson is obligated to sell to TSG2 L.P.,
or its designee, for an aggregate consideration of $2,000,000 on or before
December 23, 1999.
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SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Hain Common Stock by the Selling Stockholders upon consummation of
the Merger (assuming 1,728,260 shares of Hain Common Stock are issued in
connection therewith at a price of $23.00 per share).
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF HAIN
COMMON STOCK
NAME REGISTERED HEREBY
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Southern California Edison Company Retirement Plan (1)............................... 250,015
Employee Retirement Income Plan Trust of Minnesota Mining and Manufacturing Company
(1)................................................................................ 125,007
Okabena Partnership G (1)............................................................ 87,504
Amon G. Carter Foundation (1)........................................................ 62,503
Raytheon Company Master Trust (1).................................................... 62,503
H-E-B Investment and Retirement Plan Trust (1)....................................... 62,503
Walt Disney Production Master Trust for Employees Savings and Retirement Plan (1).... 62,503
Michigan State Employees Retirement System (1)....................................... 125,007
TSG2 Management, L.L.C. (1).......................................................... 112,880
Mason Sundown LLC (1)................................................................ 34,788
Charles H. Esserman (1).............................................................. 18,153
Donald C. Stanners (1)............................................................... 1,936
Mark R. Berwick (1).................................................................. 1,291
Al H. Jacobson....................................................................... 97,826
The George Dana Sinkler, Jr.
Revocable Living Trust......................................................... 137,908
Alexander Dzieduszycki............................................................... 68,952
</TABLE>
- ------------------------
(1) The Merger Agreements require TSG2 to distribute its shares of AMI Common
Stock and GOE Common Stock to its partners and co-investors immediately
prior to the Effective Time. Accordingly, at the Effective Time, such
persons will own these shares of AMI Common Stock and GOE Common Stock,
which will be converted in the Merger into a combination of cash and shares
of Hain Common Stock.
The Selling Stockholders may sell shares of Hain Common Stock from time to
time on the Nasdaq National Market in the over-the-counter market or in
privately negotiated transactions, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Pursuant to the Merger
Agreements, certain of the Selling Stockholders have set up trading accounts
with Bear, Stearns & Co. Inc. to facilitate such Selling Stockholders'
reoffering of Hain Common Stock. The Selling Stockholders may effect such
transactions in sales to or through broker-dealers, which may be a broker other
than Bear, Stearns & Co. Inc., and such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the Selling
Stockholders or the purchasers of the Hain Common Stock for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a broker-dealer might be in excess of customary
commissions).
The Selling Stockholders and any broker-dealers who act in connection with
the sale of Hain Common Stock offered hereby may be deemed to be "underwriters"
as that term is defined in the Securities Act and any commissions received by
them and any profit on resale thereof as principal might be deemed to be
underwriting discounts and commissions thereunder.
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COMPARISON OF SHAREHOLDER RIGHTS
The rights of shareholders of AMI are currently governed by the TBCA, the
AMI Restated Articles of Incorporation (the "AMI Articles") and the AMI Bylaws
(the "AMI Bylaws" and together with the AMI Articles, the "AMI Charter
Documents"). The rights of shareholders of GOE are currently governed by the
CGCL, the GOE Articles of Incorporation (the "GOE Articles") and the GOE Bylaws
(the "GOE Bylaws" and together with the GOE Articles, the "GOE Charter
Documents"). Upon consummation of the Merger, shareholders of AMI and GOE,
respectively, who receive Hain Common Stock will become stockholders of Hain,
and their rights will be governed by the DGCL, the Hain Charter and the Hain
Bylaws (collectively "The Hain Charter Documents"). The DGCL and the Hain
Charter Documents differ in certain respects from the TBCA and the AMI Charter
Documents and the CGCL and the GOE Charter Documents, respectively. The
following is a summary of certain differences between the rights of AMI
shareholders, GOE shareholders and those of Hain stockholders.
The following summary does not purport to be a complete description of the
rights of shareholders of AMI or GOE or the rights of stockholders of Hain or a
comprehensive comparison of such rights, and is qualified in its entirety by
reference to the TBCA, the CGCL, the DGCL, the AMI Charter Documents, the GOE
Charter Documents and the Hain Charter Documents. For more information on
reviewing or obtaining a copy of the Charter Documents of Hain, AMI or GOE, see
"Available Information."
VOTING RIGHTS
Holders of AMI Common Stock have the right to one vote per share on matters
submitted for a vote at a meeting of shareholders, subject to any special voting
rights set forth in the AMI Articles relating to any outstanding series of AMI
preferred stock.
The GOE Charter Documents are silent on the number of votes holders of GOE
Common Stock are entitled to vote. The CGCL provides that, unless specified
otherwise provided in a corporations charter documents, shareholders receive one
vote per share on any matter .
Under the Hain Charter Documents, holders of Hain Common Stock are entitled
to one vote per share.
AMENDMENTS TO CHARTER AND BYLAWS
Under the TBCA, an amendment to the AMI Articles requires the approval of
holders of at least two-thirds of the shares entitled to vote thereon, unless
any class or series of shares is entitled to vote separately thereon, then the
approval of holders of two-thirds of the shares within such class entitled to
vote thereon and at least two-thirds of the total shares entitled to vote
thereon is required. The AMI Bylaws provide that the AMI Board of Directors may
amend or repeal the AMI Bylaws or adopt new bylaws without shareholder approval,
except to the extent such power is exclusively reserved to the shareholders by
the AMI Articles, the TBCA or unless AMI shareholders, in amending, repealing or
adopting a particular bylaw, expressly provide that the Board of Directors may
not amend or repeal that bylaw.
Under the CGCL, amendments to the GOE Articles may be adopted if approved by
the GOE Board of Directors and holders of a majority of the outstanding shares
of the class of capital stock affected by such amendments. Under the CGCL, the
GOE Bylaws may be amended or repealed or new bylaws may be adopted by a majority
of the outstanding shares entitled to vote or by the GOE Board of Directors,
subject to certain restrictions, including restrictions relating to changes in
the size of the Board of Directors.
Under the DGCL, amendments to the Hain Charter must be approved by a
resolution of the board of directors declaring the advisability of the amendment
and by the affirmative vote of a majority of the outstanding shares entitled to
vote. If an amendment would increase or decrease the number of authorized shares
of such class, increase or decrease the par value of the shares of such class or
alter or change the
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powers, preferences or other special rights of a class of outstanding shares so
as to affect the class adversely, then a majority of shares of that class also
must approve the amendment. The DGCL also permits a corporation to make
provision in its certificate of incorporation requiring a greater proportion of
voting power to approve a specified amendment. The Hain Bylaws provide that they
may be amended or repealed or new bylaws may be adopted at an annual or special
meeting of stockholders at which a quorum is present or represented, by the vote
of the holders of shares entitled to vote in the election of directors, provided
that notice of the proposed amendment or repeal or adoption of new bylaws is
contained in the notice of such meeting. The Hain Board of Directors may also
amend, repeal or adopt new bylaws at any regular or special meeting of the Board
of Directors.
BOARD OF DIRECTORS
The TBCA provides that the board of directors of a Texas corporation shall
consist of one or more members as fixed by the articles of incorporation or
bylaws. The AMI Bylaws provide that the AMI Board of Directors shall consist of
five directors, subject to change by resolution of the AMI Board of Directors.
Each director shall hold office for the term for which they are elected and
thereafter until their successor is elected and qualified. AMI does not have a
classified board of directors. Cumulative voting is not permitted.
The CGCL provides that the board of directors of a California corporation
may consist of two or more members as fixed by the articles of incorporation or
bylaws. The GOE Bylaws provide each director shall hold office for the term for
which they are elected and thereafter until their successor is elected and
qualified.
The DGCL provides that the board of directors of a Delaware corporation
shall consist of one or more directors as fixed by the certificate of
incorporation or bylaws. The Hain Bylaws provides that the number of directors
shall be determined by the Hain Board of Directors from time to time and
directors shall elected at the annual meeting of the stockholders. Each director
shall hold office until the next annual meeting of stockholders and until his
successor shall have been elected and qualified. The Board of Directors of Hain
currently consists of nine members. See "Hain Management."
Each of the TBCA, the CGCL and the DGCL provide that a majority of the total
number of directors shall constitute a quorum for the transaction of business,
unless the charter or bylaws require a greater number. Each of the AMI Bylaws
and GOE Bylaws expressly provide that a majority of the number of directors then
in office shall constitute a quorum for the transaction of business at
directors' meetings.
REMOVAL OF DIRECTORS
Under the TBCA, a corporation's bylaws or articles of incorporation may
provide that at any meeting of shareholders called expressly for that purpose,
one or more directors or the entire board may be removed, with or without cause
(subject to certain exceptions for a corporation having a classified board of
directors), by a vote of the holders of a specified portion, but not less than a
majority, of the shares then entitled to vote in an election of directors. The
AMI Bylaws provide that any director may be removed from office, with or without
cause, by a majority vote of the shareholders at any meeting at which a quorum
is present.
Under the CGCL and the GOE Bylaws, any or all of the directors may be
removed without cause if the removal is approved by the outstanding shares
(subject to certain exceptions for a corporation having a classified board of
directors) or by order of court pursuant to the applicable provisions of the
CGCL.
The DGCL provides that unless otherwise provided in the certificate of
incorporation or bylaws, a director or the entire board of directors of a
Delaware corporation may be removed, with or without cause, by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors. The Hain Bylaws provide that any director may
be removed from office at any time,
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with or without cause by the stockholders at a special meeting or by the Hain
Board of Directors, for cause, at a special meeting thereof.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under the TBCA, any vacancy occurring on a board of directors shall be
filled by the affirmative vote of a majority of the remaining members of the
board of directors then in office, even though less than a quorum, provided that
any director so elected shall hold office only for the remainder of the term of
the director whose departure caused the vacancy. Under the TBCA and the AMI
Bylaws, a directorship created by reason of an increase in the number of
directors may be filled by the AMI Board of Directors for a term of office
continuing only until the next election of directors (whether at an annual or
special shareholders meeting). The TBCA and the AMI Bylaws provide that the AMI
Board of Directors shall not fill more than two such directorships during the
period between two successive annual meetings of shareholders.
Under the CGCL, vacancies on a board of directors may be filled by approval
of the board or, if the number of directors then in office is less than a
quorum, by the unanimous written consent of the directors then in office; the
affirmative vote of a majority of the directors then in office at a meeting held
pursuant to notice or waivers of notice complying with certain provisions of the
CGCL. Under the GOE Bylaws, vacancies on the GOE Board of Directors may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director, except that a vacancy created by the removal of a
director may be filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each director so elected shall hold office until the next annual meeting
of the shareholders and until a successor has been elected and qualified. The
shareholders may elect a director or directors at any time to fill any vacancy
or vacancies not filled by the directors, but any such election by written
consent shall require the consent of a majority of the outstanding shares
entitled to vote. Any director may resign effective upon giving written notice
to the chairman of the board, the president, the secretary or the board of
directors, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective. No reduction of the authorized number of
directors shall have the effect of removing any director prior to the expiration
of his or her term of office.
The DGCL provides that unless otherwise provided in the certificate of
incorporation or bylaws, vacancies and newly created directorships may be filled
by a majority vote of the directors then in office, even if the number of
directors then in office is less than a quorum. The Hain Bylaws provide that any
vacancy on the Hain Board of Directors resulting from any increase in the number
of directors and any other vacancy occurring in the Hain Board of Directors may
be filled by the Hain Board of Directors acting by a majority of the directors
then in office, although less than a quorum, or by the stockholders at the next
annual meeting thereof or at a special meeting thereof. Each director so elected
shall hold office until the next meeting of the stockholders in which the
election of directors is in the regular order of business and until his
successor shall have been elected and qualified.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the TBCA, special meetings of the shareholders may be called at any
time by the board of directors, the chairman of the board, the president, or
holders of at least 10% of the shares entitled to vote at the special meeting.
Special meetings of shareholders of AMI may be called at anytime by the AMI
Board of Directors, the chairman of the board, or the holders of at least 50% of
the shares entitled to vote at the special meeting, as prescribed by the AMI
Articles. Under the AMI Bylaws, written or printed notice stating the place,
day, and hour of each meeting of shareholders, and in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered not
less than 10 nor more than 60 days before the date of the meeting, either
personally or by mail, to each shareholder of record entitled to
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vote at such meeting, by or at the direction of the President, the Secretary, or
the officer or the person calling the meeting.
Under the CGCL and the GOE Bylaws, a special meetings of the shareholders
may be called by the GOE Board of Directors, the chairman of the board, the
president or the holders of shares entitled to cast not less than 10 percent of
the votes at the meeting or such additional persons as may be provided in the
articles or bylaws.
The DGCL provides that special meetings of stockholders may be called by the
board of directors or by such person or persons as may be authorized by the
certificate of incorporation or bylaws. The Hain Bylaws provide that special
meetings of the stockholders of Hain may be called only by the Hain Board of
Directors, the chairman of the board, the vice-chairman of the board or the
president. The Hain Bylaws further provide that business transacted at any
special meeting shall be confined to the purposes stated in the notice of such
special meeting. The DGCL and the Hain Bylaws provide that written notice of
every meeting of stockholders state the place, date, time and, in case of a
special meeting, the purposes thereof, shall be given notice at least 10 but not
more than 60 days prior to such meeting to each stockholder of record entitled
to vote thereat.
ACTION BY WRITTEN CONSENT
As more fully described below, any action required to be taken at any annual
or special meeting of the shareholders of AMI, shareholders of GOE or
stockholders of Hain may be taken without a meeting if a consent in writing
setting forth the action taken is signed by all shareholders or stockholders.
The TBCA, the AMI Articles, the CGCL and the GOE Bylaws provide that any
action required to be taken at an annual or special meeting of shareholders may
be taken without a meeting and without prior notice if a consent in writing
setting forth the action to be taken shall be signed by the holders of shares
having not less than the minimum number of votes necessary to take such action
at a meeting of shareholders.
The DGCL provides that, unless otherwise provided in the Hain Charter or the
Hain Bylaws, any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken, without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. The Hain Bylaws provide that any action required to be
taken by the stockholders may be taken by written consent signed by a majority
of the outstanding shares of Hain entitled to vote thereon.
VOTE REQUIRED FOR MERGER
As more fully described below, under the TBCA and the AMI Charter Documents,
the affirmative vote of two-thirds of the outstanding shares entitled to vote
thereon is required in order to effect a merger of AMI with and into Hain
Subsidiary, whereas, under the CGCL and the GOE Charter Documents, the
affirmative vote of a majority of the outstanding stock entitled to vote thereon
is generally required in order to effect a merger of GOE with and into Hain
Subsidiary.
The TBCA generally requires the affirmative vote of the holders of at least
two-thirds of the shares entitled to vote to approve a merger, or if any class
of shares is entitled to vote as a class on the approval of a merger, the
affirmative vote of the holders of at least two-thirds of the shares in each
such class and the affirmative vote of the holders of at least two-thirds of the
shares otherwise entitled to vote. Similar voting requirements apply for share
exchanges or conversions.
The CGCL generally requires the affirmative vote of the holders of at least
a majority of the shares entitled to vote to approve a merger, or if any class
of shares is entitled to vote as a class on the approval of
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a merger, the affirmative vote of the holders of at least a majority of the
shares in each such class and the affirmative vote of the holders of at least
two-thirds of the shares otherwise entitled to vote. Similar voting requirements
apply for share exchanges or conversions.
The DGCL requires approval of the board of directors and the affirmative
vote of a majority of the outstanding stock entitled to vote thereon in order to
effect a merger. Unless required by its certificate of incorporation, no
stockholder vote is required of a corporation surviving a merger if (i) such
corporation's certificate of incorporation is not amended by the merger; (ii)
each share of stock of such corporation will be an identical share of the
surviving corporation after the merger: and (iii) either no shares are to be
issued by the surviving corporation or the number of shares to be issued in the
merger does not exceed 20% of such corporation's outstanding common stock
immediately prior to the effective date of the merger.
VOTE REQUIRED FOR SALE OF ASSETS
As more fully described below, under the TBCA and the AMI Charter Documents,
the affirmative vote of two-thirds of the outstanding shares entitled to vote
thereon is generally required in order to approve the sale, lease or exchange of
all or substantially all of AMI's assets, while under the CGCL and the GOE
Charter Documents, the affirmative vote of a majority of the outstanding stock
entitled to vote thereon is generally required in order to approve the sale,
lease or exchange of all or substantially all of GOE's assets.
The TBCA generally requires the affirmative vote of the holders of at least
two-thirds of the shares entitled to vote to approve the sale, lease, exchange
or other disposition of all or substantially all the corporation's assets if
other than in the usual and regular course of business, or if any class of
shares is entitled to vote as a class on the approval of a sale, lease, exchange
or other disposition of all or substantially all the corporation's assets, the
vote required for approval of such transaction is the affirmative vote of the
holders of at least two-thirds of the shares in each such class and the
affirmative vote of the holders of at least two-thirds of the shares otherwise
entitled to vote. The TBCA does not require shareholder approval of a sale of
assets in the usual and regular course of business unless otherwise specified in
the articles of incorporation. Under the TBCA, a sale of assets shall be deemed
to be in the usual and regular course of business if the corporation shall,
directly or indirectly, either continue to engage in one or more businesses or
apply a portion of the consideration received in connection with the transaction
to the conduct of a business in which it engages following the transaction. The
AMI Articles do not contain any provisions relating to shareholder approval of
such dispositions.
The CGCL requires approval of the board of directors and the affirmative
vote of a majority of the outstanding stock entitled to vote thereon in order to
approve the sale, lease or exchange of or substantially all of the corporation's
assets, including its goodwill and its corporate franchise. The GOE Charter does
not contain any provisions relating to shareholder approval of such
dispositions.
The DGCL requires approval of the board of directors and the affirmative
vote of a majority of the outstanding stock entitled to vote thereon in order to
approve the sale, lease or exchange of or substantially all of the corporation's
assets, including its goodwill and its corporate franchise. The Hain Charter
does not contain any provisions relating to stockholder approval of such
dispositions.
BUSINESS COMBINATIONS
AMI is subject to Part Thirteen of the TBCA, known as the "Texas Business
Combination Law," which became effective September 1, 1997. In general, the
Texas Business Combination Law provides that an "issuing public corporation"
shall not, directly or indirectly, enter into or engage in a "business
combination" with an "affiliated shareholder" (or its affiliates or associates)
during the three-year period immediately following the date on which the
affiliated shareholder first became an affiliated shareholder, unless (a) before
the date such person became an affiliated shareholder, the board of directors of
the
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issuing public corporation approved the business combination or the acquisition
of shares that caused the affiliated shareholder to become an affiliated
shareholder, or (b) not less than six months after the date such person became
an affiliated shareholder, the business combination was approved by the
affirmative vote of holders of at least two-thirds of the issuing public
corporation's outstanding voting shares not beneficially owned by the affiliated
shareholder or its affiliates at a meeting of shareholders and not by written
consent. For the purposes of the foregoing, an "affiliated shareholder" is
defined generally as a person that is or was within the proceeding three-year
period the beneficial owner of 20% or more of a corporation's outstanding voting
shares; a "business combination" is defined generally to include (i) mergers,
share exchanges or conversions involving an affiliated shareholder, (ii)
dispositions of assets involving a value equal to 10% or more of the market
value of the assets or of the outstanding common stock or representing 10% or
more of the earning power or net income of the corporation, (iii) certain
issuances or transfers of securities by the corporation to an affiliated
shareholder other than on a pro rata basis, (iv) certain plans or agreements
relating to a Liquidation or dissolution of the corporation involving an
affiliated shareholder, (v) certain reclassifications, recapitalizations,
distributions or other transactions that would have the effect of increasing an
affiliated shareholder's percentage ownership of the corporation, or (vi) the
receipt of tax, guarantee, loan or other financial benefits by an affiliated
shareholder other than proportionately as a shareholder of the corporation; and
an "issuing public corporation" is generally defined as a Texas corporation that
has 100 or more shareholders, a class of its voting shares registered under the
Exchange Act, or a class of its voting shares qualified for trading in a
national market system.
Unlike the Texas Business Combination Law and Section 203 of the DGCL (as
discussed below) California has not adopted special laws designed to make
certain kinds of "unfriendly" corporate takeovers or other transactions
involving a corporation and one or more of its significant shareholders more
difficult.
As previously discussed, Hain is subject to Section 203 of the DGCL, which,
subject to certain exceptions, prohibits a corporation which has securities
traded on a national securities exchange, authorized for quotation on the
Nasdaq/NMS or held of record by more than 2,000 stockholders from engaging in
certain business combinations, including a merger, sale of a threshold
percentage of the corporation's assets, loan or issuance of stock, with an
interested stockholders, or an interested stockholder's affiliates or
associates, for a three-year period beginning on the date the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation. Furthermore, the Hain Charter contains a provision similar to
Section 203 of the DGCL, except that it requires a higher percentage of all
stockholders voting as a class to approve a business combination, it prohibits
business combinations with interested stockholders for only two years, and it
contains what is generally referred to as a "fair price provision."
PREEMPTIVE RIGHTS; CUMULATIVE VOTING
None of the shareholders of AMI, the shareholders of GOE or the stockholders
of Hain preemptive rights to acquire unissued shares of capital stock nor any
rights to cumulative voting with respect to the election of directors.
SUPERMAJORITY VOTING PROVISIONS
The TBCA requires the approval of holders of at least two-thirds of the
outstanding shares of capital stock of a corporation entitled to vote to amend
its articles of incorporation, enter into a merger or to sell all or
substantially all of its assets. The AMI Charter Documents do not contain any
additional supermajority voting requirements.
Under the CGCL, approval of at least two-thirds of the outstanding shares of
capital stock of a corporation entitled to vote is required to conduct specific
corporate action outlined in a corporation's articles or certificate of
determination. The GOE Charter does not contain a supermajority voting
provision.
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The DGCL requires the affirmative vote of the holders of not less than
two-thirds of outstanding voting stock of a corporation to approve certain
business combinations. The Hain Charter does not contain a supermajority voting
provision.
DISSENTERS' RIGHTS
Under Article 5.11 of the TBCA, a shareholder generally has the right to
dissent from any merger to which the corporation is a party, from any sale of
all or substantially all assets of the corporation, or from any plan of exchange
and to receive fair value for his or her shares. However, dissenters, rights are
not available with respect to a plan of merger in which there is a single
surviving corporation, or with respect to any plan of exchange, if (i) the
shares held by the shareholder are part of a class or series, shares of which
are listed on a national securities exchange or the Nasdaq Stock Market,
designated on the Nasdaq/NMS or held of record by not less than 2,000 holders on
the record date fixed to determine the shareholders entitled to vote on the plan
of merger or the plan of exchange, (ii) the shareholder is not required by the
terms of the plan of merger or plan of exchange to accept for the shareholder's
shares any consideration that is different than the consideration (other than
cash in Lieu of fractional shares) to be provided to any other holder of shares
of the same class or series held by such shareholder, and (iii) the shareholder
is not required by the terms of the plan of merger or plan of exchange to accept
for his or her shares any consideration other than (a) shares of a corporation
that, immediately after the effective time of the merger or exchange, will be
part of a class or series of shares that are (1) Listed, or authorized for
Listing upon official notice of issuance, on a national securities exchange, (2)
approved for quotation on the Nasdaq/NMS, or (3) held of record by not less than
2,000 holders, and (b) cash in lieu of fractional shares otherwise entitled to
be received.
Under Section 1300 of the CGCL, if the approval of the outstanding shares of
a corporation is required for reorganization under specific provision the CGCL,
each shareholder of the corporation entitled to vote on the transaction may
require the corporation in which the shareholder holds shares to purchase for
cash at their fair market value the shares owned by the shareholder which are
dissenting shares, except that shares listed on a national securities exchange
or listed on the list of OTC margin stocks issued by the Board of Governors of
the Federal Reserve are not entitled to dissenters' rights. The GOE Charter
Documents are silent on dissenters' rights. Because holders of all of the
outstanding shares of GOE Common Stock have agreed to consent to the Merger
under the GOE Merger Agreement, it is not anticipated that dissenters' rights
under the CGCL will be exercised in connection with the Merger.
Section 262 of the DGCL provides stockholders with appraisal rights for
certain mergers and consolidations. Appraisal rights are not available to
holders of (i) shares listed on a national securities exchange, quoted on
Nasdaq/NMS or held of record by more than 2,000 stockholders or (ii) shares of
the surviving corporation of the merger, if the merger did not require the
approval of the stockholders of such corporation, unless in either case, the
holders of such stock are required pursuant to the merger to accept anything
other than (A) shares of stock of the surviving corporation, (B) shares of stock
of another corporation which are also listed on a national securities exchange,
Nasdaq/NMS or held by more than 2,000 holders or (C) cash in lieu of fractional
shares of such stock. As long as Hain Common Stock is listed on a Nasdaq
National Market, the provisions of Section 262 of the DGCL will not apply to
holders of shares of Hain Common Stock.
LIMITATIONS ON DIRECTORS LIABILITY
Under the TBCA a director shall not be liable to a corporation or to
shareholders as a director if that director exercised ordinary care and acted in
good faith. Additionally the director shall not be personally liable for damages
that may result from his acts in the discharge of any duty imposed or power
conferred upon him by the corporation if, in the exercise of ordinary care, he
acted in good faith and in reliance upon the written opinion of an attorney for
the corporation. The AMI Charter provides the director of AMI shall not be
liable to AMI or its shareholders for monetary damages for an act or omission in
the director's
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capacity as a director, except that this does not eliminate or limit the
liability of a director to the extent the director is found liable for (i) a
breach of the director's duty of loyalty to the corporation or its shareholders;
(ii) an act or omission not in good faith that constitutes a breach of duty of
the director to the corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law; (iii) whether or not the benefit
resulted from an action taken within the scope of the director's office; or (iv)
an act or omission for which the liability of a director is expressly provided
by an applicable statute. Any repeal or amendment of the provision in the AMI
Charter relating to director liability by the shareholders of the corporation
shall be prospective only and shall not adversely affect any limitation on the
liability of a director of AMI existing at the time of such repeal or amendment.
In addition to the circumstances in which the director of AMI is not liable as
set forth in the preceding sentences, the director shall not be liable to the
fullest extent permitted by any provisions of the statutes of Texas hereafter
enacted that further limits the liability of a director.
Under the CGCL, directors shall not be liable to a corporation as a director
or its shareholders provided they discharge their duties in good faith and with
a proper duty of care. A director's personal liability for monetary damages to
the corporation or its shareholders shall be limited by the corporation's
articles. The GOE Charter Documents do not contain any provision limiting
director's liability.
Under the DGCL and the Hain Charter, directors shall not be personally
liable to Hain or any stockholder for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of the director's duty of loyalty
to Hain or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
intentional or negligent payment of unlawful dividends or stock redemptions; or
(iv) for any transaction from which the director derived an improper personal
benefit.
INDEMNIFICATION
Under Article 2.02-1 of the TBCA and the AMI Bylaws, each current and former
director and officer of AMI, or each person who served at request as a director
or officer of a subsidiary of AMI, shall be indemnified by AMI for liabilities
imposed upon him, expenses reasonably incurred by him in connection with any
claim made against him, or any action, suit or proceeding to which he may be a
party by reason of being or having been a director or officer, and for any
reasonable settlement of any such claim, action, suit or proceeding. The AMI
Bylaws provide that no director or officer shall be indemnified with respect to
matters as to which he was adjudged in such action, suit or proceeding to be
liable for negligence or misconduct in performance of his duties, or with
respect to any matters which shall be settled by the payment of sums which
counsel selected by the AMI Board of Directors shall not deem reasonable payment
made primarily with a view to avoiding expenses of litigation, or with respect
to matters for which such indemnification would be against public policy. The
TBCA further provides that a corporation may undertake any indemnification of a
director or officer only if it is determined that such person (i) conducted
himself in good faith, (ii) reasonably believed that, in the case of conduct in
his official capacity as a director, that his conduct was in the corporation's
best interests, and in all other cases, that his conduct was at least not
opposed to the corporation's bests interests, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful, and that a corporation must indemnify a director against reasonable
expenses incurred by him in connection with a proceeding in which he is a named
defendant because he is or was a director if he has been wholly 52 successful in
the defense of the proceeding. The TBCA provides that Texas corporations may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of such corporation for any liability
asserted against him, whether or not the corporation would have the power to
indemnify him against liability under the TBCA.
Under the CGCL, a corporation has the power to indemnify any current or
former directors, against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with the proceeding if
that director acted in good faith and in a manner the director reasonably
believed to
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be in the best interest of the corporation. The GOE Bylaws provides that GOE
may, to the maximum extent permitted by the CGCL, indemnify each of its agents
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact any such person is or was an agent of the corporation.
Under Section 145 of the DGCL and the Hain Charter Documents, Hain shall
indemnify any person made a party or threatened to be made a party to any type
of proceeding (other than an action by or in the right of the corporation)
because he or she is or was an officer, director or employee of Hain, or was
serving at the request of Hain as a director, officer, employee or agent of
another corporation or entity, against expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with such
proceeding: (i) if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation; or (ii) in the case of a criminal proceeding, such person had no
reasonable cause to believe that his or her conduct was unlawful. Hain shall
indemnify any person made a party or threatened to be made a party to any
threatened, pending or completed action or suit brought by or in the right of
the corporation because such person was an officer, director employee or agent
of the corporation, or is or was serving at tale request of the corporation as a
director, officer, employee or agent of another corporation or other entity,
against expenses actually and reasonably incurred in connection with such action
or suit if such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation,
except that there may not be such indemnification if the person is found liable
to the corporation unless, in such a case, the court determines the person is
fairly and reasonably entitled thereto. Additionally, the DGCL provides that a
corporation must indemnify a director or officer against expenses (including
attorneys' fees) actually and reasonably incurred if such person successfully
defends himself or herself in a proceeding to which such person was a party
because he or she was a director or officer of the corporation. The DGCL and the
Hain Charter further provide that Hain may purchase and maintain insurance on
behalf of any director, officer, employee or agent of Hain against any liability
asserted against such person and incurred by such person in any such capacity,
whether or not Hain would have the power to indemnify such person against such
liability.
DIVIDENDS
Under the TBCA, the board of directors of a corporation may authorize and
the corporation may make distributions; provided, that a distribution may not be
made if (i) after giving effect to the distribution, the corporation would be
insolvent or (ii) the distribution exceeds the surplus of the corporation.
Notwithstanding the limitations on distributions set forth in clauses (i) and
(ii) above, a corporation may make a distribution involving a purchase or
redemption of any of its own shares if the purchase or redemption is made by the
corporation to: (i) eliminate fractional shares, (ii) collect or compromise
indebtedness owed by or to the corporation, (iii) pay dissenting shareholders
entitled to payment for their shares under the TBCA or (iv) effect the purchase
or redemption of redeemable shares in accordance with the TBCA. The AMI Charter
provides that, subject to the provisions of resolutions relating to any issued
series of preferred stock, the AMI Board of Directors may, in its direction, out
of funds legally available for the payment of dividends and at such times and in
such manner as determined by the Board of Directors, declare and pay dividends
on the AMI Common Stock.
Under the CGCL, a corporation may make distributions if the amount of the
retained earnings of the corporation immediately prior to the distribution
exceeds the amount of the proposed distribution; or a distribution may be made
if immediately after the distribution, the sum of the assets of the corporation
would be at least equal to 1-1/4 times its liabilities; and the current assets
of the corporation would be at least equal to its current liabilities. The GOE
Bylaws are silent regarding distributions.
Under the DGCL, a corporation may, subject to restrictions in its
certificate of incorporation, pay dividends out of surplus or out of net profits
for the fiscal year in which the dividend is declared and/or for the preceding
fiscal year. Dividends out of net profits may not be paid when the capital of
the corporation
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amounts to less than the aggregate amount of capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets. The Hain Bylaws provide that subject to the DGCL and the Hain
Charter, dividends upon shares of the Hain may be declared by the Hain Board of
Directors at any regular or special meeting. Dividends may be paid in cash, in
property or in shares of Hain, unless otherwise provided by the DGCL of the Hain
Charter.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for Hain by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York. Certain
tax and other legal matters in connection with the Merger will be passed upon
for AMI and GOE by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of The Hain Food Group Inc. appearing
in the Company's Annual Report (Form 10-K) for the year ended June 30, 1997,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Westbrae Natural, Inc. (formerly
Vestro Natural Foods, Inc.) incorporated in this Prospectus be reference to the
Annual Report on 10-K for the year ended December 31, 1996, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as expert in auditing and
accounting.
The financial statements of: (i) Arrowhead appearing herein for the fiscal
year ended July 31, 1997 and Arrowhead as of July 31, 1997; (ii) Terra appearing
herein for the period from January 1, 1997 through July 31, 1997 and as of July
31, 1997; and (iii) GOE appearing herein for the period from January 1, 1997
through December 23, 1997 and as of December 23, 1997 have been audited by
McGladrey & Pullen, LLP, independent auditors, as set forth in their reports
thereon included herein. Such financial statements are included herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Arrowhead appearing herein for the fiscal years
ended July 31, 1996 and 1995 and the balance sheet as of July 31, 1996 have been
audited by McGinty & Associates, independent auditors, as set forth in their
report thereon included herein. Such financial statements are included herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Terra appearing herein for the years ended
December 31, 1996 and 1995 and the balance sheet as of December 31, 1996 have
been audited by Katz & Bloom, LLC, independent auditors, as set forth in their
report thereon included herein. Such financial statements are included herein in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.
STOCKHOLDER PROPOSALS
If the Merger is consummated, shareholders of AMI and GOE will become
stockholders of Hain. Hain's 1998 annual meeting of stockholders will take place
in December 1998. Any stockholder proposals to be considered for inclusion in
proxy material for Hain's annual meeting in December 1998 must have been
received at the principal executive office of Hain no later than July 31, 1998.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AMI OPERATING, INC. FOR THE FISCAL YEAR ENDED
JULY 31, 1997 (AUDITED) AND THE SEVEN MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
Independent Auditor's Report....................................................... F-3
Consolidated balance sheets........................................................ F-4
Consolidated statement of income................................................... F-5
Consolidated statement of stockholders' equity..................................... F-6
Consolidated statement of cash flows............................................... F-7
Notes to consolidated financial statements......................................... F-8
FINANCIAL STATEMENTS OF AMI OPERATING, INC. FOR THE FISCAL YEARS ENDED JULY 31, 1996
AND 1995(AUDITED)
Independent Auditor's Report....................................................... F-14
Consolidated balance sheet......................................................... F-15
Consolidated statements of operations.............................................. F-17
Consolidated statements of stockholders' equity.................................... F-18
Statements of cash flows........................................................... F-19
Notes to consolidated financial statements......................................... F-20
FINANCIAL STATEMENTS OF DANA ALEXANDER, INC. AS OF JULY 31, 1997 AND FOR THE PERIOD
FROM JANUARY 1, 1997 THROUGH JULY 31, 1997 (AUDITED) AND THE SEVEN MONTHS ENDED
FEBRUARY 28, 1998 (UNAUDITED)
Independent Auditor's Report....................................................... F-28
Balance sheets..................................................................... F-29
Statements of income............................................................... F-30
Statements of stockholders' equity................................................. F-31
Statements of cash flow............................................................ F-32
Notes to financial statements...................................................... F-33
FINANCIAL STATEMENTS OF DANA ALEXANDER, INC. FOR THE FISCAL YEARS ENDED DECEMBER 31,
1996 AND 1995 (AUDITED)
Independent Auditor's Report....................................................... F-39
Balance sheet...................................................................... F-40
Statement of operations and retained earnings...................................... F-41
Statements of common stock and paid in capital..................................... F-42
Statement of cash flows............................................................ F-43
Supplemental disclosure of cash flow information................................... F-44
Notes to financial statements...................................................... F-45
FINANCIAL STATEMENTS OF GARDEN OF EATIN', INC. AS OF DECEMBER 23, 1997 AND FOR THE
PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 23, 1997 (AUDITED) AND THE PERIOD FROM
DECEMBER 24, 1997 THROUGH FEBRUARY 28, 1998 (UNAUDITED)
Independent Auditor's Report....................................................... F-50
Balance sheets..................................................................... F-51
Statements of operations........................................................... F-52
Statements of stockholders' equity................................................. F-53
Statements of cash flows........................................................... F-54
Notes to financial statements...................................................... F-56
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (UNAUDITED)
Pro forma condensed combined balance sheet as of March 31, 1998.................... F-62
Pro forma condensed statement of income for the year ended June 30, 1997........... F-63
Pro forma condensed statement of income for the nine months ended March 31, 1998... F-64
Notes to pro forma condensed combined financial Information........................ F-65
Combining condensed balance sheets of Acquired Companies at February 28, 1998...... F-67
Historical combining statements of income for Acquired Companies for the fiscal
year ended July 31, 1997......................................................... F-68
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
AMI Operating, Inc. and Subsidiaries
Hereford, Texas
We have audited the accompanying consolidated balance sheet of AMI
Operating, Inc. and Subsidiaries (collectively, "Arrowhead") as of July 31,
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of Arrowhead's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMI
Operating, Inc. and Subsidiaries as of July 31, 1997 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
Anaheim, California
May 27, 1998
F-3
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28,
JULY 31, 1997 1998
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS (Note 5)
Current Assets
Cash............................................................................. $ -- $ 166,000
Accounts receivable, net of allowance for doubtful accounts 1997 $256,000; 1998
$326,000(Notes 2 and 6)........................................................ 2,245,000 2,519,000
Other receivables................................................................ 223,000 17,000
Inventories (Notes 3 and 6)...................................................... 4,759,000 4,151,000
Prepaid expenses................................................................. 98,000 173,000
Deferred taxes (Note 8).......................................................... 290,000 290,000
------------- -------------
Total current assets......................................................... 7,615,000 7,316,000
Property, Plant and Equipment, net (Notes 4 and 6)................................. 3,855,000 3,743,000
Package Design Costs, net of accumulated amortization 1997 $590,000; 1998
$766,000......................................................................... 865,000 803,000
Other Assets....................................................................... 44,000 44,000
------------- -------------
$ 12,379,000 $ 11,906,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Checks in excess of bank balance................................................. $ 258,000 $ --
Note payable (Note 5)............................................................ 2,000,000 --
Current maturities of long-term debt (Note 6).................................... 418,000 --
Accounts payable................................................................. 1,186,000 931,000
Accrued expenses................................................................. 510,000 588,000
Income taxes payable............................................................. 450,000 536,000
------------- -------------
Total current liabilities.................................................... 4,822,000 2,055,000
Long-Term Debt, less current maturities, 1998 amount payable to stockholder (Note
6)............................................................................... 1,399,000 3,147,000
Deferred Taxes (Note 8)............................................................ 415,000 415,000
Commitments and Contingencies (Notes 3, 7 and 9)
Stockholders' Equity (Note 10)
Preferred stock, par value $.01 per share; authorized 2,000,000 shares; issued
and outstanding none........................................................... -- --
Common stock, par value $1.00 per share; authorized 10,000,000 shares; issued and
outstanding 1,000 shares....................................................... 1,000 1,000
Additional paid-in capital....................................................... 2,376,000 2,376,000
Retained earnings................................................................ 3,366,000 3,912,000
------------- -------------
5,743,000 6,289,000
------------- -------------
$ 12,379,000 $ 11,906,000
------------- -------------
------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1997 1998
JULY 31, 1997 (UNAUDITED) (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales (Note 2).................................................. $ 25,977,000 $ 15,051,000 $ 16,427,000
Cost of Sales....................................................... 19,436,000 11,357,000 11,787,000
------------- ------------- -------------
Gross profit.................................................. 6,541,000 3,694,000 4,640,000
Management Fee to Stockholder....................................... 240,000 140,000 140,000
Selling, General and Administrative Expenses........................ 4,547,000 2,258,000 2,580,000
------------- ------------- -------------
Operating income.............................................. 1,754,000 1,296,000 1,920,000
Interest Expense.................................................... 394,000 212,000 199,000
------------- ------------- -------------
Income before income taxes.................................... 1,360,000 1,084,000 1,721,000
Provision for Income Taxes (Note 8)................................. 570,000 455,000 741,000
------------- ------------- -------------
Net income.................................................... $ 790,000 $ 629,000 980,000
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted earnings per share................................ $ 790 $ 629 $ 980
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding................ 1,000 1,000 1,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996....................................... $ 1,000 $ 2,094,000 $ 2,576,000 $ 4,671,000
Shares of parent company common stock issued as payment of
accounts payable......................................... -- 105,000 -- 105,000
Shares of parent company common stock for services......... -- 177,000 -- 177,000
Net income................................................. -- -- 790,000 790,000
----------- ------------ ------------ ------------
Balance, July 31, 1997....................................... 1,000 2,376,000 3,366,000 5,743,000
Dividends on common stock $434/share (unaudited)........... -- -- (434,000) (434,000)
Net income (unaudited)..................................... -- -- 980,000 980,000
----------- ------------ ------------ ------------
Balance, February 28, 1998 (unaudited)....................... $ 1,000 $ 2,376,000 $ 3,912,000 $ 6,289,000
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN SEVEN
MONTHS MONTHS
ENDED ENDED
JULY 31, FEBRUARY 28, FEBRUARY 28,
1997 1997 1998
------------ ---------------- ----------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash Flows from Operating Activities
Cash received from customers................................ $24,916,000 $ 13,907,000 $ 16,360,000
Income tax refunds received................................. 50,000 -- --
Cash paid to suppliers and employees.......................... (23,590,000) (13,210,000) (13,663,000)
Interest paid............................................... (410,000) (191,000) (169,000)
Income taxes paid........................................... (103,000) (655,000)
------------ ---------------- ----------------
Net cash provided by operating activities............. 863,000 506,000 1,873,000
------------ ---------------- ----------------
Cash Flows from Investing Activities
Proceeds from sale of equipment............................. 35,000 7,000 --
Purchase of property, plant and equipment................... (566,000) (298,000) (236,000)
Capitalized package design costs............................ (163,000) (129,000) (113,000)
------------ ---------------- ----------------
Net cash (used in) investing activities............... (694,000) (420,000) (349,000)
------------ ---------------- ----------------
Cash Flows from Financing Activities
Decrease in checks in excess of bank balance................ (167,000) (410,000) (258,000)
Net payments on revolving credit agreement.................. (306,000) (300,000) (2,000,000)
Proceeds from long-term borrowings.......................... 1,229,000 800,000 3,232,000
Principal payments on long-term borrowings.................. (950,000) (201,000) (1,898,000)
Cash dividends paid......................................... -- -- (434,000)
------------ ---------------- ----------------
Net cash (used in) financing activities............... (194,000) (111,000) (1,358,000)
------------ ---------------- ----------------
Net increase (decrease) in cash....................... (25,000) (25,000) 166,000
Cash
Beginning of period......................................... 25,000 25,000 --
------------ ---------------- ----------------
End of period............................................... $ -- $ -- $ 166,000
------------ ---------------- ----------------
------------ ---------------- ----------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income.................................................. $ 790,000 $ 629,000 $ 980,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 531,000 272,000 349,000
Amortization.............................................. 273,000 158,000 176,000
Gain on sale of equipment................................. (27,000) (7,000) --
Bad debts................................................. 58,000 33,000 42,000
Common stock issued for services.......................... 177,000 -- --
Deferred taxes............................................ (72,000) (38,000) --
Change in assets and liabilities:
(Increase) decrease in:
Receivables............................................. (1,199,000) (1,177,000) (110,000)
Inventories............................................. (128,000) 369,000 608,000
Prepaid expenses........................................ (11,000) (129,000) (77,000)
Increase (decrease) in:
Accounts payable and accrued expenses................... (89,000) (97,000) (181,000)
Income taxes payable.................................... 560,000 493,000 86,000
------------ ---------------- ----------------
Net cash provided by operating activities............. $ 863,000 $ 506,000 $ 1873,000
------------ ---------------- ----------------
------------ ---------------- ----------------
Supplemental Schedule of Noncash Investing and Financing
Activities
Parent company common stock issued as payment for accounts
payable................................................... $ 105,000 $ -- $ --
------------ ---------------- ----------------
------------ ---------------- ----------------
Offset of note receivable against related note payable...... $ 168,000 $ 168,000 $ --
------------ ---------------- ----------------
------------ ---------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION RELATING TO THE INTERIM PERIODS FEBRUARY 28, 1998 AND 1997 IS
UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
AMI Operating, Inc. ("Arrowhead"), formally known as Arrowhead Mills, Inc.,
manufactures and distributes organic foods and pastas throughout the United
States on credit terms that Arrowhead establishes for individual customers. The
Arrowhead's customers are primarily wholesale distributors. Arrowhead's
customers take certain unauthorized credits upon payment. Arrowhead rebills the
customer for the amount of the credit. The allowance for doubtful accounts at
July 31, 1997 includes a specific allowance for these items of approximately
$187,000. At July 31, 1997, these receivables totaled approximately $280,000.
Arrowhead operates under compliance with specific sections of the Food, Drug and
Cosmetic Act of 1938 and the Good Manufacturing Practices Act of 1967 and
subsequent revisions.
On November 17, 1997, Arrowhead's stockholders exchanged all of their stock
in Arrowhead with a newly formed holding company which is using the name
Arrowhead Mills, Inc. All stock and earnings per share information is presented
as if this transaction occurred at the beginning of the earliest period
presented.
UNAUDITED INTERIM FINANCIAL INFORMATION:
The unaudited interim financial information presented herein as of and for
the periods ended February 28, 1997 and 1998 reflects all adjustments which are,
in the opinion of management, necessary for a fair presentation for the periods
presented. Such adjustments are of a normal recurring nature. The financial
information is not intended to be a complete presentation in accordance with
generally accepted accounting principles. Interim financial results are not
necessarily indicative of the results Arrowhead will incur during its fiscal
year.
A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include accounts of AMI Operating,
Inc. and its wholly-owned subsidiaries, DNF Acquisition Company, Deboles
Nutritional Foods, Inc. and Deaf Smith Farms, Inc., collectively referred to as
Arrowhead. All significant intercompany balances have been eliminated in
consolidation.
CASH CONCENTRATION:
At July 31, 1997, Arrowhead had approximately $292,000 on deposit in a
single financial institution. Deposits in excess of $100,000 are not insured by
the FDIC.
F-8
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION RELATING TO THE INTERIM PERIODS FEBRUARY 28, 1998 AND 1997 IS
UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings and improvements............................................................ 15-40
Machinery and equipment............................................................... 5-20
Office furniture...................................................................... 5-10
Vehicles.............................................................................. 3-5
</TABLE>
PACKAGE DESIGN COSTS:
Arrowhead capitalizes costs incurred for the design of its packaging. These
costs are amortized over the estimated life of the packaging of five years.
LONG-LIVED ASSETS:
Arrowhead evaluates long-lived assets for impairment under Financial
Accounting Standards Board (FASB) Statement No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF". Under those rules, long-term
and intangible assets are evaluated for possible impairment when events or
circumstances indicate the carrying amount of those assets may not be
recoverable. Recoverability is assessed based on the gross undiscounted
estimated future cash flows before interest charges. If an impairment is
indicated, the amount would be determined by comparing the estimated fair value
to the carrying value of the asset being evaluated. In the absence of quoted
market prices, fair value is estimated by using the projected cash flows
discounted at a rate commensurate with the risks involved.
ADVERTISING:
Arrowhead expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $150,000 during
the year ended July 31, 1997. There is no prepaid advertising as of July 31,
1997.
INCOME TAXES:
Deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
F-9
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION RELATING TO THE INTERIM PERIODS FEBRUARY 28, 1998 AND 1997 IS
UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE:
Earnings per share are computed for all periods presented in accordance with
FASB Statement No. 128, "Earnings Per Share," using the weighted average number
of common shares outstanding during the respective periods.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
In 1997, Arrowhead adopted FASB Statement No. 107, "DISCLOSURES ABOUT FAIR
VALUES OF FINANCIAL INSTRUMENTS". The following methods and assumptions were
used to estimate the fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value
because of the short maturity of those instruments.
NOTES PAYABLE AND LONG-TERM DEBT: The carrying amount approximates fair
value because the interest rate fluctuates with the lending banks' prime
rate.
NOTE 2. MAJOR CUSTOMERS
Arrowhead had net sales to two customers in fiscal year 1997 that
individually accounted for more than 10% of Arrowhead's net sales. Net sales to
these customers were approximately $2,801,000 and $2,659,000 and net trade
receivables from these customers were $167,820 and $265,000, respectively.
NOTE 3. INVENTORIES AND COMMITMENTS
<TABLE>
<CAPTION>
FEBRUARY 28,
JULY 31, 1998
1997 (UNAUDITED)
------------ ----------------
<S> <C> <C>
Raw materials................................................ $2,419,000 $ 2,125,000
Finished goods............................................... 904,000 893,000
Resale products.............................................. 659,000 480,000
Packaging.................................................... 777,000 653,000
------------ ----------------
$4,759,000 $ 4,151,000
------------ ----------------
------------ ----------------
</TABLE>
Arrowhead had fixed price commitments as of July 31, 1997 to purchase
approximately $850,000 of grains and other commodities through May 1998, to be
used in production. Arrowhead has not purchased any futures or option contracts.
F-10
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION RELATING TO THE INTERIM PERIODS FEBRUARY 28, 1998 AND 1997 IS
UNAUDITED
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<S> <C>
Land............................................................ $ 117,000
Buildings and improvements...................................... 2,557,000
Machinery and equipment......................................... 4,597,000
Office furniture................................................ 85,000
Vehicles........................................................ 579,000
Construction in progress........................................ 37,000
---------
7,972,000
Less accumulated depreciation................................... 4,117,000
---------
$3,855,000
---------
---------
</TABLE>
NOTE 5. NOTE PAYABLE
At July 31, 1997, Arrowhead had a $2,000,000 revolving line of credit with a
bank. The line was collateralized by substantially all of the assets of
Arrowhead. The agreement bore interest at prime rate (8.5% at July 31, 1997)
plus 1% and matured in February 1998. The agreement was personally guaranteed by
a stockholder/officer of Arrowhead and contained nonfinancial covenants. Total
borrowings on the revolving line of credit were $2,000,000 as of July 31, 1997.
NOTE 6. LONG-TERM DEBT
Long-term debt at July 31, 1997 consists of the following:
<TABLE>
<S> <C>
Note payable to bank, secured by deed of trust and equipment,
payable in monthly installments of $21,000, including interest
at prime rate plus .5%, through November 2000. The note
contains a financial covenant on cash flow coverage........... $ 711,000
Note payable to bank, secured by accounts receivable and
inventory, payable in monthly installments of $17,000,
including interest at prime rate plus 1% through August
2001.......................................................... 687,000
Note payable to bank, secured by certain equipment, payable in
monthly installments of $9,000, including interest at prime
rate plus 1% through April 2002............................... 411,000
Various others.................................................. 8,000
---------
1,817,000
Less current maturities......................................... 418,000
---------
$1,399,000
---------
---------
</TABLE>
The aggregate amount of long-term debt maturing in future years are as
follows: 1998 $418,000; 1999 $453,000; 2000 $494,000; 2001 $363,000; and 2002
$89,000.
F-11
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION RELATING TO THE INTERIM PERIODS FEBRUARY 28, 1998 AND 1997 IS
UNAUDITED
NOTE 6. LONG-TERM DEBT (CONTINUED)
UNAUDITED INTERIM INFORMATION:
On November 17, 1997, Arrowhead's parent borrowed $21,000,000 and repaid all
of Arrowhead's notes payable and long-term debt totaling $3,232,000. Arrowhead
has recorded a payable to its parent as long-term debt.
NOTE 7. EMPLOYEE BENEFIT PLAN
Arrowhead has a qualified 401(k) employee benefit plan for substantially all
employees who have met the minimum age and service requirements. Each
participant is able to defer a maximum of 15% of their annual compensation or
$10,000, whichever is less, subject to any restrictions imposed by ERISA
requirements. Arrowhead contributes an amount equal to 50% of each employee's
contribution up to the first 5% of the employee's weekly compensation.
Additionally, Arrowhead may make discretionary contributions. During fiscal year
1997, Arrowhead did not make any discretionary contributions. Arrowhead's total
matching contributions to the Plan for fiscal year 1997 were approximately
$33,000.
NOTE 8. INCOME TAXES
The provision for income taxes consist of the following:
<TABLE>
<S> <C>
Current........................................................... $ 642,000
Deferred.......................................................... (72,000)
---------
$ 570,000
---------
---------
</TABLE>
A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to earnings before income taxes:
<TABLE>
<S> <C>
Federal income tax................................................ $ 476,000
State income tax, net of federal benefit.......................... 82,000
Nondeductible expenses............................................ 9,000
Other............................................................. 3,000
---------
$ 570,000
---------
---------
</TABLE>
Significant components of Arrowhead's deferred tax assets and liabilities as
of July 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred Tax Assets
Allowance for doubtful accounts................................ $ 102,000
Compensation................................................... 150,000
Inventory...................................................... 38,000
---------
Total deferred tax assets.................................. 290,000
Deferred Tax Liabilities
property, plant and equipment.................................. (415,000)
---------
$(125,000)
---------
---------
</TABLE>
F-12
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION RELATING TO THE INTERIM PERIODS FEBRUARY 28, 1998 AND 1997 IS
UNAUDITED
NOTE 8. INCOME TAXES (CONTINUED)
The components giving rise to the net deferred tax assets (liabilities)
described above, have been included in the accompanying consolidated balance
sheet as of July 31, 1997 as follows:
<TABLE>
<S> <C>
Current assets................................................... $ 290,000
Noncurrent (liabilities)......................................... (415,000)
---------
$(125,000)
---------
---------
</TABLE>
NOTE 9. CONTINGENCIES
Arrowhead is self-insured for certain workers compensation and medical
claims. Arrowhead is insured for claims over $20,000 per employee per year up to
$1,000,000 aggregate per employee and $3,000,000 aggregate for Arrowhead.
Arrowhead is in the process of discovery relating to an employee lawsuit. No
dollar damages have been claimed. Management believes the outcome of this suit
will not have a material effect on the financial statements.
NOTE 10. SUBSEQUENT EVENT (UNAUDITED)
On April 24, 1998, Arrowhead's parent, Arrowhead Mills, Inc. ("AMI"), signed
an agreement and plan of merger whereby AMI agreed to exchange 100% of AMI's
common stock for a combination of cash and common stock of the Hain Food Group,
Inc., a public company. These financial statements do not include any
adjustments which may be required as a result of this transaction.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AMI Operating, Inc. and Subsidiaries
Hereford, Texas 79045
We have audited the accompanying consolidated balance sheet of AMI
Operating, Inc. and Subsidiaries (collectively, "Arrowhead") as of July 31,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended July 31, 1996 and 1995. These
consolidated financial statements are the responsibility of Arrowhead's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMI
Operating, Inc. and Subsidiaries at July 31, 1996, and the results of their
operations and cash flows for the years ended July 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
McGinty & Associates, P.C.
October 4, 1996
Except for Note 10, as to
which the date is June 1, 1998
F-14
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 25,273
Accounts receivable:
Trade, net of $243,068 allowance for doubtful accounts--Notes 1 and 7...... 1,321,549
Income tax refund receivable............................................... 139,234
Employees.................................................................. 956
Advances to suppliers...................................................... 5,235
Note receivable.............................................................. 167,758
Inventories--Notes 1 and 2:
Resale products............................................................ 530,858
Finished goods............................................................. 1,356,383
Raw materials.............................................................. 2,094,493
Packaging.................................................................. 649,241
Prepaid expenses............................................................. 86,153
Deferred tax asset........................................................... 13,947
----------
6,391,080
----------
Property, plant and equipment--Note 1:
Land......................................................................... 117,679
Buildings.................................................................... 2,496,598
Machinery and equipment...................................................... 4,224,859
Vehicles..................................................................... 584,692
Furniture.................................................................... 83,838
----------
7,507,666
Accumulated depreciation..................................................... 3,725,700
----------
3,781,966
Construction in progress..................................................... 45,626
----------
3,827,592
----------
Other assets:
Intangibles--Notes 1 and 8................................................... 975,677
Other........................................................................ 43,180
----------
1,018,857
----------
$11,237,529
----------
----------
</TABLE>
See Accompanying "Notes to Consolidated Financial Statements"
F-15
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1996
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--Note 3........................................................ $2,430,001
Current maturities of long-term debt......................................... 871,968
Trade accounts payable....................................................... 1,185,134
Bank overdraft............................................................... 425,183
Other payables and accrued expenses.......................................... 677,098
Income taxes payable......................................................... 28,635
----------
5,618,019
----------
Long-term liabilities:
Long-term debt, net of current maturities--Note 5............................ 710,003
Deferred income taxes........................................................ 210,829
Other........................................................................ 27,000
----------
947,832
----------
6,565,851
----------
Stockholders' equity:
Common stock, par value $1.00 per share; authorized 10,000,000 shares; issued
and outstanding 1,000 shares............................................... 1,000
Additional paid-in capital................................................... 2,094,304
Retained earnings............................................................ 2,576,374
----------
4,671,678
----------
$11,237,529
----------
----------
</TABLE>
See Accompanying "Notes to Consolidated Financial Statements"
F-16
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Net sales.......................................................................... $ 24,628,185 $ 22,425,781
Cost of goods sold................................................................. 18,322,754 15,843,926
------------- -------------
Gross profit....................................................................... 6,305,431 6,581,855
Management fee to stockholder...................................................... 177,015 85,000
Selling, administrative and general expenses....................................... 5,881,937 8,667,793
------------- -------------
Income (loss) from operations...................................................... 246,479 (2,170,938)
------------- -------------
Other income (expense):
Interest income.................................................................. 3,478 9,350
Interest expense................................................................. (325,981) (273,013)
------------- -------------
Total other income (expense)................................................. (322,503) (263,663)
------------- -------------
(Loss) before income taxes......................................................... (76,024) (2,434,601)
Income taxes....................................................................... 122,019 409,799
------------- -------------
Net loss........................................................................... $ (198,043) $ (2,844,400)
------------- -------------
------------- -------------
Basic and diluted loss per share................................................... $ (198) $ (2,844)
------------- -------------
------------- -------------
Weighted average number of common shares outstanding............................... 1,000 1,000
------------- -------------
------------- -------------
</TABLE>
See Accompanying "Notes to Consolidated Financial Statements"
F-17
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, July 31, 1994....................................... $ 1,000 $ 2,005,774 $ 5,618,817 $ 7,625,591
Net loss, 1995............................................... -- -- (2,844,400) (2,844,400)
----------- ------------ ------------ ------------
Balance, July 31, 1995....................................... 1,000 2,005,774 2,774,417 4,781,191
Issuable 2,951 shares of parent company common stock for
services................................................... -- 88,530 -- 88,530
Net loss, 1996............................................... -- -- (198,043) (198,043)
----------- ------------ ------------ ------------
Balance July 31, 1996........................................ $ 1,000 $ 2,094,304 $ 2,576,374 $ 4,671,678
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
See Accompanying "Notes to Consolidated Financial Statements"
F-18
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.................................................... $ 25,075,654 $ 22,416,995
Interest received............................................................... 3,478 6,790
Income tax refunds received..................................................... 103,865 --
Cash paid to suppliers and employees............................................ (23,939,858) (20,994,457)
Interest paid................................................................... (360,618) (283,682)
Income taxes paid............................................................... (542,090) (317,657)
-------------- --------------
Cash provided by operations................................................. 340,431 827,989
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of property.................................................. 870,764 --
Repayment of advances to officer................................................ -- 29,955
Purchase of land................................................................ (2,950) (12,500)
Payments for buildings and improvements......................................... (49,269) (26,080)
Payments to related party for buildings and improvements........................ (802,264) --
Purchase of equipment........................................................... (626,252) (591,732)
Payments for trademarks......................................................... -- (2,938)
Payments for package design costs............................................... (592,265) (246,466)
-------------- --------------
Cash (used for) investing activities........................................ (1,202,236) (849,761)
-------------- --------------
Cash flows from financing activities:
Proceeds from borrowings........................................................ 3,300,000 400,000
Proceeds from sale of stock..................................................... 107,886 --
Repayment of borrowings......................................................... (2,718,757) (454,476)
Dividends Paid.................................................................. -- (244,104)
-------------- --------------
Cash provided by (used for) financing activities............................ 689,129 (298,580)
-------------- --------------
Net decrease in cash.............................................................. (172,676) (320,352)
Cash, beginning of year..................................................... 197,949 518,301
-------------- --------------
Cash, end of year........................................................... $ 25,273 $ 197,949
-------------- --------------
-------------- --------------
</TABLE>
See Accompanying "Notes to Consolidated Financial Statements"
F-19
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
AMI Operating, Inc. ("Arrowhead") formerly known as Arrowhead Mills, Inc.,
manufactures and distributes organic foods and pastas primarily throughout the
United States on credit terms that Arrowhead establishes for individual
customers. Arrowhead's customers are primarily wholesale distributors. Arrowhead
operates under compliance with specific sections of the Food, Drug and Cosmetic
Act of 1938 and the Good Manufacturing Practices Act of 1967 and subsequent
revisions.
On November 17, 1997, Arrowhead's stockholders exchanged all of their stock
in Arrowhead with a newly formed holding company which is using the name
Arrowhead Mills, Inc. All stock and earnings per share information is presented
as if this transaction occurred at the beginning of the earliest period
presented.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Arrowhead and all of its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The allowance for doubtful accounts is based on a historical ratio of net
account charge-offs to trade accounts receivable outstanding at year end,
supplemented by additional allowances based on management's evaluation of open
account balances and cash discounts offered at the end of the period.
INVENTORIES:
Inventories are stated at the lower of cost, determined by the first-in,
first-out method (FIFO), or market. Obsolete, slow-moving and damaged
merchandise is valued at estimated net realizable value.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Property additions and
improvements are charged to the property accounts while maintenance and repairs,
which do not materially improve or prolong assets lives, are charged against
earnings. Related costs and accumulated depreciation are removed from their
respective accounts upon disposal of properties, and any gain or loss on
disposition is credited or charged to earnings.
Arrowhead uses the straight-line methods of depreciation. Estimated useful
lives for buildings range from 15 to 40 years, and estimated useful lives for
machinery and equipment range from 5 to 20 years.
Contract construction costs are accumulated during periods of construction.
These expenditures are depreciated over the estimated useful lives of the assets
when the assets are placed in service.
F-20
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1996 AND 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
DEFERRED INCOME TAXES:
Deferred income taxes are provided on timing differences between financial
statement and income tax reporting. A deferred tax asset has also been
recognized for the timing differences relating to a non-compete agreement.
NET INCOME PER SHARE:
Net income per share is computed for all periods presented in accordance
with FASB Statement No. 128, "Earnings per Share," based on the weighted average
number of shares outstanding during the period.
OTHER ASSETS:
Intangibles are carried at cost, net of accumulated amortization. Trademarks
and organization costs are amortized using the straight-line method over periods
of five to forty years. Package design costs are amortized using the
straight-line method over periods of five years.
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, Arrowhead considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ADVERTISING:
Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when the advertising first takes place.
The costs of direct-response advertising are capitalized and amortized over the
period during which future benefits are expected to be received. The advertising
expense for 1996 was $463,533 ($489,829 in 1995). There is no prepaid or
capitalized direct-response advertising at July 31, 1996.
NOTE 2. INVENTORIES:
The inventories used in determining cost of sales for the years ended July
31, are as follows:
<TABLE>
<S> <C>
1995............................................ $4,355,071
1996............................................ 4,630,975
</TABLE>
F-21
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1996 AND 1995
NOTE 2. INVENTORIES: (CONTINUED)
An evaluation reserve of $152,948 was charged against inventories at July
31, 1996. This amount results from adjustments to market value relating to bulk
grain inventories.
NOTE 3. NOTES PAYABLE:
Notes payable at July 31, 1996 consist of the following:
<TABLE>
<S> <C>
Revolving notes payable to bank, with a maximum credit limit of
$2,500,000, $500,000 due August 1996 with the balance due
January 1997 plus interest payable quarterly at 1% above the
prime rate which was 9.25% on July 31, 1996,(9.75% in 1995)
secured by accounts receivable and inventory.................... $2,300,001
7.0% demand note payable to stockholder, partially secured...... 30,000
Note payable to TSG2 L.P., Arrowhead's controlling stockholder,
due on demand with interest due monthly at 1.0% above the prime
rate which was 9.25% on July 31, 1996, unsecured................ 100,000
---------
$2,430,001
---------
---------
</TABLE>
The provisions of the revolving note payable places restrictions on stock
repurchases, fixed asset purchases, indebtedness created and dividends.
NOTE 4. PROFIT SHARING PLAN:
Arrowhead adopted a defined contribution profit sharing plan effective
August 1, 1984 which covers substantially all employees. The eligibility
requirements under the plan are 21 years of age or one year of service. The
annual contribution to the plan is discretionary and determined by the board of
directors. A contribution has been accrued in the amount of $15,000 for 1996 and
$35,000 for 1995.
F-22
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1996 AND 1995
NOTE 5. LONG-TERM DEBT, NET OF CURRENT MATURITIES:
Long-term debt, net of current maturities at July 31, 1996 consists of the
following:
<TABLE>
<S> <C>
Note payable to bank, payable in monthly installments of
$20,983, including interest at 1/2% above prime, which was 8.75%
at July 31, 1996, through November 2000, secured by a deed of
trust and equipment............................................. $ 889,948
Note payable to former employee, payable in quarterly
installments of $4,000 plus interest at 6.8%, through January
1998, unsecured................................................. 24,000
13% notes payable to former subsidiary stockholders, interest
only payments due quarterly, with principal due April 1997,
unsecured....................................................... 627,002
8% note payable to former subsidiary stockholder, payable in
bi-weekly installments of $2,346, including interest, through
April 1997, unsecured........................................... 41,021
---------
1,581,971
Less current maturities......................................... 871,968
---------
$ 710,003
---------
---------
</TABLE>
Following are maturities of long-term debt for each of the next five years
and in the aggregate:
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
------------
<S> <C>
1997........................................................ $ 871,968
1998........................................................ 196,337
1999........................................................ 214,223
2000........................................................ 233,737
2001........................................................ 65,706
------------
$ 1,581,971
------------
------------
</TABLE>
NOTE 6. TRANSACTIONS WITH RELATED PARTIES AND CONCENTRATION:
Arrowhead paid $255,553 to companies controlled by stockholders or directors
for products or services in 1996 ($471,815 in 1995). Arrowhead also incurred
$907,264 to a company controlled by a stockholder/director for the construction
of a new warehouse in 1996. At July 31, 1996, amounts due these companies
included in trade accounts payable were $114,399.
Arrowhead sells a substantial portion of its products to one unrelated
customer. During 1996 sales to that customer aggregated $6,192,366 ($5,048,210
in 1995). At July 31, 1996, amounts due from that customer included in trade
accounts receivable were $276,375.
F-23
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1996 AND 1995
NOTE 7. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The activity in the allowance for doubtful accounts during the year ended
July 31, 1996 is summarized as follows:
<TABLE>
<S> <C>
Balance, beginning of year........................................ $ 123,001
Add: Amounts charged to operations............................... 168,206
---------
291,207
---------
Less: Charge-offs, net of recoveries:
Charge-offs.................................................. 48,227
Recoveries................................................... (88)
---------
Net charge-offs.............................................. 48,139
---------
Balance, end of year.............................................. $ 243,068
---------
---------
</TABLE>
F-24
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND 1995
NOTE 8. INTANGIBLES:
Intangibles at July 31, 1996 are as follows:
<TABLE>
<S> <C>
Package design costs............................................ $1,246,884
Trademarks...................................................... 43,718
Organization Costs.............................................. 2,000
---------
1,292,602
Less accumulated amortization................................... (316,925)
---------
$ 975,677
---------
---------
</TABLE>
Amortization expense for 1996 was $165,893 ($176,007 in 1995).
NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION:
The following is a reconciliation of net loss to net cash provided by
operations:
<TABLE>
<CAPTION>
1996 1995
----------- -------------
<S> <C> <C>
Net loss.......................................................... $ (198,043) $ (2,844,400)
----------- -------------
Adjustments to reconcile net loss to net cash provided by
operations:
Depreciation.................................................... 464,836 436,208
Amortization.................................................... 165,893 176,007
Stock issued for services....................................... 88,530 --
Provision for losses on accounts receivable..................... 168,206 42,590
Write-down of goodwill.......................................... -- 3,647,076
(Gain) Loss on sale of assets................................... (203,659) --
Transfers of vehicles as wages.................................. 13,386 14,003
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable.............. (115,113) (9,086)
Decrease (increase) in other receivables...................... (281,262) (53,168)
Decrease (increase) in inventories............................ (275,905) (1,250,194)
Decrease (increase) in prepaid expenses....................... 20,476 (13,696)
Decrease (increase) in other assets........................... 31,385 --
Increase (decrease) in trade payables and bank overdraft...... 651,257 288,354
Increase (decrease) in income taxes payable................... (158,829) 201,986
Increase (decrease) in other payables and accrued expenses.... (159,258) 134,378
Increase (decrease) in retirement plan and bonuses payable.... 178,059 120,687
Increase (decrease) in deferred taxes payable................. (49,528) (62,756)
----------- -------------
Total adjustments........................................... 538,474 3,672,389
----------- -------------
Net cash provided by operations................................... $ 340,431 $ 827,989
----------- -------------
----------- -------------
</TABLE>
F-25
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1996 AND 1995
NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION: (CONTINUED)
Cash for the year ended July 31, 1996 and 1995 consisted of checking and
petty cash accounts in the amount of $25,273 and $197,949, respectively.
NOTE 10. SIGNIFICANT STOCK TRANSACTIONS:
On September 18, 1995 Arrowhead acquired DNF Acquisition Co. in a business
combination accounted for in a manner similar to a pooling of interests. DNF
Acquisition Co. is the sole stockholder of DeBoles Nutritional Foods, Inc.,
which manufactures and sells natural pastas. DNF Acquisition Co. became a wholly
owned subsidiary of Arrowhead through the exchange of 154,917 shares of
Arrowhead's common stock for all of the stock of DNF Acquisition Co. The
accompanying financial statements for 1995 have been restated to give effect to
the combination. For all periods presented, DNF Acquisition Co. and its wholly
owned subsidiary, DeBoles Nutritional Foods, Inc., were under common control
with Arrowhead.
On April 24, 1998, Arrowhead's parent Arrowhead Mills, Inc. ("AMI") signed,
an agreement and plan of merger whereby AMI agreed to exchange 100% of AMI's
common stock for cash and common stock in The Hain Food Group, Inc., a public
company.
NOTE 11. INCOME TAXES:
Income tax expense for the years ended July 31, 1996 and 1995 is comprised
of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current provision--federal............................................ $ 194,892 $ 428,128
Current provision--state.............................................. 51,651 44,428
Deferred provision--federal........................................... (124,524) (62,625)
Deferred provision--state............................................. -- (132)
---------- ----------
$ 122,019 $ 409,799
---------- ----------
---------- ----------
</TABLE>
A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to earnings before income taxes for the years ended
July 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Federal income tax................................................... $ (25,848) $ (827,764)
State income tax, net of federal benefit............................. (4,561) (146,076)
Nondeductible expenses............................................... 36,327 1,432,669
Taxable income not recorded on books................................. 155,345 --
Deductions not recorded on books..................................... (35,938) (14,612)
Other................................................................ (3,306) (34,418)
---------- -----------
$ 122,019 $ 409,799
---------- -----------
---------- -----------
</TABLE>
F-26
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1996 AND 1995
NOTE 11. INCOME TAXES: (CONTINUED)
Significant components of Arrowhead's deferred tax assets and liabilities as
of July 31, 1996 are as follows:
<TABLE>
<S> <C>
Deferred tax asset-non-compete agreement......................... $ 13,947
Deferred tax liabilities-property, plant and equipment........... (210,829)
---------
$(196,882)
---------
---------
</TABLE>
The components giving rise to the net deferred liability described above,
have been included in the accompanying consolidated balance sheet as of July 31,
1996 as follows:
<TABLE>
<S> <C>
Current assets................................................... $ 13,947
Noncurrent liabilities........................................... (210,829)
---------
$(196,882)
---------
---------
</TABLE>
NOTE 12. GOODWILL WRITE-DOWN:
During the year ended July 31, 1995, management determined that due to a
significant decline in sales, the value originally assigned to goodwill relating
to a previous acquisition was permanently impaired. This decline resulted mainly
from reduced orders from one of Arrowhead's former major customers. Arrowhead
believes that the significantly reduced orders from this former customer, as
well as increased competition in the market place, has caused this impairment.
Accordingly, Arrowhead has charged selling, administrative and general expenses
for $3,647,076 for goodwill write-down.
NOTE 13. SUBSIDIARY YEAR END:
The accompanying consolidated financial statements include the accounts of
AMI Operating, Inc. and its subsidiaries at July 31, 1996 and for the year then
ended. For the year ended July 31, 1995 the subsidiaries' results from
operations and cash flows include the period January 1, 1995 through September
17, 1995, which represents the acquisition date as described in Note 10.
Intercompany transactions and balances have been eliminated in consolidation.
F-27
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Dana Alexander, Inc.
Brooklyn, New York
We have audited the accompanying balance sheet of Dana Alexander, Inc.
("Terra") as of July 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the seven month period from
January 1, 1997 through July 31, 1997. These financial statements are the
responsibility of Terra's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dana Alexander, Inc. as of
July 31, 1997 and the results of its operations and its cash flows for the seven
months then ended in conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Anaheim, California
May 22, 1998
F-28
<PAGE>
DANA ALEXANDER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
POST
PRE ACQUISITION
ACQUISITION ---------------
-------------- FEBRUARY 28,
JULY 31, 1997 1998
-------------- ---------------
<S> <C> <C>
(UNAUDITED)
ASSETS (Note 5)
Current Assets
Cash........................................................................... $ 67,000 $ 208,000
Accounts receivable, net of allowance for doubtful accounts 1997 $57,000; 1998
$76,000 (Note 2)............................................................. 1,220,000 1,116,000
Other receivables.............................................................. 55,000 18,000
Inventories (Note 3)........................................................... 711,000 709,000
Prepaid expenses............................................................... 259,000 238,000
-------------- ---------------
Total current assets....................................................... 2,312,000 2,289,000
Equipment and Leasehold Improvements, net (Note 4)............................... 873,000 956,000
Package Design Costs, net of accumulated amortization 1997 $38,000; 1998 $62,000
(unaudited).................................................................... 166,000 142,000
Intangible Assets, net of accumulated amortization 1997 $4,000; 1998 $85,000
(unaudited).................................................................... 41,000 10,630,000
Debt Issue Costs, net............................................................ -- 426,000
Other Assets..................................................................... 29,000 32,000
-------------- ---------------
$ 3,421,000 $ 14,475,000
-------------- ---------------
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit (Note 5)........................................................ $ 275,000 $ 1,640,000
Current maturities of long-term debt (Note 5).................................. 36,000 768,000
Due to parent company.......................................................... -- 51,000
Trade accounts payable......................................................... 674,000 585,000
Accrued expenses............................................................... 500,000 519,000
Income taxes payable........................................................... 161,000 240,000
Deferred taxes (Note 6)........................................................ 20,000 20,000
-------------- ---------------
Total current liabilities.................................................. 1,666,000 3,823,000
-------------- ---------------
Long-Term Debt, less current maturities (Note 5)................................. 53,000 14,803,000
-------------- ---------------
Commitments and Contingencies (Notes 5 and 7)
Stockholders' Equity (Deficit) (Note 8)
Common stock, no par value ; authorized 400 shares; issued and outstanding
218.18 shares................................................................ 1,000 1,000
Additional paid-in capital..................................................... 209,000 4,574,000
Excess of consideration paid over consideration received....................... -- (8,855,000)
Retained earnings, February 28, 1998 since November 17, 1997................... 1,492,000 129,000
-------------- ---------------
1,702,000 (4,151,000)
-------------- ---------------
$ 3,421,000 $ 14,475,000
-------------- ---------------
-------------- ---------------
</TABLE>
See Notes to Financial Statements.
F-29
<PAGE>
DANA ALEXANDER, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PRE ACQUISITION
------------------------------------------
PERIOD FROM POST ACQUISITION
AUGUST 1, -----------------
SEVEN MONTHS SEVEN MONTHS 1997 PERIOD FROM
ENDED ENDED THROUGH NOVEMBER 18, 1997
JULY 31, FEBRUARY 28, NOVEMBER 17, THROUGH
1997 1997 1997 FEBRUARY 28, 1998
------------ ------------- ------------- -----------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Sales (Note 2)............................... $7,765,000 $ 7,106,000 $ 3,937,000 $ 4,306,000
Cost of Sales.................................... 4,360,000 4,060,000 2,287,000 2,564,000
------------ ------------- ------------- -----------------
GROSS PROFIT............................... 3,405,000 3,046,000 1,650,000 1,742,000
Selling, general and administrative expenses
(Note 7)....................................... 2,195,000 2,247,000 1,296,000 975,000
Amortization of goodwill......................... -- -- -- 80,000
Officer bonuses.................................. 70,000 150,000 220,000 --
Management fee to stockholder.................... 105,000 195,000 40,000 --
------------ ------------- ------------- -----------------
OPERATING INCOME........................... 1,035,000 454,000 94,000 687,000
Interest Expense................................. 30,000 8,000 8,000 380,000
------------ ------------- ------------- -----------------
Income before income taxes....................... 1,005,000 446,000 86,000 307,000
Provision for Income Taxes (Note 6).............. 483,000 207,000 44,000 178,000
------------ ------------- ------------- -----------------
NET INCOME................................. $ 522,000 $ 239,000 $ 42,000 $ 29,000
------------ ------------- ------------- -----------------
------------ ------------- ------------- -----------------
Earnings per share............................... $ 2,392.52 $ 1,095.43 $ 192.50 $ 591.25
------------ ------------- ------------- -----------------
------------ ------------- ------------- -----------------
Weighted-average number of common shares
outstanding.................................... 218.18 218.18 218.18 218.18
------------ ------------- ------------- -----------------
------------ ------------- ------------- -----------------
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE>
DANA ALEXANDER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
EXCESS OF
ADDITIONAL CONSIDERATION
PAID-IN PAID OVER RETAINED
COMMON CAPITAL CONSIDERATION EARNINGS
STOCK (NOTE 8) CONTRIBUTED (NOTE 8) TOTAL
----------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Pre Acquisition
Balance, December 31, 1996.............. $ 1,000 $ 209,000 $ -- $ 970,000 $ 1,180,000
Net income............................ -- -- -- 522,000 522,000
----------- ------------- ------------- ------------- --------------
Balance, July 31, 1997.................. 1,000 209,000 -- 1,492,000 1,702,000
Net income (unaudited)................ -- -- -- 42,000 42,000
----------- ------------- ------------- ------------- --------------
Balance, November 17 1997 (unaudited)... 1,000 209,000 -- 1,534,000 1,744,000
Post Acquisition
Eliminate capital accounts upon
acquisition of Terra (unaudited)...... -- (210,000) -- (1,534,000) (1,744,000)
Paid-in capital recorded upon
acquisition of Terra (unaudited)...... -- 6,580,000 -- -- 6,580,000
Contribution of capital (unaudited)..... -- 75,000 -- -- 75,000
Consideration paid (unaudited).......... -- (2,080,000) (8,855,000) -- (10,935,000)
Net income (unaudited).................. -- -- -- 129,000 129,000
----------- ------------- ------------- ------------- --------------
Balance, February, 28, 1998 (unaudited)... $ 1,000 $ 4,574,000 $(8,855,000) $ 129,000 $ (4,151,000)
----------- ------------- ------------- ------------- --------------
----------- ------------- ------------- ------------- --------------
</TABLE>
See Notes to Financial Statements.
F-31
<PAGE>
DANA ALEXANDER, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
PRE ACQUISITION POST
------------------------------------------- ACQUISITION
PERIOD FROM ------------
PERIOD FROM AUGUST 1, PERIOD FROM
JANUARY 1, SEVEN MONTHS 1997 NOVEMBER 18,
1997 ENDED THROUGH 1997 THROUGH
THROUGH FEBRUARY 28, NOVEMBER 17, FEBRUARY 28,
JULY 31,1997 1997 1997 1998
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash Provided by Operating Activities
Net income......................................... $ 522,000 $ 239,000 $ 42,000 $ 129,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 122,000 127,000 98,000 193,000
Allocated expense paid by parent................... -- -- -- 75,000
Deferred taxes..................................... 20,000 -- -- --
Change in assets and liabilities:
(Increase) decrease in:
Receivables...................................... (168,000) -- (173,000) 314,000
Inventories...................................... (189,000) (177,000) (14,000) 16,000
Prepaid expenses and other assets................ (44,000) (43,000) 19,000 (6,000)
Increase (decrease) in:
Accounts payable and accrued expenses............ 27,000 130,000 311,000 (381,000)
Income taxes payable............................. (231,000) 174,000 83,000 (4,000)
-------------- ------------ ------------- ------------
Net cash provided by operating activities...... 59,000 450,000 366,000 336,000
-------------- ------------ ------------- ------------
Cash Flows from Investing Activities
Purchase of equipment.............................. (220,000) (407,000) (139,000) (115,000)
Acquisition of Terra (Note 8)...................... -- -- -- 6,000
Capitalized package design costs................... (10,000) (20,000) -- --
-------------- ------------ ------------- ------------
Net cash (used in) investing activities........ (230,000) (427,000) (139,000) (109,000)
-------------- ------------ ------------- ------------
Cash Flows from Financing Activities
Increase (decrease) in checks in excess of bank
balance.......................................... (17,000) 6,000 -- --
Net borrowings (payments) on revolving credit
agreement........................................ 275,000 -- (275,000) --
Payments on long-term borrowings................... -- -- (89,000) --
Principal payments on long-term borrowings......... (26,000) (270,000) -- --
Change in parent company debt...................... -- -- 76,000 (25,000)
-------------- ------------ ------------- ------------
Net cash provided by (used in) financing
activities................................... 232,000 (264,000) (288,000) (25,000)
-------------- ------------ ------------- ------------
Net increase (decrease) in cash................ 61,000 (241,000) (61,000) 202,000
Cash
Beginning of period................................ 6,000 241,000 67,000 6,000
-------------- ------------ ------------- ------------
End of period...................................... $ 67,000 $ -- $ 6,000 $ 208,000
-------------- ------------ ------------- ------------
-------------- ------------ ------------- ------------
</TABLE>
See Notes to Financial Statements.
F-32
<PAGE>
DANA ALEXANDER, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Terra, a wholly-owned subsidiary of Arrowhead Mills, Inc. ("AMI"),
manufactures and distributes specialty potato chips and other vegetable chips to
gourmet food shops, wholesale clubs and other distributors throughout the United
States on credit terms that Terra establishes for individual customers. Terra
operates under compliance with specific sections of the Food, Drug and Cosmetic
Act of 1938 and the Good Manufacturing Practices Act of 1967 and subsequent
revisions. Terra changed its accounting year end to July 31 to be consistent
with its parent company. The July 31, 1997 period is seven months.
UNAUDITED INTERIM FINANCIAL INFORMATION:
The unaudited interim financial information presented herein as of and for
the period ended February 28, 1998 and the periods ended February 28, 1997 and
November 17, 1997 reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation for the periods presented. Such
adjustments are of a normal recurring nature. The financial information is not
intended to be a complete presentation in accordance with generally accepted
accounting principles. Interim financial results are not necessarily indicative
of the results Terra will incur during its fiscal year.
BASIS OF PRESENTATION:
AMI acquired 100% of Terra on November 17, 1997. Accordingly, the excess
purchase price over book value is recorded on Terra financial statements as of
the acquisition date. The accompanying statements of income, stockholders'
equity and cash flows for the periods captioned as "Pre Acquisition" represent
when Terra was not owned by AMI, while the period captioned as "Post
Acquisition" represents Terra after it was acquired by AMI.
A SUMMARY OF TERRA'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH CONCENTRATION:
At July 31, 1997, Terra had approximately $394,000 on deposit in a single
financial institution. Deposits in excess of $100,000 are not insured by the
FDIC.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
F-33
<PAGE>
DANA ALEXANDER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives as
follows.
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Machinery and equipment.............................................................. 5-10
Office furniture..................................................................... 5
Vehicles............................................................................. 5
Leasehold improvements............................................................... 3-10
</TABLE>
PACKAGE DESIGN COSTS:
Terra capitalizes costs incurred for the design of its packaging. These
costs are amortized over the estimated life of the packaging not to exceed five
years.
INTANGIBLE ASSETS:
Intangible assets consist primarily of goodwill which is amortized over
forty years using the straight line method.
DEBT ISSUE COST:
Debt issue costs are the portion of costs incurred by the parent company
relating to the debt recorded in Terra's financial statements. These costs are
amortized over the life of the debt agreement using a method that approximates
the interest method.
LONG-LIVED ASSETS:
On January 1, 1996, Terra adopted Financial Accounting Standards Board
(FASB) Statement No. 121. "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO
BE DISPOSED OF". Under those rules, long-term and intangible assets are
evaluated for possible impairment when events or circumstances indicate the
carrying amount of those assets may not be recoverable. Recoverability is
assessed based on the gross undiscounted estimated future cash flows before
interest charges. If an impairment is indicated, the amount would be determined
by comparing the estimated fair value to the carrying value of the asset being
evaluated. In the absence of quoted market prices, fair value is estimated by
using the projected cash flows discounted at a rate commensurate with the risks
involved.
ADVERTISING:
Terra expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $136,000 during
the seven months ended July 31, 1997. Prepaid advertising as of July 31, 1997
totaled $6,000.
F-34
<PAGE>
DANA ALEXANDER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES:
Deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
EARNINGS PER SHARE:
Earnings per share are computed using the weighted average number of common
shares outstanding during the respective periods. There are no potentially
dilutive securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
In 1997, Terra adopted FASB Statement No. 107, DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value
because of the short maturity of those instruments.
LINE OF CREDIT AND LONG-TERM DEBT: The carrying amount approximates fair
value because the interest rate fluctuates with the lending banks' prime
rate or LIBOR.
NOTE 2. MAJOR CUSTOMER
Terra had net sales to one customer for the seven months ended July 31, 1997
that individually accounted for more than 10% of Terra's net sales. Net sales to
this customer were approximately $2,200,000 for the seven months ended July 31,
1997 and net trade receivables at July 31, 1997 was $150,000. Sales to this
customer for the seven months ended February 28, 1997 were $2,220,000, for the
period ended November 17, 1997 were $603,000 and for the period ended February
28, 1998 were $896,000. Trade receivables from this customer at February 28,
1998 were $126,000.
NOTE 3. INVENTORIES
<TABLE>
<CAPTION>
JULY 31, FEBRUARY 28,
1997 1998
------------ ----------------
<S> <C> <C>
(UNAUDITED)
Raw materials................................................ $ 88,000 $ 93,000
Finished goods............................................... 131,000 114,000
Packaging.................................................... 492,000 502,000
------------ --------
$ 711,000 $ 709,000
------------ --------
------------ --------
</TABLE>
F-35
<PAGE>
DANA ALEXANDER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)
NOTE 4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
JULY 31,
1997
------------
<S> <C>
Machinery and equipment......................................................... $ 867,000
Office furniture................................................................ 105,000
Vehicles........................................................................ 31,000
Leasehold improvements.......................................................... 362,000
------------
1,365,000
Less accumulated depreciation................................................... 492,000
------------
$ 873,000
------------
------------
</TABLE>
NOTE 5. NOTES PAYABLE
At July 31, 1997, Terra had a line of credit with a bank for $1,500,000 at
prime plus 0.5%, secured by all assets of Terra and expiring on June 30, 1998.
Terra also has a term agreement with a bank which requires $1,800 per month
principal payments plus interest at prime plus 1% and is due June 2,000 and
other term debt totaling $24,000. The aggregate amount of long-term debt
maturing in future years are as follows: 1998 $36,000; 1999 $32,000 and 2,000
$21,000. These notes were repaid in connection with the acquisition discussed in
Note 8 (unaudited).
UNAUDITED INTERIM INFORMATION:
In connection with the transaction discussed in Note 8, AMI entered into a
credit agreement with a bank to finance the acquisition and repay existing debt.
The agreement includes the following terms. The facility provides for a
$6,000,000 revolving line of credit, including letters of credit up to
$1,000,000, with interest at the bank's base rate plus 1% to 1.75% (10% at
February 28, 1997) or LIBOR plus 2% to 2.75% (8.125% at February 28, 1997)
depending on certain financial conditions through October 2003. The amount
outstanding at February 28, 1998 is $2,000,000. There are two term facilities:
Series A, $12,000,000 with the same interest terms as the revolver, and
quarterly principal payments of $125,000 due beginning January 1998, and
increasing each anniversary to $812,500 per quarter in 2003 when the series will
be fully paid; Series B $7,000,000 with interest at the bank's base rate plus 2%
(10% at February 28, 1997) or LIBOR plus 3% (8.625% at February 28, 1997),
principal payments are due quarterly at $25,000 per quarter beginning January
1998 through 2003 and four quarterly payments of $1,600,000 each in 2004. All
assets of Terra are pledged as collateral on the loans. The agreement provides
for certain financial covenants to be maintained.
F-36
<PAGE>
DANA ALEXANDER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)
NOTE 5. NOTES PAYABLE (CONTINUED)
The scheduled maturities of principal maturities on the above term
facilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- -------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 450,000
1999........................................................................... 1,163,000
2000........................................................................... 1,725,000
2001........................................................................... 2,225,000
2002........................................................................... 2,912,000
Thereafter..................................................................... 10,525,000
-------------
$ 19,000,000
-------------
-------------
</TABLE>
As part of the acquisition discussed in Note 8, Terra has been allocated
$17,211,000 of the debt proceeds and has reflected these amounts as debt on its
balance sheet.
NOTE 6. INCOME TAXES
The provision for income taxes for the seven months ended July 31, 1997
consist of the following:
<TABLE>
<S> <C>
Current........................................................... $ 463,000
Deferred.......................................................... 20,000
---------
$ 483,000
---------
---------
</TABLE>
A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to earnings before income taxes:
<TABLE>
<S> <C>
Federal income tax................................................ $ 352,000
State income tax, net of federal benefit.......................... 121,000
Other............................................................. 10,000
---------
$ 483,000
---------
---------
</TABLE>
Significant components of Terra's deferred tax assets and liabilities as of
July 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred Taxes
Deferred tax liability, receivables............................... $ 50,000
Deferred tax asset, other......................................... (30,000)
---------
Net deferred tax liability........................................ $ 20,000
---------
---------
</TABLE>
NOTE 7. RENT COMMITMENTS, RENT EXPENSE AND CONTINGENCY
Terra leases its facilities under three operating lease agreements. Rent
expense for the seven months ended July 31, 1997 was $119,000. Future rent
commitments are as follows: 1998 $206,000; 1999 $157,000; and 2,000 $47,000.
F-37
<PAGE>
DANA ALEXANDER, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)
NOTE 7. RENT COMMITMENTS, RENT EXPENSE AND CONTINGENCY (CONTINUED)
Terra is in the process of discovery relating to an employee lawsuit. The
employee claims damages of $800,000. Management believes the outcome of this
suit will not have a material effect on the financial statements.
NOTE 8. SUBSEQUENT EVENTS (UNAUDITED)
On November 17, 1997 Terra was acquired by AMI, which is under common
control with Terra. As a result of the combination of the two entities under
common control, the portion of the acquisition price in excess of book value of
Terra which was controlled by the majority owner has been recorded as a
reduction in stockholders' equity. The portion of the purchase price in excess
of book value relating to the minority stockholders has been recorded as a
purchase. Also, since Terra was acquired 100% by this majority stockholder
through a step transaction, Terra applied push-down accounting upon this
acquisition. Accordingly, the assets of Terra have been revalued as of the
acquisition date and the total excess purchase price of $10,670,000 has been
recorded on Terra's balance sheet. The portion of the step acquisition that was
funded by debt which is collateralized by Terra assets is recorded as a
liability, and the remainder has been recorded as paid-in capital. The
supplemental cash flow information relating to this transaction is as follows:
<TABLE>
<S> <C>
Working capital deficit assumed, net of cash acquired.......... $ 1,915,000
Long-term assets, including intangible assets acquired......... (12,265,000)
Long-term debt incurred related to acquisition................. 14,711,000
Paid-in capital................................................ 6,580,000
Consideration paid to majority stockholder..................... (10,935,000)
-----------
Cash acquired on acquisition................................... $ 6,000
-----------
-----------
</TABLE>
On April 24, 1998, AMI signed an agreement and plan of merger whereby AMI
agreed to exchange 100% of AMI's stock for a combination of cash and common
stock of The Hain Food Group, Inc., a public company. These financial statements
do not include any adjustments which may be required as a result of this
transaction.
NOTE 9. PRIOR PERIOD INTERIM INFORMATION (UNAUDITED)
Selected financial information for the seven months ended July 31, 1996 are
as follows: net sales $5,338,000; gross profit $2,625,000; provision for income
taxes $384,000; net income $565,000; and earnings per share of $2.59.
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Dana Alexander Inc.
Brooklyn, New York
We have audited the accompanying balance sheets of Dana Alexander Inc.
("Terra") as of December 31, 1996 and December 31, 1995 and the related
statements of operations and retained earnings, common stock, additional paid in
capital and cash flows for the years then ended. These financial statements are
the responsibility of Terra's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dana Alexander Inc. as of
December 31, 1996 and December 31, 1995 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Katz & Bloom, LLC
Roslyn Heights, New York
March 19, 1997
June 2, 1997 as to Note L
F-39
<PAGE>
DANA ALEXANDER INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------ ------------
ASSETS
Current Assets:
Cash in bank........................................................................ $ 6,379 $ 126,261
Accounts receivable-trade-less allowances for doubtful accounts and accrued credits
of $121 479 in 1996 and $39 300 in 1995 (Note G).................................. 956,444 641,927
Accounts receivable-other........................................................... 45,104 1,612
Inventory (Notes A, B and G)........................................................ 521,746 296,417
Prepaid expenses (Note C)........................................................... 200,560 49,847
Note receivable (Notes D and G)..................................................... 55,000 --
------------ ------------
Total Current Assets.............................................................. 1,785,233 1,116,064
------------ ------------
Property, Plant and Equipment--
At cost (Notes A, E and G).......................................................... 1,327,070 907,943
Less-accumulated depreciation and amortization...................................... 402,966 339,325
------------ ------------
Net Property, Plant and Equipment................................................. 924,104 568,618
------------ ------------
Other Assets:
Deposits............................................................................ 28,242 36,412
Intangible assets-net of accumulated amortization of $7 610 in 1996 and $3 530 in
1995 (Note A)..................................................................... 48,653 52,733
Long-term note receivable (Notes D and G)........................................... 50,000 --
Other............................................................................... 15,000 1,452
Deferred income taxes (Notes A and F)............................................... -- 24,000
------------ ------------
Total Other Assets................................................................ 141,895 114,597
------------ ------------
Total............................................................................. $ 2,851,232 $ 1,799,279
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft...................................................................... $ 16,906 $ --
Accounts payable.................................................................... 789,472 511,476
Current maturity-notes payable (Notes G and L)...................................... 38,555 50,883
Current maturity-equipment leases payable........................................... 2,016 25,420
Accrued liabilities (Note H)........................................................ 354,558 101,427
Income taxes payable (Notes A and F)................................................ 391,801 206,310
------------ ------------
Total Current Liabilities......................................................... 1,593,308 895,516
------------ ------------
Long-Term Liabilities:
Deferred taxes payable (Notes A and F).............................................. 3,000 --
Notes payable-less current maturity (Notes G and L)................................. 74,218 114,788
Equipment leases payable-less current maturity...................................... -- 38,366
Notes payable-stockholders (Note G)................................................. -- 338,000
------------ ------------
Total Long-Term Liabilities....................................................... 77,218 491,154
------------ ------------
Commitments and Contingencies (Note I)................................................ -- --
Stockholders' Equity:
Common stock--authorized 400 shares no par value-issued and outstanding 218.18
shares............................................................................ 1,145 1,145
Additional paid in capital.......................................................... 209,437 209,437
Retained earnings................................................................... 970,124 202,027
------------ ------------
Total Stockholders' Equity........................................................ 1,180,706 412,609
------------ ------------
Total............................................................................. $ 2,851,232 $ 1,799,279
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
DANA ALEXANDER INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
<S> <C> <C>
1996 1995
------------- ------------
Net sales........................................................................... $ 10,493,160 $ 5,604,337
Cost of sales....................................................................... 5,643,285 3,221,380
------------- ------------
Gross profit........................................................................ 4,849,875 2,382,957
------------- ------------
Other income........................................................................ 192,332 7,896
Selling and administrative expenses................................................. 3,227,645 1,925,592
Officers' bonus..................................................................... 200,000 50,000
Management fees to stockholder...................................................... 245,000 75,000
------------- ------------
Income before interest and taxes on income.......................................... 1,369,562 340,261
Interest expense.................................................................... 46,465 65,434
------------- ------------
Income before taxes on income....................................................... 1,323,097 274,827
Taxes on income (Notes A and F)..................................................... 555,000 191,000
------------- ------------
Net income.......................................................................... 768,097 83,827
Retained earnings--beginning........................................................ 202,027 118,200
------------- ------------
Retained earnings--end.............................................................. $ 970,124 $ 202,027
------------- ------------
------------- ------------
Basic and dliuted earnings per common share......................................... $ 3,520 $ 393
------------- ------------
------------- ------------
Weighted average number common shares............................................... 218.18 213.30
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
DANA ALEXANDER INC.
STATEMENT OF COMMON STOCK
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES AMOUNT
--------- ---------
<S> <C> <C>
January 1, 1996 and December 31, 1996.........................................................
(No change during the year) 218.18 $ 1,145
--------- ---------
--------- ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHARES AMOUNT
--------- ---------
<S> <C> <C>
Common stock--January 1, 1995................................................................. 200.00 $ 1,050
Stated value--sale of 122.18 shares common stock issued in connection with the merger of Dana
Alexander Holding Company, Inc. and DA Acquisition, Inc. with and into Dana Alexander Inc.
Neither Dana Alexander Holding Company, Inc. nor DA Acquisition, Inc. had any operating
history..................................................................................... 122.18 641
--------- ---------
322.18 1,691
Acquisition of 104 shares common stock to be permanently retired in connection with the merger
of Dana Alexander Holding Company, Inc. and DA Acquisition, Inc. with and into Dana
Alexander Inc............................................................................... (104.00) (546)
--------- ---------
Common stock--December 31, 1995............................................................... 218.18 $ 1,145
--------- ---------
--------- ---------
</TABLE>
STATEMENT OF ADDITIONAL PAID IN CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Additional paid in capital--beginning of year............................................. $ 209,437 $ 124,950
Officers' loans contributed to capital.................................................... -- 44,582
Excess of proceeds of sale of 18.18 shares common stock over stated value................. -- 39,905
---------- ----------
Additional paid in capital--end of year................................................... $ 209,437 $ 209,437
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
DANA ALEXANDER INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income.............................................................................. $ 768,097 $ 83,827
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 155,653 138,136
Allowance for doubtful accounts....................................................... 69,837 12,600
Accrued interest on stockholders' loans............................................... -- 21,148
Loss on retirement of fixed assets.................................................... 16,406 7,250
Gain on sale of fixed assets.......................................................... (9,302) (3,100)
Gain on sale on local distribution rights............................................. (172,000) --
Changes in assets and liabilities:
Accounts receivable (net)............................................................. (384,354) (235,477)
Accounts receivable-other............................................................. (43,492) 30,188
Accrued interest-notes receivable..................................................... (2,406) --
Prepaid expenses...................................................................... (150,713) (9,120)
Inventory............................................................................. (225,329) (70,706)
Deferred income taxes................................................................. 24,000 (24,000)
Other assets.......................................................................... 1,452 --
Bank overdraft........................................................................ 16,906 --
Accounts payable...................................................................... 168,590 215,096
Accrued liabilities................................................................... 253,131 (30,932)
Income taxes payable.................................................................. 185,491 205,135
Deferred income taxes payable......................................................... 3,000 --
---------- ---------
Net cash provided by operating activities......................................... 674,967 340,045
---------- ---------
Cash Flows Used In Investing Activities:
Purchase of fixed assets................................................................ (473,807) (236,790)
Proceeds from sale of local distribution rights......................................... 69,406 --
Deposit payments........................................................................ (10,300) (7,125)
Proceeds from sale of fixed assets...................................................... 54,050 3,100
Refunds of deposits..................................................................... 18,470 --
Intangible asset expenditures........................................................... -- (14,584)
---------- ---------
Net cash used in investing activities............................................. (342,181) (255,399)
---------- ---------
Cash Flows From Financing Activities:
Payments-loans from stockholders........................................................ (338,000) --
Payments on long and short term debt.................................................... (52,898) (700,083)
Payments on capital leases.............................................................. (61,770) (25,126)
Proceeds from sale of common stock...................................................... -- 40,000
Proceeds from long term borrowing in connection with stock sale......................... -- 260,000
Loans from stockholders................................................................. -- 78,000
Due to stockholders..................................................................... -- (195)
Proceeds from long term borrowing....................................................... -- 348,000
---------- ---------
Net cash (used in) provided by financing activities............................... (452,668) 596
---------- ---------
Net (decrease) increase in cash........................................................... (119,882) 85,242
Cash and cash equivalents-beginning of year....................................... 126,261 41,019
---------- ---------
Cash and cash equivalents-end of year............................................. $ 6,379 $ 126,261
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
DANA ALEXANDER INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Cash paid during the year ended December 31,
Interest............................................................ $ 67,696 $ 43,463
---------- ---------
---------- ---------
Income taxes........................................................ $ 369,509 $ 8,240
---------- ---------
---------- ---------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES
In connection with the sale of the local route distribution rights (Note D)
Terra received a $172,000 note from the purchaser. During 1996 Terra received a
principal payment of $69,406 on the note.
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES
In connection with the transfer of a majority interest of the common stock
of Dana Alexander Inc. in 1995 by its two principal stockholders, Dana Alexander
Inc. merged with two newly created corporations. As a result of this merger,
Terra assumed a liability to the principal stockholders (prior to the merger) in
the amount of $260,000. In addition, loans from these two stockholders totaling
$44,582 were contributed to Terra as additional paid in capital.
F-44
<PAGE>
DANA ALEXANDER INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A--SUMMARY OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
ACTIVITIES:
Terra was incorporated in the State of New York on March 7, 1989 and derives
its revenue from the sale of "Terra Chips" and "Yukon Gold" potato and other
vegetable chips primarily to gourmet food shops, wholesale clubs and
distributors, including one customer that accounted for approximately 32% of
Terra's sales in 1996 and two customers that accounted for approximately 22% of
Terra's sales in 1995. Credit is granted to customers in the ordinary course of
business.
INVENTORY:
Inventory is stated at cost or market, whichever is lower and consists of
uncooked vegetables, finished goods and supplies.
FIXED ASSETS--DEPRECIATION:
Fixed assets are recorded at cost and includes equipment under capital
lease. Costs of maintenance and repairs are charged to expense as incurred.
Depreciation is provided for on the straight-line method over the following
estimated useful lives: machinery and equipment 5 years; vehicles 5 years; and
leasehold improvements shorter of lease term or asset useful life.
INCOME TAXES:
Income taxes are accounted for in accordance with SFAS 109 "Accounting for
Income Taxes". Deferred income taxes are provided for the temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
TRADEMARKS:
Costs incurred in the registration and acquisition of trademarks and
trademark rights (intangible assets) are capitalized and are amortized over the
useful life of the assets.
NOTE B--INVENTORY
Inventory consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Packaging film....................................................... $ 302,396 $ 149,811
Finished goods....................................................... 121,049 68,693
Other supplies....................................................... 71,834 27,307
Raw materials........................................................ 26,467 50,606
---------- ----------
Total............................................................ $ 521,746 $ 296,417
---------- ----------
---------- ----------
</TABLE>
F-45
<PAGE>
DANA ALEXANDER INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
NOTE C--PREPAID EXPENSES
Prepaid expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1996 1995
---------- ---------
Market development costs.............................................. $ 105,167 $ --
Other................................................................. 46,661 15,719
Advertising........................................................... 34,070 --
Insurance............................................................. 14,662 28,452
Employee benefits..................................................... -- 5,676
---------- ---------
$ 200,560 $ 49,847
---------- ---------
---------- ---------
</TABLE>
NOTE D--NOTE RECEIVABLE
On January 1, 1996 Terra sold the rights to distribute its products in the
Metropolitan New York City area. The agreement, as revised, calls for the
following remaining payments plus interest at 9% per annum.
<TABLE>
<S> <C>
January 1, 1997.................................. 52,594
January 1, 1998.................................. 50,000
---------
$ 102,594
---------
---------
</TABLE>
NOTE E--FIXED ASSETS
The major classes of fixed assets are:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1996 1995
------------ ----------
Production equipment............................................... $ 863,476 $ 472,507
Leasehold improvements............................................. 347,211 273,054
Office furniture and equipment..................................... 85,354 48,539
Transportation equipment........................................... 31,029 113,843
------------ ----------
Total.......................................................... $ 1,327,070 $ 907,943
------------ ----------
------------ ----------
</TABLE>
Depreciation and amortization of fixed and intangible assets amounted to
$155,653 for the year ended December 31, 1996 and $138,136 for the year ended
December 31, 1995. Depreciation is computed on the straight-line method.
At December 31, 1996, $22,489 of equipment owned by Terra was held for use
in the manufacturing facility of a co-packer of Terra's products. At December
31, 1996, printing plates costing $166,936 were held at the premises by the
vendor who produces Terra's packaging film.
During 1996 Terra retired from service several older equipment items. Terra
adjusted the equipment's carrying value to its net realizable value on sale.
Accordingly, a charge to income of $16,406 was recorded in 1996.
F-46
<PAGE>
DANA ALEXANDER INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
NOTE F--INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Current:
Federal............................................................ $ 394,483 $ 154,000
State and local.................................................... 133,517 61,000
Deferred--net........................................................ 27,000 (24,000)
---------- ----------
$ 555,000 $ 191,000
---------- ----------
---------- ----------
</TABLE>
A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to earnings before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Federal income tax................................................... $ 450,000 $ 94,000
State income tax, net of federal benefit............................. 105,000 33,000
Additional tax due to change in tax status........................... -- 64,000
---------- ----------
$ 555,000 $ 191,000
---------- ----------
---------- ----------
</TABLE>
Significant components of Terra's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Deferred tax assets--
property, plant and equipment......................................... $ 25,000 $ 19,000
reserve for doubtful accounts......................................... 14,000 5,000
--------- ---------
39,000 24,000
Deferred tax liabilities--installment note receivable................... (42,000) --
--------- ---------
$ (3,000) $ 24,000
--------- ---------
--------- ---------
</TABLE>
NOTE G--NOTES PAYABLE
Terra maintains a line of credit with a bank that provides for borrowing up
to $1,000,000 and bears interest at one half of one percent over the bank's
prime rate. At December 31, 1996 there were no borrowing's under the line of
credit.
Terra also has an installment loan with the bank that is payable in monthly
installments of $1,800 plus interest at 1% per annum above the bank's prime
rate.
F-47
<PAGE>
DANA ALEXANDER INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
NOTE G--NOTES PAYABLE (CONTINUED)
The loan is secured by all inventory, machinery and equipment not pledged
elsewhere, accounts receivable, notes receivable, intangibles and the guarantees
of two of Terra's principal stockholders. The loan matures on July 1, 2000.
In March 1993, Terra entered into a $125,000 loan agreement with the New
York State Urban Development Corporation (UDC). The agreement provides for
working capital and machinery and equipment term loans with maturities of four
and six years respectively. The loans call for monthly payments of $920 and
$1,170 including interest at 1% per annum until March 1994. The payments
increase to $962 and $1,262 monthly including interest at 4% per annum starting
in April 1994. The loans are secured by the machinery and equipment purchased
with the loan proceeds, the assignment of life insurance policies on two
stockholders and the personal guarantee of the two of the principal
stockholders. The loan agreement also contains restrictions on the payment of
dividends, ability to incur additional financial obligations, sale of stock,
sale of assets, ability to merge or consolidate with any other company and
require Terra to maintain certain minimum financial ratios.
The notes bear interest at rates from 4% per annum to 9.5% per annum and
mature as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 41,676
1998.............................................................. 36,730
1999.............................................................. 25,383
2000.............................................................. 12,600
---------
$ 116,389
Less amounts representing interest................................ 1,601
---------
Present value of minimum notes payable payments................... $ 114,788
---------
---------
</TABLE>
NOTE H--ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Packaging set-up costs............................................... $ 90,936 $ --
Payroll.............................................................. 76,877 40,039
Miscellaneous........................................................ 69,373 42,790
Freight.............................................................. 40,547 --
Brokers fees......................................................... 30,706 12,000
Advertising.......................................................... 30,000 --
Professional fees.................................................... 16,119 6,598
---------- ----------
$ 354,558 $ 101,427
---------- ----------
---------- ----------
</TABLE>
F-48
<PAGE>
DANA ALEXANDER INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
NOTE I--COMMITMENTS AND CONTINGENCIES
(a) Terra occupies premises under leases that expire in December 1996 and
December 1999. The leases call for annual payments of $204,600 in 1997 plus
escalation and Terra has the right to renew one of the leases for two one year
periods at annual rent of $93,600 and $97,800.
(b) In connection with the sale of their stock in 1995, Terra's President
and Vice President received three year employment agreements at a specified base
salary. The agreements terminate upon the death or disability of the employee.
(c) Terra and one of its stockholder-officers are defendants in a
discrimination lawsuit brought by a former employee. The plaintiff seeks
compensatory and punitive damages in an unspecified amount. In March 1997 the
Court dismissed the complaint in its entirety against the stock-holder-officer.
Terra believes that the remaining claims are without merit and intends to
vigorously defend the action. It is the opinion of management that the outcome
of this matter will not materially affect Terra's financial position.
NOTE J--RELATED PARTY TRANSACTIONS
Included in other expenses are management fees paid to the following related
parties:
Officer bonuses paid to two of Terra's principal shareholders aggregated
$200,000 for the year ended December 31, 1996 and $50,000 in the year ended
December 31, 1995.
Management fees of $245,000 for the year ended December 31, 1996 and $75,000
for the year ended December 31, 1995 were paid to an affiliate of Terra's
principal shareholder.
During 1995 expense reimbursements aggregating $20,697 were paid to Terra's
principal shareholder.
Interest expense to two of Terra's shareholders aggregated $26,641 for the
year ended December 31, 1996 and $21,148 for the year ended December 31, 1995.
NOTE K--RECLASSIFICATION
Certain items in the 1995 financial statements have been reclassified to
agree with their 1996 presentation.
NOTE L. SUBSEQUENT EVENTS
During the five months ended May 31, 1997, Terra, under its line of credit
with the bank borrowed at various times $900,000 and repaid $275,000.
F-49
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Garden of Eatin', Inc.
Hollywood, California
We have audited the accompanying balance sheet of Garden of Eatin', Inc.
("GOE") as of December 23, 1997, and the related statements of operations,
stockholders' equity and cash flows for the period from January 1, 1997 through
December 23, 1997. These financial statements are the responsibility of GOE's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Garden of Eatin', Inc. as of
December 23, 1997 and the results of its operations and its cash flows for the
period from January 1, 1997 through December 23, 1997 in conformity with
generally accepted accounting principles.
Anaheim, California
May 8, 1998
F-50
<PAGE>
GARDEN OF EATIN', INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 23, DECEMBER 31, FEBRUARY 28,
1997 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS (Note 5)
Current Assets
Cash and cash equivalents............................................ $ 92,000 $ 37,000 $ 348,000
Accounts receivable, net of allowance for doubtful accounts 1997
$100,000; 1996 $82,000; 1998 $105,000 (Note 2)..................... 1,391,000 1,489,000 1,449,000
Receivable from stockholder.......................................... 500,000 -- --
Inventories (Notes 2 and 3).......................................... 152,000 279,000 257,000
Prepaid expenses..................................................... 45,000 50,000 35,000
Deferred taxes (Note 8).............................................. 223,000 67,000 223,000
------------ ------------ ------------
TOTAL CURRENT ASSETS............................................. 2,403,000 1,922,000 2,312,000
------------ ------------ ------------
Furniture, Fixtures and Equipment, net (Note 4)........................ 230,000 136,000 258,000
Package Design Costs, net of accumulated amortization 1997 $233,000;
1996 $231,000; 1998 $234,000......................................... 77,000 64,000 119,000
Insurance Contract (Note 5)............................................ -- 490,000 --
Other Assets........................................................... 22,000 24,000 7,000
------------ ------------ ------------
$2,732,000 $2,636,000 $ 2,696,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturity of capital lease obligation (Note 6)................ $ 8,000 $ -- $ 7,000
Trade accounts payable............................................... 598,000 1069,000 1,123,000
Accrued payroll...................................................... 306,000 87,000 24,000
Other accrued expenses............................................... 90,000 92,000 133,000
Due to stockholder................................................... -- 160,000 --
Accrued expenses to stockholder...................................... 420,000 -- --
Income taxes payable................................................. 145,000 17,000 185,000
------------ ------------ ------------
TOTAL CURRENT LIABILITIES........................................ 1,567,000 1,425,000 1,472,000
Capital lease obligation, less current maturity (Note 6)............... 94,000 -- 94,000
Note Payable (Note 5).................................................. -- 490,000 --
Deferred Taxes (Note 8)................................................ 16,000 7,000 16,000
Commitments and Contingencies (Notes 2, 3, 7 and 10)
Stockholders' Equity
Common stock, authorized 100,000 shares; issued and outstanding
20,000 shares...................................................... 436,000 16,000 436,000
Retained earnings.................................................... 619,000 698,000 678,000
------------ ------------ ------------
1,055,000 714,000 1,114,000
------------ ------------ ------------
$2,732,000 $2,636,000 $ 2,696,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-51
<PAGE>
GARDEN OF EATIN', INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, YEAR ENDING DECEMBER 24, TWO MONTHS
1997 THROUGH ---------------------------- 1997 THROUGH ENDED
DECEMBER 23, DECEMBER 31, DECEMBER 31, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1998 1997
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Sales (Note 2)..................... $ 13,616,000 $ 13,588,000 $ 11,923,000 $2,411,000 $ 2,135,000
Cost of Sales (Note 2)................. 9,465,000 9,843,000 8,917,000 1,704,000 1,482,000
------------- ------------- ------------- ------------ ------------
GROSS PROFIT..................... 4,151,000 3,745,000 3,006,000 707,000 653,000
Operating Expenses
Management fees to stockholder....... 420,000 -- -- 42,000 --
Reimbursement of finder's fee........ 80,000 -- -- -- --
Compensation to terminated
employees.......................... 674,000 641,000 463,000 -- 81,000
Selling, general and administrative
(Notes 4 and 7).................... 2,913,000 2,698,000 2,220,000 561,000 472,000
------------- ------------- ------------- ------------ ------------
4,087,000 3,339,000 2,683,000 603,000 553,000
------------- ------------- ------------- ------------ ------------
OPERATING INCOME................. 64,000 406,000 323,000 104,000 100,000
Financial Income (Expense)
Interest income...................... 10,000 9,000 2,000 3,000 1,000
Interest expense..................... (70,000) (115,000) (119,000) (8,000) (16,000)
------------- ------------- ------------- ------------ ------------
INCOME BEFORE INCOME TAXES....... 4,000 300,000 206,000 99,000 85,000
Provision for Income Taxes
(Note 8)............................. 83,000 87,000 67,000 40,000 34,000
------------- ------------- ------------- ------------ ------------
NET INCOME (LOSS)................ $ (79,000) $ 213,000 $ 139,000 $ 59,000 $ 51,000
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Earnings (loss) per share.............. $ 3.95 $ 10.65 $ 6.95 $ 2.95 $ 2.55
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Weighted-average shares outstanding.... 20,000 20,000 20,000 20,000 20,000
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-52
<PAGE>
GARDEN OF EATIN', INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
---------- ----------
<S> <C> <C>
Balance, December 31, 1994 (unaudited).................................................... $ 16,000 $ 346,000
Net income (unaudited).................................................................. -- 139,000
---------- ----------
Balance, December 31, 1995 (unaudited).................................................... 16,000 485,000
Net income (unaudited).................................................................. -- 213,000
---------- ----------
Balance, December 31, 1996 (unaudited).................................................... 16,000 698,000
Capital contribution.................................................................... 420,000 --
Net (loss).............................................................................. -- (79,000)
---------- ----------
Balance, December 23, 1997................................................................ 436,000 619,000
Net income (unaudited).................................................................. -- 59,000
---------- ----------
Balance, February 28, 1998 (unaudited).................................................... $ 436,000 $ 678,000
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements.
F-53
<PAGE>
GARDEN OF EATIN', INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, YEAR ENDING DECEMBER 24, TWO MONTHS
1997 THROUGH -------------------------- 1997 THROUGH ENDED
DECEMBER 23, DECEMBER 31, DECEMBER 31, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1998 1997
-------------- ------------ ------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash Flows from Operating
Activities
Cash received from
customers................. $ 13,634,000 $13,502,000 $11,687,000 $ 2,353,000 $ 1,740,000
Cash paid to suppliers and
employees................. (13,107,000) (13,058,000) (11,285,000) (2,429,000) (1,758,000)
Interest paid............... (60,000) (115,000) (118,000) (8,000) (16,000)
Income taxes paid........... (101,000) (52,000) (85,000) -- --
-------------- ------------ ------------ ----------------- ----------------
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES.......... 366,000 277,000 199,000 (84,000) (34,000)
-------------- ------------ ------------ ----------------- ----------------
Cash Flows from Investing
Activities
Purchase of equipment....... (69,000) (25,000) (57,000) (35,000) (17,000)
Capitalized package design
costs..................... (74,000) (23,000) (77,000) (44,000) --
-------------- ------------ ------------ ----------------- ----------------
NET CASH (USED IN)
INVESTING
ACTIVITIES.......... (143,000) (48,000) (134,000) (79,000) (17,000)
-------------- ------------ ------------ ----------------- ----------------
Cash Flows from Financing
Activities
Increase in checks in excess
of bank balance........... -- -- -- -- 37,000
Capital contribution........ 420,000 --
Change in amounts due to
stockholder............... (160,000) (122,000) (58,000) -- (23,000)
Principal payments on
capital lease
obligation................ (8,000) (99,000) (66,000) (1,000) --
-------------- ------------ ------------ ----------------- ----------------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES.......... (168,000) (221,000) (124,000) 419,000 14,000
-------------- ------------ ------------ ----------------- ----------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS......... 55,000 8,000 (59,000) 256,000 (37,000)
Cash and Cash Equivalents
Beginning of period......... 37,000 29,000 88,000 92,000 37,000
-------------- ------------ ------------ ----------------- ----------------
End of period............... $ 92,000 $ 37,000 $ 29,000 $ 348,000 $ --
-------------- ------------ ------------ ----------------- ----------------
-------------- ------------ ------------ ----------------- ----------------
</TABLE>
F-54
<PAGE>
GARDEN OF EATIN', INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, YEAR ENDING DECEMBER 24, TWO MONTHS
1997 THROUGH -------------------------- 1997 THROUGH ENDED
DECEMBER 23, DECEMBER 31, DECEMBER 31, FEBRUARY 28, FEBRUARY 28,
1997 1996 1995 1998 1997
-------------- ------------ ------------ ----------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME
(LOSS) TO NET CASH PROVIDED
BY (USED IN) OPERATING
ACTIVITIES
Net income (loss)........... $ (79,000) $ 213,000 $ 139,000 $ 59,000 $ 51,000
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............ 101,000 136,000 130,000 9,000 8,000
Provision for doubtful
accounts................ 42,000 101,000 16,000 4,000 10,000
Loss on disposal of
equipment............... 45,000 -- -- -- 29,000
Deferred taxes............ (147,000) -- -- -- --
Change in assets and
liabilities:
(Increase) decrease in:
Receivables............. (24,000) (187,000) (252,000) 18,000 (405,000)
Inventories............. 127,000 (55,000) (56,000) (105,000) 15,000
Prepaid expenses and
other assets.......... 7,000 14,000 5,000 25,000 (15,000)
Increase (decrease) in:
Income taxes payable.... 128,000 45,000 (12,000) 40,000 34,000
Accounts payable and
accrued expenses...... 166,000 10,000 229,000 (134,000) 239,000
-------------- ------------ ------------ ----------------- ----------------
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES.......... $ 366,000 $ 277,000 $ 199,000 $ (84,000) $ (34,000)
-------------- ------------ ------------ ----------------- ----------------
-------------- ------------ ------------ ----------------- ----------------
</TABLE>
See Notes to Financial Statements.
F-55
<PAGE>
GARDEN OF EATIN', INC.
NOTES TO FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED FEBRUARY 28, 1997 AND 1998 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
GOE manufactures and distributes organic foods throughout the United States.
GOE's customers are primarily wholesale distributors. GOE operates under
compliance with specific sections of the Food, Drug and Cosmetic Act of 1938 and
the Good Manufacturing Practices Act of 1967 and subsequent revisions.
On December 23, 1997, GOE's sole stockholder sold 11,000 shares of GOE stock
to a third party. The sole stockholder is obligated to sell an additional 4,000
shares.
UNAUDITED INTERIM FINANCIAL INFORMATION:
The interim financial information presented herein as of and for the periods
ended February 28, 1998 and 1997 reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation for the periods
presented. Such adjustments are of a normal recurring nature. The financial
information is not intended to be a complete presentation in accordance with
generally accepted accounting principles. Interim financial results are not
necessarily indicative of results GOE will incur during its fiscal year.
A SUMMARY OF GOE'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH CONCENTRATION:
At December 23, 1997, GOE had approximately $350,000 on deposit in a single
financial institution. Deposits in excess of $100,000 are not insured by the
FDIC.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
FURNITURE, FIXTURES AND EQUIPMENT:
Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided using straight-line methods over the estimated useful lives of the
assets ranging from three to seven years.
PACKAGE DESIGN COSTS:
GOE capitalizes costs incurred for the design of its packaging. These costs
are amortized over the estimated life of the packaging not to exceed three
years.
F-56
<PAGE>
GARDEN OF EATIN', INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED FEBRUARY 28, 1997 AND 1998 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS:
GOE evaluates long-lived assets for impairment under Financial Accounting
Standards Board (FASB) Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." Under those rules, long-term and
intangible assets are evaluated for possible impairment when events or
circumstances indicate the carrying amount of those assets may not be
recoverable. Recoverability is assessed based on the gross undiscounted
estimated future cash flows before interest charges. If an impairment is
indicated, the amount would be determined by comparing the estimated fair value
to the carrying value of the asset being evaluated. In the absence of quoted
market prices, fair value is estimated by using the projected cash flows
discounted at a rate commensurate with the risks involved.
ADVERTISING:
GOE expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $115,000 during
the period ended December 23, 1997 (the "Period") and $137,000 and $104,000 for
the years ended December 31, 1996 and 1995. There is no prepaid advertising as
of December 23, 1997.
INCOME TAXES:
Deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
EARNINGS PER SHARE:
In February 1997, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" (EPS). SFAS No. 128 requires dual
presentation of basic EPS and diluted EPS on the face of all income statements
issued after December 15, 1997 for all entities with complex capital structures.
Basic EPS is computed as net income divided by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options or
other dilutive securities. The Company has no potentially dilutive securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
In 1997, GOE adopted FASB Statement No. 107, "Disclosures about Fair Value
of Financial Instruments." The carrying amount of accounts receivable and
accounting payable approximates its fair value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
F-57
<PAGE>
GARDEN OF EATIN', INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED FEBRUARY 28, 1997 AND 1998 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value
because of the short maturity of those instruments.
NOTES PAYABLE: The carrying amount approximates fair value because the
interest rate fluctuates with the lending banks' prime rate.
NOTE 2. CONCENTRATIONS
GOE had net sales to two customers in the Period ending December 23, 1997
that individually accounted for more than 10% of GOE's net sales. Net sales to
these customers during this period were approximately $1,617,000 and $1,315,000,
respectively; and net trade receivables from these customers as of December 23,
1997 were approximately $45,000 and $232,000, respectively. Net sales to these
customers were $1,568,000 and $1,345,000 during the year ended December 31, 1996
and $1,462,000 and $1,415,000 during the year ended December 31, 1995.
GOE outsources all of its manufacturing to third party processors. As part
of its agreement with its primary manufacturer, GOE supplied various raw
materials used in production of its products totaling approximately $2,809,000
during the Period. GOE purchased approximately $8,607,000 of the total
manufactured goods sold by GOE during the Period from this supplier.
NOTE 3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 23, DECEMBER 31, FEBRUARY 28,
1997 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials...................................... $ 68,000 $ 103,000 $ 48,000
Finished goods..................................... 30,000 100,000 96,000
Packaging.......................................... 54,000 76,000 113,000
------------ ------------ ------------
$ 152,000 $ 279,000 $ 257,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
At December 23, 1997, GOE had fixed price commitments as of December 23,
1997 to purchase approximately $1,900,000 of raw materials to be used in
production. GOE has not purchased any futures or option contracts.
F-58
<PAGE>
GARDEN OF EATIN', INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED FEBRUARY 28, 1997 AND 1998 IS UNAUDITED
NOTE 4. FURNITURE, FIXTURES AND EQUIPMENT
The components of furniture, fixtures and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 23, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Leasehold improvements........................................... $ -- $ 52,000
Machinery and equipment.......................................... 33,000 33,000
Office equipment................................................. 315,000 180,000
Furniture and fixtures........................................... 48,000 48,000
------------ ------------
396,000 313,000
Less accumulated depreciation.................................... 166,000 177,000
------------ ------------
$ 230,000 $ 136,000
------------ ------------
------------ ------------
</TABLE>
Included in office equipment, at December 23, 1997, is $110,000 of assets
acquired under a capital lease. There is no accumulated depreciation on these
assets as of December 23, 1997 as the equipment was not placed into service
until 1998 (Note 6).
NOTE 5. NOTE PAYABLE
GOE has a $250,000 revolving line of credit with a bank. The line is
collateralized by substantially all of the assets of GOE. The agreement bears
interest at the bank's reference rate (8.5% at December 23, 1997) plus 1% and
matures in June 1998. There were no borrowings on the revolving line of credit
as of December 23, 1997.
At December 31, 1996, GOE had a note payable to its stockholder which had
been used to fund leveraged split dollar life insurance policies on certain
eligible employees of GOE. The stockholder of GOE was the beneficiary of the
policies and made the required annual premium payments on the policies. There is
no fixed repayment schedule on the principal balance of the note. Interest
expense paid by GOE for the years ended December 1997, 1996 and 1995 was
$50,000, $89,000 and $38,000, respectively. During 1997, the insurance contract
was transferred to the stockholder in settlement of this note payable.
NOTE 6. CAPITAL LEASE OBLIGATION
Capital lease obligation at December 23, 1997 consists of the following:
<TABLE>
<CAPTION>
PRESENT VALUE
OF NET
MINIMUM LESS AMOUNT MINIMUM
LEASE REPRESENTING LEASE
YEAR ENDING DECEMBER 31, PAYMENT INTEREST PAYMENTS
- ----------------------------------------------------- ---------- ------------ -------------
<S> <C> <C> <C>
1998................................................. $ 51,000 $ 43,000 $ 8,000
1999................................................. 51,000 28,000 23,000
2000................................................. 51,000 18,000 33,000
2001................................................. 44,000 6,000 38,000
---------- ------------ -------------
$ 197,000 $ 95,000 $ 102,000
---------- ------------ -------------
---------- ------------ -------------
</TABLE>
F-59
<PAGE>
GARDEN OF EATIN', INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED FEBRUARY 28, 1997 AND 1998 IS UNAUDITED
NOTE 7. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN AND 401(K) PLAN:
GOE has a qualified 401(k) employee benefit plan for substantially all
employees who have met the minimum age and service requirements. Each
participant is able to defer a maximum of 15% of their annual compensation,
subject to any restrictions. GOE contributes an amount equal to 25% of each
employee's contribution up to the first 4% of the employee's weekly
compensation. Additionally, GOE may make discretionary contributions.
MONEY PURCHASE PENSION PLAN:
GOE has a money purchase pension plan for all employees who have met the
service requirements. GOE contributes up to 7% of the participants compensation
up to $150,000 per year.
During 1997, 1996 and 1995, GOE made contributions to these plans totaling
$130,000, $148,000 and $131,000, respectively.
NOTE 8. INCOME TAXES
The provision for income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Current.................................................... $ 230,000 $ 87,000 $ 67,000
Deferred................................................... (147,000) -- --
----------- --------- ---------
$ 83,000 $ 87,000 $ 67,000
----------- --------- ---------
----------- --------- ---------
</TABLE>
A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to income before income taxes:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Federal income tax......................................... $ 1,000 $ 102,000 $ 70,000
Nondeductible expenses..................................... 82,000 -- --
Other...................................................... -- (15,000) (3,000)
--------- ----------- ---------
$ 83,000 $ 87,000 $ 67,000
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
State income taxes have been offset by various credits available.
Significant components of GOE's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred Tax Assets
Allowance for doubtful accounts...................................... $ 40,000 $ 33,000
Accrued expenses..................................................... 176,000 34,000
Contributions carryforward........................................... 7,000 --
---------- ---------
Total deferred tax assets.......................................... 223,000 67,000
Deferred Tax Liabilities, property, plant and equipment................ (16,000) (7,000)
---------- ---------
$ 207,000 $ 60,000
---------- ---------
---------- ---------
</TABLE>
F-60
<PAGE>
GARDEN OF EATIN', INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED FEBRUARY 28, 1997 AND 1998 IS UNAUDITED
NOTE 8. INCOME TAXES (CONTINUED)
The components giving rise to the net deferred assets (liabilities)
described above, have been included in the accompanying balance sheets as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Current assets....................................................... $ 223,000 $ 67,000
Noncurrent (liabilities)............................................. (16,000) (7,000)
----------- ----------
$ 207,000 $ 60,000
----------- ----------
----------- ----------
</TABLE>
There is no valuation allowance on deferred taxes as management believes it
is more likely than not that the assets will be realized.
NOTE 9. STATEMENTS OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1997 THROUGH
DECEMBER 23,
1997
-------------
<S> <C>
Supplemental Schedule of Noncash Investing and Financing Activities Equipment
acquired under capital lease obligation...................................... $ 110,000
-------------
-------------
Transfer of life insurance contracts in settlement of related party note
payable...................................................................... $ 490,000
-------------
-------------
Stock subscription............................................................. $ 420,000
-------------
-------------
</TABLE>
NOTE 10. RENT EXPENSE
GOE leases its facilities on a month-to-month basis. Monthly rent is
approximately $20,000 and rent expense totaled $240,000, $230,000 and $216,000
for 1997, 1996 and 1995, respectively.
NOTE 11. SUBSEQUENT EVENT
On April 24, 1998, GOE's signed an agreement and plan of merger whereby GOE
agreed to exchange 100% of GOE's common stock for a combination of cash and
common stock in The Hain Food Group, Inc., a public company.
F-61
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
<S> <C> <C> <C> <C>
PRO FORMA
ACQUIRED ------------------------
HAIN COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 295 $ 722 $ (722)(1) $ 295
Trade accounts receivable, net............................... 12,926 5,119 18,045
Inventories.................................................. 12,291 5,117 17,408
Receivables-sales of equipment............................... 175 -- 175
Other current assets......................................... 1,750 959 2,709
--------- ----------- ----------- -----------
TOTAL CURRENT ASSETS....................................... 27,437 11,917 (722) 38,632
Property, plant and equipment, net............................. 873 4,957 (2,457)(2) 3,373
(10,772)(3)
Goodwill and other intangible assets, net...................... 52,697 10,772 72,266(4) 124,963
(1,348)(5)
Unamortized financing costs and other assets................... 3,809 1,431 600(6) 4,492
--------- ----------- ----------- -----------
TOTAL ASSETS............................................... $ 84,816 $ 29,077 $ 57,567 $ 171,460
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................ $ 8,460 $ 3,954 250 (10 $ 12,664
Current portion of revolving credit.......................... 3,500 -- (722)(1) 2,778
Current portion of senior term loan.......................... 1,310 -- 1,310
Current portion of other long-term debt...................... 195 2,415 (2,415)(7) 195
Income taxes payable......................................... 1,753 981 2,734
--------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES...................................... 15,218 7,350 (2,887) 19,681
LONG-TERM DEBT, LESS CURRENT PORTION:
Senior credit facility....................................... 8,195 -- 42,000(8) 50,195
Subordinated debentures...................................... 7,447 -- 7,447
Other........................................................ 172 18,044 (18,044)(7) 172
--------- ----------- ----------- -----------
TOTAL LONG-TERM DEBT....................................... 15,814 18,044 23,956 57,814
--------- ----------- ----------- -----------
OTHER LIABILITIES.............................................. 1,442 -- 1,442
DEFERRED INCOME TAXES.......................................... 552 431 -- 983
--------- ----------- ----------- -----------
TOTAL LIABILITIES.......................................... 33,026 25,825 21,069 79,920
STOCKHOLDERS' EQUITY:
Preferred stock -- -- -- --
(438)(9)
Common stock................................................. 116 438 17 (10 133
(6,950)(9)
Additional paid in capital................................... 44,032 6,950 39,733 (10 83,765
Retained earnings............................................ 7,917 (4,136) 4,136(9) 7,917
Treasury stock............................................... (275) -- -- (275)
--------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................. 51,790 3,252 36,498 91,540
--------- ----------- ----------- -----------
TOTAL LIABILITIES AND EQUITY............................... $ 84,816 $ 29,077 $ 57,567 $ 171,460
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma financial statements.
F-62
<PAGE>
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR
HISTORICAL WESTBRAE ACQUISITION PRO FORMA
---------------------- PRO FORMA OF WESTBRAE ACQUIRED --------------------------
HAIN WESTBRAE ADJUSTMENTS NATURAL, INC. COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 65,353 $ 32,894 -- $ 98,247 $ 52,889 -- $ 151,136
Cost of Sales...................... 40,781 20,019 -- 60,800 37,031 97,831
--------- ----------- ------------- ------------- ----------- ------------- -----------
Gross Profit....................... 24,572 12,875 -- 37,447 15,858 -- 53,305
Management fees to stockholder..... 510 (510)(1) --
Selling, general and administrative
expenses......................... 19,651 10,809 $ (1,143)(1) 29,317 10,587 -- 39,904
Depreciation of property and
equipment........................ 178 94 -- 272 1,128 (564)(2) 836
Amortization of goodwill and other (213)(2)
intangible assets................ 740 213 543(3) 1,283 -- 1,807(4) 3,090
--------- ----------- ------------- ------------- ----------- ------------- -----------
20,569 11,116 (813) 30,872 12,225 733 43,830
--------- ----------- ------------- ------------- ----------- ------------- -----------
Operating income................... 4,003 1,759 813 6,575 3,633 (733) 9,475
Interest expense................... 1,639 213 1,786(4) 3,638 534 (534)(5) 5,278
1,640(6)
Amortization of deferred financing
costs............................ 509 0 (18)(5) 491 -- -- 491
--------- ----------- ------------- ------------- ----------- ------------- -----------
2,148 213 1,768 4,129 534 1,106 5,769
--------- ----------- ------------- ------------- ----------- ------------- -----------
Income before income taxes......... 1,855 1,546 (955) 2,446 3,099 (1,839) 3,706
Provision for income taxes......... 786 206 35(6) 1,027 1,347 (743)(7) 1,631
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income....................... $ 1,069 $ 1,340 $ (990) $ 1,419 $ 1,752 $ (1,096) $ 2,075
--------- ----------- ------------- ------------- ----------- ------------- -----------
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income per common share:
Diluted.......................... $ 0.12 $ 0.16 $ 0.19
Basic............................ 0.12 0.16 0.20
Common equivalent shares:
Diluted.......................... 8,993 8,993 10,721
Basic............................ 8,694 8,694 10,422
</TABLE>
F-63
<PAGE>
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1998
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
FOR
HISTORICAL WESTBRAE ACQUISITION PRO FORMA
---------------------- PRO FORMA OF WESTBRAE ACQUIRED --------------------------
HAIN WESTBRAE ADJUSTMENTS NATURAL, INC. COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 73,224 $ 10,639 -- $ 83,863 $ 41,604 -- $ 125,467
Cost of Sales...................... 43,604 6,246 -- 49,850 27,733 -- 77,583
--------- ----------- ------------- ------------- ----------- ------------- -----------
Gross Profit....................... 29,620 4,393 -- 34,013 13,871 0 47,884
Management fees to stockholder..... 693 $ (693)(1) --
Selling, general and administrative
expenses......................... 21,364 3,652 $ (286)(1) 24,730 8,966 -- 33,696
Depreciation of property and
equipment........................ 183 2 -- 185 678 (339)(2) 524
Amortization of goodwill and other (54)(2) (103)(3)
intangible assets................ 927 54 136(3) 1,063 103 1,355(4) 2,418
--------- ----------- ------------- ------------- ----------- ------------- -----------
Operating income................. 7,146 685 204 8,035 3,431 (220) 11,246
1,776(6)
Interest expense................... 1,706 34 443(4) 2,183 769 (769)(5) 3,959
Amortization of deferred financing
costs............................ 396 -- (5)(5) 391 -- -- 391
--------- ----------- ------------- ------------- ----------- ------------- -----------
Income before income taxes......... 5,044 651 (234) 5,461 2,662 (1,227) 6,896
Provision for income taxes......... 2,118 99 78(6) 2,295 1,268 (529)(7) 3,034
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income......................... $ 2,926 $ 552 $ (312) $ 3,166 $ 1,394 $ (698) $ 3,862
--------- ----------- ------------- ------------- ----------- ------------- -----------
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income per common share:
Diluted.......................... $ 0.26 $ 0.28 $ 0.30
Basic............................ $ 0.30 $ 0.32 $ 0.33
Common equivalent shares:
Diluted.......................... 11,352 11,352 13,080
Basic............................ 9,862 9,862 11,590
</TABLE>
F-64
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
NOTES -- WESTBRAE ACQUISITION:
GENERAL
On October 14, 1997, the Company completed the acquisition of Westbrae
Natural, Inc. ("Westbrae") in a transaction that has been accounted for as a
purchase. The cost of the acquisition (including closing costs) and the
repayment of the Company's existing Credit Facility with IBJ Schroder bank and
Trust Company ("IBJ") and the repayment of Westbrae debt was funded by the New
Credit Facility with IBJ providing for a $30 million senior term loan and a $10
million revolving credit facility.
Details of the pro forma adjustments relating to the acquisition and the
financing are set forth below.
PRO FORMA STATEMENT OF INCOME ADJUSTMENTS:
<TABLE>
<C> <S>
(1) Adjustment to give effect to the reduction of certain costs and expenses associated
with the elimination of the principal corporate offices of Westbrae.
(2) Elimination of Westbrae historical amortization of goodwill.
(3) Goodwill amortization with respect to goodwill acquired in the acquisition of Westbrae.
(4) Increase in interest costs resulting from the financing of the Westbrae acquisition.
(5) Adjustment of amortization of financing costs resulting from the New Credit Facility.
(6) Adjustment to historical provision for income taxes to eliminate the effect of net
operating loss carryforwards utilized by Westbrae and to adjust income taxes to the
expected effective tax rate following acquisition.
</TABLE>
NOTES -- ACQUIRED COMPANIES:
GENERAL
On April 24, 1998, Hain executed the Merger Agreement whereby it agreed to
acquire all of the outstanding capital stock of AMI and GOE. AMI is a holding
company whose two operating subsidiaries are Arrowhead and Terra. DeBoles is a
wholly owned subsidiary of Arrowhead.
The consideration to be paid for the Acquired Companies is $80 million, less
the assumption of not more than $20 million of debt. The pro forma financial
statements assume that $40 million of the merger consideration is to be paid
through the issuance of Hain Common Stock and that Hain will borrow $40 million
from its bank to fund the balance of the purchase price and to repay up to $20
million of existing debt of the Acquired Companies. Closing of this transaction
is expected to occur in late June 1998.
Details of the pro forma adjustments are set forth below.
PRO FORMA BALANCE SHEET ADJUSTMENTS:
<TABLE>
<C> <S>
(1) Cash of acquired companies utilized to pay down revolving credit.
(2) Adjustment of book amount of property, plant and equipment of acquired companies to
estimated fair value at date of acquisition.
(3) Elimination of goodwill of acquired companies at date of acquisition.
</TABLE>
F-65
<PAGE>
<TABLE>
<C> <S>
(4) Excess of the cost of acquisition of the acquired companies over the fair value of the
net tangible assets at date of acquisition.
(5) Elimination of unamortized financing expenses and deferred charges of the acquired
companies.
(6) Estimated financing costs to be incurred in connection with the financing of the cash
portion of the purchase price of the acquired companies.
(7) Debt of acquired companies at date of acquisition to be paid off with proceeds of new
Senior Term Loan financing.
(8) Proceeds of a new Senior Term Loan to be used to finance the cash portion of the
purchase price of the acquired companies and to repay existing debt of the acquired
companies.
(9) Elimination of equity accounts of acquired companies at date of acquisition.
(10) Portion of purchase price of acquired companies to be paid by the issuance of 1.728
million shares of Hain Common Stock (based on an estimated fair market value of $23 per
share).
</TABLE>
PRO FORMA STATEMENT OF INCOME ADJUSTMENTS:
<TABLE>
<C> <S>
(1) Elimination of management fees that will not be applicable following the acquisition.
(2) Adjustment of depreciation expense based on revaluation of fixed assets of the Acquired
Companies.
(3) Elimination of historical goodwill amortization of the Acquired Companies.
(4) Goodwill amortization arising from the acquisition of the Acquired Companies.
(5) Elimination of historical interest expense of the Acquired Companies.
(6) Adjustment of historical interest expense to reflect the additional long-term debt and
that will be incurred in connection with the acquisition of the Acquired Companies.
(7) Adjustment of income taxes to give effect to the pro forma pretax adjustments, and to
adjust for the expected effective income tax rate following acquisition.
</TABLE>
F-66
<PAGE>
PRO FORMA FINANCIAL STATEMENT INFORMATION:
The following unaudited combining balance sheet combines the balance sheets
of the acquired companies as of February 28, 1998.
COMBINING CONDENSED BALANCE SHEETS OF ACQUIRED COMPANIES
FEBRUARY 28, 1998
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ARROWHEAD TERRA GOE COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash............................................................ $ 166 $ 208 $ 348 $ 722
Accounts receivable, net........................................ 2,536 1,134 1,449 5,119
Inventories..................................................... 4,151 709 257 5,117
Other current assets............................................ 463 238 258 959
----------- ---------- ----------- -----------
Total current assets............................................ 7,316 2,289 2,312 11,917
Property, plant & equipment, net.................................. 3,743 956 258 4,957
Intangibles, net of accumulated amortization...................... -- 10,772 -- 10,772
Other assets...................................................... 847 458 126 1,431
----------- ---------- ----------- -----------
Total assets.................................................... 11,906 14,475 2,696 29,077
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Liabilities and Stockholders' Equity Current Liabilities:
Accounts payable and accrued expenses........................... 1,519 1,155 1,280 3,954
Current portion of long-term debt............................... -- 2,408 7 2,415
Income taxes payable............................................ 536 260 185 981
----------- ---------- ----------- -----------
Total current liabilities....................................... 2,055 3,823 1,472 7,350
Long-term debt, less current portion.............................. 3,147 14,803 94 18,044
Deferred income taxes............................................. 415 0 16 431
----------- ---------- ----------- -----------
5,617 18,626 1,582 25,825
Stockholders' Equity:
Common stock.................................................... 1 1 436 438
Paid in Capital................................................. 2,376 4,574 -- 6,950
Retained earnings/(deficit)(1).................................. 3,912 (8,726) 678 (4,136)
----------- ---------- ----------- -----------
Total stockholders' equity...................................... 6,289 (4,151) 1,114 3,252
----------- ---------- ----------- -----------
$ 11,906 $ 14,475 $ 2,696 $ 29,077
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
- ------------------------
(1) Retained earnings has been reduced by the excess of consideration paid over
consideration received, amounting to $8,855. See the financial statements of
Terra, and the notes thereto, included elsewhere herein.
F-67
<PAGE>
HISTORICAL COMBINING STATEMENTS OF INCOME OF THE ACQUIRED COMPANIES
FOR THE FISCAL YEAR ENDED JULY 31, 1997
(UNAUDITED)
The following unaudited combining statement of income combines the results of
operations of the acquired companies for the fiscal year ended July 31, 1997.
The fiscal years of Terra and GOE previously ended on dates other than July 31;
consequently the amounts shown below for those companies have been recast to
conform with the fiscal year end of Arrowhead which substantially conform to the
fiscal year end of Hain, which is June 30.
<TABLE>
<CAPTION>
ARROWHEAD TERRA GOE COMBINED
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 25,977 $ 12,911 $ 14,001 $ 52,889
Cost of sales................................................. 19,436 7,487 10,108 37,031
------- ----------- ----------- -----------
Gross profit.................................................. 6,541 5,424 3,893 15,858
Management fees............................................... 240 270 -- 510
Selling, general and administrative expenses.................. 4,547 3,748 3,420 11,715
------- ----------- ----------- -----------
Operating income.............................................. 1,754 1,406 473 3,633
Interest expense, net......................................... 394 42 98 534
------- ----------- ----------- -----------
Income before income taxes.................................... 1,360 1,364 375 3,099
Provision for income taxes.................................... 570 641 136 1,347
------- ----------- ----------- -----------
Net income.................................................... $ 790 $ 723 $ 239 1,752
------- ----------- ----------- -----------
------- ----------- ----------- -----------
</TABLE>
F-68
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THE HAIN FOOD GROUP, INC.
AND
ARROWHEAD MILLS, INC.
DATED
APRIL 24, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I MERGER................................................................................ A-1
1.1 Formation of Hain Subsidiary.......................................................... A-1
1.2 The Merger............................................................................ A-1
1.3 Filing................................................................................ A-1
1.4 Effective Time of the Merger.......................................................... A-1
ARTICLE II CERTIFICATE OF INCORPORATION; BY-LAWS;
DIRECTORS AND OFFICERS.............................................................. A-2
2.1 Certificate of Incorporation.......................................................... A-2
2.2 By-Laws............................................................................... A-2
2.3 Directors and Officers................................................................ A-2
ARTICLE III CONVERSION OF SHARES.................................................................. A-2
3.1 Conversion............................................................................ A-2
(a) Merger Consideration.............................................................. A-2
(b) Adjustment to Cash Merger Consideration........................................... A-2
3.2 Exchange of Certificates.............................................................. A-3
(a) Exchange Agent.................................................................... A-3
(b) Exchange Procedures............................................................... A-3
(c) Exchange of Certificates.......................................................... A-3
(d) Distributions with Respect to Unsurrendered Certificates.......................... A-3
(e) No Further Rights in Company Common Stock......................................... A-4
(f) No Fractional Shares.............................................................. A-4
(g) Termination of Exchange Fund...................................................... A-4
(h) No Liability...................................................................... A-4
(i) Withholding Rights................................................................ A-4
(j) Lost Certificates................................................................. A-5
(k) Dissenters' Rights................................................................ A-5
3.3 Stock Transfer Books.................................................................. A-5
ARTICLE IV CERTAIN EFFECTS OF THE MERGER......................................................... A-6
4.1 Effect of the Merger.................................................................. A-6
4.2 Further Assurances.................................................................... A-6
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... A-6
5.1 Organization and Qualification........................................................ A-6
5.2 Capital Stock of Subsidiaries......................................................... A-6
5.3 Capitalization........................................................................ A-7
5.4 Authority Relative to This Agreement.................................................. A-7
5.5 No Violations, etc.................................................................... A-7
5.6 Financial Statements.................................................................. A-8
5.7 Absence of Changes or Events.......................................................... A-9
5.8 Form S-4; Prospectus/Information Statement............................................ A-9
5.9 Litigation............................................................................ A-9
5.10 Title to and Condition of Properties.................................................. A-10
5.11 Leases................................................................................ A-10
5.12 Contracts; Bank Accounts; Indebtedness................................................ A-10
(a) Contracts and Commitments......................................................... A-10
(b) Bank Accounts..................................................................... A-10
</TABLE>
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<TABLE>
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(c) Indebtedness...................................................................... A-10
5.13 Labor Matters......................................................................... A-11
5.14 Compliance with Law................................................................... A-11
5.15 Board Recommendation.................................................................. A-11
5.16 Intellectual Property................................................................. A-11
5.17 Taxes................................................................................. A-12
5.18 Employee Benefit Plans; ERISA......................................................... A-13
5.19 Environmental Matters................................................................. A-16
5.20 Absence of Undisclosed Liabilities.................................................... A-17
5.21 Finders or Brokers.................................................................... A-17
5.22 State Antitakeover Statutes........................................................... A-18
5.23 Opinion of Financial Advisor.......................................................... A-18
5.24 Insurance............................................................................. A-18
5.25 Employment and Labor Contracts........................................................ A-18
5.26 Inventory............................................................................. A-18
5.27 Balance Sheet Reserves................................................................ A-18
5.28 Qualification of Merger as a Tax Free Reorganization.................................. A-18
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF HAIN................................................ A-20
6.1 Organization and Qualification........................................................ A-20
6.2 Capital Stock of Subsidiaries......................................................... A-20
6.3 Capitalization........................................................................ A-20
6.4 Authority Relative to This Agreement.................................................. A-20
6.5 No Violations, etc.................................................................... A-20
6.6 Commission Filings; Financial Statements.............................................. A-21
6.7 Absence of Changes or Events.......................................................... A-22
6.8 Form S-4; Prospectus/Information Statement............................................ A-22
6.9 Board Recommendation.................................................................. A-22
6.10 Disclosure............................................................................ A-22
6.11 Absence of Undisclosed Liabilities.................................................... A-23
6.12 Finders or Brokers.................................................................... A-23
6.13 Opinion of Financial Advisor.......................................................... A-23
6.14 Employee Benefit Plans; ERISA......................................................... A-23
6.15 Qualification of Merger as a Tax Free Reorganization.................................. A-23
ARTICLE VII CONDUCT OF BUSINESS OF THE COMPANY AND HAIN PENDING THE MERGER........................ A-24
7.1 Conduct of Business of the Company Pending the Merger................................. A-24
7.2 Conduct of Business of Hain Pending the Merger........................................ A-25
ARTICLE VIII COVENANTS AND AGREEMENTS.............................................................. A-26
8.1 Preparation of the Form S-4........................................................... A-26
8.2 Letters and Consents of the Company's Accountants..................................... A-27
8.3 Letters and Consents of Hain's Accountants............................................ A-27
8.4 Additional Agreements; Cooperation.................................................... A-27
8.5 Publicity............................................................................. A-28
8.6 No Solicitation....................................................................... A-28
8.7 Access to Information................................................................. A-28
8.8 Notification of Certain Matters....................................................... A-29
8.9 Resignation of Directors.............................................................. A-29
8.10 Indemnification and Insurance......................................................... A-29
</TABLE>
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8.11 Fees and Expenses..................................................................... A-30
8.12 Nasdaq Listing........................................................................ A-30
8.13 Shareholder Litigation................................................................ A-30
8.14 Tax Treatment......................................................................... A-30
ARTICLE IX CONDITIONS TO CLOSING................................................................. A-31
9.1 Conditions to Each Party's Obligation to Effect the Merger............................ A-31
(a) Shareholder Approvals............................................................. A-31
(b) HSR Act........................................................................... A-31
(c) No Injunctions or Restraints...................................................... A-31
(d) Form S-4.......................................................................... A-31
(e) Nasdaq Listing.................................................................... A-31
(f) Consents and Approvals............................................................ A-31
(g) Garden of Eatin' Transaction...................................................... A-31
9.2 Conditions to Obligations of Hain..................................................... A-31
(a) Representations and Warranties.................................................... A-31
(b) Performance of Obligations of the Company......................................... A-31
(c) Consent of Accountants............................................................ A-32
(d) Real Estate Holding Corporation................................................... A-32
(e) Tax Opinion....................................................................... A-32
(f) Opinion of Company Counsel........................................................ A-32
(g) Voting Agreement.................................................................. A-32
(h) Dissenters' Rights................................................................ A-32
(i) Post-Merger Ownership............................................................. A-32
(j) Cancellation of Options to Purchase Company Common Stock.......................... A-32
9.3 Conditions to Obligations of the Company.............................................. A-33
(a) Representations and Warranties.................................................... A-33
(b) Performance of Obligations of Hain and Hain Subsidiary............................ A-33
(c) Tax Opinion....................................................................... A-33
(d) Opinion of Hain Counsel........................................................... A-33
(e) Merger Consideration.............................................................. A-33
ARTICLE X TERMINATION........................................................................... A-33
10.1 Termination........................................................................... A-33
10.2 Effect of Termination................................................................. A-34
ARTICLE XI MISCELLANEOUS......................................................................... A-35
11.1 Nonsurvival of Representations and Warranties......................................... A-35
11.2 Closing and Waiver.................................................................... A-35
11.3 Notices............................................................................... A-35
11.4 Counterparts.......................................................................... A-36
11.5 Interpretation........................................................................ A-36
11.6 Amendment............................................................................. A-37
11.7 No Third Party Beneficiaries.......................................................... A-37
11.8 Governing Law......................................................................... A-37
11.9 Entire Agreement...................................................................... A-37
11.10 No Recourse Against Others............................................................ A-37
11.11 Validity.............................................................................. A-37
</TABLE>
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DISCLOSURE SCHEDULES
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COMPANY DISCLOSURE SCHEDULES
SECTION
5.1. Organization and Qualification
5.2. Capital Stock of Subsidiaries
5.3. Capitalization
5.5. No Violations, etc.
5.6. Financial Statements
5.7. Absence of Changes or Events
5.9. Litigation
5.10. Title to and Condition of Properties
5.11. Leases
5.12. (a) Contracts and Commitments
(b) Bank Accounts
(c) Indebtedness
5.14. Compliance with Law
5.16. Intellectual Property
5.17. Taxes
5.18. Employee Benefit Plans; ERISA
(r) Employee Termination
(s) Excess Parachute Payments
5.19. Environmental Matters
5.20. Absence of Undisclosed Liabilities
5.21. Finders or Brokers
5.24. Insurance
5.25. Employment and Labor Contracts
5.27. Balance Sheet Reserves
7.1. Conduct of Business of the Company
8.2 Accounting Financial Statements
8.4 Additional Agreements; Cooperation
HAIN DISCLOSURE SCHEDULES
SECTION
6.2 Capital Stock of Subsidiaries
6.5 No Violations, etc.
6.6 Commission Filings; Financial Statements
6.7 Absence of Changes
6.12 Finders or Brokers
</TABLE>
EXHIBITS
EXHIBIT A--Form of Opinion of Vinson & Elkins L.L.P.
EXHIBIT B--Form of Opinion of Cahill Gordon & Reindel
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 24, 1998, by and between The
Hain Food Group, Inc., a Delaware corporation ("HAIN"), and Arrowhead Mills,
Inc., a Texas corporation (the "COMPANY").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of each of Hain and the Company have
approved the merger (the "MERGER") of the Company with and into a wholly owned
subsidiary of Hain to be formed for the purpose thereof ("HAIN SUBSIDIARY"),
upon the terms and subject to the conditions set forth herein and in accordance
with the General Corporation Law of the State of Delaware (the "DGCL") and the
Texas Business Corporation Act (the "TBCA");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax free reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements herein contained, the parties hereto, intending to be legally
bound, agree as follows:
ARTICLE I
MERGER
1.1 FORMATION OF HAIN SUBSIDIARY. Hain shall form Hain Subsidiary under
the DGCL. Hain Subsidiary will be formed solely to facilitate the Merger and the
transactions contemplated thereby and will conduct no business or activity other
than in connection with the Merger. Hain will cause Hain Subsidiary to execute
and deliver a joinder to this Agreement pursuant to Section 251 of the DGCL and
will execute a written consent as the sole stockholder of Hain Subsidiary,
approving the execution, delivery and performance of this Agreement by Hain
Subsidiary.
1.2 THE MERGER. At the Effective Time (as hereinafter defined), the
Company shall be merged with and into Hain Subsidiary as provided herein.
Thereupon, the corporate existence of Hain Subsidiary, with all its purposes,
powers and objects, shall continue unaffected and unimpaired by the Merger, and
the corporate identity and existence, with all the purposes, powers and objects,
of the Company shall be merged with and into Hain Subsidiary and Hain Subsidiary
as the corporation surviving the Merger (hereinafter sometimes called the
"SURVIVING CORPORATION") shall continue its corporate existence under the laws
of the State of Delaware. The name of the Surviving Corporation shall be
Arrowhead Mills, Inc.
1.3 FILING. As soon as practicable after fulfillment or waiver of the
conditions set forth in Sections 9.1, 9.2 and 9.3 or on such later date as may
be mutually agreed to between Hain and the Company, the parties hereto will (i)
cause to be filed with the office of the Secretary of State of the State of
Delaware, a certificate of merger (the "DELAWARE CERTIFICATE OF MERGER"), in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL, and (ii) cause to be filed with the office of the
Secretary of State of Texas, a certificate of merger (the "TEXAS CERTIFICATE OF
MERGER"), in such form as required by, and executed in accordance with, the
relevant provision of the TBCA.
1.4 EFFECTIVE TIME OF THE MERGER. The Merger shall be effective at the
time that the filing of each of the Delaware Certificate of Merger and the Texas
Certificate of Merger, or at such later time specified in such Certificates of
Merger, which time is herein sometimes referred to as the "EFFECTIVE TIME" and
the date thereof is herein sometimes referred to as the "EFFECTIVE DATE."
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ARTICLE II
CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of Hain
Subsidiary shall be the Certificate of Incorporation of the Surviving
Corporation.
2.2 BY-LAWS. The By-Laws of Hain Subsidiary shall be the By-Laws of the
Surviving Corporation until the same shall thereafter be altered, amended or
repealed in accordance with law, the Certificate of Incorporation of the
Surviving Corporation or said By-Laws.
2.3 DIRECTORS AND OFFICERS. The directors of Hain Subsidiary immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and By-laws
of the Surviving Corporation, and the officers of Hain Subsidiary immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
3.1 CONVERSION.
(a) MERGER CONSIDERATION. At the Effective Time, the issued shares of
capital stock of the Company (other than Dissenting Shares) shall, by virtue of
the Merger and without any action on the part of the holders thereof, become and
be converted as follows: each outstanding share of common stock, par value $.01
per share, of the Company (the "COMPANY COMMON STOCK"), shall be converted into
and become the right to receive the Pro Rata Amount (as defined below) of the
Merger Consideration (as defined below). "MERGER CONSIDERATION" means
$45,750,000, subject to adjustment in the manner set forth in Section 3.1(b),
consisting of a combination of (x) shares of Common Stock, par value $.01 per
share (the "HAIN COMMON STOCK"), of Hain (the "STOCK MERGER CONSIDERATION") and
(y) cash (the "CASH MERGER CONSIDERATION"). The allocation of Merger
Consideration between Stock Merger Consideration and Cash Merger Consideration
shall be determined at the sole option of Hain, by written notice to the Company
on the third day prior to the Closing Date (as defined herein); PROVIDED,
HOWEVER, that (i) if any of the Merger Consideration is comprised of Stock
Merger Consideration, then at least 50% of the Merger Consideration shall be
comprised of Stock Merger Consideration (before giving effect to any adjustments
provided for in Section 3.1(b)) and (ii) the Cash Merger Consideration shall be
at least $15,000,000 in the aggregate. The Stock Merger Consideration shall
consist of the number of shares of Hain Common Stock having an aggregate market
value based on the Closing Date Market Price (as defined below). With respect to
any share of the Company Common Stock, "PRO RATA AMOUNT" means the product of
the Merger Consideration multiplied by a fraction, the numerator of which is one
and the denominator of which is the aggregate number of all issued and
outstanding shares of the Company Common Stock on the Effective Date, allocated
between Stock Merger Consideration and Cash Merger Consideration in the
proportion specified by Hain as set forth above. "CLOSING DATE MARKET PRICE"
means, with respect to each share of Hain Common Stock, the average closing
price for such share as reported on the National Market System of The Nasdaq
Stock Market, Inc. for the 10 most recent trading days ending on the third day
prior to the Effective Time.
(b) ADJUSTMENT TO CASH MERGER CONSIDERATION. The aggregate amount of Cash
Merger Consideration shall be reduced immediately prior to the Effective Time by
an amount equal to the sum of (i) the amount of fees, costs and expenses
incurred or reasonably estimated to be incurred by the Company or incurred (but
not paid) by the shareholders of the Company existing immediately prior to the
Effective Time to the extent that the Company and/or the shareholders of the
Company are liable therefor pursuant to Section 8.11 hereof and (ii) any excess
of the aggregate indebtedness for borrowed money of the Company (net of cash and
cash equivalents) as of the Closing Date over $20.0 million; provided, any
reduction in Cash Merger Consideration shall not result in any adjustment to the
amount of Stock Merger
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Consideration for purposes of this Article III. The aggregate amount of Cash
Merger Consideration shall be increased by the amount that $20,000,000 exceeds
the aggregate indebtedness for borrowed money of the Company (net of cash and
cash equivalents) as of the Closing Date.
3.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. From and after the Effective Time, Hain shall make
available to Continental Stock Transfer & Trust Company or such other bank or
trust company designated by Hain (the "EXCHANGE AGENT"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article III through the Exchange Agent, (i) certificates evidencing a sufficient
number of shares of Hain Common Stock issuable to holders of Company Common
Stock to satisfy the requirements set forth in Section 3.1 relating to Stock
Merger Consideration and (ii) an amount in cash evidencing the Cash Merger
Consideration (such shares of Hain Common Stock and cash being hereinafter
referred to as the "EXCHANGE FUND"). As promptly as practicable after the
Effective Time, Hain shall cause the Exchange Agent to deliver the Stock Merger
Consideration and Cash Merger Consideration contemplated to be issued pursuant
to Section 3.1 out of the Exchange Fund in accordance with the procedures
specified in this Section 3.2. Except as contemplated by Section 3.2(g) hereof,
the Exchange Fund shall not be used for any other purpose.
(b) EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Time, Hain shall cause the Exchange Agent to mail to each record holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "CERTIFICATES") (i)
a letter of transmittal (which shall be in customary form and shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration.
(c) EXCHANGE OF CERTIFICATES. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor (i)
a certificate representing that number of whole shares of Hain Common Stock, if
any, constituting Stock Merger consideration to which such holder is entitled
pursuant to this Article III (including any cash in lieu of any fractional
shares of Hain Common Stock to which such holder is entitled pursuant to Section
3.2(f) and any dividends or other distributions to which such holder is entitled
pursuant to Section 3.2(d) (together, the "ADDITIONAL PAYMENTS")) and (ii),
without interest, the amount of cash constituting Cash Merger Consideration such
holder is entitled to pursuant to this Article III, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares of Company Common Stock which is not registered in the transfer
records of the Company, the applicable Merger Consideration and Additional
Payments, if any, may be issued to a transferee if the Certificate representing
such shares of Company Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 3.2, each Certificate shall be
deemed at all times after the Effective Time to represent only the right to
receive upon such surrender the applicable Merger Consideration with respect to
the shares of Company Common Stock formerly represented thereby and Additional
Payments, if any.
(d) DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES. No dividends
or other distributions declared or made after the Effective Time with respect to
Hain Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to Hain Common Stock
the holder thereof is entitled to receive upon surrender thereof, and no cash
payment in lieu of any fractional shares shall be paid to any such holder
pursuant to Section 3.2(f), until the holder of such Certificate shall surrender
such Certificate. Subject to the effect of escheat, tax or other applicable
Laws,
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<PAGE>
following surrender of any such Certificate, there shall be paid to the holder
of the certificates representing whole shares of Hain Common Stock issued in
exchange therefor, without interest, (i) promptly, the amount of any cash
payable with respect to fractional Hain Common Stock to which such holder is
entitled pursuant to Section 3.2(f) and the amount of dividends or other
distributions with a record date after the Effective Time and theretofore paid
with respect to such whole shares of Hain Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions, with a
record date after the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such whole Hain Common Stock.
After the Effective Time, each outstanding Certificate which theretofore
represented shares of Company Common Stock shall, until surrendered for exchange
in accordance with this Section 3.2, be deemed for all purposes to evidence
ownership of the number of shares of Hain Common Stock into which the shares of
Company Common Stock (which, prior to the Effective Time, were represented
thereby) shall have been so converted.
(e) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. At the Effective Time all
outstanding shares of Company Common Stock (other than Dissenting Shares), by
virtue of the Merger and without any action on the part of the holders thereof,
shall no longer be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of
Company Common Stock shall thereafter cease to have any rights with respect to
such shares of Company Common Stock, except the right to receive the Merger
Consideration for such shares of Company Common Stock. All Hain Common Stock
constituting Stock Merger Consideration and cash constituting Cash Merger
Consideration issued or paid, as the case may be, issued upon conversion of the
shares of Company Common Stock in accordance with the terms hereof (including
any cash paid pursuant to Section 3.2(d) or (f)) shall be deemed to have been
issued or paid, as the case may be, in full satisfaction of all rights
pertaining to such shares of Company Common Stock.
(f) NO FRACTIONAL SHARES. No fractional shares of Hain Common Stock shall
be issued in the Merger. In lieu of any such fractional shares, each holder of
Company Common Stock, who would otherwise have been entitled to a fraction of
Hain Common Stock pursuant to this Article III, will be paid an amount in cash
(without interest) rounded to the nearest cent, determined by multiplying (i)
the average of the Closing Date Market Price of the Hain Common Stock by (ii)
the fractional interest to which such holder would otherwise be entitled (after
taking into account all shares of Company Common Stock held of record by such
holder at the Effective Time).
(g) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of Company Common Stock for 12 months after
the Effective Time shall be delivered to Hain, upon demand, and any holders of
Company Common Stock who have not theretofore complied with this Article III
shall thereafter look only to Hain (who shall thereafter act as Exchange Agent)
for the applicable Merger Consideration and any Additional Payments to which
they are entitled. Any portion of the Exchange Fund remaining unclaimed by
holders of shares of Company Common Stock as of a date which is immediately
prior to such time as such amounts would otherwise escheat to or become property
of any government entity shall, on the third anniversary of the Effective Date
and to the extent permitted by applicable law, become the property of Hain free
and clear of any claims or interest of any person previously entitled thereto.
(h) NO LIABILITY. None of the Exchange Agent, Hain or the Surviving
Corporation shall be liable to any holder of Certificates for any shares of Hain
Common Stock (or dividends or distributions with respect thereto), or cash
delivered to a public official pursuant to any abandoned property, escheat or
similar law.
(i) WITHHOLDING RIGHTS. Each of the Surviving Corporation and Hain shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Certificates such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Hain, as the case
may be, such withheld amounts shall be treated
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<PAGE>
for all purposes of this Agreement as having been paid to the holder of the
Certificates in respect of which such deduction and withholding was made by the
Surviving Corporation or Hain, as the case may be.
(j) LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of a customary affidavit and indemnity agreement of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the applicable Merger Consideration and Additional
Payments, if any.
(k) DISSENTERS' RIGHTS. (i) Company shareholders desiring to dissent from
the Merger and obtain payment of the fair value of their shares of Company
Common Stock immediately before the consummation of the Merger in lieu of the
Merger consideration may exercise their dissenters' rights under the provisions
set forth at Articles 5.11 through 5.13 of the TBCA ("DISSENTERS' RIGHTS").
Consistent with Article 5.12 of the TBCA, the Company shall notify in writing
each shareholder entitled to assert Dissenters' Rights that action by written
consent has been taken to approve the Merger and shall provide each such
shareholder the dissenters' notice in accordance with Article 5.12 of the TBCA.
The date specified in such notice for receipt by the Company of payment demand
from any shareholder exercising rights of dissent shall be the earliest date
permitted by Article 5.12 of the TBCA.
(ii) Rights of Dissenting Shares. Shares of Company Common Stock which are
issued and outstanding as of the Effective Time and held by any shareholder who
has, in accordance with Article 5.12 of the TBCA, delivered a payment demand
accompanied by the required certification and deposit of shares ("DISSENTING
SHARES") shall not be converted as described in Section 3.1 but shall from and
after the Effective Time represent only the right to receive such consideration
as may be determined to be due under the TBCA. The Company shall give Hain
prompt notice upon receipt by the Company of any payment demand from any such
shareholder of the Company (a "DISSENTING SHAREHOLDER"). The Company agrees that
prior to the Effective Time, it will not, except with prior written consent of
Hain, voluntarily make any payment with respect to, or settle or offer to
settle, any request pursuant to the exercise of Dissenters' Rights. Each
Dissenting Shareholder who becomes entitled, pursuant to the TBCA, to payment
for his Dissenting Shares shall receive payment therefor in accordance with the
TBCA. Notwithstanding the foregoing, if any Dissenting Shareholders shall
rescind, fail to perfect or otherwise lose such rights either before or after
the Effective Time, such shareholder's shares of Company Common Stock shall be
converted into Hain Common Stock or cash, as of the Effective Time, in
accordance with the provisions of Section 3.1.
3.3 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer books
of the Company shall be closed and there shall be no further registration of
transfers of shares of Company Common Stock thereafter on the records of the
Company. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Hain for any reason shall be converted into the applicable
Merger Consideration and Additional Payments, if any.
ARTICLE IV
CERTAIN EFFECTS OF THE MERGER
4.1 EFFECT OF THE MERGER. The effects and consequences of the Merger shall
be as set forth in Section 259 of the DGCL and Article 5.06 of the TBCA. Without
limiting the generality of the foregoing, on and after the Effective Time and
pursuant to the DGCL and the TBCA, the Surviving Corporation shall possess all
the rights, privileges, immunities, powers, and purposes of each of Hain
Subsidiary and the Company; all the property, real and personal, including
subscriptions to shares, causes of action and every other asset (including books
and records) of Hain Subsidiary and the Company shall vest in the Surviving
Corporation without further act or deed; and the Surviving Corporation shall
assume and be liable for all the liabilities, obligations and penalties of Hain
Subsidiary and the Company; PROVIDED, HOWEVER, that this
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<PAGE>
shall in no way impair or affect the indemnification obligations of any party
pursuant to the indemnification provisions of this Agreement. No liability or
obligation due or to become due and no claim or demand for any cause existing
against either Hain Subsidiary or the Company, or any stockholder or
shareholder, officer or director thereof, shall be released or impaired by the
Merger, and no action or proceeding, whether civil or criminal, then pending by
or against Hain Subsidiary or the Company, or any stockholder or shareholder,
officer or director thereof, shall abate or be discontinued by the Merger, but
may be enforced, prosecuted, settled or compromised as if the Merger had not
occurred, and the Surviving Corporation may be substituted in any such action or
proceeding in place of Hain Subsidiary or the Company.
4.2 FURTHER ASSURANCES. If at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
either of Hain Subsidiary or the Company, the officers of such corporation are
fully authorized in the name of their corporation or otherwise to take, and
shall take, all such further action.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Hain as follows:
5.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except for failures to be so qualified or in good standing which
would not, individually or in the aggregate, have a material adverse effect on
the business, operations or financial condition of the Company and its
subsidiaries, taken as a whole (a "COMPANY MATERIAL ADVERSE EFFECT"). Section
5.1 of the Disclosure Schedule sets forth, with respect to the Company and each
of its subsidiaries, the jurisdiction in which they are qualified or otherwise
licensed as a foreign corporation to do business. Neither the Company nor any of
its subsidiaries is in violation of any of the provisions of its certificate or
articles of incorporation or organization (or other applicable charter document)
or by-laws. The Company has delivered to Hain accurate and complete copies of
the certificate or articles of incorporation or organization (or other
applicable charter document) and by-laws, as currently in effect, of each of the
Company and its subsidiaries.
5.2 CAPITAL STOCK OF SUBSIDIARIES. The only direct or indirect
subsidiaries of the Company are those listed in Section 5.2 of the Disclosure
Schedule. The Company is directly or indirectly the record and beneficial owner
of all of the outstanding shares of capital stock of each of its subsidiaries,
except as disclosed in Section 5.2 of the Disclosure Schedule, there are no
proxies with respect to such shares, and no equity securities of any of such
subsidiaries are or may be required to be issued by reason of any options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any such subsidiary, and there are no
contracts, commitments, understandings or arrangements by which any such
subsidiary is bound to issue additional shares of its capital stock or
securities convertible into or exchangeable for such shares. Other than as set
forth in Section 5.2 of the Disclosure Schedule, all of such shares so owned by
the Company are validly issued, fully paid and nonassessable and are owned by it
free and clear of any claim, lien or encumbrance of any kind with respect
thereto. Except as disclosed in Section 5.2 of the Disclosure Schedule, the
Company does not directly or indirectly own any interest in any corporation,
partnership, joint venture or other business association or entity.
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5.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 10,000,000 shares of common stock, par value $.01 per share (the "COMPANY
COMMON STOCK"), and 2,000,000 shares of preferred stock, $.01 par value per
share. As of the date hereof, 566,990 shares of Company Common Stock were issued
and outstanding and no shares of preferred stock were issued and outstanding.
All of such issued and outstanding shares of Company Common Stock are validly
issued, fully paid and nonassessable and free of preemptive rights. Except as
set forth in Section 5.3 of the Disclosure Schedule, neither the Company nor any
of its subsidiaries is a party to any agreement or understanding, oral or
written, which (a) grants an option or other right to acquire any of the Company
Common Stock or any other equitable interest in the Company, (b) grants a right
of first refusal or other such similar right upon the sale of any of the Company
Common Stock, or (c) restricts or affects the voting rights of any of the
Company Common Stock.
5.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has full corporate
power and authority to execute and deliver this Agreement and to consummate the
Merger and other transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the Merger and other 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 Merger or
other transactions contemplated hereby (other than, with respect to the Merger,
the approval of the Company's shareholders pursuant to the TBCA). This Agreement
has been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery hereof by Hain, constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally or by
general equitable or fiduciary principles.
5.5 NO VIOLATIONS, ETC.
(a) Assuming that all filings, permits, authorizations, consents and
approvals or waivers thereof have been duly made or obtained as contemplated by
Section 5.5(b) hereof, except as listed in Section 5.5 of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company
nor the consummation of the Merger or other transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or suspension of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
of its subsidiaries under, any of the terms, conditions or provisions of (x)
their respective charters or by-laws, (y) except as set forth in Section 5.5 of
the Disclosure Schedule, any note, bond, mortgage, indenture or deed of trust,
or (z) any license, lease, agreement or other instrument or obligation to which
the Company or any such subsidiary is a party or to which they or any of their
respective properties or assets may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets, except, in the case of clauses (i)(y), (i)(z) and (ii)
above, for such violations, conflicts, breaches, defaults, terminations,
suspensions, accelerations, rights of termination or acceleration or creations
of liens, security interests, charges or encumbrances which would not,
individually or in the aggregate, either have a Company Material Adverse Effect
or materially impair the Company's ability to consummate the Merger or other
transactions contemplated hereby.
(b) Except as set forth in Section 5.5 of the Disclosure Schedule, no filing
or registration with, notification to and no permit, authorization, consent or
approval of any governmental entity (including, without limitation, any federal,
state or local regulatory authority or agency) is required by the Company in
connection with the execution and delivery of this Agreement or the consummation
by the Company of the
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Merger or other transactions contemplated hereby, except (i) in connection with
the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR ACT"), (ii) the filing of the Delaware Certificate
of Merger and the Texas Certificate of Merger, (iii) the approval of the
Company's shareholders pursuant to the TBCA, (iv) filings with applicable state
regulatory authorities identified in Section 5.5 of the Disclosure Schedule, (v)
filings with the Securities and Exchange Commission (the "SEC") and (vi) such
other filings, registrations, notifications, permits, authorizations, consents
or approvals the failure of which to be obtained, made or given would not,
individually or in the aggregate, either have the Company Material Adverse
Effect or materially impair the Company's ability to consummate the Merger or
other transactions contemplated hereby.
(c) As of the date hereof, except as set forth in Section 5.5 of the
Disclosure Schedule, none of the Company or any of its subsidiaries is in
violation of or default under (x) its respective certificate or articles of
incorporation or organization or by-laws, (y) any note, bond, mortgage,
indenture or deed of trust, or (z) any license, lease, agreement or other
instrument or obligation to which the Company or any such subsidiary is a party
or to which they or any of their respective properties or assets may be subject,
except, in the case of clauses (y) and (z) above, for such violations or
defaults which would not, individually or in the aggregate, either have a
Company Material Adverse Effect or materially impair the Company's ability to
consummate the Merger or other transactions contemplated hereby.
5.6 FINANCIAL STATEMENTS.
(a) Set forth in Section 5.6 of the Disclosure Schedule are true and
complete copies of the audited consolidated balance sheets of the Company at
July 31, 1997 (the "JULY 31 BALANCE SHEET") and the audited consolidated
statements of income, shareholders' equity and cash flow of the Company for the
year ended July 31, 1997 (the "JULY 31 FINANCIALS"). The July 31 Financials
fairly present, in all material respects, the financial position of the Company
at July 31, 1997, and the results of operations of the Company for the period
then ended, and have been prepared in accordance with generally accepted
accounting principles consistently applied by the Company. The July 31 Balance
Sheet reflects all liabilities of the Company, whether absolute, accrued or
contingent, as of the date thereof of the type required to be reflected or
disclosed on a balance sheet prepared in accordance with generally accepted
accounting principles.
(b) Set forth in Section 5.6 of the Disclosure Schedule is income before
interest and taxes for the twelve months ended December 31, 1997 ("DECEMBER 31
IBIT") for Dana Alexander, Inc., a New York Corporation and a wholly owned
subsidiary of the Company. December 31 IBIT is determined in accordance with
generally accepted accounting principles consistently applied (subject to the
exception set forth in Section 5.6 of the Disclosure Schedule).
(c) Prior to the Closing Date, the Company shall provide to Hain true and
complete copies of the unaudited balance sheet of the Company at February 28,
1998 (the "FEBRUARY 28 BALANCE SHEET") and the unaudited statements of income,
shareholders' equity and cash flow of the Company for the seven months then
ended (collectively, the "FEBRUARY 28 FINANCIALS"). The February 28 Financials
will fairly present, in all material respects, the financial position of the
Company at February 28 1998, and the results of operations of the Company for
the period then ended, and have been prepared in accordance with generally
accepted accounting principles consistently applied, except that such financial
statements will not include any footnote disclosures that might otherwise be
required to be included by generally accepted accounting principles, and shall
also be subject to normal non-recurring year-end audit adjustments. The February
28 Balance Sheet will reflect all liabilities of the Company, whether absolute,
accrued or contingent, as of the date thereof of the type required to be
reflected or disclosed on a balance sheet prepared in accordance with generally
accepted accounting principles.
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5.7 ABSENCE OF CHANGES OR EVENTS. Except as set forth on Section 5.7 of
the Disclosure Schedule, since July 31, 1997:
(a) there has been no material adverse change, or any development
involving a prospective material adverse change, in the business, operations
or financial condition of the Company and its subsidiaries taken as a whole;
(b) there has not been any direct or indirect redemption, purchase or
other acquisition of any shares of capital stock of the Company or any of
its subsidiaries, or any declaration, setting aside or payment of any
dividend or other distribution by the Company or any of its subsidiaries in
respect of its capital stock;
(c) except in the ordinary course of its business and consistent with
past practice, neither the Company nor any of its subsidiaries has incurred
any indebtedness for borrowed money, or assumed, guaranteed, endorsed or
otherwise as an accommodation become responsible for the obligations of any
other individual, firm or corporation, or made any loans or advances to any
other individual, firm or corporation;
(d) there has not been any change in the financial or the accounting
methods, principles or practices of the Company or its subsidiaries;
(e) except in the ordinary course of business and for amounts which are
not material, there has not been any revaluation by the Company or any of
its subsidiaries of any of their respective assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivables; and
(f) there has not been any agreement by the Company or any of its
subsidiaries to (i) do any of the things described in the preceding clauses
(a) through (f) other than as expressly contemplated or provided for in this
Agreement or (ii) take, whether in writing or otherwise, any action which,
if taken prior to the date of this Agreement, would have made any
representation or warranty in this Article V untrue or incorrect.
5.8 FORM S-4; PROSPECTUS/INFORMATION STATEMENT. None of the information
supplied or to be supplied by or on behalf of the Company for inclusion or
incorporation by reference in the registration statement to be filed with the
SEC by Hain in connection with the issuance of shares of Hain Common Stock in
the Merger (the "FORM S-4") will, at the time the Form S-4 becomes effective
under the Securities Act (as defined below), contain any untrue statement of a
material fact or omit to state any 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. None of the information supplied or to be
supplied by or on behalf of the Company for inclusion or incorporation by
reference in the Prospectus/Information Statement, in definitive form, or in the
soliciting material used in connection therewith (referred to herein
collectively as the "PROSPECTUS/INFORMATION STATEMENT") will, at the dates
mailed to shareholders pursuant to Section 8.1(b), contain any untrue statement
of a material fact or 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 will
promptly inform Hain of the happening of any event prior to the Effective Time
which would render such information regarding the Company incorrect in any
material respect or require the amendment of the Prospectus/Information
Statement.
5.9 LITIGATION. Except as set forth in Section 5.9 of the Disclosure
Schedule, there is no (i) claim, action, suit or proceeding pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
relating to the Company or any of its subsidiaries before any court or
governmental or regulatory authority or body or arbitration tribunal, or (ii)
outstanding judgment, order, writ, injunction or decree, or application, request
or motion therefor, of any court, governmental agency or arbitration tribunal in
a proceeding to which the Company, any subsidiary of the Company or any of their
respective assets was or is a party except, in the case of clauses (i) and (ii)
above, such as would not, individually or in
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the aggregate, either have a Company Material Adverse Effect or materially
impair either of the Company's ability to consummate the Merger.
5.10 TITLE TO AND CONDITION OF PROPERTIES. Section 5.10 of the Disclosure
Schedule contains a true and complete list of all real properties owned by the
Company and its subsidiaries. Except as set forth in Section 5.10 of the
Disclosure Schedule, each of the Company and its subsidiaries have good title to
all of the real property and own outright all of the personal property (except
for leased property or assets) which is reflected on the July 31 Balance Sheet
except for property since sold or otherwise disposed of in the ordinary course
of business and consistent with past practice. Except as set forth in Section
5.10 of the Disclosure Schedule, no such real or personal property is subject to
claims, liens or encumbrances, whether by mortgage, pledge, lien, conditional
sale agreement, charge or otherwise, except for those which would not,
individually or in the aggregate, have a Company Material Adverse Effect.
5.11 LEASES. Section 5.11 of the Disclosure Schedule contains a true and
complete list of all leases requiring the payment of rentals aggregating at
least $50,000 per annum pursuant to which real or personal property is held
under lease by either of the Company or any of its subsidiaries, and true and
complete copies of each lease pursuant to which either of the Company or any of
its subsidiaries leases real or personal property to others. All of the leases
so listed are valid and subsisting and in full force and effect and are subject
to no default with respect to either of the Company or its subsidiaries, as the
case may be, and, to the Company's knowledge, are in full force and effect and
subject to no default with respect to any other party thereto, and the leased
real property is in good and satisfactory condition.
5.12 CONTRACTS; BANK ACCOUNTS; INDEBTEDNESS.
(a) CONTRACTS AND COMMITMENTS. Section 5.12(a) of the Disclosure Schedule
contains a complete and accurate list of all Material (as defined below)
existing outstanding contracts and commitments, whether written or oral, of the
Company and its subsidiaries (i) the terms of which provide for the payment by
the Company and its subsidiaries after the date hereof as the recipient of goods
or services or involve the receipt by the Company or any of its subsidiaries as
the provider of goods or services, (ii) whereby the Company or any of its
subsidiaries leases equipment or real property, (iii) whereby the Company or any
of its subsidiaries has a firm commitment to purchase capital equipment (or
lease in the nature of a conditional purchase of capital equipment), (iv) which
continue for a period of twelve months or more and are not subject to a
unilateral right of termination by the Company without consideration, (v) which
restrict or purport to restrict any business activities or freedom of the
Company or any of its subsidiaries (or, to the knowledge of the Company, any of
its officers or employees) to engage in any business or to compete with any
person, or (vi) which relate to employment, consulting and agency agreements
which provide for any severance or termination benefit, or any other agreements,
contracts and commitments material to the Business. For purposes of this Section
5.12(a), a "MATERIAL" contract or commitment shall mean any contract or
commitment which the Company or any of its subsidiaries would be required to
file as an exhibit to reports filed by the Company with the SEC under the
Securities Act or the Exchange Act if the Company were required to file reports
thereunder. Except as set forth on Section 5.5 or Section 5.12(a) of the
Disclosure Schedule, none of the Company or any of its subsidiaries is in
default (nor is there any event which with notice or lapse of time or both would
constitute a default) under any material contract or commitment. Section 5.12(a)
of the Disclosure Schedule identifies each existing contract or commitment
containing an agreement with respect to any change of control or any
indemnification or other contingent obligations that would be triggered by the
Merger.
(b) BANK ACCOUNTS. Section 5.12(b) of the Disclosure Schedule contains a
complete and accurate list of the name of each bank in which the Company or any
of its subsidiaries has an account or safe deposit box (each, a "BANK ACCOUNT"
and, collectively, the "BANK ACCOUNTS"), the account number thereof and the
names of all persons authorized to draw thereon or to have access thereto.
(c) INDEBTEDNESS. Section 5.12(c) of the Disclosure Schedule contains a
complete and accurate list of all indebtedness for borrowed money of the Company
and its subsidiaries showing the aggregate amount
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by way of principal and interest which was outstanding as of a date not more
than seven days prior to the date of this Agreement and, by the terms of
agreements governing such indebtedness, is expected to be outstanding on the
Closing Date. Other than as set forth in Section 5.12(c) of the Disclosure
Schedule, neither this Agreement, the Merger nor the other transactions
contemplated hereby will result in any outstanding loans or borrowings by the
Company or any subsidiary of the Company becoming due, going into default or
giving the lenders or other holders of debt instruments the right to require the
Company or any of its subsidiaries to repay all or a portion of such loans or
borrowings.
5.13 LABOR MATTERS. Except to the extent that any of the following,
individually or in the aggregate, would have a Company Material Adverse Effect,
(a) neither the Company nor any of its subsidiaries fails to comply with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and neither the Company nor any of
its subsidiaries is engaged in any "unfair labor practice," as that term is
understood pursuant to the National Labor Relations Act, as amended, (b) there
is no labor strike, slowdown or stoppage pending (or, to the best knowledge of
the Company, any labor strike or stoppage threatened) against or affecting the
Company or any of its subsidiaries and (c) no petition for certification has
been filed and is pending before the National Labor Relations Board with respect
to any employees of the Company or any of its subsidiaries who are not currently
organized.
5.14 COMPLIANCE WITH LAW. Except for matters set forth in Section 5.14 of
the Disclosure Schedule, neither the Company nor any of its subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation, rule
or order of any foreign, federal, state or local government or any other
governmental department or agency (including, without limitation, any required
by the Food and Drug Administration or the Nutrition Labeling and Education Act
of 1990), or any judgment, decree or order of any court, applicable to its
business or operations, except where any such violation or failure to comply
would not, individually or in the aggregate, have a Company Material Adverse
Effect; the conduct of the business of each of the Company and its subsidiaries
is in conformity with all foreign, federal, state and local requirements, and
all other foreign, federal, state and local governmental and regulatory
requirements, except where such nonconformities would not, individually or in
the aggregate, have a Company Material Adverse Effect. The Company and its
subsidiaries have all permits, licenses and franchises from governmental
agencies required to conduct their businesses as now being conducted, except for
such permits, licenses and franchises the absence of which would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Notwithstanding the foregoing, the representations and warranties of the Company
with respect to the matters covered by Sections 5.13, 5.17, 5.18 and 5.19 are
limited to the representations set forth therein, and no representation or
warranty with respect to such matters are made by the Company in this Section
5.14.
5.15 BOARD RECOMMENDATION. The Board of Directors of the Company has, by a
majority vote at a meeting of such Board duly held on April 21, 1998, approved
and adopted this Agreement, the Merger and the other transactions contemplated
hereby, determined that the Merger is fair to the shareholders of the Company
and recommended that the shareholders of the Company approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby.
5.16 INTELLECTUAL PROPERTY. Section 5.16 of the Disclosure Schedule sets
forth a complete and accurate list of all of the trademarks (whether or not
registered) and trademark registrations and applications, patent and patent
applications, copyrights and copyright applications, service marks, service mark
registrations and applications, trade dress, trade and product names
(collectively, the "INTELLECTUAL PROPERTY") owned or licensed by the Company and
its subsidiaries. Except as set forth on Section 5.16 of the Disclosure
Schedule, (i) each of the Company and its subsidiaries has or owns, directly or
indirectly, all right, title and interest to such Intellectual Property or has
the perpetual right to use such Intellectual Property without consideration;
none of the rights of the Company and its subsidiaries in or use of such
Intellectual Property has been or is currently being or, to the knowledge of the
Company, is threatened to be infringed or challenged; (ii) all of the patents,
trademark registrations, service mark registrations, trade
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name registrations and copyright registrations included in such Intellectual
Property have been duly issued and have not been canceled, abandoned or
otherwise terminated; and (iii) all of the patent applications, trademark
applications, service mark applications, trade name applications and copyright
applications included in such Intellectual Property have been duly filed. To the
knowledge of the Company, the Company and its subsidiaries own or have adequate
licenses or other rights to use all Intellectual Property, know-how and
technical information required for their operation.
5.17 TAXES. Except as set forth in Section 5.17 of the Disclosure
Schedule: (i) the Company and each of its subsidiaries have prepared and timely
filed with the appropriate governmental agencies all Tax Returns required to be
filed for any period (or portion thereof) ending on or before the Effective
Time, taking into account any extension of time to file granted to or obtained
on behalf of the Company and/or its subsidiaries, and each such Tax Return is
complete and accurate in all material respects; (ii) all Taxes of the Company
and each of its subsidiaries in respect of any period (or portion thereof)
ending on or before the Effective Time have been paid in full to the proper
authorities, other than such Taxes as are being contested in good faith by
appropriate proceedings and are adequately reserved for in accordance with
generally accepted accounting principles; (iii) all deficiencies asserted in
writing resulting from examinations of any Tax returns filed by the Company or
any of its subsidiaries have been paid or finally settled, neither the Company
nor any of its subsidiaries is presently under examination or audit by any
taxing authority, and the Company has not received written notice of any pending
examination or audit of the Company or any of its subsidiaries by any taxing
authority; (iv) no extension of the period for assessment or collection of any
Tax is currently in effect and no extension of time within which to file any Tax
Return has been requested, which Tax Return has not since been filed; (v) no
liens have been filed with respect to any Taxes of the Company or any of its
subsidiaries other than in respect of property taxes that have accrued but are
not yet due and payable; (vi) neither the Company nor any of its subsidiaries
has made, or is required to make, any adjustment by reason of a change in their
accounting methods for any period (or portion thereof) ending on or before the
Effective Time that would affect the taxable income or deductions of the Company
or any of its subsidiaries for any period (or portion thereof) ending after the
Effective Date; (vii) the Company and its subsidiaries have made timely payments
of Taxes required to be deducted and withheld from the wages paid to their
employees and from all other amounts paid to third parties; (viii) neither the
Company nor any of its subsidiaries is a party to any tax sharing or tax matters
or similar agreement or is the indemnitor under any tax indemnification or
similar agreement; (ix) neither the Company nor any of its subsidiaries owns any
interest in any "controlled foreign corporation" (within the meaning of Section
957 of the Code) or "passive foreign investment company" (within the meaning of
Section 1296 of the Code); (x) neither the Company nor any of its subsidiaries
has made an election under Section 341(f) of the Code; (xi) neither the Company
nor any of its subsidiaries is a party to any agreement or arrangement that
provides for the payment of any amount, or the provision of any other benefit,
that could constitute a "parachute payment" within the meaning of Section 280G
of the Code; (xii) no claim has ever been made by an authority in a jurisdiction
where the Company or any of its subsidiaries does not file Tax Returns that such
entity is or may be subject to taxation by that jurisdiction; (xiii) neither the
Company nor any of its subsidiaries has ever been a member of any affiliated,
consolidated, combined or unitary group for any Tax purpose other than a group
of which it is currently a member; (xiv) neither the Company nor any of its
subsidiaries is currently a "personal holding company" (as defined in Section
542 of the Code), and neither the Company nor any of its subsidiaries has had
any "undistributed personal holding company income" (as defined in Section 545
of the Code) at any point during its last three completed taxable years; (xv)
none of the assets of the Company or any of its subsidiaries is "tax-exempt use
property" (as defined in Section 168(h)(1) of the Code) or may be treated as
owned by any other person pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954 (as in effect immediately prior to the enactment of the Tax Reform
Act of 1986); (xvi) neither the Company nor any of its subsidiaries has been a
"United States real property holding corporation," within the meaning of Section
897 of the Code at any time during the past five years; (xvii) there are no
"excess loss accounts" (as defined in Treas. Reg. Section 1.1502-19) with
respect to any stock of any subsidiary; (xviii) neither the Company nor any of
its
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subsidiaries has any (a) deferred gain or loss (1) arising from any deferred
intercompany transactions (as described in Treas. Reg. SectionSection 1.1502-13
and 1.1502-13T prior to amendment by Treasury Decision 8597 (issued July 12,
1995) or (2) with respect to the stock or obligations of any other member of any
affiliated group (as described in Treas. Reg. SectionSection 1.1502-14 and
1.1502-14T prior to amendment by Treasury Decision 8597) or (b) any gain subject
to Treas. Reg. Section 1.1502-13, as amended by Treasury Decision 8597; (xix)
neither the Company nor any of its subsidiaries has requested a ruling from, or
entered into a closing agreement with, the IRS or any other taxing authority in
its current taxable year or at any time during its last three completed taxable
years; and (xx) the Company has previously delivered to Hain true and complete
copies of (a) all federal, state, local and foreign income or franchise Tax
Returns filed by the Company and/or any of its Subsidiary for the last three
taxable years ending prior to the date hereof (except for those Tax Returns that
have not yet been filed) and (b) any audit reports issued within the last three
years by the IRS or any other taxing authority.
For all purposes of this Agreement, "TAX" or "TAXES" means (i) all federal,
state, local or foreign taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, alternative minimum,
gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of
any kind whatsoever, (ii) all interest, penalties, fines, additions to tax or
other additional amounts imposed by any taxing authority in connection with any
item described in clause (i) and (iii) all transferee, successor, joint and
several or contractual liability (including, without limitation, liability
pursuant to Treas. Reg. Section 1.1502-6 (or any similar state, local or foreign
provision)) in respect of any items described in clause (i) or (ii).
For all purposes of this Agreement, "TAX RETURN" means all returns,
declarations, reports, estimates, information returns and statements required to
be filed in respect of any Taxes.
5.18 EMPLOYEE BENEFIT PLANS; ERISA. Except as set forth in Section 5.18 of
the Disclosure Schedule:
(a) The Company has furnished Hain with a true and complete schedule of
all "employee pension benefit plans" as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained or contributed to by the Company, any of its subsidiaries or any
other ERISA Affiliates, or with respect to which the Company or any of its
subsidiaries contributes or is obligated to make payments thereunder or
otherwise may have any liability ("PENSION BENEFITS PLANS"), all "welfare
benefit plans" (as defined in Section 3(1) of ERISA), maintained or
contributed to by the Company or any of its subsidiaries or with respect to
which the Company or any of its subsidiaries otherwise may have any
liability ("WELFARE PLANS"), all multiemployer plans as defined in Section
3(37) of ERISA covering employees employed in the United States to which
such Company or any of its subsidiaries is required to make contributions or
otherwise may have any liability, all stock bonus, stock option, restricted
stock, stock appreciation right, stock purchase, bonus, incentive, deferred
compensation, severance and vacation or other employee benefit plans,
programs or arrangements that are not Pension Benefit Plans or Welfare Plans
maintained or contributed to by the Company or a subsidiary or with respect
to which the Company or any subsidiary otherwise may have any liability
("OTHER PLANS"). For purposes of this Agreement, "ERISA AFFILIATE" shall
mean any person (as defined in Section 3(9) of ERISA) that is or has been a
member of any group of persons described in Section 414(b), (c), (m) or (o)
of the Code including the Company or any of its subsidiaries.
(b) The Company and each of its subsidiaries, and each of the Pension
Benefit Plans, Welfare Plans and Other Plans (collectively, the "PLANS"),
are in compliance with the applicable provisions of ERISA, the Code and
other applicable laws except where the failure to comply would not,
individually or in the aggregate, have a Company Material Adverse Effect.
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(c) All contributions to, and payments from, the Plans which are required to
have been made in accordance with the Plans and, when applicable, Section 302 of
ERISA or Section 412 of the Code have been timely made except where the failure
to make such contributions or payments on a timely basis would not, individually
or in the aggregate, have a the Company Material Adverse Effect.
(d) No Pension Benefit Plan subject to Section 412 of the Code or Section
302 of ERISA has incurred an "accumulated funding deficiency" within the meaning
of Section 412(a) of the Code as of the end of the most recently completed plan
year.
(e) Each of the Pension Benefit Plans intended to qualify under Section 401
of the Code satisfies in form the requirements of such Section except to the
extent amendments are not required by law to be made until a date after the
Closing Date, has received a favorable determination letter from the Internal
Revenue Service ("IRS") regarding such qualified status, has not, since receipt
of the most recent favorable determination letter, been amended, and has not
been operated in a way that would cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code.
(f) Each Welfare Plan that is intended to qualify for exclusion of benefits
thereunder from the income of participants or for any other tax-favored
treatment under any provisions of the Code (including, without limitation,
Sections 79, 105, 106, 125 or 129 of the Code) is and has been maintained in
compliance in all material respects with all pertinent provisions of the Code
and Treasury Regulations thereunder.
(g) There are (i) no investigations, audits or examinations pending, or to
the best knowledge of the Company, threatened by any governmental entity
(including the Pension Benefit Guaranty Corporation ("PBGC")) involving any of
the Plans, (ii) no termination proceedings involving the Plans and (iii) no
pending or, to the best knowledge of the Company, threatened claims (other than
routine claims for benefits), suits or proceedings against any Plan, against the
assets of any of the trusts under any Plan or against any fiduciary of any Plan
with respect to the operation of such plan or asserting any rights or claims to
benefits under any Plan or against the assets of any trust under such plan,
which would, in the case of clause (i), (ii) or (iii) of this paragraph (g),
give rise to any liability which would, individually or in the aggregate, have a
Company Material Adverse Effect.
(h) None of the Company, any of its subsidiaries or any employee of the
foregoing, nor any trustee, administrator, other fiduciary or any other "party
in interest" or "disqualified person" with respect to the Pension Benefit Plans
or Welfare Plans, has engaged in a "prohibited transaction" (within the meaning
of Section 4975 of the Code or Section 406 of ERISA) which could result in a tax
or penalty on the Company or any of its subsidiaries under Section 4975 of the
Code or Section 502(i) of ERISA which would, individually or in the aggregate,
have a Company Material Adverse Effect.
(i) Neither the Pension Benefit Plans subject to Title IV of ERISA nor any
trust created thereunder has been terminated nor have there been any "reportable
events" (as defined in Section 4043 of ERISA and the regulations thereunder)
(for which the disclosure requirements of Regulation section 4043.1 et seq.,
promulgated by the PBGC, have not been waived) with respect to either thereof
which would, individually or in the aggregate, have a Company Material Adverse
Effect nor has there been any event with respect to any Pension Benefit Plan
requiring disclosure under Section 4063(a) of ERISA or any event with respect to
any Pension Benefit Plan requiring disclosure under Section 4041(c)(3)(C) of
ERISA which would, individually or in the aggregate, have a Company Material
Adverse Effect.
(j) With respect to any Pension Benefit Plan subject to Title IV of ERISA,
there is not any amount of "unfunded benefit liabilities" (as defined in Section
4001(a)(18) of ERISA) under such plan determined based upon reasonable actuarial
assumptions and the asset valuation principles established by the PBGC.
(k) Neither the Company nor any subsidiary of the Company nor any ERISA
Affiliate has incurred, or is reasonably likely to incur any material liability
under Title IV of ERISA.
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(l) Neither the Company nor any ERISA Affiliate of the Company has incurred
any currently outstanding liability to the PBGC or to a trustee appointed under
Section 4042(b) or (c) of ERISA other than for the payment of premiums, all of
which have been paid when due. No Pension Benefit Plan has applied for, or
received, a waiver of the minimum funding standards imposed by Section 412 of
the Code. The information supplied to the actuary by the Company or any of its
subsidiaries for use in preparing the most recent actuarial report for Pension
Benefit Plans is complete and accurate in all material respects.
(m) Neither the Company, any of its subsidiaries nor any of their ERISA
Affiliates has any liability (including any contingent liability under Section
4204 of ERISA) with respect to any multiemployer plan, within the meaning of
Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"), covering employees employed in
the United States.
(n) With respect to each of the Plans, true, correct and complete copies of
the following documents have been made available to Hain: (i) the current plans
and related trust documents, including amendments thereto, (ii) any current
summary plan descriptions, (iii) the most recent Forms 5500 (if any) filed with
respect to each such Plan, (iv) the most recent financial statements and
actuarial reports, if applicable, (v) the most recent IRS determination letter,
if applicable; and (vi) if any application for an IRS determination letter is
pending, copies of all such applications for determination including
attachments, exhibits and schedules thereto.
(o) Neither the Company, any of its subsidiaries, any organization to which
either of the Company is a successor or parent corporation, within the meaning
of Section 4069(b) of ERISA, nor any of their ERISA Affiliates has engaged in
any transaction described in Section 4069(a) of ERISA, the liability for which
would, individually or in the aggregate, have a Company Material Adverse Effect.
(p) None of the Welfare Plans maintained by the Company or any of its
subsidiaries are retiree life or retiree health insurance plans which provide
for continuing benefits or coverage for any participant or any beneficiary of a
participant following termination of employment, except as may be required under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), or except where the full expense of such coverage or benefits is paid
by the participant or the participant's beneficiary. The Company and each of its
subsidiaries which maintain a "group health plan" within the meaning of Section
5000(b)(1) of the Code have complied with the notice and continuation
requirements of Section 4980B of the Code, COBRA, Part 6 of Subtitle B of Title
I of ERISA and the regulations thereunder except where the failure to comply
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
(q) No liability under any Plan has been funded nor has any such obligation
been satisfied with the purchase of a contract from an insurance company as to
which the Company or any of its subsidiaries has received notice that such
insurance company is in rehabilitation.
(r) Except as set forth in Section 5.18(r) of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not either
alone or in connection with an employee's termination of employment or other
event result in an increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any benefits or compensation
payable to or in respect of any employee of the Company or any of its
subsidiaries.
(s) Except as set forth in Section 5.18(s) of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not result
in or satisfy a condition to the payment of compensation that would, in
combination with any other payment, result in an "excess parachute payment"
within the meaning of Section 280G(b) of the Code.
(t) The Company has furnished Hain with a true and complete schedule of each
Foreign Plan (as hereinafter defined) to the extent the benefits provided
thereunder are not mandated by the laws of the applicable foreign jurisdiction.
The Company and each of its subsidiaries and each of the Foreign Plans are in
compliance with applicable laws and all required contributions have been made to
the Foreign Plans, except where the failure to comply or make contributions
would not, individually and in the aggregate have
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a Company Material Adverse Effect. Each of the Foreign Plans that is a funded
defined benefit plan has a fair market value of plan assets that is greater than
the plan's liabilities, as determined in accordance with applicable laws. For
purposes hereof, the term "FOREIGN PLAN" shall mean any plan, program, policy,
arrangement or agreement maintained or contributed to by, or entered into with,
the Company or any subsidiary with respect to employees (or former employees)
employed outside the United States.
5.19 ENVIRONMENTAL MATTERS. Except as set forth in Section 5.19 of the
Disclosure Schedule and except for such matters as would not reasonably be
expected to have a Company Material Adverse Effect:
(a) Each of the Company and its subsidiaries has obtained (or is capable
of obtaining without incurring any material incremental expense) all
Environmental Permits and has no reason to believe any of them will be
revoked prior to their expiration, modified or will not be renewed, and have
made all registrations and given all notifications that are required under
any applicable Environmental Law.
(b) There is no Environmental Claim pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries under an
Environmental Law.
(c) The Company and its subsidiaries are in compliance with, and have no
liability under, applicable Environmental Laws including, without
limitation, all of their Environmental Permits.
(d) Neither the Company nor any of its subsidiaries has assumed, by
contract or otherwise, any liabilities or obligations arising under any
Environmental Laws.
(e) There are no past or present actions, activities, conditions,
occurrences or events, including, without limitation, the Release of any
Hazardous Materials, which could reasonably be expected to prevent
compliance by the Company or any of its subsidiaries with any Environmental
Law, or to result in any liability of the Company or any of its subsidiaries
under any Environmental Law.
(f) No lien has been recorded under any Environmental Law with respect
to any property, facility or asset currently owned by the Company or any of
its subsidiaries.
(g) Neither the Company nor any of its subsidiaries has received any
notification that any Hazardous Materials that any of them or any of their
respective predecessors in interest has used, generated, stored, treated,
handled, transported or disposed of has been found at any site at which any
person is conducting or plans to conduct any response or other action
pursuant to any Environmental Law.
(h) There is no friable asbestos or asbestos containing material in, on
or at any property, facility or equipment owned, operated or leased by the
Company or any of its subsidiaries.
(i) No property now or previously owned, operated or leased by the
Company or any of its subsidiaries or, to the knowledge of the Company, any
of their respective predecessors in interest is (i) listed or proposed for
listing on the National Priorities List under the Comprehensive
Environmental Response, Compensation & Liability Act of 1980, as amended
("CERCLA"), or (ii) listed in the Comprehensive Environmental Response,
Compensation, Liability Information System List promulgated pursuant to
CERCLA, or on any comparable list established under any Environmental law.
(j) No underground or above ground storage tank or related piping, or
any surface impoundment, lagoon, landfill or other disposal site containing
any Hazardous Material is located at, under or on any property owned,
operated or leased by the Company or any of its subsidiaries or any, to the
knowledge of the Company, of their respective predecessors in interest, nor
has any of them been removed or decommissioned from or at any such property.
(k) The execution and delivery of this Agreement and the consummation by
the Company of the Merger and other transactions contemplated hereby and the
exercise by Hain of rights to own and operate the businesses of each of the
Company and its subsidiaries substantially as presently conducted will not
affect the validity or require the transfer of any Environmental Permits
held by the
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Company or any of its subsidiaries and will not require any notification,
disclosure, registration, reporting, filing, investigation, or remediation
under any Environmental Law.
(l) The Company has delivered or otherwise made available for inspection
to Hain copies of any investigations, studies, reports, assessments,
evaluations and audits in its possession, custody or control of Hazardous
Materials at, in, beneath or adjacent to any properties or facilities now or
formerly owned, leased, operated or used by it or any of its subsidiaries or
any of their respective predecessors in interest, or of compliance by any of
them with, or liability of any of them under, applicable Environmental Laws.
For purposes of Section 5.19:
(i) "ENVIRONMENT" means any surface water, ground water, drinking
water supply, land surface or subsurface strata, ambient air, indoor air
and any indoor location and all natural resources such as flora, fauna
and wetlands;
(ii) "ENVIRONMENTAL CLAIM" means any notice, claim, demand,
complaint, suit or other communication by any person alleging potential
liability (including, without limitation, potential liability for
response or corrective action or damages to any person, property or
natural resources, and any fines or penalties) arising out of or relating
to (1) the Release or threatened Release of any Hazardous Materials or
(2) any violation, or alleged violation, of any applicable Environmental
Law;
(iii) "ENVIRONMENTAL LAWS" means all federal, state, and local
laws, statutes, codes, rules, ordinances, regulations, judgments, orders,
decrees and the common law as now or previously in effect relating to
pollution or protection of human health or the Environment, including,
without limitation, those relating to the Release or threatened Release
of Hazardous Materials;
(iv) "HAZARDOUS MATERIALS" means pollutants, contaminants,
hazardous or toxic substances, constituents, materials or wastes, and any
other waste, substance, material, chemical or constituent subject to
regulation under Environmental Laws;
(v) "RELEASE" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the Environment; and
(vi) "ENVIRONMENTAL PERMIT" means a permit, identification number,
license, approval, consent or other written authorization issued pursuant
to any applicable Environmental Law.
5.20 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Section
5.6 or 5.20 of the Disclosure Schedule or in the July 31 Financials, neither of
the Company nor any of its subsidiaries has any liabilities or obligations of
any nature, whether absolute, accrued, unmatured, contingent or otherwise, or
any unsatisfied judgments or any leases of personalty or realty or unusual or
extraordinary commitments, except the liabilities recorded on the July 31
Balance Sheet and the notes thereto, and except for liabilities or obligations
incurred in the ordinary course of business and consistent with past practice
since July 31, 1997 that would not individually or in the aggregate have a
Company Material Adverse Effect. Notwithstanding the foregoing, the
representations and warranties of the Company with respect to the matters
covered by Sections 5.13, 5.14, 5.17, 5.18 and 5.19 are limited to the
representations set forth therein, and no representation or warranty with
respect to such matters are made by the Company in this Section 5.20.
5.21 FINDERS OR BROKERS. Except as set forth in Section 5.21 of the
Disclosure Schedule, none of the Company, the subsidiaries of the Company, the
Board of Directors of the Company or any member of the Board of Directors of the
Company has employed any investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or any commission in connection with the Merger.
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5.22 STATE ANTITAKEOVER STATUTES. The Company has been granted all
approvals and taken all other steps necessary to exempt the Merger and the other
transactions contemplated hereby from the requirements and provisions of the
TBCA and any other applicable state antitakeover statute or regulation such that
none of the provisions of such statute or any other "business combination,"
"moratorium," "control share" or other state antitakeover statute or regulation
(x) prohibits or restricts the Company's ability to perform its obligations
under this Agreement or its ability to consummate the Merger and the other
transactions contemplated hereby, (y) would have the effect of invalidating or
voiding this Agreement any provision hereof, or (z) would subject Hain to any
material impediment or condition in connection with the exercise of any of its
rights under this Agreement.
5.23 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
Wasserstein Perella & Co., Inc., dated April 21, 1998, to the effect that,
subject to the various assumptions and limitations set forth in such opinion as
of such date, the Merger Consideration is fair from a financial point of view to
the holders of shares of Company Common Stock.
5.24 INSURANCE. Except as disclosed in Section 5.24 of the Disclosure
Schedule, each of the Company and each of its subsidiaries is, and has been
continuously since July 31, 1996, insured in such amounts and against such risks
and losses as are customary for companies conducting the respective businesses
conducted by the Company and its subsidiaries during such time period. Except as
disclosed in Section 5.24 of the Disclosure Schedule, neither the Company nor
any of its subsidiaries has received any notice of cancellation or termination
with respect to any material insurance policy thereof. All material insurance
policies of the Company and its subsidiaries are valid and enforceable policies.
5.25 EMPLOYMENT AND LABOR CONTRACTS. Neither the Company nor any of its
subsidiaries is a party to any employment, management services, consultation or
other similar contract with any past or present officer, director, employee or
other person or, to the best knowledge of the Company, any entity affiliated
with any past or present officer, director or employee or other person other
than those set forth in Section 5.26 of the Disclosure Schedule and other than
the agreements executed by employees generally, the forms of which have been
delivered to Hain.
5.26 INVENTORY. As of February 28, 1998, all inventory of each of the
Company and its subsidiaries is valued on the Company's books and records at the
lower of cost or market, except for such variances as would not have a Material
Adverse Effect. Obsolete items and items of below standard quality have been
written off or written down to their net realizable value on the books and
records of the Company, except for such variances as would not have a Material
Adverse Effect. Subject to reserves reflected on the February 28 Balance Sheet,
all such inventory consisting of raw materials or packaging is usable in the
ordinary course of business, and all such inventory consisting of finished goods
is, and all such inventory consisting of work in process will upon completion
be, of merchantable quality, meeting all material contractual, and all Food and
Drug Administration and Nutrition Labeling and Education Act of 1990
requirements, and is, or in the case of work in process, will be, salable in the
ordinary course of business, except for such variances as would not have a
Material Adverse Effect.
5.27 BALANCE SHEET RESERVES. The reserves for accounts receivable as of
February 28, 1998, as reflected on Section 5.27 of the Disclosure Schedule, have
been established in accordance with generally accepted accounting principles and
such reserves, taken as a whole, are adequate to cover any losses relating to
collectibility of accounts receivable.
5.28 QUALIFICATION OF MERGER AS A TAX FREE REORGANIZATION.
(a) Neither the Company nor any person related to the Company within the
meaning of Treas. Reg. SectionSection 1.368-1(e)(3), (e)(4) and (e)(5) has
purchased, redeemed, or otherwise acquired, or made any extraordinary
distributions (as defined in Treas. Reg. Section 1.368-1T(e)(1)(ii)(A)) with
respect to, any shares of Company Common Stock prior to or in contemplation of
the Merger, or otherwise as part of a plan of which the Merger is a part.
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(b) Other than the Company Common Stock, the Company does not currently have
outstanding and at no point during the past twelve months had outstanding any
indebtedness, options, warrants, or other debt or equity securities that have
been or will be treated as stock for U.S. federal income tax purposes.
(c) Following the Merger, the Surviving Corporation will hold at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets of the Company immediately prior to
the Merger. For purposes of this representation, amounts paid by Company to
dissenters, amounts paid by the Company to shareholders who receive cash or
other property in the Merger, amounts used by the Company to pay reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by the Company will be included as assets of Company immediately
prior to the Merger.
(d) The Company and the shareholders of the Company have paid and will pay
their respective expenses, if any, incurred in connection with the Merger. In
connection with the Merger, the Company has not paid or assumed and will not pay
or assume any expense or other liability, whether fixed or contingent, of any
Company stockholder. In connection with the Merger, neither Hain nor any of its
affiliates has paid or assumed or will pay or assume any expense of any Company
shareholder or, except as provided in Section 8.11 of this Agreement, any
expense of the Company. In connection with the Merger, no liabilities of Company
stockholders have been paid or assumed or will be paid or assumed by Hain or its
affiliates, nor will any shares of Company Common Stock acquired in the Merger
be subject to any liabilities.
(e) There is no indebtedness between Company and Hain.
(f) None of the Merger Consideration received in the Merger by any
shareholder-employees of the Company has been or will be separate consideration
for, or allocable to, past or future services or any employment agreement. None
of the compensation paid, or to be paid under any agreement or arrangement in
effect on the date hereof, by the Company to any shareholder-employee of the
Company will be separate consideration for, or allocable to, such
shareholder-employee's shares of Company Common Stock, and such compensation has
been or will be for services actually rendered in the ordinary course of his or
her employment and has been or will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(g) The Company is not an investment company, as defined in Sections
368(a)(2)(F)(iii) and (iv) of the Code.
(h) The liabilities of the Company assumed by the Surviving Corporation and
any liabilities to which the assets of the Company are subject were incurred by
the Company in the ordinary course of its business.
(i) Neither the Company nor, to the Company's knowledge, any of its
affiliates has taken, agreed to take, or will take any action that would prevent
the Merger from constituting a transaction qualifying under Section 368(a) of
the Code or that would prevent an exchange of Company Common Stock for Hain
Common Stock pursuant to the Merger from qualifying as an exchange described in
Section 354 of the Code (except with respect to any cash received in lieu of a
fractional share). Neither the Company nor, to the Company's knowledge, any of
its affiliates or agents is aware of any agreement, plan or other circumstance
that would prevent the Merger from qualifying under Section 368(a) of the Code
or that would prevent an exchange of Company Common Stock for Hain Common Stock
pursuant to the Merger from qualifying as an exchange described in Section 354
of the Code (except with respect to any cash received in lieu of a fractional
share) and to the Company's knowledge, the Merger and each such exchange will so
qualify.
Notwithstanding the foregoing, if none of the Merger Consideration consists
of Stock Merger Consideration, then the representation set forth in this Section
5.28 shall be deemed to be included in this Agreement, and shall, in any event,
be deemed true and correct in all respects.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HAIN
Hain represents and warrants to the Company that:
6.1 ORGANIZATION AND QUALIFICATION. Each of Hain and Hain's subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of Hain and Hain's subsidiaries is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for failures
to be so qualified or in good standing which would not, individually or in the
aggregate, have a material adverse effect on the general affairs, management,
business, operations, condition (financial or otherwise) or prospects of Hain
and its subsidiaries taken as a whole (a "HAIN MATERIAL ADVERSE EFFECT").
Neither Hain nor any of Hain's subsidiaries is in violation of any of the
provisions of its certificate or articles of incorporation or organization or
by-laws. Hain has delivered to the Company accurate and complete copies of the
certificate or articles of incorporation or organization (or other applicable
charter document) and by-laws, as currently in effect, of each of Hain and its
subsidiaries.
6.2 CAPITAL STOCK OF SUBSIDIARIES. The only direct or indirect
subsidiaries of Hain are those listed in Section 6.2 of the Disclosure Schedule.
Hain is directly or indirectly the record (except for directors' qualifying
shares) and beneficial owner (including all qualifying shares owned by directors
of such subsidiaries as reflected in Section 6.2 of the Disclosure Schedule) of
all of the outstanding shares of capital stock of each of its subsidiaries.
6.3 CAPITALIZATION. The authorized capital stock of Hain consists of
40,000,000 shares of Hain Common Stock, par value $.01 per share, and 5,000,000
shares of Preferred Stock, par value $.01 per share. As of March 31, 1998,
11,386,899 shares of Common Stock are issued and outstanding and no shares of
preferred stock are issued and outstanding. All of such issued and outstanding
shares are, and any shares of Hain Common Stock to be issued in connection with
this Agreement, the Merger and the transactions contemplated hereby will be,
validly issued, fully paid and nonassessable and free of preemptive rights.
6.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Hain has full corporate power
and authority to execute and deliver this Agreement and to consummate the Merger
and other transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the Merger and other transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of Hain
and no other corporate proceedings on the part of Hain are necessary to
authorize this Agreement or to consummate the Merger or other transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Hain and, assuming the due authorization, execution and delivery
hereof by the Company, constitutes a valid and binding agreement of Hain,
enforceable against Hain in accordance with its terms, except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable or fiduciary principles.
6.5 NO VIOLATIONS, ETC.
(a) Assuming that all filings, permits, authorizations, consents and
approvals or waivers thereof have been duly made or obtained as contemplated by
Section 6.5(b) hereof, neither the execution and delivery of this Agreement by
Hain nor the consummation of the Merger or other transactions contemplated
hereby nor compliance by Hain with any of the provisions hereof will (i)
violate, conflict with, or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or suspension of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Hain or any of
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Hain's subsidiaries under, any of the terms, conditions or provisions of (x)
their respective charters or by-laws, (y) except as set forth in Section 6.5 of
the Disclosure Schedule, any note, bond, mortgage, indenture or deed of trust,
or (z) any license, lease, agreement or other instrument or obligation, to which
Hain or any such subsidiary is a party or to which they or any of their
respective properties or assets may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Hain or any of Hain's subsidiaries or any of their respective
properties or assets, except, in the case of clauses (i)(y), (i)(z) and (ii)
above, for such violations, conflicts, breaches, defaults, terminations,
suspensions, accelerations, rights of termination or acceleration or creations
of liens, security interests, charges or encumbrances which would not,
individually or in the aggregate, either have an Hain Material Adverse Effect or
materially impair the consummation of the Merger or other transactions
contemplated hereby.
(b) No filing or registration with, notification to and no permit,
authorization, consent or approval of any governmental entity is required by
Hain, Hain Subsidiary or any of Hain's subsidiaries in connection with the
execution and delivery of this Agreement or the consummation by Hain of the
Merger or other transactions contemplated hereby, except (i) in connection with
the applicable requirements of the HSR Act, (ii) the filing of the Delaware
Certificate of Merger and the Texas Certificate of Merger, (iii) filings with
The Nasdaq Stock Market, Inc., (iv) filings with the SEC and state securities
administrators, and (v) such other filings, registrations, notifications,
permits, authorizations, consents or approvals the failure of which to be
obtained, made or given would not, individually or in the aggregate, either have
an Hain Material Adverse Effect or materially impair the consummation of the
Merger or other transactions contemplated hereby.
(c) As of the date hereof, Hain and Hain's subsidiaries are not in violation
of or default under (x) their respective certificates or articles of
incorporation or organization or by-laws, (y) except as set forth in Section 6.5
of the Disclosure Schedule, any note, bond, mortgage, indenture or deed of
trust, or (z) any license, lease, agreement or other instrument or obligation to
which Hain or any such subsidiary is a party or to which they or any of their
respective properties or assets may be subject, except, in the case of clauses
(y) and (z) above, for such violations or defaults which would not, individually
or in the aggregate, either have an Hain Material Adverse Effect or materially
impair the consummation of the Merger or other transactions contemplated hereby.
6.6 COMMISSION FILINGS; FINANCIAL STATEMENTS. Except as set forth in
Section 6.6 of the Disclosure Schedule, Hain has filed all required forms,
reports and documents during the past three years (collectively, the "HAIN SEC
REPORTS") with the SEC, all of which complied when filed in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act. The audited consolidated financial statements and unaudited consolidated
interim financial statements of Hain and its subsidiaries included or
incorporated by reference in such Hain SEC Reports were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and present fairly, in all material respects, the financial position and results
of operations and cash flows of Hain and its subsidiaries on a consolidated
basis at the respective dates and for the respective periods indicated (and in
the case of all such financial statements that are interim financial statements,
contain all adjustments so to present fairly). Except to the extent that
information contained in any Hain SEC Report was revised or superseded by a
later filed Hain SEC Report, none of the Hain SEC Reports contained any untrue
statement of a material fact or omitted 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.
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6.7 ABSENCE OF CHANGES OR EVENTS. Except as set forth in Hain's Form 10-K
for the fiscal year ended June 30, 1997 and Hain's Form 10-Q for each of the
three month periods ended September 30, 1997 and December 31, 1997, as filed
with the SEC, since December 31, 1997:
(a) there has been no material adverse change, or any development
involving a prospective material adverse change, in the business, operations
or financial condition of Hain and its subsidiaries taken as a whole;
(b) there has not been any direct or indirect redemption, purchase or
other acquisition of any shares of capital stock of Hain or any of its
subsidiaries, or any declaration, setting aside or payment of any dividend
or other distribution by Hain or any of its subsidiaries in respect of their
capital stock;
(c) except in the ordinary course of its business and consistent with
past practice neither Hain nor any of its subsidiaries has incurred any
indebtedness for borrowed money, or assumed, guaranteed, endorsed or
otherwise as an accommodation become responsible for the obligations of any
other individual, firm or corporation, or made any loans or advances to any
other individual, firm or corporation;
(d) there has not been any change in accounting methods, principles or
practices of Hain or its subsidiaries;
(e) except in the ordinary course of business and for amounts which are
not material, there has not been any revaluation by Hain or any of its
subsidiaries of any of their respective assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivables;
(f) there has not been any agreement by Hain or any of its subsidiaries
to (i) do any of the things described in the preceding clauses (a) through
(f) other than as expressly contemplated or provided for in this Agreement
or (ii) take, whether in writing or otherwise, any action which, if taken
prior to the date of this Agreement, would have made any representation or
warranty in this Article VI untrue or incorrect.
6.8 FORM S-4; PROSPECTUS/INFORMATION STATEMENT. None of the information
supplied or to be supplied by or on behalf of Hain and Hain Subsidiary for
inclusion or incorporation by reference in the Form S-4 will, at the time the
Form S-4 becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any 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. None of the
information supplied or to be supplied by or on behalf of Hain and Hain
Subsidiary for inclusion or incorporation by reference in the
Prospectus/Information Statement will, at the dates mailed to Company
shareholders pursuant to Section 8.1(b), contain any untrue statement of a
material fact or 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. Hain will promptly
inform the Company of the happening of any event prior to the Effective Time
which would render such information regarding Hain incorrect in any material
respect or require the amendment of the Prospectus/Information Statement.
6.9 BOARD RECOMMENDATION. The Board of Directors of Hain has, by a
majority vote at a meeting of such Board duly held on, or by written consent of
such Board dated April 8, 1998, approved and adopted this Agreement, the Merger
and the other transactions contemplated hereby (including, without limitation,
the issuance of Hain Common Stock as a result of the Merger), determined that
the Merger is fair to the holders of shares of Hain Common Stock. Hain does not
require stockholder approval of this Agreement, the Merger, the issuance of
shares of Hain Common Stock in connection therewith, and the related
transactions.
6.10 DISCLOSURE. All of the facts and circumstances not required to be
disclosed as exceptions under or to any of the foregoing representations and
warranties made by Hain by reason of any minimum
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disclosure requirement in any such representation and warranty would not, in the
aggregate, have an Hain Material Adverse Effect.
6.11 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Hain nor any of its
subsidiaries has any liabilities or obligations of any nature, whether absolute,
accrued, unmatured, contingent or otherwise, or any unsatisfied judgments or any
leases of personalty or realty or unusual or extraordinary commitments, except
the liabilities recorded on the Balance Sheet and the notes thereto, and except
for liabilities or obligations incurred in the ordinary course of business and
consistent with past practice since December 31, 1997 that would not
individually or in the aggregate have an Hain Material Adverse Effect.
6.12 FINDERS OR BROKERS. Except as set forth in Section 6.12 of the
Disclosure Schedule, none of Hain, the subsidiaries of Hain, the Board of
Directors of Hain or any member of the Board of Directors of Hain has employed
any investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or any
commission in connection with the Merger.
6.13 OPINION OF FINANCIAL ADVISOR. On or prior to the Closing Date, Hain
will receive the opinion (the "Fairness Opinion") of Bear Stearns & Co. Inc., to
the effect that the Merger Consideration is fair from a financial point of view
to the stockholders of Hain.
6.14 EMPLOYEE BENEFIT PLANS; ERISA.
Neither Hain nor any subsidiary of Hain nor any Hain ERISA Affiliate has
incurred, or is reasonably likely to incur any material liability under Title IV
of ERISA. Neither Hain nor any subsidiary of Hain nor any Hain ERISA Affiliate
has incurred any material accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or Section 412 of the Code. For
purposes of this Agreement, "HAIN ERISA AFFILIATE" shall mean any person (as
defined in Section 3(9) of ERISA) that is or has been a member of any group of
persons described in Section 414(b), (c), (m) or (o) of the Code including Hain
or any of its subsidiaries.
6.15 QUALIFICATION OF MERGER AS A TAX FREE REORGANIZATION.
(a) Hain has no plan or intention to reacquire or cause or permit any person
related (as defined in Treas. Reg. Section 1.368-1(e)(3)) to Hain to acquire any
of the Hain Common Stock issued to the holders of Company Common Stock pursuant
to the Merger.
(b) Prior to the transaction, Hain will be in control of Hain Subsidiary
within the meaning of section 368(c) of the Internal Revenue Code of 1986, as
amended (the "CODE").
(c) Following the Merger, Hain has no plan or intention to cause or permit
Hain Subsidiary to issue additional shares of its stock that would result in
Hain's losing control of Hain Subsidiary within the meaning of Section 368(c) of
the Code.
(d) There is no indebtedness between the Company and Hain.
(e) None of the Merger Consideration paid in the Merger by Hain will be
separate consideration for, or allocable to, past or future services or any
employment agreement.
(f) Neither Hain nor Hain Subsidiary is an investment company, as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(g) Hain has no plan or intention to liquidate Hain Subsidiary, to merge
Hain Subsidiary with or into another corporation, to sell or otherwise dispose
of the stock of Hain Subsidiary, or to cause Hain Subsidiary to sell or
otherwise dispose of any of the assets of the Company acquired in the Merger,
except for dispositions made in the ordinary course of business or transfers to
a corporation controlled (within the meaning of Section 368(c) of the Code) by
Hain Subsidiary or, in the case of a successive transfer, the transferor
corporation.
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(h) None of Hain, Hain Subsidiary or any affiliate of Hain has taken, agreed
to take, or will take any action that would prevent the Merger from constituting
a transaction qualifying under Section 368(a) of the Code or that would prevent
an exchange of Company Common Stock for Hain Common Stock pursuant to the Merger
from qualifying as an exchange described in Section 354 of the Code (except with
respect to any cash received in lieu of a fractional share). None of Hain, Hain
Subsidiary or any affiliate of Hain is aware of any agreement, plan or other
circumstance that would prevent the Merger from qualifying under Section 368(a)
of the Code or that would prevent an exchange of Company Common Stock for Hain
Common Stock pursuant to the Merger from qualifying as an exchange described in
Section 354 of the Code (except with respect to any cash received in lieu of a
fractional share) and to the knowledge of Hain, the Merger and each such
exchange will so qualify.
Notwithstanding the foregoing, if none of the Merger Consideration consists
of Stock Merger Consideration, then the representation set forth in this Section
6.15 shall not be deemed to be included in this Agreement, and shall, in any
event, be deemed true and correct in all respects.
ARTICLE VII
CONDUCT OF BUSINESS OF
THE COMPANY AND HAIN PENDING THE MERGER
7.1 CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER. Except as
contemplated by this Agreement or as expressly agreed to in writing by Hain,
during the period from the date of this Agreement to the Effective Time, each of
the Company and its subsidiaries will conduct their respective operations
according to its ordinary course of business consistent with past practice, and
will use all commercially reasonable efforts to maintain satisfactory
relationships with suppliers, distributors and customers having business
relationships with it and will take no action which would materially adversely
affect the ability of the parties to consummate the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement, prior to the Effective Time, the
Company will not nor will it permit any of its subsidiaries to, without the
prior written consent of Hain, which consent shall not be unreasonably withheld:
(a) amend its certificate or articles of incorporation or organization
or by-laws;
(b) except as set forth in Section 7.1 of the Disclosure Schedule,
authorize for issuance, issue, sell, deliver, grant any options for, or
otherwise agree or commit to issue, sell or deliver any shares of any class
of its capital stock or any securities convertible into shares of any class
of its capital stock, including the filing or processing of a registration
statement under the Securities Act in connection with an initial public
offering;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or purchase, redeem or otherwise acquire any shares of its own
capital stock or of any of its subsidiaries, except as otherwise expressly
provided in this Agreement;
(d) (i) create, incur, assume, maintain or permit to exist any debt for
borrowed money other than under existing lines of credit in the ordinary
course of business consistent with past practice in an amount not to exceed
$1,000,000 in the aggregate; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person except for its wholly owned
subsidiaries in the ordinary course of business and consistent with past
practices and subclause (i) above; or (iii) make any loans, advances or
capital contributions to, or investments in, any other person;
(e) except as set forth in Section 7.1 of the Disclosure Schedule, (i)
increase in any manner the compensation of (x) any employee except in the
ordinary course of business consistent with past
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practice or (y) any of its directors or officers; (ii) pay or agree to pay
any pension, retirement allowance or other employee benefit not required, or
enter into or agree to enter into any agreement or arrangement with such
director or officer or employee, whether past or present, relating to any
such pension, retirement allowance or other employee benefit, except as
required under currently existing agreements, plans or arrangements; (iii)
except in accordance with Section 3.1(b) hereof, grant any severance or
termination pay to, or enter into any employment or severance agreement
with, (x) any employee except in the ordinary course of business consistent
with past practice or (y) any of its directors or officers; or (iv) except
as may be required to comply with applicable law, become obligated (other
than pursuant to any new or renewed collective bargaining agreement) under
any new pension plan, welfare plan, multiemployer plan, employee benefit
plan, benefit arrangement, or similar plan or arrangement, which was not in
existence on the date hereof, including any bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the benefit
of any person, or amend any of such plans or any of such agreements in
existence on the date hereof;
(f) except as otherwise expressly contemplated by this Agreement, enter
into any other material agreements, commitments or contracts, except
agreements, commitments or contracts for the purchase, sale or lease of
goods or services in the ordinary course of business consistent with past
practice;
(g) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any plan of liquidation or dissolution, any
acquisition of a material amount of assets or securities, any sale,
transfer, lease, license, pledge, mortgage, or other disposition or
encumbrance of a material amount of assets or securities or any material
change in its capitalization;
(h) make any change in the accounting methods or accounting practices
followed by the Company;
(i) settle or compromise any material federal, state, local or foreign
Tax liability, make any new material Tax election, revoke or modify any
existing Tax election, or request or consent to a change in any method of
Tax accounting;
(j) unless the Merger Consideration consists solely of Cash Merger
Consideration, take, cause or permit to be taken any action, whether before
or after the Effective Date, that could reasonably be expected to prevent
the Merger from constituting a "reorganization" within the meaning of
Section 368(a) of the Code; or
(k) agree to do any of the foregoing.
7.2 CONDUCT OF BUSINESS OF HAIN PENDING THE MERGER. Except as contemplated
by this Agreement or as expressly agreed to in writing by the Company, during
the period from the date of this Agreement to the Effective Time, each of Hain
and its subsidiaries will use all commercially reasonable efforts to keep
substantially intact its business, properties and business relationships and
will take no action which would materially adversely affect the ability of the
parties to consummate the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the Effective Time, Hain will not nor will
it permit any of its subsidiaries to, without the prior written consent of the
Company, which consent shall not be unreasonably withheld:
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(a) amend its certificate of incorporation or by-laws except as set
forth in this Agreement;
(b) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or purchase, redeem or otherwise acquire any shares of its own
capital stock or of any of its subsidiaries, except as otherwise expressly
provided in this Agreement;
(c) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any plan of liquidation or dissolution, any
acquisition of an amount of assets or securities which would satisfy one or
more of the requirements of "significant subsidiary" for Hain, within the
meaning of Regulation S-X, on a pro forma basis before giving effect to the
Merger and the transactions contemplated thereby, any sale, transfer, lease,
license, pledge or mortgage or other disposition or encumbrance of a
material amount of assets or securities or any material change in its
capitalization; or
(d) agree to do any of the foregoing.
ARTICLE VIII
COVENANTS AND AGREEMENTS
8.1 PREPARATION OF THE FORM S-4.
(a) As soon as practicable following the date of this Agreement, Hain shall
prepare and file with the SEC the Form S-4, in which the Prospectus/Information
Statement shall be included as a prospectus. Hain shall use commercially
reasonable efforts to have the Form S-4 declared effective under the Securities
Act as promptly as practicable after such filing. Hain shall also take any
action required to be taken under any applicable state securities laws in
connection with the issuance of Hain Common Stock in the Merger. No filing of,
or amendment or supplement to, the Form S-4 will be made by Hain without the
consent of the Company, which shall not be unreasonably withheld. Hain shall
provide the Company and its counsel reasonable opportunity to review and comment
thereon. It is further acknowledged that the Company will need to obtain the
consent of Wasserstein Perella & Co. Inc. in connection with any description or
summary of its fairness opinion (or the work performed by such investment
banking firm in connection therewith) that is contained in any filing with the
SEC. Hain will advise the Company, promptly after it receives notice thereof, of
the time when the Form S-4 has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the Hain Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Form S-4 or comments thereon and responses thereto or requests
by the SEC for additional information. If at any time prior to the Effective
Time any information relating to the Company or Hain, or any of their respective
affiliates, officers or directors, should be discovered by the Company or Hain
which should be set forth in an amendment or supplement to any of the Form S-4,
so that any of such documents would not include any misstatement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, the party which discovers such information shall promptly notify the
other parties hereto and an appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and, to the extent required by
law, disseminated to the shareholders of the Company. It is acknowledged that
the shares of Hain Common Stock, if any, to be issued in the Merger shall not be
subject to any restrictions on resale under the federal or state securities
laws; provided, in the case of shareholders who are parties to the Voting
Agreement, shares of Hain Common Stock received by such shareholders as Stock
Merger Consideration shall be initially deposited in trading accounts maintained
by Bear Stearns & Co. Inc.; PROVIDED, HOWEVER, nothing in this Agreement shall
be deemed to require that any shares of Hain Common Stock remain so deposited
for any period of time. Accordingly, at the election of Hain and its counsel,
after consultation with the Company and its counsel, Hain will either
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(i) include in the S-4 a plan of distribution that permits the recipients of
Hain Common Stock to sell any or all of their shares of Hain Common Stock
without any restrictions or (ii) file and have declared effective a registration
statement that permits the resale of such shares of Hain Common Stock without
any restrictions.
(b) The Company shall, through its Board of Directors, recommend that its
shareholders consent to this Agreement, the Merger and the other transactions
contemplated hereby. Upon receipt from Hain of a definitive copy of the
Prospectus/Information Statement in the form declared effective by the SEC, the
Company shall immediately cause a copy of the Prospectus/Information Statement
to be distributed to each of its shareholders, together with such other
information as may be required under the TBCA, including information relating to
Dissenters' Rights.
8.2 LETTERS AND CONSENTS OF THE COMPANY'S ACCOUNTANTS. The Company shall
use all commercially reasonable efforts to cause to be delivered to Hain all
consents required from its independent accountants necessary to effect the
registration of the Hain Common Stock and make any required filing with the SEC
in connection with the Merger and the transactions contemplated thereby, in each
case to the extent related to the financial statements listed on Schedule 8.2 of
the Disclosure Schedule. Notwithstanding any provision in this Agreement to the
contrary, the only financial information that the Company shall be required to
furnish to Hain in connection with the preparation of the S-4 or any other
securities law filing is the financial statements listed on Schedule 8.2.
8.3 LETTERS AND CONSENTS OF HAIN'S ACCOUNTANTS. Hain shall use all
commercially reasonable efforts to cause to be delivered to the Company all
consents required from its independent accountants necessary to effect the
registration of the Hain Common Stock and make any required filing with the SEC
in connection with the Merger and the transactions contemplated thereby.
8.4 ADDITIONAL AGREEMENTS; COOPERATION.
(a) Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use commercially reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, and to cooperate with each other in
connection with the foregoing, including using commercially reasonable efforts
(i) to obtain all necessary waivers, consents and approvals from other parties
to loan agreements, material leases and other material contracts that are
specified in Section 8.4 to the Disclosure Schedule Statement, (ii) to obtain
all necessary consents, approvals and authorizations as are required to be
obtained under any federal, state or foreign law or regulations, (iii) to defend
all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, (iv) to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby, (v)
to effect all necessary registrations and filings, including, but not limited
to, filings under the HSR Act and submissions of information requested by
governmental authorities, (vi) provide all necessary information for the Form
S-4 and (vii) to fulfill all conditions to this Agreement. Without limiting the
generality of the foregoing provisions, the parties acknowledge that the consent
of the lenders under the existing credit facility of the Company (the "CREDIT
AGREEMENT") with respect to the transactions contemplated by this Agreement is
required pursuant to the terms of the Credit Agreement. The Company will use its
commercially reasonable efforts to obtain such consents on or prior to the
Closing; PROVIDED, HOWEVER, that if such lenders are unwilling to give such
consents, then, on or prior to the Closing Date, Hain will refinance all amounts
outstanding under the Credit Agreement.
(b) The Company will supply Hain with copies of all correspondence, filings
or communications (or memoranda setting forth the substance thereof) between the
Company or its representatives, on the one hand, and the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice, on the other hand, with respect to this Agreement, the Merger and the
other transactions contemplated hereby. Each of the parties hereto agrees to
furnish to the other party hereto such necessary
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information and reasonable assistance as such other party may request in
connection with its preparation of necessary filings or submissions to any
regulatory or governmental agency or authority, including, without limitation,
any filing necessary under the provisions of the HSR Act or any other applicable
Federal or state statute.
(c) Hain and Hain Subsidiary will supply the Company with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between Hain, Hain Subsidiary or their representatives, on
the one hand, and the Federal Trade Commission, the Antitrust Division of the
United States Department of Justice and the SEC, on the other hand, with respect
to this Agreement, the Merger and the other transactions contemplated hereby.
8.5 PUBLICITY. The Company and Hain agree to consult with each other in
issuing any press release and with respect to the general content of other
public statements with respect to the transactions contemplated hereby, and
shall not issue any such press release prior to such consultation; PROVIDED,
HOWEVER, that nothing herein will prohibit any party from issuing or causing
publication of any such press release or public announcement to the extent that
such party determines such action to be required by law or the rules of The
Nasdaq Stock Market, Inc., in which event the party making such determination
will, if practicable in the circumstances, use all commercially reasonable
efforts to allow the other party reasonable time to comment on such release or
announcement in advance of its issuance.
8.6 NO SOLICITATION. The Company agrees that, it shall not, and shall not
authorize or permit any of its subsidiaries or any of its or its subsidiaries'
directors, officers, employees, agents or representatives to, directly or
indirectly, solicit, initiate, facilitate or encourage (including by way of
furnishing or disclosing non-public information) any inquiries or the making of
any proposal with respect to any merger, consolidation or other business
combination involving the Company or its subsidiaries or acquisition of any kind
of all or substantially all of the assets or capital stock of the Company and
its subsidiaries taken as a whole (an "ACQUISITION TRANSACTION") or negotiate,
explore or otherwise communicate in any way with any third party (other than
Hain) with respect to any Acquisition Transaction or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transactions contemplated by this Agreement;
PROVIDED that the Company may furnish information to, and negotiate or otherwise
engage in discussions with, any party who delivers a written proposal for an
Acquisition Transaction if and so long as the Board of Directors of the Company
determines in good faith by a majority vote, based upon the advice of its
outside legal counsel, that failing to take such action would constitute a
breach of the fiduciary duties of the Board, and in such case the Board of
Directors of the Company may withdraw its recommendation of this Agreement or
the Merger (provided that the foregoing shall in no way limit or otherwise
affect Hain's right to terminate this Agreement pursuant to Section 10.1). The
Company will immediately cease all existing activities, discussions and
negotiations with any parties conducted heretofore with respect to any of the
foregoing. To the extent such disclosure is not a breach of the fiduciary duties
of the Board of Directors as advised by outside legal counsel from and after the
execution of this Agreement, the Company shall promptly advise Hain in writing
of the receipt, directly or indirectly, of any inquiries, discussions,
negotiations, or proposals relating to an Acquisition Transaction (including the
material terms thereof).
8.7 ACCESS TO INFORMATION.
(a) From the date of this Agreement until the Effective Time, each of the
Company and Hain will, after reasonable notice, give the other party and its
authorized representatives (including counsel, environmental and other
consultants, accountants and auditors) reasonable access during normal business
hours to all facilities, personnel and operations and to all books and records
of it and its subsidiaries, will, after reasonable notice, permit the other
party to make such inspections as it may reasonably require and will cause its
officers and those of its subsidiaries to furnish the other party with such
financial and operating data and other information with respect to its business
and properties as such party may from time to time reasonably request.
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(b) All documents and information furnished pursuant to this Agreement shall
be subject to the terms and conditions set forth in the Confidentiality
Agreements dated May 14, 1997 and May 21, 1997 between Hain and the Company or a
subsidiary thereof, as amended (together, the "CONFIDENTIALITY AGREEMENT"). This
provision shall survive any termination of this Agreement.
8.8 NOTIFICATION OF CERTAIN MATTERS. Prior to the Effective Time, the
Company or Hain, as the case may be, shall promptly notify the other of (i) its
obtaining of actual knowledge as to the matters set forth in clauses (x) and (y)
below, or (ii) the occurrence, or failure to occur, of any event, which
occurrence or failure to occur would be likely to cause (x) any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time, or (y)
any material failure of the Company or Hain, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; PROVIDED, HOWEVER, that no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
8.9 RESIGNATION OF DIRECTORS. At or prior to the Effective Time, the
Company shall deliver to Hain the resignations of such directors of the Company
and its subsidiaries as Hain shall specify, effective at the Effective Time.
8.10 INDEMNIFICATION AND INSURANCE.
(a) Hain and the Surviving Corporation agree that, except as may be limited
by applicable Laws, for seven (7) years from and after the Effective Time, the
indemnification obligations set forth in the Company's Articles of Incorporation
and the Company's By-Laws, or in any indemnification agreement to which the
Company is a party as of March 31, 1998, in each case as of the date of this
Agreement, shall survive the Merger and shall not be amended, repealed or
otherwise modified after the Effective Time in any manner that would adversely
affect the rights thereunder of the individuals who on or at any time prior to
the Effective Time were entitled to indemnification thereunder with respect to
matters occurring at or prior to the Effective Time.
(b) To the extent, if any, not provided by an existing right of
indemnification or other agreement or policy, from and after the Effective Time,
Hain shall, to the fullest extent such person could have been indemnified under
the DGCL or under the Certificate of Incorporation or the By-laws of Hain in
effect immediately prior to the Effective Time, indemnify, defend and hold
harmless the present and former directors, officers and management employees of
the parties hereto and their respective subsidiaries (each an "INDEMNIFIED
PARTY" and, collectively, the "INDEMNIFIED PARTIES") against (i) all losses,
expenses (including reasonable attorneys' fees and expenses), claims, damages,
costs, liabilities, judgments or (subject to the proviso of the next succeeding
sentence) amounts that are paid in settlement of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or management employee of such party or any subsidiary
thereof, whether pertaining to any matter existing or occurring at or prior to
or after the Effective Time and whether asserted or claimed prior to, at or
after the Effective Time and (ii) all liabilities based in whole or in part on,
or arising in whole or in part out of, or pertaining to this Agreement or the
transactions contemplated hereby; PROVIDED, the indemnification contemplated in
this subclause (ii) shall not apply to any claim based on fraudulent
misrepresentation or willful breach. In the event of any such loss, expense,
claim, damage, cost, liability, judgment or settlement (whether or not arising
before the Effective Time), (x) Hain shall pay the reasonable fees and expenses
of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to Hain, promptly after statements therefor are
received, and otherwise advance to the Indemnified Parties upon requested
reimbursement of documented expenses reasonably incurred, in either case to the
extent not prohibited by the laws of the State of Delaware, (y) Hain shall
cooperate in the defense of any such matter and (z) any determination required
to be made with respect to whether an Indemnified Party's conduct complies with
the standards under applicable law or as set forth in Hain's articles of
incorporation or bylaws shall be made by independent
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<PAGE>
counsel mutually acceptable to Hain and the Indemnified Party; PROVIDED,
HOWEVER, that Hain shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld). The
Indemnified Parties as a group may retain only one law firm (other than local
counsel) with respect to each related matter except to the extent there could
reasonably be expected to be, in the sole opinion of counsel to an Indemnified
Party, under applicable standards of professional conduct, a conflict on any
significant issue between positions of any two or more Indemnified Parties, in
which case each Indemnified Party with a conflicting position on a significant
issue shall be entitled to separate counsel. In the event any Indemnified Party
is required to bring any action to enforce rights or to collect moneys due under
this Agreement is successful in such action, Hain shall reimburse such
Indemnified Party for all of its expenses in bringing and pursuing such action.
Each Indemnified Party shall be entitled to the advancement of expenses to the
full extent contemplated in this Section 8.10(b) in connection with any such
action.
8.11 FEES AND EXPENSES. Whether or not the Merger is consummated, the
Company and Hain shall bear their respective expenses incurred in connection
with the Merger, including, without limitation, the preparation, execution and
performance of this Agreement and the transactions contemplated hereby, and all
fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants, except that (a) Hain shall bear and
pay the costs and expenses incurred in connection with the filing, printing and
mailing of the Form S-4 (including SEC and state filing fees, all accounting
expenses incurred directly in connection therewith, and including the fees and
expenses of Vinson & Elkins L.L.P. incurred in connection therewith in an amount
not to exceed $50,000), (b) the Company or its shareholders existing prior to
the Effective Time shall bear and pay the fees, costs and expenses incurred in
connection with (i) the services of any finder or broker set forth under Section
5.21 hereof and (ii) any amounts owed to James Mortenson due in connection with
the Merger pursuant to any agreement between the Company and Mr. Mortenson
existing as of the date hereof and (c) Hain shall bear and pay the costs and
expenses incurred in connection with the filings of the premerger notification
and report forms under the HSR Act (including filing fees). If the Merger is
consummated, then for purposes of this Agreement, references to the Company or
its shareholders "bearing" fees, costs or expenses shall mean that, to the
extent that such expenses have been incurred by the Company prior to the
Effective Time, or incurred but not paid by any shareholder of the Company prior
to the Effective Time, the amount thereof (or a reasonable estimate thereof
mutually agreed to by the parties hereto in good faith) shall constitute a
deduction to the Cash Merger Consideration in accordance with Section 3.1(b)
hereof, and the shareholders shall have no further obligation to pay any such
fees, costs or expenses after the Effective Time.
8.12 NASDAQ LISTING. Hain shall use commercially reasonable efforts to
cause the Hain Common Stock to be issued in connection with the Merger to be
approved for listing on the National Market System of The Nasdaq Stock Market,
Inc., subject to official notice of issuance, as promptly as practicable after
the date hereof, and in any event prior to the Closing Date.
8.13 SHAREHOLDER LITIGATION. Each of the Company and Hain shall give the
other the reasonable opportunity to participate in the defense of any
shareholder litigation against or in the name of the Company or Hain, as
applicable, and/or their respective directors relating to the transactions
contemplated by this Agreement.
8.14 TAX TREATMENT. Unless the Merger Consideration consists solely of
Cash Merger Consideration, each of Hain and the Company shall treat the Merger
as a tax free reorganization under the provisions of Section 368 of the Code on
its Tax Returns.
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ARTICLE IX
CONDITIONS TO CLOSING
9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) SHAREHOLDER APPROVALS. Approval of the Merger and the transactions
contemplated thereby shall have been obtained by the requisite approval of
the Company's shareholders.
(b) HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) NO INJUNCTIONS OR RESTRAINTS. No material judgment, order, decree,
statute, law, ordinance, rule or regulation entered, enacted, promulgated,
enforced or issued by any court or other governmental entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"RESTRAINTS") shall be in effect preventing the consummation of the Merger.
(d) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order and no stop order or similar restraining order shall be
threatened or entered by the SEC or any state securities administration
preventing the Merger.
(e) NASDAQ LISTING. The shares of Hain Common Stock issuable to the
Company's shareholders as contemplated by this Agreement shall have been
approved for listing on National Market System of The Nasdaq Stock Market,
Inc., subject to official notice of issuance.
(f) CONSENTS AND APPROVALS. All necessary consents and approvals of any
United States or any other governmental authority or any other third party
required for the consummation of the transactions contemplated by this
Agreement shall have been obtained; except for such consents and approvals
the failure to obtain which individually or in the aggregate would not have
a material adverse effect on the Surviving Corporation.
(g) GARDEN OF EATIN' TRANSACTION. All of the conditions precedent to the
obligations of the parties pursuant to that certain Agreement and Plan of
Merger dated of even date herewith by and between Hain and Garden of Eatin',
Inc. (the "GOE AGREEMENT") shall have been satisfied or waived by the
parties thereto, and Hain shall have delivered to the Company a certificate
of an executive officer thereof that the parties are prepared to, and intend
to, consummate the transactions contemplated thereby simultaneously with the
consummation of the transactions contemplated hereby at the Effective Time.
9.2 CONDITIONS TO OBLIGATIONS OF HAIN. The obligation of Hain to effect
the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations, warranties and
covenants of the Company set forth herein, to the extent qualified with
respect to materiality, shall be true and correct in all respects, and to
the extent not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and at and as of the
Effective Time as if made at and as of such time (except to the extent
expressly made as of earlier date, in which case as of such date). The
Company shall have delivered to Hain an officer's certificate, in form and
substance satisfactory to Hain and its counsel, to the effect of the matters
stated in this Section 9.2(a) and Section 9.2(b).
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date.
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(c) CONSENT OF ACCOUNTANTS. Hain shall have received all consents
required from the independent accountants in connection with the filing of
the Form S-4 of the Company necessary to effect the registration of the Hain
Common Stock.
(d) REAL ESTATE HOLDING CORPORATION. The Company shall have (i)
delivered an affidavit stating, under penalty of perjury, that (A) the
Company is not and has not been at any time during the five-year period
prior to the Effective Time a "United States real property holding
corporation," as defined for purposes of section 897(c)(2) of the Code and
(B) as of the Effective Time, interests in the Company are not United States
real property holding company interests by reasons of Section 897(c)(1)(B)
of the Code and (ii) complied with the requirements of Treas. Reg.
Section1.897-2(h) and provided evidence (reasonably satisfactory to Hain) of
such compliance.
(e) TAX OPINION. Hain shall have received an opinion of Cahill Gordon &
Reindel, counsel to Hain, dated on or about the Closing Date, based upon
such representations and assumptions as counsel may reasonably deem
relevant, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization qualifying under the provisions of Sections
368(a)(1)(a) and 368(a)(2)(D) of the Code; that each of Hain, Hain
Subsidiary and the Company will be a party to the reorganization within the
meaning of Section 368(b) of the Code; that gain, if any, realized by a
shareholder of the Company on the exchange on Company Common Stock for the
Merger Consideration will be recognized only to the extent of the Cash
Merger Consideration received by such shareholder; that no loss will be
recognized by a shareholder of the Company on the exchange of Company Common
Stock for the Merger Consideration pursuant to the Merger (except with
respect to any cash received in lieu of a fractional share). If the Merger
Consideration consists solely of Cash Merger Consideration, then the
condition set forth in this Section 9.2(e) shall be deemed to be fully
satisfied for all purposes of this Agreement.
(f) OPINION OF COMPANY COUNSEL. Hain shall have received an opinion from
Vinson & Elkins L.L.P., counsel to the Company, substantially to the effect
set forth in EXHIBIT A hereto.
(g) VOTING AGREEMENT. The voting agreement and irrevocable proxy dated
the date hereof (the "VOTING AGREEMENT") pursuant to which shareholders
owning at least two thirds of the outstanding Company Common Stock have
agreed to vote in favor of the Merger and the transactions related thereto
shall be in full force and effect as of the Closing Date.
(h) DISSENTERS' RIGHTS. The number of shares of Company Common Stock for
which shareholders thereof have asserted Dissenters' Rights shall not exceed
15% of the outstanding Company Common Stock.
(i) POST-MERGER OWNERSHIP. Immediately prior to the Effective Time, the
Company shall provide evidence reasonably satisfactory to Hain that, upon
consummation of the Merger and the issuance of the Stock Merger
Consideration, no shareholder of Company Common Stock immediately prior to
the Effective Time shall hold or have the right to vote immediately after
the issuance of the Stock Merger Consideration greater than 4% (four
percent) of the Hain Common Stock then outstanding (assuming a Closing Date
Market Price of $20.00 per share and that 50% of the Merger Consideration is
paid in Stock Merger Consideration).
(j) CANCELLATION OF OPTIONS TO PURCHASE COMPANY COMMON STOCK. At the
Effective Time, the Company shall have taken all such action necessary to
cause all outstanding options to purchase shares of Company Common Stock
(the "OPTIONS") to be canceled as of the Effective Time (irrespective of
whether such options are then exercisable pursuant to the provisions
thereof) in consideration for the right to receive from Hain at the
Effective Time for each optionee (i) an amount of cash per share equal to
the excess, if any, of (x) the Cash Merger Consideration that such optionee
would have received if such optionee had exercised his Option in full
immediately prior to the Effective Time (taking into account the provisions
of the last sentence of this paragraph (j)) over (y)
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<PAGE>
the aggregate exercise price under such Option for such shares and (ii) the
amount of Stock Merger Consideration (including any cash in lieu of
fractional shares) that such optionee would have received if such optionee
had exercised his Option in full immediately prior to the Effective Time
(taking into account the provisions of the last sentence of this paragraph
(j)); PROVIDED, HOWEVER, that if the amount in clause (i)(y) is greater than
the amount in clause (i)(x), then the value of shares of Hain Common Stock
(valued at the Closing Date Market Price) delivered pursuant to clause (ii)
shall be reduced by the amount of such excess. The aggregate amount of cash
and shares of Hain Common Stock (valued at the Closing Date Market Price)
that is paid pursuant to this paragraph shall be deemed a transaction
expense for purposes of Section 8.11 hereof.
9.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Hain set forth herein, to the extent qualified with respect to
materiality, shall be true and correct in all respects, and to the extent
not so qualified shall be true and correct in all material respects, in each
case as of the date of this Agreement and at and as of the Effective Time as
if made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such date).
(b) PERFORMANCE OF OBLIGATIONS OF HAIN AND HAIN SUBSIDIARY. Hain and
Hain Subsidiary shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Closing Date.
(c) TAX OPINION. The Company shall have received an opinion of Vinson &
Elkins L.L.P., counsel to the Company, dated on or about the Closing Date,
based upon such representations and assumptions as counsel may reasonably
deem relevant, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization qualifying under the provisions of
Sections 368(a)(1)(a) and 368(a)(2)(D) of the Code; that each of Hain, Hain
Subsidiary and the Company will be a party to the reorganization within the
meaning of Section 368(b) of the Code; that gain, if any, realized by a
shareholder of the company on the exchange on Company Common Stock for the
Merger Consideration will be recognized only to the extent of the Cash
Merger Consideration received by such shareholder; that no loss will be
recognized by a shareholder of the Company on the exchange of Company Common
Stock for the Merger Consideration pursuant to the Merger (except with
respect to any cash received in lieu of a fractional share). If the Merger
Consideration consists solely of Cash Merger Consideration, then the
condition set forth in this Section 9.3(d) shall be deemed to be fully
satisfied for all purposes of this Agreement.
(d) OPINION OF HAIN COUNSEL. The Company shall have received an opinion
from Cahill Gordon & Reindel, counsel to Hain, substantially to the effect
set forth as EXHIBIT B.
(e) MERGER CONSIDERATION. In the event any of the Merger Consideration
consists of Stock Merger Consideration, then at least 50% of the Merger
Consideration shall be comprised of Stock Merger Consideration and Cash
Merger Consideration, when aggregated with the cash merger consideration
paid in connection with the GOE Agreement, shall be greater than or equal to
$20.0 million.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after and approval of this Agreement by
the Company's shareholders:
(a) by mutual written consent of the Company and Hain;
(b) by either the Company or Hain:
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(i) if the Merger shall not have been consummated by August 30, 1998;
PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to
this Section 10.1(b)(i) shall not be available to any party whose failure
to perform any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time; or
(ii) if any Restraint having any of the effects set forth in Section
9.1(c) shall be in effect and shall have become final and nonappealable;
(c) by Hain, if the Board of Directors of the Company shall withdraw,
modify or change its recommendation of this Agreement or the Merger in a
manner adverse to Hain;
(d) by Hain, if the Company shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement (which breach is not cured
within 15 business days after receipt by the Company of a written notice of
such breach from Hain specifying the breach and requesting that it be cured)
or if the Voting Agreement ceases to be in full force and effect;
(e) by the Company, if Hain shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement (which breach is not cured
within 15 business days after receipt by the Company of a written notice of
such breach from Hain specifying the breach and requesting that it be
cured);
(f) by the Company, if, prior to the Effective Time, the Board of
Directors of the Company approves an agreement to effect an Acquisition
Transaction if the Board of Directors has determined in good faith, upon
advice from its outside counsel, that failure to approve such agreement and
terminate this Agreement would constitute a breach of the fiduciary duties
of the Company Board (and so advised Hain) and the Board of Directors
reasonably believes that such Acquisition Transaction is more favorable to
the Company's shareholders than the transaction contemplated by this
Agreement; or
(g) by the Company, if the Form S-4 is not declared effective by July
15, 1998.
10.2 EFFECT OF TERMINATION.
(a) The termination of this Agreement shall become effective upon delivery
to the other party of written notice thereof. In the event of the termination of
this Agreement pursuant to the foregoing provisions of this Article X, this
Agreement shall become void and have no effect, with no liability on the part of
any party (except as provided in paragraph (b) below) or its shareholders or
stockholders or directors or officers in respect thereof except for agreements
which survive the termination of this Agreement and except for liability that
Hain or the Company might have arising from a breach of this Agreement.
(b) In the event of a termination of this Agreement by the Company pursuant
to Section 10.1(f), then the Company shall within two business days of such
termination pay Hain by wire transfer of immediately available funds to an
account specified by Hain (i) up to $600,000 to reimburse Hain, aggregated
together with amounts provided therefor under Section 10.2(b)(i) of the GOE
Agreement, for its documented fees and expenses (including the fees and expenses
of counsel, accountants, consultants and advisors) incurred in connection with
this Agreement and the transactions contemplated hereby and (ii) a fee of
$770,000 as liquidated damages.
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<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 11.1 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
(b) Each of the parties is a sophisticated legal entity that was advised by
knowledgeable counsel and, to the extent it deemed necessary, other advisors in
connection with this Agreement. Accordingly, each of the parties hereby
acknowledges that (i) no party has relied or will rely upon any document or
written or oral information previously furnished to or discovered by it or its
representatives, other than this Agreement, the GOE Agreement and the Voting
Agreement or in the Disclosure Schedules or any certificates delivered at the
Effective Time pursuant hereto or thereto and (ii) there are no representations
or warranties by or on behalf of any party hereto or any of its respective
affiliates or representatives other than those expressly set forth in this
Agreement, the GOE Agreement and the Voting Agreement or in the Disclosure
Schedules or in any certificates delivered at the Effective Time pursuant to
hereto or thereto.
(c) The disclosures made on any section of the Disclosure Schedule with
respect to any representation or warranty shall be deemed to be made with
respect to any other representation or warranty requiring the same or similar
disclosure to the extent that the relevance of such disclosure to other
representations and warranties is evident from the face of the applicable
section of the Disclosure Schedule. All references in this Agreement to the
"knowledge of the Company" (or any similar phrase) will be deemed to be
references solely to the actual knowledge of the executive officers of the
Company. The inclusion of any matter on any disclosure schedule will not be
deemed an admission by any party that such listed matter is material or that
such listed matter has or would have a Company Material Adverse Effect or Hain
Material Adverse Effect, as the case may be.
11.2 CLOSING AND WAIVER.
(a) Unless this Agreement shall have been terminated in accordance with the
provisions of Section 10.1 hereof, a closing (the "CLOSING" and the date and
time thereof being the "CLOSING DATE") will be held as soon as practicable after
the conditions set forth in Sections 9.1, 9.2 and 9.3 shall have been satisfied
or waived. The Closing will be held at the offices of Cahill Gordon & Reindel,
80 Pine Street, New York, New York or at such other places as the parties may
agree. Simultaneously therewith, each of the Delaware Certificate of Merger and
the Texas Certificate of Merger will be filed.
(b) At any time prior to the Effective Date, any party hereto may (i) extend
the time for the performance of any of the obligations or other acts of any
other party hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements of any
other party or with any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing duly authorized by and
signed on behalf of such party.
11.3 NOTICES.
(a) Any notice or communication to any party hereto shall be duly given if
in writing and delivered in person or mailed by first class mail (registered or
certified, return receipt requested), facsimile or overnight air courier
guaranteeing next day delivery, to such other party's address.
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<PAGE>
If to Hain or Hain Subsidiary:
The Hain Food Group, Inc.
50 Charles Lindbergh Boulevard
Uniondale, New York 11553
Facsimile No.: (516) 237-6240
Attention: President
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: Roger Meltzer, Esq.
If to the Company:
Arrowhead Mills, Inc.
110 South Lawton
Hereford, Texas 79045
Facsimile No.: (806) 364-1068
Attention: Chief Operating Officer
with a copy to:
Vinson & Elkins L.L.P
2300 First City Tower
1001 Fannin Street
Houston, TX 77002-6760
Facsimile No.: (713) 758-2346
Attention: J. Mark Metts, Esq.
(b) All notices and communications will be deemed to have been duly given:
at the time delivered by hand, if personally delivered; five business days after
being deposited in the mail, if mailed; when sent, if sent by facsimile; and the
next business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
11.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.5 INTERPRETATION. The headings of articles and sections herein are for
convenience of reference, do not constitute a part of this Agreement, and shall
not be deemed to limit or affect any of the provisions hereof. As used in this
Agreement, "person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof; "subsidiary" of any person means (i) a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by such
person or by one or more other subsidiaries of such person or by such person and
one or more subsidiaries thereof or (ii) any other person (other than a
corporation) in which such person, or one or more other subsidiaries of such
person or such person and one or more other subsidiaries thereof, directly or
indirectly, have at least a majority ownership and voting power relating to the
policies, management and affairs thereof; and "voting stock" of any person means
capital stock of such person which ordinarily has voting power for the election
of directors (or persons performing similar functions) of such person, whether
at all times or only so long as no senior class of securities has such voting
power by reason of any contingency.
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11.6 AMENDMENT. This Agreement may be amended by the parties at any time
before or after any required approval of matters presented in connection with
the Merger by the shareholders of the Company; provided, however, that after any
such approval, there shall not be made any amendment that by law requires
further approval by such shareholders without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
11.7 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall confer
any rights upon any person or entity which is not a party or permitted assignee
of a party to this Agreement, except for rights of Indemnified Parties as set
forth in Section 8.10 (Directors' and Officers' Indemnification.
11.8 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
11.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
11.10 NO RECOURSE AGAINST OTHERS. No director, officer or employee, as
such, of Hain, Hain Subsidiary or the Company or any of their respective
subsidiaries shall have any liability for any obligations of Hain, Hain
Subsidiary or the Company, respectively, under this Agreement for any claim
based on, in respect of or by reasons of such obligations or their creation.
11.11 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to
be executed by their duly authorized officers all as of the day and year first
above written.
THE HAIN FOOD GROUP, INC.
By: /s/ IRWIN D. SIMON
-----------------------------------------
Name: Irwin D. Simon
Title: President and Chief Executive
Officer
ARROWHEAD MILLS, INC.
By: /s/ CHARLES ESSERMAN
-----------------------------------------
Name: Charles Esserman
Title:
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<PAGE>
ANNEX B
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
THE HAIN FOOD GROUP, INC.
AND
GARDEN OF EATIN', INC.
DATED
APRIL 24, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I MERGER................................................................................ B-1
1.1 Formation of Hain Subsidiary.......................................................... B-1
1.2 The Merger............................................................................ B-1
1.3 Filing................................................................................ B-1
1.4 Effective Time of the Merger.......................................................... B-1
ARTICLE II CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS AND OFFICERS......................... B-2
2.1 Certificate of Incorporation.......................................................... B-2
2.2 By-Laws............................................................................... B-2
2.3 Directors and Officers................................................................ B-2
ARTICLE III CONVERSION OF SHARES.................................................................. B-2
3.1 Conversion............................................................................ B-2
(a) Merger Consideration.............................................................. B-2
(b) Adjustment to Cash Merger Consideration........................................... B-2
3.2 Exchange of Certificates.............................................................. B-3
(a) Exchange Agent.................................................................... B-3
(b) Exchange Procedures............................................................... B-3
(c) Exchange of Certificates.......................................................... B-3
(d) Distributions with Respect to Unsurrendered Certificates.......................... B-3
(e) No Further Rights in Company Common Stock......................................... B-4
(f) No Fractional Shares.............................................................. B-4
(g) Termination of Exchange Fund...................................................... B-4
(h) No Liability...................................................................... B-4
(i) Withholding Rights................................................................ B-5
(j) Lost Certificates................................................................. B-5
3.3 Stock Transfer Books.................................................................. B-5
ARTICLE IV CERTAIN EFFECTS OF THE MERGER......................................................... B-5
4.1 Effect of the Merger.................................................................. B-5
4.2 Further Assurances.................................................................... B-5
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................... B-6
5.1 Organization and Qualification........................................................ B-6
5.2 Capital Stock of Subsidiaries......................................................... B-6
5.3 Capitalization........................................................................ B-6
5.4 Authority Relative to This Agreement.................................................. B-6
5.5 No Violations, etc.................................................................... B-7
5.6 Financial Statements.................................................................. B-8
5.7 Absence of Changes or Events.......................................................... B-8
5.8 Form S-4; Prospectus/Information Statement............................................ B-8
5.9 Litigation............................................................................ B-9
5.10 Title to and Condition of Properties.................................................. B-9
5.11 Leases................................................................................ B-9
5.12 Contracts; Bank Accounts; Indebtedness................................................ B-9
(a) Contracts and Commitments......................................................... B-9
(b) Bank Accounts..................................................................... B-10
(c) Indebtedness...................................................................... B-10
</TABLE>
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<TABLE>
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PAGE
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<S> <C> <C>
5.13 Labor Matters......................................................................... B-10
5.14 Compliance with Law................................................................... B-10
5.15 Board Recommendation.................................................................. B-11
5.16 Intellectual Property................................................................. B-11
5.17 Taxes................................................................................. B-11
5.18 Employee Benefit Plans; ERISA......................................................... B-12
5.19 Environmental Matters................................................................. B-15
5.20 Absence of Undisclosed Liabilities.................................................... B-17
5.21 Finders or Brokers.................................................................... B-17
5.22 State Antitakeover Statutes........................................................... B-17
5.23 [Intentionally Omitted]............................................................... B-17
5.24 Insurance............................................................................. B-17
5.25 Employment and Labor Contracts........................................................ B-17
5.26 Inventory............................................................................. B-17
5.27 Balance Sheet Reserves................................................................ B-18
5.28 Qualification of Merger as a Tax Free Reorganization.................................. B-18
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF HAIN................................................ B-19
6.1 Organization and Qualification........................................................ B-19
6.2 Capital Stock of Subsidiaries......................................................... B-19
6.3 Capitalization........................................................................ B-19
6.4 Authority Relative to This Agreement.................................................. B-20
6.5 No Violations, etc.................................................................... B-20
6.6 Commission Filings; Financial Statements.............................................. B-21
6.7 Absence of Changes or Events.......................................................... B-21
6.8 Form S-4; Prospectus/Information Statement............................................ B-21
6.9 Board Recommendation.................................................................. B-22
6.10 Disclosure............................................................................ B-22
6.11 Absence of Undisclosed Liabilities.................................................... B-22
6.12 Finders or Brokers.................................................................... B-22
6.13 Opinion of Financial Advisor.......................................................... B-22
6.14 Employee Benefit Plans; ERISA......................................................... B-22
6.15 Qualification of Merger as a Tax Free Reorganization.................................. B-22
ARTICLE VII CONDUCT OF BUSINESS OF THE COMPANY AND HAIN PENDING THE MERGER........................ B-23
7.1 Conduct of Business of the Company Pending the Merger................................. B-23
7.2 Conduct of Business of Hain Pending the Merger........................................ B-25
ARTICLE VIII COVENANTS AND AGREEMENTS.............................................................. B-25
8.1 Preparation of the Form S-4........................................................... B-25
8.2 Letters and Consents of the Company's Accountants..................................... B-26
8.3 Letters and Consents of Hain's Accountants............................................ B-26
8.4 Additional Agreements; Cooperation.................................................... B-26
8.5 Publicity............................................................................. B-27
8.6 No Solicitation....................................................................... B-27
8.7 Access to Information................................................................. B-28
8.8 Notification of Certain Matters....................................................... B-28
8.9 Resignation of Directors.............................................................. B-28
8.10 Indemnification and Insurance......................................................... B-28
8.11 Fees and Expenses..................................................................... B-29
</TABLE>
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<TABLE>
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<S> <C> <C>
8.12 Nasdaq Listing........................................................................ B-29
8.13 Shareholder Litigation................................................................ B-29
8.14 Tax Treatment......................................................................... B-30
ARTICLE IX CONDITIONS TO CLOSING................................................................. B-30
9.1 Conditions to Each Party's Obligation to Effect the Merger............................ B-30
(a) Shareholder Approvals............................................................. B-30
(b) HSR Act........................................................................... B-30
(c) No Injunctions or Restraints...................................................... B-30
(d) Form S-4.......................................................................... B-30
(e) Nasdaq Listing.................................................................... B-30
(f) Consents and Approvals............................................................ B-30
(g) Arrowhead Mills Transaction....................................................... B-30
9.2 Conditions to Obligations of Hain..................................................... B-30
(a) Representations and Warranties.................................................... B-30
(b) Performance of Obligations of the Company......................................... B-31
(c) Consent of Accountants............................................................ B-31
(d) Real Estate Holding Corporation................................................... B-31
(e) Tax Opinion....................................................................... B-31
(f) Opinion of Company Counsel........................................................ B-31
(g) Voting Agreement.................................................................. B-31
(h) Post-Merger Ownership............................................................. B-31
9.3 Conditions to Obligations of the Company.............................................. B-31
(a) Representations and Warranties.................................................... B-31
(b) Performance of Obligations of Hain and Hain Subsidiary............................ B-32
(c) Tax Opinion....................................................................... B-32
(d) Opinion of Hain Counsel........................................................... B-32
(e) Merger Consideration.............................................................. B-32
ARTICLE X TERMINATION........................................................................... B-32
10.1 Termination........................................................................... B-32
10.2 Effect of Termination................................................................. B-33
ARTICLE XI MISCELLANEOUS......................................................................... B-33
11.1 Nonsurvival of Representations and Warranties......................................... B-33
11.2 Closing and Waiver.................................................................... B-34
11.3 Notices............................................................................... B-34
11.4 Counterparts.......................................................................... B-35
11.5 Interpretation........................................................................ B-35
11.6 Amendment............................................................................. B-35
11.7 No Third Party Beneficiaries.......................................................... B-35
11.8 Governing Law......................................................................... B-35
11.9 Entire Agreement...................................................................... B-35
11.10 No Recourse Against Others............................................................ B-35
11.11 Validity.............................................................................. B-35
</TABLE>
iii
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DISCLOSURE SCHEDULES
COMPANY DISCLOSURE SCHEDULES
<TABLE>
<CAPTION>
SECTION
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<S> <C>
5.1. Organization and Qualification
5.2. Capital Stock of Subsidiaries
5.3. Capitalization
5.5. No Violations, etc.
5.6. Financial Statements
5.7. Absence of Changes or Events
5.9. Litigation
5.10. Title to and Condition of Properties
5.11. Leases
5.12. (a) Contracts and Commitments
(b) Bank Accounts
(c) Indebtedness
5.14. Compliance with Law
5.16. Intellectual Property
5.17. Taxes
5.18. Employee Benefit Plans; ERISA
(r) Employee Termination
(s) Excess Parachute Payments
5.19. Environmental Matters
5.20. Absence of Undisclosed Liabilities
5.21. Finders or Brokers
5.24. Insurance
5.25. Employment and Labor Contracts
5.26. Inventory
5.27. Balance Sheet Reserves
7.1. Conduct of Business of the Company
8.2 Accounting Financial Statements
8.4 Additional Agreements; Cooperation
</TABLE>
iv
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HAIN DISCLOSURE SCHEDULES
<TABLE>
<CAPTION>
SECTION
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<C> <S>
6.2 Capital Stock of Subsidiaries
6.5 No Violations, etc.
6.6 Commission Filings; Financial Statements
6.7 Absence of Changes
6.12 Finders or Brokers
</TABLE>
EXHIBITS
EXHIBIT A--Form of Opinion of Vinson & Elkins L.L.P.
EXHIBIT B--Form of Opinion of Cahill Gordon & Reindel
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 24, 1998, by and between The
Hain Food Group, Inc., a Delaware corporation ("HAIN"), and Garden of Eatin',
Inc., a California corporation (the "COMPANY").
WITNESSETH:
WHEREAS, the Boards of Directors of each of Hain and the Company have
approved the merger (the "MERGER") of the Company with and into a wholly owned
subsidiary of Hain to be formed for the purpose thereof ("HAIN SUBSIDIARY"),
upon the terms and subject to the conditions set forth herein and in accordance
with the General Corporation Law of the State of Delaware (the "DGCL") and the
California General Corporation Law (the "CGCL");
WHEREAS, Hain will enter into an Agreement and Plan of Merger dated the date
hereof (the "AMI MERGER AGREEMENT") with Arrowhead Mills, Inc., a Texas
corporation ("AMI"), pursuant to which AMI will be merged with an into Hain
Subsidiary at the Effective Time (as hereinafter defined);
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax free reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "CODE").
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements herein contained, the parties hereto, intending to be legally
bound, agree as follows:
ARTICLE I
MERGER
1.1 FORMATION OF HAIN SUBSIDIARY. Hain shall form Hain Subsidiary under
the DGCL. Hain Subsidiary will be formed solely to facilitate the Merger and the
transactions contemplated thereby and will conduct no business or activity other
than in connection with the Merger. Hain will cause Hain Subsidiary to execute
and deliver a joinder to this Agreement pursuant to Section 251 of the DGCL and
will execute a written consent as the sole stockholder of Hain Subsidiary,
approving the execution, delivery and performance of this Agreement by Hain
Subsidiary.
1.2 THE MERGER. At the Effective Time (as hereinafter defined), the
Company shall be merged with and into Hain Subsidiary as provided herein.
Thereupon, the corporate existence of Hain Subsidiary, with all its purposes,
powers and objects, shall continue unaffected and unimpaired by the Merger, and
the corporate identity and existence, with all the purposes, powers and objects,
of the Company shall be merged with and into Hain Subsidiary and Hain Subsidiary
as the corporation surviving the Merger (hereinafter sometimes called the
"SURVIVING CORPORATION") shall continue its corporate existence under the laws
of the State of Delaware. The name of the Surviving Corporation shall be
Arrowhead Mills, Inc.
1.3 FILING. As soon as practicable after fulfillment or waiver of the
conditions set forth in Sections 9.1, 9.2 and 9.3 or on such later date as may
be mutually agreed to between Hain and the Company, the parties hereto will (i)
cause to be filed with the office of the Secretary of State of the State of
Delaware, a certificate of merger (the "DELAWARE CERTIFICATE OF MERGER"), in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL, and (ii) cause to be filed with the office of the
Secretary of State of California, a certificate of merger (the "CALIFORNIA
CERTIFICATE OF MERGER"), in such form as required by, and executed in accordance
with, the relevant provision of the CGCL.
1.4 EFFECTIVE TIME OF THE MERGER. The Merger shall be effective at the
time that the filing of each of the Delaware Certificate of Merger and the
California Certificate of Merger, or at such later time specified
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in such Certificates of Merger, which time is herein sometimes referred to as
the "EFFECTIVE TIME" and the date thereof is herein sometimes referred to as the
"EFFECTIVE DATE."
ARTICLE II
CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of Hain
Subsidiary shall be the Certificate of Incorporation of the Surviving
Corporation.
2.2 BY-LAWS. The By-Laws of Hain Subsidiary shall be the By-Laws of the
Surviving Corporation until the same shall thereafter be altered, amended or
repealed in accordance with law, the Certificate of Incorporation of the
Surviving Corporation or said By-Laws.
2.3 DIRECTORS AND OFFICERS. The directors of Hain Subsidiary immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and By-laws
of the Surviving Corporation, and the officers of Hain Subsidiary immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
3.1 CONVERSION.
(a) MERGER CONSIDERATION. At the Effective Time, the issued shares of
capital stock of the Company shall, by virtue of the Merger and without any
action on the part of the holders thereof, become and be converted as follows:
each outstanding share of common stock, no par value, of the Company (the
"COMPANY COMMON STOCK"), shall be converted into and become the right to receive
the Pro Rata Amount (as defined below) of the Merger Consideration (as defined
below). "MERGER CONSIDERATION" means $14,000,000, subject to adjustment in the
manner set forth in Section 3.1(b), consisting of a combination of (x) shares of
Common Stock, par value $.01 per share (the "HAIN COMMON STOCK"), of Hain (the
"STOCK MERGER CONSIDERATION") and (y) cash (the "CASH MERGER CONSIDERATION").
The allocation of Merger Consideration between Stock Merger Consideration and
Cash Merger Consideration shall be determined at the sole option of Hain, by
written notice to the Company on the third day prior to the Closing Date (as
defined herein); PROVIDED, HOWEVER, that (i) if any of the Merger Consideration
is comprised of Stock Merger Consideration, then at least 50% of the Merger
Consideration shall be comprised of Stock Merger Consideration (before giving
effect to any adjustments provided for in Section 3.1(b)) and (ii) the Cash
Merger Consideration shall be at least $5,000,000 in the aggregate. The Stock
Merger Consideration shall consist of the number of shares of Hain Common Stock
having an aggregate market value based on the Closing Date Market Price (as
defined below). With respect to any share of the Company Common Stock, "PRO RATA
AMOUNT" means the product of the Merger Consideration multiplied by a fraction,
the numerator of which is one and the denominator of which is the aggregate
number of all issued and outstanding shares of the Company Common Stock on the
Effective Date, allocated between Stock Merger Consideration and Cash Merger
Consideration in the proportion specified by Hain as set forth above. "CLOSING
DATE MARKET PRICE" means, with respect to each share of Hain Common Stock, the
average closing price for such share as reported on the National Market System
of The Nasdaq Stock Market, Inc. for the 10 most recent trading days ending on
the third day prior to the Effective Time.
(b) ADJUSTMENT TO CASH MERGER CONSIDERATION. The aggregate amount of Cash
Merger Consideration shall be reduced immediately prior to the Effective Time by
an amount equal to the sum of (i) the amount of fees, costs and expenses
incurred or reasonably estimated to be incurred by the Company or incurred (but
not paid) by the shareholders of the Company existing immediately prior to the
Effective
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Time to the extent that the Company and/or the shareholders of the Company are
liable therefor pursuant to Section 8.11 hereof and (ii) any indebtedness in the
aggregate for borrowed money of the Company (net of cash and cash equivalents)
as of the Closing Date; provided, any reduction in Cash Merger Consideration
shall not result in any adjustment to the amount of Stock Merger Consideration
for purposes of this Article III. The aggregate amount of Cash Merger
Consideration shall be increasing by the amount, if any, that the Company's cash
and cash equivalents exceed indebtedness for borrowed money as of the Closing
Date.
3.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. From and after the Effective Time, Hain shall make
available to Continental Stock Transfer & Trust Company or such other bank or
trust company designated by Hain (the "EXCHANGE AGENT"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article III through the Exchange Agent, (i) certificates evidencing a sufficient
number of shares of Hain Common Stock issuable to holders of Company Common
Stock to satisfy the requirements set forth in Section 3.1 relating to Stock
Merger Consideration and (ii) an amount in cash evidencing the Cash Merger
Consideration (such shares of Hain Common Stock and cash being hereinafter
referred to as the "EXCHANGE FUND"). As promptly as practicable after the
Effective Time, Hain shall cause the Exchange Agent to deliver the Stock Merger
Consideration and Cash Merger Consideration contemplated to be issued pursuant
to Section 3.1 out of the Exchange Fund in accordance with the procedures
specified in this Section 3.2. Except as contemplated by Section 3.2(g) hereof,
the Exchange Fund shall not be used for any other purpose.
(b) EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Time, Hain shall cause the Exchange Agent to mail to each record holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "CERTIFICATES") (i)
a letter of transmittal (which shall be in customary form and shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration.
(c) EXCHANGE OF CERTIFICATES. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor (i)
a certificate representing that number of whole shares of Hain Common Stock, if
any, constituting Stock Merger consideration to which such holder is entitled
pursuant to this Article III (including any cash in lieu of any fractional
shares of Hain Common Stock to which such holder is entitled pursuant to Section
3.2(f) and any dividends or other distributions to which such holder is entitled
pursuant to Section 3.2(d) (together, the "ADDITIONAL PAYMENTS")) and (ii),
without interest, the amount of cash constituting Cash Merger Consideration such
holder is entitled to pursuant to this Article III, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of shares of Company Common Stock which is not registered in the transfer
records of the Company, the applicable Merger Consideration and Additional
Payments, if any, may be issued to a transferee if the Certificate representing
such shares of Company Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 3.2, each Certificate shall be
deemed at all times after the Effective Time to represent only the right to
receive upon such surrender the applicable Merger Consideration with respect to
the shares of Company Common Stock formerly represented thereby and Additional
Payments, if any.
(d) DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES. No dividends
or other distributions declared or made after the Effective Time with respect to
Hain Common Stock with a record date after the
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<PAGE>
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to Hain Common Stock the holder thereof is entitled to receive upon
surrender thereof, and no cash payment in lieu of any fractional shares shall be
paid to any such holder pursuant to Section 3.2(f), until the holder of such
Certificate shall surrender such Certificate. Subject to the effect of escheat,
tax or other applicable Laws, following surrender of any such Certificate, there
shall be paid to the holder of the certificates representing whole shares of
Hain Common Stock issued in exchange therefor, without interest, (i) promptly,
the amount of any cash payable with respect to fractional Hain Common Stock to
which such holder is entitled pursuant to Section 3.2(f) and the amount of
dividends or other distributions with a record date after the Effective Time and
theretofore paid with respect to such whole shares of Hain Common Stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole Hain Common Stock. After the Effective Time, each outstanding
Certificate which theretofore represented shares of Company Common Stock shall,
until surrendered for exchange in accordance with this Section 3.2, be deemed
for all purposes to evidence ownership of the number of shares of Hain Common
Stock into which the shares of Company Common Stock (which, prior to the
Effective Time, were represented thereby) shall have been so converted.
(e) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. At the Effective Time all
outstanding shares of Company Common Stock, by virtue of the Merger and without
any action on the part of the holders thereof, shall no longer be outstanding
and shall be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive the Merger Consideration for such
shares of Company Common Stock. All Hain Common Stock constituting Stock Merger
Consideration and cash constituting Cash Merger Consideration issued or paid, as
the case may be, issued upon conversion of the shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
3.2(d) or (f)) shall be deemed to have been issued or paid, as the case may be,
in full satisfaction of all rights pertaining to such shares of Company Common
Stock.
(f) NO FRACTIONAL SHARES. No fractional shares of Hain Common Stock shall
be issued in the Merger. In lieu of any such fractional shares, each holder of
Company Common Stock, who would otherwise have been entitled to a fraction of
Hain Common Stock pursuant to this Article III, will be paid an amount in cash
(without interest) rounded to the nearest cent, determined by multiplying (i)
the average of the Closing Date Market Price of the Hain Common Stock by (ii)
the fractional interest to which such holder would otherwise be entitled (after
taking into account all shares of Company Common Stock held of record by such
holder at the Effective Time).
(g) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the holders of Company Common Stock for 12 months after
the Effective Time shall be delivered to Hain, upon demand, and any holders of
Company Common Stock who have not theretofore complied with this Article III
shall thereafter look only to Hain (who shall thereafter act as Exchange Agent)
for the applicable Merger Consideration and any Additional Payments to which
they are entitled. Any portion of the Exchange Fund remaining unclaimed by
holders of shares of Company Common Stock as of a date which is immediately
prior to such time as such amounts would otherwise escheat to or become property
of any government entity shall, on the third anniversary of the Effective Date
and to the extent permitted by applicable law, become the property of Hain free
and clear of any claims or interest of any person previously entitled thereto.
(h) NO LIABILITY. None of the Exchange Agent, Hain or the Surviving
Corporation shall be liable to any holder of Certificates for any shares of Hain
Common Stock (or dividends or distributions with respect thereto), or cash
delivered to a public official pursuant to any abandoned property, escheat or
similar law.
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<PAGE>
(i) WITHHOLDING RIGHTS. Each of the Surviving Corporation and Hain shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Certificates such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Hain, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Certificates in respect of
which such deduction and withholding was made by the Surviving Corporation or
Hain, as the case may be.
(j) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of a customary affidavit and indemnity agreement of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the applicable Merger Consideration and Additional
Payments, if any.
3.3 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer books
of the Company shall be closed and there shall be no further registration of
transfers of shares of Company Common Stock thereafter on the records of the
Company. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Hain for any reason shall be converted into the applicable
Merger Consideration and Additional Payments, if any.
ARTICLE IV
CERTAIN EFFECTS OF THE MERGER
4.1 EFFECT OF THE MERGER. The effects and consequences of the Merger shall
be as set forth in Section 259 of the DGCL and Section 1107 of the CGCL. Without
limiting the generality of the foregoing, on and after the Effective Time and
pursuant to the DGCL and the CGCL, the Surviving Corporation shall possess all
the rights, privileges, immunities, powers, and purposes of each of Hain
Subsidiary and the Company; all the property, real and personal, including
subscriptions to shares, causes of action and every other asset (including books
and records) of Hain Subsidiary and the Company shall vest in the Surviving
Corporation without further act or deed; and the Surviving Corporation shall
assume and be liable for all the liabilities, obligations and penalties of Hain
Subsidiary and the Company; PROVIDED, HOWEVER, that this shall in no way impair
or affect the indemnification obligations of any party pursuant to the
indemnification provisions of this Agreement. No liability or obligation due or
to become due and no claim or demand for any cause existing against either Hain
Subsidiary or the Company, or any stockholder or shareholder, officer or
director thereof, shall be released or impaired by the Merger, and no action or
proceeding, whether civil or criminal, then pending by or against Hain
Subsidiary or the Company, or any stockholder or shareholder, officer or
director thereof, shall abate or be discontinued by the Merger, but may be
enforced, prosecuted, settled or compromised as if the Merger had not occurred,
and the Surviving Corporation may be substituted in any such action or
proceeding in place of Hain Subsidiary or the Company.
4.2 FURTHER ASSURANCES. If at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
either of Hain Subsidiary or the Company, the officers of such corporation are
fully authorized in the name of their corporation or otherwise to take, and
shall take, all such further action.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Hain as follows:
5.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except for failures to be so qualified or in good standing which
would not, individually or in the aggregate, have a material adverse effect on
the business, operations or financial condition of the Company and its
subsidiaries and AMI and its subsidiaries, taken as a whole (a "COMPANY MATERIAL
ADVERSE EFFECT"). Section 5.1 of the Disclosure Schedule sets forth, with
respect to the Company and each of its subsidiaries, the jurisdiction in which
they are qualified or otherwise licensed as a foreign corporation to do
business. Neither the Company nor any of its subsidiaries is in violation of any
of the provisions of its certificate or articles of incorporation or
organization (or other applicable charter document) or by-laws. The Company has
delivered to Hain accurate and complete copies of the certificate or articles of
incorporation or organization (or other applicable charter document) and
by-laws, as currently in effect, of each of the Company and its subsidiaries.
5.2 CAPITAL STOCK OF SUBSIDIARIES. The only direct or indirect
subsidiaries of the Company are those listed in Section 5.2 of the Disclosure
Schedule. The Company is directly or indirectly the record and beneficial owner
of all of the outstanding shares of capital stock of each of its subsidiaries,
except as disclosed in Section 5.2 of the Disclosure Schedule, there are no
proxies with respect to such shares, and no equity securities of any of such
subsidiaries are or may be required to be issued by reason of any options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any capital stock of any such subsidiary, and there are no
contracts, commitments, understandings or arrangements by which any such
subsidiary is bound to issue additional shares of its capital stock or
securities convertible into or exchangeable for such shares. Other than as set
forth in Section 5.2 of the Disclosure Schedule, all of such shares so owned by
the Company are validly issued, fully paid and nonassessable and are owned by it
free and clear of any claim, lien or encumbrance of any kind with respect
thereto. Except as disclosed in Section 5.2 of the Disclosure Schedule, the
Company does not directly or indirectly own any interest in any corporation,
partnership, joint venture or other business association or entity.
5.3 CAPITALIZATION. The authorized capital stock of the Company consists
of 100,000 shares of common stock, no par value (the "COMPANY COMMON STOCK"). As
of the date hereof, 20,000 shares of Company Common Stock were issued and
outstanding. All of such issued and outstanding shares of Company Common Stock
are validly issued, fully paid and nonassessable and free of preemptive rights.
Except as set forth in Section 5.3 of the Disclosure Schedule, neither the
Company nor any of its subsidiaries is a party to any agreement or
understanding, oral or written, which (a) grants an option or other right to
acquire any of the Company Common Stock or any other equitable interest in the
Company, (b) grants a right of first refusal or other such similar right upon
the sale of any of the Company Common Stock, or (c) restricts or affects the
voting rights of any of the Company Common Stock.
5.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has full corporate
power and authority to execute and deliver this Agreement and to consummate the
Merger and other transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the Merger and other 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 Merger or
other transactions contemplated hereby (other than, with
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respect to the Merger, the approval of the Company's shareholders pursuant to
the CGCL). This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery hereof
by Hain, constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable or fiduciary principles.
5.5 NO VIOLATIONS, ETC.
(a) Assuming that all filings, permits, authorizations, consents and
approvals or waivers thereof have been duly made or obtained as contemplated by
Section 5.5(b) hereof, except as listed in Section 5.5 of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company
nor the consummation of the Merger or other transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or suspension of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
of its subsidiaries under, any of the terms, conditions or provisions of (x)
their respective charters or by-laws, (y) except as set forth in Section 5.5 of
the Disclosure Schedule, any note, bond, mortgage, indenture or deed of trust,
or (z) any license, lease, agreement or other instrument or obligation to which
the Company or any such subsidiary is a party or to which they or any of their
respective properties or assets may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets, except, in the case of clauses (i)(y), (i)(z) and (ii)
above, for such violations, conflicts, breaches, defaults, terminations,
suspensions, accelerations, rights of termination or acceleration or creations
of liens, security interests, charges or encumbrances which would not,
individually or in the aggregate, either have a Company Material Adverse Effect
or materially impair the Company's ability to consummate the Merger or other
transactions contemplated hereby.
(b) Except as set forth in Section 5.5 of the Disclosure Schedule, no filing
or registration with, notification to and no permit, authorization, consent or
approval of any governmental entity (including, without limitation, any federal,
state or local regulatory authority or agency) is required by the Company in
connection with the execution and delivery of this Agreement or the consummation
by the Company of the Merger or other transactions contemplated hereby, except
(i) in connection with the applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), (ii) the filing
of the Delaware Certificate of Merger and the California Certificate of Merger,
(iii) the approval of the Company's shareholders pursuant to the CGCL, (iv)
filings with applicable state regulatory authorities identified in Section 5.5
of the Disclosure Schedule, (v) filings with the Securities and Exchange
Commission (the "SEC") and (vi) such other filings, registrations,
notifications, permits, authorizations, consents or approvals the failure of
which to be obtained, made or given would not, individually or in the aggregate,
either have the Company Material Adverse Effect or materially impair the
Company's ability to consummate the Merger or other transactions contemplated
hereby.
(c) As of the date hereof, except as set forth in Section 5.5 of the
Disclosure Schedule, none of the Company or any of its subsidiaries is in
violation of or default under (x) its respective certificate or articles of
incorporation or organization or by-laws, (y) any note, bond, mortgage,
indenture or deed of trust, or (z) any license, lease, agreement or other
instrument or obligation to which the Company or any such subsidiary is a party
or to which they or any of their respective properties or assets may be subject,
except, in the case of clauses (y) and (z) above, for such violations or
defaults which would not, individually or in the aggregate, either have a
Company Material Adverse Effect or materially impair the Company's ability to
consummate the Merger or other transactions contemplated hereby.
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5.6 FINANCIAL STATEMENTS.
Set forth in Section 5.6 of the Disclosure Schedule are true and complete
copies of the unaudited balance sheets of the Company at December 31, 1997 (the
"DECEMBER 31 BALANCE SHEET") and the unaudited statements of income, of the
Company for the year ended December 31, 1997 (collectively, the "DECEMBER 31
FINANCIALS"). Except as set forth in Section 5.6 of the Disclosure Schedule, the
December 31 Financials fairly present, in all material respects, the financial
position of the Company at December 31, 1997, and the results of operations of
the Company for the period then ended, and have been prepared in accordance with
generally accepted accounting principles consistently applied by the Company,
except that such financial statements will not include any footnote disclosures
that might otherwise be required to be included by generally accepted accounting
principles, and shall also be subject to normal non-recurring year-end audit
adjustments. Except as set forth in Section 5.6 of the Disclosure Schedule, the
December 31 Balance Sheet reflects all liabilities of the Company, whether
absolute, accrued or contingent, as of the date thereof of the type required to
be reflected or disclosed on a balance sheet prepared in accordance with
generally accepted accounting principles.
5.7 ABSENCE OF CHANGES OR EVENTS. Except as set forth on Section 5.7 of
the Disclosure Schedule, since December 31, 1997:
(a) there has been no material adverse change, or any development
involving a prospective material adverse change, in the business, operations
or financial condition of the Company and its subsidiaries taken as a whole;
(b) there has not been any direct or indirect redemption, purchase or
other acquisition of any shares of capital stock of the Company or any of
its subsidiaries, or any declaration, setting aside or payment of any
dividend or other distribution by the Company or any of its subsidiaries in
respect of its capital stock;
(c) except in the ordinary course of its business and consistent with
past practice, neither the Company nor any of its subsidiaries has incurred
any indebtedness for borrowed money, or assumed, guaranteed, endorsed or
otherwise as an accommodation become responsible for the obligations of any
other individual, firm or corporation, or made any loans or advances to any
other individual, firm or corporation;
(d) there has not been any change in the financial or the accounting
methods, principles or practices of the Company or its subsidiaries;
(e) except in the ordinary course of business and for amounts which are
not material, there has not been any revaluation by the Company or any of
its subsidiaries of any of their respective assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivables; and
(f) there has not been any agreement by the Company or any of its
subsidiaries to (i) do any of the things described in the preceding clauses
(a) through (f) other than as expressly contemplated or provided for in this
Agreement or (ii) take, whether in writing or otherwise, any action which,
if taken prior to the date of this Agreement, would have made any
representation or warranty in this Article V untrue or incorrect.
5.8 FORM S-4; PROSPECTUS/INFORMATION STATEMENT. None of the information
supplied or to be supplied by or on behalf of the Company for inclusion or
incorporation by reference in the registration statement to be filed with the
SEC by Hain in connection with the issuance of shares of Hain Common Stock in
the Merger (the "FORM S-4") will, at the time the Form S-4 becomes effective
under the Securities Act (as defined below), contain any untrue statement of a
material fact or omit to state any 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. None of the information supplied or to be
supplied by or on
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behalf of the Company for inclusion or incorporation by reference in the
Prospectus/Information Statement, in definitive form, or in the soliciting
material used in connection therewith (referred to herein collectively as the
"PROSPECTUS/INFORMATION STATEMENT") will, at the dates mailed to shareholders
pursuant to Section 8.1(b), contain any untrue statement of a material fact or
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 will promptly inform Hain of the
happening of any event prior to the Effective Time which would render such
information regarding the Company incorrect in any material respect or require
the amendment of the Prospectus/Information Statement.
5.9 LITIGATION. Except as set forth in Section 5.9 of the Disclosure
Schedule, there is no (i) claim, action, suit or proceeding pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
relating to the Company or any of its subsidiaries before any court or
governmental or regulatory authority or body or arbitration tribunal, or (ii)
outstanding judgment, order, writ, injunction or decree, or application, request
or motion therefor, of any court, governmental agency or arbitration tribunal in
a proceeding to which the Company, any subsidiary of the Company or any of their
respective assets was or is a party except, in the case of clauses (i) and (ii)
above, such as would not, individually or in the aggregate, either have a
Company Material Adverse Effect or materially impair either of the Company's
ability to consummate the Merger.
5.10 TITLE TO AND CONDITION OF PROPERTIES. Section 5.10 of the Disclosure
Schedule contains a true and complete list of all real properties owned by the
Company and its subsidiaries. Except as set forth in Section 5.10 of the
Disclosure Schedule, each of the Company and its subsidiaries have good title to
all of the real property and own outright all of the personal property (except
for leased property or assets) which is reflected on the December 31 Balance
Sheet except for property since sold or otherwise disposed of in the ordinary
course of business and consistent with past practice. Except as set forth in
Section 5.10 of the Disclosure Schedule, no such real or personal property is
subject to claims, liens or encumbrances, whether by mortgage, pledge, lien,
conditional sale agreement, charge or otherwise, except for those which would
not, individually or in the aggregate, have a Company Material Adverse Effect.
5.11 LEASES. Section 5.11 of the Disclosure Schedule contains a true and
complete list of all leases requiring the payment of rentals aggregating at
least $50,000 per annum pursuant to which real or personal property is held
under lease by either of the Company or any of its subsidiaries, and true and
complete copies of each lease pursuant to which either of the Company or any of
its subsidiaries leases real or personal property to others. All of the leases
so listed are valid and subsisting and in full force and effect and are subject
to no default with respect to either of the Company or its subsidiaries, as the
case may be, and, to the Company's knowledge, are in full force and effect and
subject to no default with respect to any other party thereto, and the leased
real property is in good and satisfactory condition.
5.12 CONTRACTS; BANK ACCOUNTS; INDEBTEDNESS.
(a) CONTRACTS AND COMMITMENTS. Section 5.12(a) of the Disclosure Schedule
contains a complete and accurate list of all Material (as defined below)
existing outstanding contracts and commitments, whether written or oral, of the
Company and its subsidiaries (i) the terms of which provide for the payment by
the Company and its subsidiaries after the date hereof as the recipient of goods
or services or involve the receipt by the Company or any of its subsidiaries as
the provider of goods or services, (ii) whereby the Company or any of its
subsidiaries leases equipment or real property, (iii) whereby the Company or any
of its subsidiaries has a firm commitment to purchase capital equipment (or
lease in the nature of a conditional purchase of capital equipment), (iv) which
continue for a period of twelve months or more and are not subject to a
unilateral right of termination by the Company without consideration, (v) which
restrict or purport to restrict any business activities or freedom of the
Company or any of its subsidiaries (or, to the knowledge of the Company, any of
its officers or employees) to engage in any business or to compete with any
person, or (vi) which relate to employment, consulting and agency agreements
which provide for any severance or termination benefit, or any other agreements,
contracts and commitments
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material to the Business. For purposes of this Section 5.12(a), a "MATERIAL"
contract or commitment shall mean any contract or commitment which the Company
or any of its subsidiaries would be required to file as an exhibit to reports
filed by the Company with the SEC under the Securities Act or the Exchange Act
if the Company were required to file reports thereunder. Except as set forth on
Section 5.5 or Section 5.12(a) of the Disclosure Schedule, none of the Company
or any of its subsidiaries is in default (nor is there any event which with
notice or lapse of time or both would constitute a default) under any material
contract or commitment. Section 5.12(a) of the Disclosure Schedule identifies
each existing contract or commitment containing an agreement with respect to any
change of control or any indemnification or other contingent obligations that
would be triggered by the Merger.
(b) BANK ACCOUNTS. Section 5.12(b) of the Disclosure Schedule contains a
complete and accurate list of the name of each bank in which the Company or any
of its subsidiaries has an account or safe deposit box (each, a "BANK ACCOUNT"
and, collectively, the "BANK ACCOUNTS"), the account number thereof and the
names of all persons authorized to draw thereon or to have access thereto.
(c) INDEBTEDNESS. Section 5.12(c) of the Disclosure Schedule contains a
complete and accurate list of all indebtedness for borrowed money of the Company
and its subsidiaries showing the aggregate amount by way of principal and
interest which was outstanding as of a date not more than seven days prior to
the date of this Agreement and, by the terms of agreements governing such
indebtedness, is expected to be outstanding on the Closing Date. Other than as
set forth in Section 5.12(c) of the Disclosure Schedule, neither this Agreement,
the Merger nor the other transactions contemplated hereby will result in any
outstanding loans or borrowings by the Company or any subsidiary of the Company
becoming due, going into default or giving the lenders or other holders of debt
instruments the right to require the Company or any of its subsidiaries to repay
all or a portion of such loans or borrowings.
5.13 LABOR MATTERS. Except to the extent that any of the following,
individually or in the aggregate, would have a Company Material Adverse Effect,
(a) neither the Company nor any of its subsidiaries fails to comply with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and neither the Company nor any of
its subsidiaries is engaged in any "unfair labor practice," as that term is
understood pursuant to the National Labor Relations Act, as amended, (b) there
is no labor strike, slowdown or stoppage pending (or, to the best knowledge of
the Company, any labor strike or stoppage threatened) against or affecting the
Company or any of its subsidiaries and (c) no petition for certification has
been filed and is pending before the National Labor Relations Board with respect
to any employees of the Company or any of its subsidiaries who are not currently
organized.
5.14 COMPLIANCE WITH LAW. Except for matters set forth in Section 5.14 of
the Disclosure Schedule, neither the Company nor any of its subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation, rule
or order of any foreign, federal, state or local government or any other
governmental department or agency (including, without limitation, any required
by the Food and Drug Administration or the Nutrition Labeling and Education Act
of 1990), or any judgment, decree or order of any court, applicable to its
business or operations, except where any such violation or failure to comply
would not, individually or in the aggregate, have a Company Material Adverse
Effect; the conduct of the business of each of the Company and its subsidiaries
is in conformity with all foreign, federal, state and local requirements, and
all other foreign, federal, state and local governmental and regulatory
requirements, except where such nonconformities would not, individually or in
the aggregate, have a Company Material Adverse Effect. The Company and its
subsidiaries have all permits, licenses and franchises from governmental
agencies required to conduct their businesses as now being conducted, except for
such permits, licenses and franchises the absence of which would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Notwithstanding the foregoing, the representations and warranties of the Company
with respect to the matters covered by Sections 5.13, 5.17, 5.18 and 5.19 are
limited to the representations set forth therein, and no representation or
warranty with respect to such matters are made by the Company in this Section
5.14.
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5.15 BOARD RECOMMENDATION. The Board of Directors of the Company has, by a
majority vote at a meeting of such Board duly held on April 20, 1998, approved
and adopted this Agreement, the Merger and the other transactions contemplated
hereby, determined that the Merger is fair to the shareholders of the Company
and recommended that the shareholders of the Company approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby.
5.16 INTELLECTUAL PROPERTY. Section 5.16 of the Disclosure Schedule sets
forth a complete and accurate list of all of the trademarks (whether or not
registered) and trademark registrations and applications, patent and patent
applications, copyrights and copyright applications, service marks, service mark
registrations and applications, trade dress, trade and product names
(collectively, the "INTELLECTUAL PROPERTY") owned or licensed by the Company and
its subsidiaries. Except as set forth on Section 5.16 of the Disclosure
Schedule, (i) each of the Company and its subsidiaries has or owns, directly or
indirectly, all right, title and interest to such Intellectual Property or has
the perpetual right to use such Intellectual Property without consideration;
none of the rights of the Company and its subsidiaries in or use of such
Intellectual Property has been or is currently being or, to the knowledge of the
Company, is threatened to be infringed or challenged; (ii) all of the patents,
trademark registrations, service mark registrations, trade name registrations
and copyright registrations included in such Intellectual Property have been
duly issued and have not been canceled, abandoned or otherwise terminated; and
(iii) all of the patent applications, trademark applications, service mark
applications, trade name applications and copyright applications included in
such Intellectual Property have been duly filed. To the knowledge of the
Company, the Company and its subsidiaries own or have adequate licenses or other
rights to use all Intellectual Property, know-how and technical information
required for their operation.
5.17 TAXES. Except as set forth in Section 5.17 of the Disclosure
Schedule: (i) the Company and each of its subsidiaries have prepared and timely
filed with the appropriate governmental agencies all Tax Returns required to be
filed for any period (or portion thereof) ending on or before the Effective
Time, taking into account any extension of time to file granted to or obtained
on behalf of the Company and/or its subsidiaries, and each such Tax Return is
complete and accurate in all material respects; (ii) all Taxes of the Company
and each of its subsidiaries in respect of any period (or portion thereof)
ending on or before the Effective Time have been paid in full to the proper
authorities, other than such Taxes as are being contested in good faith by
appropriate proceedings and are adequately reserved for in accordance with
generally accepted accounting principles; (iii) all deficiencies asserted in
writing resulting from examinations of any Tax returns filed by the Company or
any of its subsidiaries have been paid or finally settled, neither the Company
nor any of its subsidiaries is presently under examination or audit by any
taxing authority, and the Company has not received written notice of any pending
examination or audit of the Company or any of its subsidiaries by any taxing
authority; (iv) no extension of the period for assessment or collection of any
Tax is currently in effect and no extension of time within which to file any Tax
Return has been requested, which Tax Return has not since been filed; (v) no
liens have been filed with respect to any Taxes of the Company or any of its
subsidiaries other than in respect of property taxes that have accrued but are
not yet due and payable; (vi) neither the Company nor any of its subsidiaries
has made, or is required to make, any adjustment by reason of a change in their
accounting methods for any period (or portion thereof) ending on or before the
Effective Time that would affect the taxable income or deductions of the Company
or any of its subsidiaries for any period (or portion thereof) ending after the
Effective Date; (vii) the Company and its subsidiaries have made timely payments
of Taxes required to be deducted and withheld from the wages paid to their
employees and from all other amounts paid to third parties; (viii) neither the
Company nor any of its subsidiaries is a party to any tax sharing or tax matters
or similar agreement or is the indemnitor under any tax indemnification or
similar agreement; (ix) neither the Company nor any of its subsidiaries owns any
interest in any "controlled foreign corporation" (within the meaning of Section
957 of the Code) or "passive foreign investment company" (within the meaning of
Section 1296 of the Code); (x) neither the Company nor any of its subsidiaries
has made an election under Section 341(f) of the Code; (xi) neither the Company
nor any of its subsidiaries is a party to any agreement or arrangement that
provides for the payment of any amount, or the provision of any other benefit,
that
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could constitute a "parachute payment" within the meaning of Section 280G of the
Code; (xii) no claim has ever been made by an authority in a jurisdiction where
the Company or any of its subsidiaries does not file Tax Returns that such
entity is or may be subject to taxation by that jurisdiction; (xiii) neither the
Company nor any of its subsidiaries has ever been a member of any affiliated,
consolidated, combined or unitary group for any Tax purpose other than a group
of which it is currently a member; (xiv) neither the Company nor any of its
subsidiaries is currently a "personal holding company" (as defined in Section
542 of the Code), and neither the Company nor any of its subsidiaries has had
any "undistributed personal holding company income" (as defined in Section 545
of the Code) at any point during its last three completed taxable years; (xv)
none of the assets of the Company or any of its subsidiaries is "tax-exempt use
property" (as defined in Section 168(h)(1) of the Code) or may be treated as
owned by any other person pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954 (as in effect immediately prior to the enactment of the Tax Reform
Act of 1986); (xvi) neither the Company nor any of its subsidiaries has been a
"United States real property holding corporation," within the meaning of Section
897 of the Code at any time during the past five years; (xvii) there are no
"excess loss accounts" (as defined in Treas. Reg. Section 1.1502-19) with
respect to any stock of any subsidiary; (xviii) neither the Company nor any of
its subsidiaries has any (a) deferred gain or loss (1) arising from any deferred
intercompany transactions (as described in Treas. Reg. SectionSection 1.1502-13
and 1.1502-13T prior to amendment by Treasury Decision 8597 (issued July 12,
1995) or (2) with respect to the stock or obligations of any other member of any
affiliated group (as described in Treas. Reg. SectionSection 1.1502-14 and
1.1502-14T prior to amendment by Treasury Decision 8597) or (b) any gain subject
to Treas. Reg. Section 1.1502-13, as amended by Treasury Decision 8597; (xix)
neither the Company nor any of its subsidiaries has requested a ruling from, or
entered into a closing agreement with, the IRS or any other taxing authority in
its current taxable year or at any time during its last three completed taxable
years; and (xx) the Company has previously delivered to Hain true and complete
copies of (a) all federal, state, local and foreign income or franchise Tax
Returns filed by the Company and/or any of its Subsidiary for the last three
taxable years ending prior to the date hereof (except for those Tax Returns that
have not yet been filed) and (b) any audit reports issued within the last three
years by the IRS or any other taxing authority.
For all purposes of this Agreement, "TAX" or "TAXES" means (i) all federal,
state, local or foreign taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, alternative minimum,
gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of
any kind whatsoever, (ii) all interest, penalties, fines, additions to tax or
other additional amounts imposed by any taxing authority in connection with any
item described in clause (i) and (iii) all transferee, successor, joint and
several or contractual liability (including, without limitation, liability
pursuant to Treas. Reg. Section 1.1502-6 (or any similar state, local or foreign
provision)) in respect of any items described in clause (i) or (ii).
For all purposes of this Agreement, "TAX RETURN" means all returns,
declarations, reports, estimates, information returns and statements required to
be filed in respect of any Taxes.
5.18 EMPLOYEE BENEFIT PLANS; ERISA. Except as set forth in Section 5.18 of
the Disclosure Schedule:
(a) The Company has furnished Hain with a true and complete schedule of
all "employee pension benefit plans" as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
maintained or contributed to by the Company, any of its subsidiaries or any
other ERISA Affiliates, or with respect to which the Company or any of its
subsidiaries contributes or is obligated to make payments thereunder or
otherwise may have any liability ("PENSION BENEFITS PLANS"), all "welfare
benefit plans" (as defined in Section 3(1) of ERISA), maintained or
contributed to by the Company or any of its subsidiaries or with respect to
which the Company or any of its subsidiaries otherwise may have any
liability ("WELFARE PLANS"), all multiemployer plans as defined in Section
3(37) of ERISA covering employees employed in the United States to which
such Company or any of its subsidiaries is required to make contributions or
otherwise may have any
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liability, all stock bonus, stock option, restricted stock, stock
appreciation right, stock purchase, bonus, incentive, deferred compensation,
severance and vacation or other employee benefit plans, programs or
arrangements that are not Pension Benefit Plans or Welfare Plans maintained
or contributed to by the Company or a subsidiary or with respect to which
the Company or any subsidiary otherwise may have any liability ("OTHER
PLANS"). For purposes of this Agreement, "ERISA AFFILIATE" shall mean any
person (as defined in Section 3(9) of ERISA) that is or has been a member of
any group of persons described in Section 414(b), (c), (m) or (o) of the
Code including the Company or any of its subsidiaries.
(b) The Company and each of its subsidiaries, and each of the Pension
Benefit Plans, Welfare Plans and Other Plans (collectively, the "PLANS"),
are in compliance with the applicable provisions of ERISA, the Code and
other applicable laws except where the failure to comply would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(c) All contributions to, and payments from, the Plans which are
required to have been made in accordance with the Plans and, when
applicable, Section 302 of ERISA or Section 412 of the Code have been timely
made except where the failure to make such contributions or payments on a
timely basis would not, individually or in the aggregate, have a the Company
Material Adverse Effect.
(d) No Pension Benefit Plan subject to Section 412 of the Code or
Section 302 of ERISA has incurred an "accumulated funding deficiency" within
the meaning of Section 412(a) of the Code as of the end of the most recently
completed plan year.
(e) Each of the Pension Benefit Plans intended to qualify under Section
401 of the Code satisfies in form the requirements of such Section except to
the extent amendments are not required by law to be made until a date after
the Closing Date, has received a favorable determination letter from the
Internal Revenue Service ("IRS") regarding such qualified status, has not,
since receipt of the most recent favorable determination letter, been
amended, and has not been operated in a way that would cause the loss of
such qualification or exemption or the imposition of any material liability,
penalty or tax under ERISA or the Code.
(f) Each Welfare Plan that is intended to qualify for exclusion of
benefits thereunder from the income of participants or for any other
tax-favored treatment under any provisions of the Code (including, without
limitation, Sections 79, 105, 106, 125 or 129 of the Code) is and has been
maintained in compliance in all material respects with all pertinent
provisions of the Code and Treasury Regulations thereunder.
(g) There are (i) no investigations, audits or examinations pending, or
to the best knowledge of the Company, threatened by any governmental entity
(including the Pension Benefit Guaranty Corporation ("PBGC")) involving any
of the Plans, (ii) no termination proceedings involving the Plans and (iii)
no pending or, to the best knowledge of the Company, threatened claims
(other than routine claims for benefits), suits or proceedings against any
Plan, against the assets of any of the trusts under any Plan or against any
fiduciary of any Plan with respect to the operation of such plan or
asserting any rights or claims to benefits under any Plan or against the
assets of any trust under such plan, which would, in the case of clause (i),
(ii) or (iii) of this paragraph (g), give rise to any liability which would,
individually or in the aggregate, have a Company Material Adverse Effect.
(h) None of the Company, any of its subsidiaries or any employee of the
foregoing, nor any trustee, administrator, other fiduciary or any other
"party in interest" or "disqualified person" with respect to the Pension
Benefit Plans or Welfare Plans, has engaged in a "prohibited transaction"
(within the meaning of Section 4975 of the Code or Section 406 of ERISA)
which could result in a tax or penalty on the Company or any of its
subsidiaries under Section 4975 of the Code or Section 502(i) of ERISA which
would, individually or in the aggregate, have a Company Material Adverse
Effect.
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(i) Neither the Pension Benefit Plans subject to Title IV of ERISA nor
any trust created thereunder has been terminated nor have there been any
"reportable events" (as defined in Section 4043 of ERISA and the regulations
thereunder) (for which the disclosure requirements of Regulation section
4043.1 ET SEQ., promulgated by the PBGC, have not been waived) with respect
to either thereof which would, individually or in the aggregate, have a
Company Material Adverse Effect nor has there been any event with respect to
any Pension Benefit Plan requiring disclosure under Section 4063(a) of ERISA
or any event with respect to any Pension Benefit Plan requiring disclosure
under Section 4041(c)(3)(C) of ERISA which would, individually or in the
aggregate, have a Company Material Adverse Effect.
(j) With respect to any Pension Benefit Plan subject to Title IV of
ERISA, there is not any amount of "unfunded benefit liabilities" (as defined
in Section 4001(a)(18) of ERISA) under such plan determined based upon
reasonable actuarial assumptions and the asset valuation principles
established by the PBGC.
(k) Neither the Company nor any subsidiary of the Company nor any ERISA
Affiliate has incurred, or is reasonably likely to incur any material
liability under Title IV of ERISA.
(l) Neither the Company nor any ERISA Affiliate of the Company has
incurred any currently outstanding liability to the PBGC or to a trustee
appointed under Section 4042(b) or (c) of ERISA other than for the payment
of premiums, all of which have been paid when due. No Pension Benefit Plan
has applied for, or received, a waiver of the minimum funding standards
imposed by Section 412 of the Code. The information supplied to the actuary
by the Company or any of its subsidiaries for use in preparing the most
recent actuarial report for Pension Benefit Plans is complete and accurate
in all material respects.
(m) Neither the Company, any of its subsidiaries nor any of their ERISA
Affiliates has any liability (including any contingent liability under
Section 4204 of ERISA) with respect to any multiemployer plan, within the
meaning of Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN"), covering
employees employed in the United States.
(n) With respect to each of the Plans, true, correct and complete copies
of the following documents have been made available to Hain: (i) the current
plans and related trust documents, including amendments thereto, (ii) any
current summary plan descriptions, (iii) the most recent Forms 5500 (if any)
filed with respect to each such Plan, (iv) the most recent financial
statements and actuarial reports, if applicable, (v) the most recent IRS
determination letter, if applicable; and (vi) if any application for an IRS
determination letter is pending, copies of all such applications for
determination including attachments, exhibits and schedules thereto.
(o) Neither the Company, any of its subsidiaries, any organization to
which either of the Company is a successor or parent corporation, within the
meaning of Section 4069(b) of ERISA, nor any of their ERISA Affiliates has
engaged in any transaction described in Section 4069(a) of ERISA, the
liability for which would, individually or in the aggregate, have a Company
Material Adverse Effect.
(p) None of the Welfare Plans maintained by the Company or any of its
subsidiaries are retiree life or retiree health insurance plans which
provide for continuing benefits or coverage for any participant or any
beneficiary of a participant following termination of employment, except as
may be required under the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA"), or except where the full expense of such
coverage or benefits is paid by the participant or the participant's
beneficiary. The Company and each of its subsidiaries which maintain a
"group health plan" within the meaning of Section 5000(b)(1) of the Code
have complied with the notice and continuation requirements of Section 4980B
of the Code, COBRA, Part 6 of Subtitle B of Title I of
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ERISA and the regulations thereunder except where the failure to comply
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
(q) No liability under any Plan has been funded nor has any such
obligation been satisfied with the purchase of a contract from an insurance
company as to which the Company or any of its subsidiaries has received
notice that such insurance company is in rehabilitation.
(r) Except as set forth in Section 5.18(r) of the Disclosure Schedule,
the consummation of the transactions contemplated by this Agreement will not
either alone or in connection with an employee's termination of employment
or other event result in an increase in the amount of compensation or
benefits or accelerate the vesting or timing of payment of any benefits or
compensation payable to or in respect of any employee of the Company or any
of its subsidiaries.
(s) Except as set forth in Section 5.18(s) of the Disclosure Schedule,
the consummation of the transactions contemplated by this Agreement will not
result in or satisfy a condition to the payment of compensation that would,
in combination with any other payment, result in an "excess parachute
payment" within the meaning of Section 280G(b) of the Code.
(t) The Company has furnished Hain with a true and complete schedule of
each Foreign Plan (as hereinafter defined) to the extent the benefits
provided thereunder are not mandated by the laws of the applicable foreign
jurisdiction. The Company and each of its subsidiaries and each of the
Foreign Plans are in compliance with applicable laws and all required
contributions have been made to the Foreign Plans, except where the failure
to comply or make contributions would not, individually and in the aggregate
have a Company Material Adverse Effect. Each of the Foreign Plans that is a
funded defined benefit plan has a fair market value of plan assets that is
greater than the plan's liabilities, as determined in accordance with
applicable laws. For purposes hereof, the term "FOREIGN PLAN" shall mean any
plan, program, policy, arrangement or agreement maintained or contributed to
by, or entered into with, the Company or any subsidiary with respect to
employees (or former employees) employed outside the United States.
5.19 ENVIRONMENTAL MATTERS. Except as set forth in Section 5.19 of the
Disclosure Schedule and except for such matters as would not reasonably be
expected to have a Company Material Adverse Effect:
(a) Each of the Company and its subsidiaries has obtained (or is capable
of obtaining without incurring any material incremental expense) all
Environmental Permits and has no reason to believe any of them will be
revoked prior to their expiration, modified or will not be renewed, and have
made all registrations and given all notifications that are required under
any applicable Environmental Law.
(b) There is no Environmental Claim pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries under an
Environmental Law.
(c) The Company and its subsidiaries are in compliance with, and have no
liability under, applicable Environmental Laws including, without
limitation, all of their Environmental Permits.
(d) Neither the Company nor any of its subsidiaries has assumed, by
contract or otherwise, any liabilities or obligations arising under any
Environmental Laws.
(e) There are no past or present actions, activities, conditions,
occurrences or events, including, without limitation, the Release of any
Hazardous Materials, which could reasonably be expected to prevent
compliance by the Company or any of its subsidiaries with any Environmental
Law, or to result in any liability of the Company or any of its subsidiaries
under any Environmental Law.
(f) No lien has been recorded under any Environmental Law with respect
to any property, facility or asset currently owned by the Company or any of
its subsidiaries.
(g) Neither the Company nor any of its subsidiaries has received any
notification that any Hazardous Materials that any of them or any of their
respective predecessors in interest has used,
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generated, stored, treated, handled, transported or disposed of has been
found at any site at which any person is conducting or plans to conduct any
response or other action pursuant to any Environmental Law.
(h) There is no friable asbestos or asbestos containing material in, on
or at any property, facility or equipment owned, operated or leased by the
Company or any of its subsidiaries.
(i) No property now or previously owned, operated or leased by the
Company or any of its subsidiaries or, to the knowledge of the Company, any
of their respective predecessors in interest is (i) listed or proposed for
listing on the National Priorities List under the Comprehensive
Environmental Response, Compensation & Liability Act of 1980, as amended
("CERCLA"), or (ii) listed in the Comprehensive Environmental Response,
Compensation, Liability Information System List promulgated pursuant to
CERCLA, or on any comparable list established under any Environmental law.
(j) No underground or above ground storage tank or related piping, or
any surface impoundment, lagoon, landfill or other disposal site containing
any Hazardous Material is located at, under or on any property owned,
operated or leased by the Company or any of its subsidiaries or any, to the
knowledge of the Company, of their respective predecessors in interest, nor
has any of them been removed or decommissioned from or at any such property.
(k) The execution and delivery of this Agreement and the consummation by
the Company of the Merger and other transactions contemplated hereby and the
exercise by Hain of rights to own and operate the businesses of each of the
Company and its subsidiaries substantially as presently conducted will not
affect the validity or require the transfer of any Environmental Permits
held by the Company or any of its subsidiaries and will not require any
notification, disclosure, registration, reporting, filing, investigation, or
remediation under any Environmental Law.
(l) The Company has delivered or otherwise made available for inspection
to Hain copies of any investigations, studies, reports, assessments,
evaluations and audits in its possession, custody or control of Hazardous
Materials at, in, beneath or adjacent to any properties or facilities now or
formerly owned, leased, operated or used by it or any of its subsidiaries or
any of their respective predecessors in interest, or of compliance by any of
them with, or liability of any of them under, applicable Environmental Laws.
For purposes of Section 5.19:
(i) "ENVIRONMENT" means any surface water, ground water, drinking water
supply, land surface or subsurface strata, ambient air, indoor air and any
indoor location and all natural resources such as flora, fauna and wetlands;
(ii) "ENVIRONMENTAL CLAIM" means any notice, claim, demand, complaint,
suit or other communication by any person alleging potential liability
(including, without limitation, potential liability for response or
corrective action or damages to any person, property or natural resources,
and any fines or penalties) arising out of or relating to (1) the Release or
threatened Release of any Hazardous Materials or (2) any violation, or
alleged violation, of any applicable Environmental Law;
(iii) "ENVIRONMENTAL LAWS" means all federal, state, and local laws,
statutes, codes, rules, ordinances, regulations, judgments, orders, decrees
and the common law as now or previously in effect relating to pollution or
protection of human health or the Environment, including, without
limitation, those relating to the Release or threatened Release of Hazardous
Materials;
(iv) "HAZARDOUS MATERIALS" means pollutants, contaminants, hazardous or
toxic substances, constituents, materials or wastes, and any other waste,
substance, material, chemical or constituent subject to regulation under
Environmental Laws;
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(v) "RELEASE" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the Environment; and
(vi) "ENVIRONMENTAL PERMIT" means a permit, identification number,
license, approval, consent or other written authorization issued pursuant to
any applicable Environmental Law.
5.20 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in Section
5.6 or 5.20 of the Disclosure Schedule or in the December 31 Financials, neither
of the Company nor any of its subsidiaries has any liabilities or obligations of
any nature, whether absolute, accrued, unmatured, contingent or otherwise, or
any unsatisfied judgments or any leases of personalty or realty or unusual or
extraordinary commitments, except the liabilities recorded on the December 31
Balance Sheet and the notes thereto, and except for liabilities or obligations
incurred in the ordinary course of business and consistent with past practice
since December 31, 1997 that would not individually or in the aggregate have a
Company Material Adverse Effect. Notwithstanding the foregoing, the
representations and warranties of the Company with respect to the matters
covered by Sections 5.13, 5.14, 5.17, 5.18 and 5.19 are limited to the
representations set forth therein, and no representation or warranty with
respect to such matters are made by the Company in this Section 5.20.
5.21 FINDERS OR BROKERS. Except as set forth in Section 5.21 of the
Disclosure Schedule, none of the Company, the subsidiaries of the Company, the
Board of Directors of the Company or any member of the Board of Directors of the
Company has employed any investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or any commission in connection with the Merger.
5.22 STATE ANTITAKEOVER STATUTES. The Company has been granted all
approvals and taken all other steps necessary to exempt the Merger and the other
transactions contemplated hereby from the requirements and provisions of the
CGCL and any other applicable state antitakeover statute or regulation such that
none of the provisions of such statute or any other "business combination,"
"moratorium," "control share" or other state antitakeover statute or regulation
(x) prohibits or restricts the Company's ability to perform its obligations
under this Agreement or its ability to consummate the Merger and the other
transactions contemplated hereby, (y) would have the effect of invalidating or
voiding this Agreement any provision hereof, or (z) would subject Hain to any
material impediment or condition in connection with the exercise of any of its
rights under this Agreement.
5.23 [Intentionally Omitted].
5.24 INSURANCE. Except as disclosed in Section 5.24 of the Disclosure
Schedule, each of the Company and each of its subsidiaries is, and has been
continuously since December 31, 1996, insured in such amounts and against such
risks and losses as are customary for companies conducting the respective
businesses conducted by the Company and its subsidiaries during such time
period. Except as disclosed in Section 5.24 of the Disclosure Schedule, neither
the Company nor any of its subsidiaries has received any notice of cancellation
or termination with respect to any material insurance policy thereof. All
material insurance policies of the Company and its subsidiaries are valid and
enforceable policies.
5.25 EMPLOYMENT AND LABOR CONTRACTS. Neither the Company nor any of its
subsidiaries is a party to any employment, management services, consultation or
other similar contract with any past or present officer, director, employee or
other person or, to the best knowledge of the Company, any entity affiliated
with any past or present officer, director or employee or other person other
than those set forth in Section 5.26 of the Disclosure Schedule and other than
the agreements executed by employees generally, the forms of which have been
delivered to Hain.
5.26 INVENTORY. As of December 31, 1997, all inventory of each of the
Company and its subsidiaries is valued on the Company's books and records at the
lower of cost or market, except for such variances as would not have a Material
Adverse Effect. Except as set forth in Section 5.6 of the Disclosure Schedule,
obsolete items and items of below standard quality have been written off or
written down to their net
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realizable value on the books and records of the Company, except for such
variances as would not have a Material Adverse Effect. Except as set forth in
Section 5.6 of the Disclosure Schedule, subject to reserves reflected on the
December 31 Balance Sheet, all such inventory consisting of raw materials or
packaging is usable in the ordinary course of business, and all such inventory
consisting of finished goods is, and all such inventory consisting of work in
process will upon completion be, of merchantable quality, meeting all material
contractual, and all Food and Drug Administration and Nutrition Labeling and
Education Act of 1990 requirements, and is, or in the case of work in process,
will be, salable in the ordinary course of business, except for such variances
as would not have a Material Adverse Effect.
5.27 BALANCE SHEET RESERVES. Except as set forth in Section 5.27 of the
Disclosure Schedule, the reserves for accounts receivable reflected in the
December 31 Financials have been established in accordance with generally
accepted accounting principles and such reserves, taken as a whole, are adequate
to cover any losses relating to collectibility of accounts receivable.
5.28 QUALIFICATION OF MERGER AS A TAX FREE REORGANIZATION.
(a) Neither the Company nor any person related to the Company within the
meaning of Treas. Reg. SectionSection 1.368-1(e)(3), (e)(4) and (e)(5) has
purchased, redeemed, or otherwise acquired, or made any extraordinary
distributions (as defined in Treas. Reg. Section 1.368-1T(e)(1)(ii)(A)) with
respect to, any shares of Company Common Stock prior to or in contemplation of
the Merger, or otherwise as part of a plan of which the Merger is a part.
(b) Other than the Company Common Stock, the Company does not currently have
outstanding and at no point during the past twelve months had outstanding any
indebtedness, options, warrants, or other debt or equity securities that have
been or will be treated as stock for U.S. federal income tax purposes.
(c) Following the Merger, the Surviving Corporation will hold at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets of the Company immediately prior to
the Merger. For purposes of this representation, amounts paid by Company to
dissenters, amounts paid by the Company to shareholders who receive cash or
other property in the Merger, amounts used by the Company to pay reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by the Company will be included as assets of Company immediately
prior to the Merger.
(d) The Company and the shareholders of the Company have paid and will pay
their respective expenses, if any, incurred in connection with the Merger. In
connection with the Merger, the Company has not paid or assumed and will not pay
or assume any expense or other liability, whether fixed or contingent, of any
Company stockholder. In connection with the Merger, neither Hain nor any of its
affiliates has paid or assumed or will pay or assume any expense of any Company
shareholder or, except as provided in Section 8.11 of this Agreement, any
expense of the Company. In connection with the Merger, no liabilities of Company
stockholders have been paid or assumed or will be paid or assumed by Hain or its
affiliates, nor will any shares of Company Common Stock acquired in the Merger
be subject to any liabilities.
(e) There is no indebtedness between Company and Hain.
(f) None of the Merger Consideration received in the Merger by any
shareholder-employees of the Company has been or will be separate consideration
for, or allocable to, past or future services or any employment agreement. None
of the compensation paid, or to be paid under any agreement or arrangement in
effect on the date hereof, by the Company to any shareholder-employee of the
Company will be separate consideration for, or allocable to, such
shareholder-employee's shares of Company Common Stock, and such compensation has
been or will be for services actually rendered in the ordinary course of his or
her employment and has been or will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
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(g) The Company is not an investment company, as defined in Sections
368(a)(2)(F)(iii) and (iv) of the Code.
(h) The liabilities of the Company assumed by the Surviving Corporation and
any liabilities to which the assets of the Company are subject were incurred by
the Company in the ordinary course of its business.
(i) Neither the Company nor, to the Company's knowledge, any of its
affiliates has taken, agreed to take, or will take any action that would prevent
the Merger from constituting a transaction qualifying under Section 368(a) of
the Code or that would prevent an exchange of Company Common Stock for Hain
Common Stock pursuant to the Merger from qualifying as an exchange described in
Section 354 of the Code (except with respect to any cash received in lieu of a
fractional share). Neither the Company nor, to the Company's knowledge, any of
its affiliates or agents is aware of any agreement, plan or other circumstance
that would prevent the Merger from qualifying under Section 368(a) of the Code
or that would prevent an exchange of Company Common Stock for Hain Common Stock
pursuant to the Merger from qualifying as an exchange described in Section 354
of the Code (except with respect to any cash received in lieu of a fractional
share) and to the Company's knowledge, the Merger and each such exchange will so
qualify.
Notwithstanding the foregoing, if none of the Merger Consideration consists
of Stock Merger Consideration, then the representation set forth in this Section
5.28 shall not be deemed to be included in this Agreement, and shall be in any
event be deemed to true and correct in all respects.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HAIN
Hain represents and warrants to the Company that:
6.1 ORGANIZATION AND QUALIFICATION. Each of Hain and Hain's subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of Hain and Hain's subsidiaries is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for failures
to be so qualified or in good standing which would not, individually or in the
aggregate, have a material adverse effect on the general affairs, management,
business, operations, condition (financial or otherwise) or prospects of Hain
and its subsidiaries taken as a whole (a "HAIN MATERIAL ADVERSE EFFECT").
Neither Hain nor any of Hain's subsidiaries is in violation of any of the
provisions of its certificate or articles of incorporation or organization or
by-laws. Hain has delivered to the Company accurate and complete copies of the
certificate or articles of incorporation or organization (or other applicable
charter document) and by-laws, as currently in effect, of each of Hain and its
subsidiaries.
6.2 CAPITAL STOCK OF SUBSIDIARIES. The only direct or indirect
subsidiaries of Hain are those listed in Section 6.2 of the Disclosure Schedule.
Hain is directly or indirectly the record (except for directors' qualifying
shares) and beneficial owner (including all qualifying shares owned by directors
of such subsidiaries as reflected in Section 6.2 of the Disclosure Schedule) of
all of the outstanding shares of capital stock of each of its subsidiaries.
6.3 CAPITALIZATION. The authorized capital stock of Hain consists of
40,000,000 shares of Hain Common Stock, par value $.01 per share, and 5,000,000
shares of Preferred Stock, par value $.01 per share. As of March 31, 1998,
11,386,899 shares of Common Stock are issued and outstanding and no shares of
preferred stock are issued and outstanding. All of such issued and outstanding
shares are, and any shares of Hain Common Stock to be issued in connection with
this Agreement, the Merger and the transactions contemplated hereby will be,
validly issued, fully paid and nonassessable and free of preemptive rights.
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6.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Hain has full corporate power
and authority to execute and deliver this Agreement and to consummate the Merger
and other transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the Merger and other transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of Hain
and no other corporate proceedings on the part of Hain are necessary to
authorize this Agreement or to consummate the Merger or other transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Hain and, assuming the due authorization, execution and delivery
hereof by the Company, constitutes a valid and binding agreement of Hain,
enforceable against Hain in accordance with its terms, except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable or fiduciary principles.
6.5 NO VIOLATIONS, ETC.
(a) Assuming that all filings, permits, authorizations, consents and
approvals or waivers thereof have been duly made or obtained as contemplated by
Section 6.5(b) hereof, neither the execution and delivery of this Agreement by
Hain nor the consummation of the Merger or other transactions contemplated
hereby nor compliance by Hain with any of the provisions hereof will (i)
violate, conflict with, or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or suspension of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Hain or any of
Hain's subsidiaries under, any of the terms, conditions or provisions of (x)
their respective charters or by-laws, (y) except as set forth in Section 6.5 of
the Disclosure Schedule, any note, bond, mortgage, indenture or deed of trust,
or (z) any license, lease, agreement or other instrument or obligation, to which
Hain or any such subsidiary is a party or to which they or any of their
respective properties or assets may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Hain or any of Hain's subsidiaries or any of their respective
properties or assets, except, in the case of clauses (i)(y), (i)(z) and (ii)
above, for such violations, conflicts, breaches, defaults, terminations,
suspensions, accelerations, rights of termination or acceleration or creations
of liens, security interests, charges or encumbrances which would not,
individually or in the aggregate, either have an Hain Material Adverse Effect or
materially impair the consummation of the Merger or other transactions
contemplated hereby.
(b) No filing or registration with, notification to and no permit,
authorization, consent or approval of any governmental entity is required by
Hain, Hain Subsidiary or any of Hain's subsidiaries in connection with the
execution and delivery of this Agreement or the consummation by Hain of the
Merger or other transactions contemplated hereby, except (i) in connection with
the applicable requirements of the HSR Act, (ii) the filing of the Delaware
Certificate of Merger and the California Certificate of Merger, (iii) filings
with The Nasdaq Stock Market, Inc., (iv) filings with the SEC and state
securities administrators, and (v) such other filings, registrations,
notifications, permits, authorizations, consents or approvals the failure of
which to be obtained, made or given would not, individually or in the aggregate,
either have an Hain Material Adverse Effect or materially impair the
consummation of the Merger or other transactions contemplated hereby.
(c) As of the date hereof, Hain and Hain's subsidiaries are not in violation
of or default under (x) their respective certificates or articles of
incorporation or organization or by-laws, (y) except as set forth in Section 6.5
of the Disclosure Schedule, any note, bond, mortgage, indenture or deed of
trust, or (z) any license, lease, agreement or other instrument or obligation to
which Hain or any such subsidiary is a party or to which they or any of their
respective properties or assets may be subject, except, in the case of clauses
(y) and (z) above, for such violations or defaults which would not, individually
or in the aggregate, either have an Hain Material Adverse Effect or materially
impair the consummation of the Merger or other transactions contemplated hereby.
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6.6 COMMISSION FILINGS; FINANCIAL STATEMENTS. Except as set forth in
Section 6.6 of the Disclosure Schedule, Hain has filed all required forms,
reports and documents during the past three years (collectively, the "HAIN SEC
REPORTS") with the SEC, all of which complied when filed in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act. The audited consolidated financial statements and unaudited consolidated
interim financial statements of Hain and its subsidiaries included or
incorporated by reference in such Hain SEC Reports were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and present fairly, in all material respects, the financial position and results
of operations and cash flows of Hain and its subsidiaries on a consolidated
basis at the respective dates and for the respective periods indicated (and in
the case of all such financial statements that are interim financial statements,
contain all adjustments so to present fairly). Except to the extent that
information contained in any Hain SEC Report was revised or superseded by a
later filed Hain SEC Report, none of the Hain SEC Reports contained any untrue
statement of a material fact or omitted 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.
6.7 ABSENCE OF CHANGES OR EVENTS. Except as set forth in Hain's Form 10-K
for the fiscal year ended June 30, 1997 and Hain's Form 10-Q for each of the
three month periods ended September 30, 1997 and December 31, 1997, as filed
with the SEC, since December 31, 1997:
(a) there has been no material adverse change, or any development
involving a prospective material adverse change, in the business, operations
or financial condition of Hain and its subsidiaries taken as a whole;
(b) there has not been any direct or indirect redemption, purchase or
other acquisition of any shares of capital stock of Hain or any of its
subsidiaries, or any declaration, setting aside or payment of any dividend
or other distribution by Hain or any of its subsidiaries in respect of their
capital stock;
(c) except in the ordinary course of its business and consistent with
past practice neither Hain nor any of its subsidiaries has incurred any
indebtedness for borrowed money, or assumed, guaranteed, endorsed or
otherwise as an accommodation become responsible for the obligations of any
other individual, firm or corporation, or made any loans or advances to any
other individual, firm or corporation;
(d) there has not been any change in accounting methods, principles or
practices of Hain or its subsidiaries;
(e) except in the ordinary course of business and for amounts which are
not material, there has not been any revaluation by Hain or any of its
subsidiaries of any of their respective assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivables;
(f) there has not been any agreement by Hain or any of its subsidiaries
to (i) do any of the things described in the preceding clauses (a) through
(f) other than as expressly contemplated or provided for in this Agreement
or (ii) take, whether in writing or otherwise, any action which, if taken
prior to the date of this Agreement, would have made any representation or
warranty in this Article VI untrue or incorrect.
6.8 FORM S-4; PROSPECTUS/INFORMATION STATEMENT. None of the information
supplied or to be supplied by or on behalf of Hain and Hain Subsidiary for
inclusion or incorporation by reference in the Form S-4 will, at the time the
Form S-4 becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any 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. None of the
information supplied or to be supplied by or on behalf of Hain and Hain
Subsidiary for inclusion or incorporation by reference in the
Prospectus/Information Statement will, at the dates mailed to Company
shareholders pursuant to Section 8.1(b), contain any untrue statement of a
material fact or omit to state
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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. Hain will promptly inform the Company of the happening of any
event prior to the Effective Time which would render such information regarding
Hain incorrect in any material respect or require the amendment of the
Prospectus/Information Statement.
6.9 BOARD RECOMMENDATION. The Board of Directors of Hain has, by a
majority vote at a meeting of such Board duly held on, or by written consent of
such Board dated April 8, 1998, approved and adopted this Agreement, the Merger
and the other transactions contemplated hereby (including, without limitation,
the issuance of Hain Common Stock as a result of the Merger), determined that
the Merger is fair to the holders of shares of Hain Common Stock. Hain does not
require stockholder approval of this Agreement, the Merger, the issuance of
shares of Hain Common Stock in connection therewith, and the related
transactions.
6.10 DISCLOSURE. All of the facts and circumstances not required to be
disclosed as exceptions under or to any of the foregoing representations and
warranties made by Hain by reason of any minimum disclosure requirement in any
such representation and warranty would not, in the aggregate, have an Hain
Material Adverse Effect.
6.11 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Hain nor any of its
subsidiaries has any liabilities or obligations of any nature, whether absolute,
accrued, unmatured, contingent or otherwise, or any unsatisfied judgments or any
leases of personalty or realty or unusual or extraordinary commitments, except
the liabilities recorded on the Balance Sheet and the notes thereto, and except
for liabilities or obligations incurred in the ordinary course of business and
consistent with past practice since December 31, 1997 that would not
individually or in the aggregate have an Hain Material Adverse Effect.
6.12 FINDERS OR BROKERS. Except as set forth in Section 6.12 of the
Disclosure Schedule, none of Hain, the subsidiaries of Hain, the Board of
Directors of Hain or any member of the Board of Directors of Hain has employed
any investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to a fee or any
commission in connection with the Merger.
6.13 OPINION OF FINANCIAL ADVISOR. On or prior to the Closing Date, Hain
will receive the opinion (the "FAIRNESS OPINION") of Bear Stearns & Co. Inc., to
the effect that the Merger Consideration is fair from a financial point of view
to the stockholders of Hain.
6.14 EMPLOYEE BENEFIT PLANS; ERISA.
Neither Hain nor any subsidiary of Hain nor any Hain ERISA Affiliate has
incurred, or is reasonably likely to incur any material liability under Title IV
of ERISA. Neither Hain nor any subsidiary of Hain nor
any Hain ERISA Affiliate has incurred any material accumulated funding
deficiency, whether or not waived, within the meaning of Section 302 of ERISA or
Section 412 of the Code. For purposes of this Agreement, "HAIN ERISA AFFILIATE"
shall mean any person (as defined in Section 3(9) of ERISA) that is or has been
a member of any group of persons described in Section 414(b), (c), (m) or (o) of
the Code including Hain or any of its subsidiaries.
6.15 QUALIFICATION OF MERGER AS A TAX FREE REORGANIZATION.
(a) Hain has no plan or intention to reacquire or cause or permit any person
related (as defined in Treas. Reg. Section 1.368-1(e)(3)) to Hain to acquire any
of the Hain Common Stock issued to the holders of Company Common Stock pursuant
to the Merger.
(b) Prior to the transaction, Hain will be in control of Hain Subsidiary
within the meaning of section 368(c) of the Internal Revenue Code of 1986, as
amended (the "CODE").
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(c) Following the Merger, Hain has no plan or intention to cause or permit
Hain Subsidiary to issue additional shares of its stock that would result in
Hain's losing control of Hain Subsidiary within the meaning of Section 368(c) of
the Code.
(d) There is no indebtedness between the Company and Hain.
(e) None of the Merger Consideration paid in the Merger by Hain will be
separate consideration for, or allocable to, past or future services or any
employment agreement.
(f) Neither Hain nor Hain Subsidiary is an investment company, as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(g) Hain has no plan or intention to liquidate Hain Subsidiary, to merge
Hain Subsidiary with or into another corporation, to sell or otherwise dispose
of the stock of Hain Subsidiary, or to cause Hain Subsidiary to sell or
otherwise dispose of any of the assets of the Company acquired in the Merger,
except for dispositions made in the ordinary course of business or transfers to
a corporation controlled (within the meaning of Section 368(c) of the Code) by
Hain Subsidiary or, in the case of a successive transfer, the transferor
corporation.
(h) None of Hain, Hain Subsidiary or any affiliate of Hain has taken, agreed
to take, or will take any action that would prevent the Merger from constituting
a transaction qualifying under Section 368(a) of the Code or that would prevent
an exchange of Company Common Stock for Hain Common Stock pursuant to the Merger
from qualifying as an exchange described in Section 354 of the Code (except with
respect to any cash received in lieu of a fractional share). None of Hain, Hain
Subsidiary or any affiliate of Hain is aware of any agreement, plan or other
circumstance that would prevent the Merger from qualifying under Section 368(a)
of the Code or that would prevent an exchange of Company Common Stock for Hain
Common Stock pursuant to the Merger from qualifying as an exchange described in
Section 354 of the Code (except with respect to any cash received in lieu of a
fractional share) and to the knowledge of Hain, the Merger and each such
exchange will so qualify.
Notwithstanding the foregoing, if none of the Merger Consideration consists
of Stock Merger Consideration, then the representation set forth in this Section
6.15 shall not be deemed to be included in this Agreement, and shall be in any
event be deemed to true and correct in all repects.
ARTICLE VII
CONDUCT OF BUSINESS OF
THE COMPANY AND HAIN PENDING THE MERGER
7.1 CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER. Except as
contemplated by this Agreement or as expressly agreed to in writing by Hain,
during the period from the date of this Agreement to the Effective Time, each of
the Company and its subsidiaries will conduct their respective operations
according to its ordinary course of business consistent with past practice, and
will use all commercially reasonable efforts to maintain satisfactory
relationships with suppliers, distributors and customers having business
relationships with it and will take no action which would materially adversely
affect the ability of the parties to consummate the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement, prior to the Effective Time, the
Company will not nor will it permit any of its subsidiaries to, without the
prior written consent of Hain, which consent shall not be unreasonably withheld:
(a) amend its certificate or articles of incorporation or organization
or by-laws;
(b) except as set forth in Section 7.1 of the Disclosure Schedule,
authorize for issuance, issue, sell, deliver, grant any options for, or
otherwise agree or commit to issue, sell or deliver any shares of any class
of its capital stock or any securities convertible into shares of any class
of its capital stock,
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including the filing or processing of a registration statement under the
Securities Act in connection with an initial public offering;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or purchase, redeem or otherwise acquire any shares of its own
capital stock or of any of its subsidiaries, except as otherwise expressly
provided in this Agreement;
(d) (i) create, incur, assume, maintain or permit to exist any debt for
borrowed money other than under existing lines of credit in the ordinary
course of business consistent with past practice in an amount not to exceed
$50,000 in the aggregate; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person except for its wholly owned
subsidiaries in the ordinary course of business and consistent with past
practices and subclause (i) above; or (iii) make any loans, advances or
capital contributions to, or investments in, any other person;
(e) except as set forth in Section 7.1 of the Disclosure Schedule, (i)
increase in any manner the compensation of (x) any employee except in the
ordinary course of business consistent with past practice or (y) any of its
directors or officers; (ii) pay or agree to pay any pension, retirement
allowance or other employee benefit not required, or enter into or agree to
enter into any agreement or arrangement with such director or officer or
employee, whether past or present, relating to any such pension, retirement
allowance or other employee benefit, except as required under currently
existing agreements, plans or arrangements; (iii) except in accordance with
Section 3.1(b) hereof, grant any severance or termination pay to, or enter
into any employment or severance agreement with, (x) any employee except in
the ordinary course of business consistent with past practice or (y) any of
its directors or officers; or (iv) except as may be required to comply with
applicable law, become obligated (other than pursuant to any new or renewed
collective bargaining agreement) under any new pension plan, welfare plan,
multiemployer plan, employee benefit plan, benefit arrangement, or similar
plan or arrangement, which was not in existence on the date hereof,
including any bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement
or other benefit plan, agreement or arrangement, or employment or consulting
agreement with or for the benefit of any person, or amend any of such plans
or any of such agreements in existence on the date hereof;
(f) except as otherwise expressly contemplated by this Agreement, enter
into any other material agreements, commitments or contracts, except
agreements, commitments or contracts for the purchase, sale or lease of
goods or services in the ordinary course of business consistent with past
practice;
(g) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any plan of liquidation or dissolution, any
acquisition of a material amount of assets or securities, any sale,
transfer, lease, license, pledge, mortgage, or other disposition or
encumbrance of a material amount of assets or securities or any material
change in its capitalization;
(h) make any change in the accounting methods or accounting practices
followed by the Company;
(i) settle or compromise any material federal, state, local or foreign
Tax liability, make any new material Tax election, revoke or modify any
existing Tax election, or request or consent to a change in any method of
Tax accounting;
(j) unless the Merger Consideration consists solely of Cash Merger
Consideration, take, cause or permit to be taken any action, whether before
or after the Effective Date, that could reasonably be
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expected to prevent the Merger from constituting a "reorganization" within
the meaning of Section 368(a) of the Code; or
(k) agree to do any of the foregoing.
7.2 CONDUCT OF BUSINESS OF HAIN PENDING THE MERGER. Except as contemplated
by this Agreement or as expressly agreed to in writing by the Company, during
the period from the date of this Agreement to the Effective Time, each of Hain
and its subsidiaries will use all commercially reasonable efforts to keep
substantially intact its business, properties and business relationships and
will take no action which would materially adversely affect the ability of the
parties to consummate the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the Effective Time, Hain will not nor will
it permit any of its subsidiaries to, without the prior written consent of the
Company, which consent shall not be unreasonably withheld:
(a) amend its certificate of incorporation or by-laws except as set
forth in this Agreement;
(b) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or purchase, redeem or otherwise acquire any shares of its own
capital stock or of any of its subsidiaries, except as otherwise expressly
provided in this Agreement;
(c) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any plan of liquidation or dissolution, any
acquisition of an amount of assets or securities which would satisfy one or
more of the requirements of "significant subsidiary" for Hain, within the
meaning of Regulation S-X, on a pro forma basis before giving effect to the
Merger and the transactions contemplated thereby, any sale, transfer, lease,
license, pledge or mortgage or other disposition or encumbrance of a
material amount of assets or securities or any material change in its
capitalization; or
(d) agree to do any of the foregoing.
ARTICLE VIII
COVENANTS AND AGREEMENTS
8.1 PREPARATION OF THE FORM S-4.
(a) As soon as practicable following the date of this Agreement, Hain shall
prepare and file with the SEC the Form S-4, in which the Prospectus/Information
Statement shall be included as a prospectus. Hain shall use commercially
reasonable efforts to have the Form S-4 declared effective under the Securities
Act as promptly as practicable after such filing. Hain shall also take any
action required to be taken under any applicable state securities laws in
connection with the issuance of Hain Common Stock in the Merger. No filing of,
or amendment or supplement to, the Form S-4 will be made by Hain without the
consent of the Company, which shall not be unreasonably withheld. Hain shall
provide the Company and its counsel reasonable opportunity to review and comment
thereon. Hain will advise the Company, promptly after it receives notice
thereof, of the time when the Form S-4 has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the Hain Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Form S-4 or comments thereon and responses thereto or requests
by the SEC for additional information. If at any time prior to the Effective
Time any information relating to the Company or Hain, or any of their respective
affiliates, officers or directors, should be discovered by the Company or Hain
which should be set forth in an amendment or supplement to any of the Form S-4,
so that any of such documents would not include any misstatement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, the party which discovers such information shall promptly notify
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the other parties hereto and an appropriate amendment or supplement describing
such information shall be promptly filed with the SEC and, to the extent
required by law, disseminated to the shareholders of the Company. It is
acknowledged that the shares of Hain Common Stock, if any, to be issued in the
Merger shall not be subject to any restrictions on resale under the federal or
state securities laws; provided, in the case of shareholders who are parties to
the Voting Agreement, shares of Hain Common Stock received by such shareholders
as Stock Merger Consideration shall be initially deposited in trading accounts
maintained by Bear Stearns & Co. Inc.; PROVIDED, HOWEVER, nothing in this
Agreement shall be deemed to require that any shares of Hain Common Stock remain
so deposited for any period of time. Accordingly, at the election of Hain and
its counsel, after consultation with the Company and its counsel, Hain will
either (i) include in the S-4 a plan of distribution that permits the recipients
of Hain Common Stock to sell any or all of their shares of Hain Common Stock
without any restrictions or (ii) file and have declared effective a registration
statement that permits the resale of such shares of Hain Common Stock without
any restrictions.
(b) The Company shall, through its Board of Directors, recommend that its
shareholders consent to this Agreement, the Merger and the other transactions
contemplated hereby. Upon receipt from Hain of a definitive copy of the
Prospectus/Information Statement in the form declared effective by the SEC, the
Company shall immediately cause a copy of the Prospectus/Information Statement
to be distributed to each of its shareholders, together with such other
information as may be required under the CGCL.
8.2 LETTERS AND CONSENTS OF THE COMPANY'S ACCOUNTANTS. The Company shall
use all commercially reasonable efforts to cause to be delivered to Hain all
consents required from its independent accountants necessary to effect the
registration of the Hain Common Stock and make any required filing with the SEC
in connection with the Merger and the transactions contemplated thereby, in each
case to the extent related to the financial statements listed on Schedule 8.2 of
the Disclosure Schedule. Notwithstanding any provision in this Agreement to the
contrary, the only financial information that the Company shall be required to
furnish to Hain in connection with the preparation of the S-4 or any other
securities law filing is the financial statements listed on Schedule 8.2.
8.3 LETTERS AND CONSENTS OF HAIN'S ACCOUNTANTS. Hain shall use all
commercially reasonable efforts to cause to be delivered to the Company all
consents required from its independent accountants necessary to effect the
registration of the Hain Common Stock and make any required filing with the SEC
in connection with the Merger and the transactions contemplated thereby.
8.4 ADDITIONAL AGREEMENTS; COOPERATION.
(a) Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use commercially reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, and to cooperate with each other in
connection with the foregoing, including using commercially reasonable efforts
(i) to obtain all necessary waivers, consents and approvals from other parties
to loan agreements, material leases and other material contracts that are
specified in Section 8.4 to the Disclosure Schedule Statement, (ii) to obtain
all necessary consents, approvals and authorizations as are required to be
obtained under any federal, state or foreign law or regulations, (iii) to defend
all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, (iv) to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby, (v)
to effect all necessary registrations and filings, including, but not limited
to, filings under the HSR Act and submissions of information requested by
governmental authorities, (vi) provide all necessary information for the Form
S-4 and (vii) to fulfill all conditions to this Agreement. Without limiting the
generality of the foregoing provisions, the parties acknowledge that the consent
of the lenders under the existing credit facility of the Company (the "CREDIT
AGREEMENT") with respect to the transactions contemplated by this Agreement is
required pursuant to the terms of the Credit Agreement.
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The Company will use its commercially reasonable efforts to obtain such consents
on or prior to the Closing; PROVIDED, HOWEVER, that if such lenders are
unwilling to give such consents, then, on or prior to the Closing Date, Hain
will refinance all amounts outstanding under the Credit Agreement.
(b) The Company will supply Hain with copies of all correspondence, filings
or communications (or memoranda setting forth the substance thereof) between the
Company or its representatives, on the one hand, and the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice, on the other hand, with respect to this Agreement, the Merger and the
other transactions contemplated hereby. Each of the parties hereto agrees to
furnish to the other party hereto such necessary information and reasonable
assistance as such other party may request in connection with its preparation of
necessary filings or submissions to any regulatory or governmental agency or
authority, including, without limitation, any filing necessary under the
provisions of the HSR Act or any other applicable Federal or state statute.
(c) Hain and Hain Subsidiary will supply the Company with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between Hain, Hain Subsidiary or their representatives, on
the one hand, and the Federal Trade Commission, the Antitrust Division of the
United States Department of Justice and the SEC, on the other hand, with respect
to this Agreement, the Merger and the other transactions contemplated hereby.
8.5 PUBLICITY. The Company and Hain agree to consult with each other in
issuing any press release and with respect to the general content of other
public statements with respect to the transactions contemplated hereby, and
shall not issue any such press release prior to such consultation; PROVIDED,
HOWEVER, that nothing herein will prohibit any party from issuing or causing
publication of any such press release or public announcement to the extent that
such party determines such action to be required by law or the rules of The
Nasdaq Stock Market, Inc., in which event the party making such determination
will, if practicable in the circumstances, use all commercially reasonable
efforts to allow the other party reasonable time to comment on such release or
announcement in advance of its issuance.
8.6 NO SOLICITATION. The Company agrees that, it shall not, and shall not
authorize or permit any of its subsidiaries or any of its or its subsidiaries'
directors, officers, employees, agents or representatives to, directly or
indirectly, solicit, initiate, facilitate or encourage (including by way of
furnishing or disclosing non-public information) any inquiries or the making of
any proposal with respect to any merger, consolidation or other business
combination involving the Company or its subsidiaries or acquisition of any kind
of all or substantially all of the assets or capital stock of the Company and
its subsidiaries taken as a whole (an "ACQUISITION TRANSACTION") or negotiate,
explore or otherwise communicate in any way with any third party (other than
Hain) with respect to any Acquisition Transaction or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transactions contemplated by this Agreement;
PROVIDED that the Company may furnish information to, and negotiate or otherwise
engage in discussions with, any party who delivers a written proposal for an
Acquisition Transaction if and so long as the Board of Directors of the Company
determines in good faith by a majority vote, based upon the advice of its
outside legal counsel, that failing to take such action would constitute a
breach of the fiduciary duties of the Board, and in such case the Board of
Directors of the Company may withdraw its recommendation of this Agreement or
the Merger (provided that the foregoing shall in no way limit or otherwise
affect Hain's right to terminate this Agreement pursuant to Section 10.1). The
Company will immediately cease all existing activities, discussions and
negotiations with any parties conducted heretofore with respect to any of the
foregoing. To the extent such disclosure is not a breach of the fiduciary duties
of the Board of Directors as advised by outside legal counsel from and after the
execution of this Agreement, the Company shall promptly advise Hain in writing
of the receipt, directly or indirectly, of any inquiries, discussions,
negotiations, or proposals relating to an Acquisition Transaction (including the
material terms thereof).
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8.7 ACCESS TO INFORMATION.
(a) From the date of this Agreement until the Effective Time, each of the
Company and Hain will, after reasonable notice, give the other party and its
authorized representatives (including counsel, environmental and other
consultants, accountants and auditors) reasonable access during normal business
hours to all facilities, personnel and operations and to all books and records
of it and its subsidiaries, will, after reasonable notice, permit the other
party to make such inspections as it may reasonably require and will cause its
officers and those of its subsidiaries to furnish the other party with such
financial and operating data and other information with respect to its business
and properties as such party may from time to time reasonably request.
(b) All documents and information furnished pursuant to this Agreement shall
be subject to the terms and conditions set forth in the amendment dated May 2,
1998 to the Confidentiality Agreements dated May 14, 1997 and May 21, 1997
between Hain and Arrowhead Mills, Inc. or a subsidiary thereof (collectively,
the "CONFIDENTIALITY AGREEMENT"). This provision shall survive any termination
of this Agreement.
8.8 NOTIFICATION OF CERTAIN MATTERS. Prior to the Effective Time, the
Company or Hain, as the case may be, shall promptly notify the other of (i) its
obtaining of actual knowledge as to the matters set forth in clauses (x) and (y)
below, or (ii) the occurrence, or failure to occur, of any event, which
occurrence or failure to occur would be likely to cause (x) any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time, or (y)
any material failure of the Company or Hain, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; PROVIDED, HOWEVER, that no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
8.9 RESIGNATION OF DIRECTORS. At or prior to the Effective Time, the
Company shall deliver to Hain the resignations of such directors of the Company
and its subsidiaries as Hain shall specify, effective at the Effective Time.
8.10 INDEMNIFICATION AND INSURANCE.
(a) Hain and the Surviving Corporation agree that, except as may be limited
by applicable Laws, for seven (7) years from and after the Effective Time, the
indemnification obligations set forth in the Company's Articles of Incorporation
and the Company's By-Laws, or in any indemnification agreement to which the
Company is a party as of March 31, 1998, in each case as of the date of this
Agreement, shall survive the Merger and shall not be amended, repealed or
otherwise modified after the Effective Time in any manner that would adversely
affect the rights thereunder of the individuals who on or at any time prior to
the Effective Time were entitled to indemnification thereunder with respect to
matters occurring at or prior to the Effective Time.
(b) To the extent, if any, not provided by an existing right of
indemnification or other agreement or policy, from and after the Effective Time,
Hain shall, to the fullest extent such person could have been indemnified under
the DGCL or under the Certificate of Incorporation or the By-laws of Hain in
effect immediately prior to the Effective Time, indemnify, defend and hold
harmless the present and former directors, officers and management employees of
the parties hereto and their respective subsidiaries (each an "INDEMNIFIED
PARTY" and, collectively, the "INDEMNIFIED PARTIES") against (i) all losses,
expenses (including reasonable attorneys' fees and expenses), claims, damages,
costs, liabilities, judgments or (subject to the proviso of the next succeeding
sentence) amounts that are paid in settlement of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was a
director, officer or management employee of such party or any subsidiary
thereof, whether pertaining to any matter existing or occurring at or prior to
or after the Effective Time and whether asserted or claimed prior to, at or
after the Effective Time and (ii) all
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liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to this Agreement or the transactions contemplated hereby;
PROVIDED, the indemnification contemplated in this subclause (ii) shall not
apply to any claim based on fraudulent misrepresentation or willful breach. In
the event of any such loss, expense, claim, damage, cost, liability, judgment or
settlement (whether or not arising before the Effective Time), (x) Hain shall
pay the reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to Hain, promptly after
statements therefor are received, and otherwise advance to the Indemnified
Parties upon requested reimbursement of documented expenses reasonably incurred,
in either case to the extent not prohibited by the laws of the State of
Delaware, (y) Hain shall cooperate in the defense of any such matter and (z) any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards under applicable law or as set forth in
Hain's articles of incorporation or bylaws shall be made by independent counsel
mutually acceptable to Hain and the Indemnified Party; PROVIDED, HOWEVER, that
Hain shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld). The Indemnified Parties as a
group may retain only one law firm (other than local counsel) with respect to
each related matter except to the extent there could reasonably be expected to
be, in the sole opinion of counsel to an Indemnified Party, under applicable
standards of professional conduct, a conflict on any significant issue between
positions of any two or more Indemnified Parties, in which case each Indemnified
Party with a conflicting position on a significant issue shall be entitled to
separate counsel. In the event any Indemnified Party is required to bring any
action to enforce rights or to collect moneys due under this Agreement is
successful in such action, Hain shall reimburse such Indemnified Party for all
of its expenses in bringing and pursuing such action. Each Indemnified Party
shall be entitled to the advancement of expenses to the full extent contemplated
in this Section 8.10(b) in connection with any such action.
8.11 FEES AND EXPENSES. Whether or not the Merger is consummated, the
Company and Hain shall bear their respective expenses incurred in connection
with the Merger, including, without limitation, the preparation, execution and
performance of this Agreement and the transactions contemplated hereby, and all
fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants, except that (a) Hain shall bear and
pay the costs and expenses incurred in connection with the filing, printing and
mailing of the Form S-4 (including SEC and state filing fees, all accounting
expenses incurred directly in connection therewith, and including the fees and
expenses of Vinson & Elkins L.L.P. incurred in connection therewith in an
amount, aggregated together with the amount provided therefor under Section 8.11
of the AMI Merger Agreement, not to exceed $50,000), (b) the Company or its
shareholders existing prior to the Effective Time shall bear and pay the fees,
costs and expenses, incurred in connection with the services of any finder or
broker set forth under Section 5.21 hereof and (c) Hain shall bear and pay the
costs and expenses incurred in connection with the filings of the premerger
notification and report forms under the HSR Act (including filing fees). If the
Merger is consummated, then for purposes of this Agreement, references to the
Company or its shareholders "bearing" fees, costs or expenses shall mean that,
to the extent that such expenses have been incurred by the Company prior to the
Effective Time, or incurred but not paid by any shareholder of the Company prior
to the Effective Time, the amount thereof (or a reasonable estimate thereof
mutually agreed to by the parties hereto in good faith) shall constitute a
deduction to the Cash Merger Consideration in accordance with Section 3.1(b)
hereof, and the shareholders shall have no further obligation to pay any such
fees, costs or expenses after the Effective Time.
8.12 NASDAQ LISTING. Hain shall use commercially reasonable efforts to
cause the Hain Common Stock to be issued in connection with the Merger to be
approved for listing on the National Market System of The Nasdaq Stock Market,
Inc., subject to official notice of issuance, as promptly as practicable after
the date hereof, and in any event prior to the Closing Date.
8.13 SHAREHOLDER LITIGATION. Each of the Company and Hain shall give the
other the reasonable opportunity to participate in the defense of any
shareholder litigation against or in the name of the Company or Hain, as
applicable, and/or their respective directors relating to the transactions
contemplated by this Agreement.
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8.14 TAX TREATMENT. Unless the Merger Consideration consists solely of
Cash Merger Consideration, each of Hain and the Company shall treat the Merger
as a tax free reorganization under the provisions of Section 368 of the Code on
its Tax Returns.
ARTICLE IX
CONDITIONS TO CLOSING
9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) SHAREHOLDER APPROVALS. Approval of the Merger and the transactions
contemplated thereby shall have been obtained by the requisite approval of
the Company's shareholders.
(b) HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) NO INJUNCTIONS OR RESTRAINTS. No material judgment, order, decree,
statute, law, ordinance, rule or regulation entered, enacted, promulgated,
enforced or issued by any court or other governmental entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"RESTRAINTS") shall be in effect preventing the consummation of the Merger.
(d) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order and no stop order or similar restraining order shall be
threatened or entered by the SEC or any state securities administration
preventing the Merger.
(e) NASDAQ LISTING. The shares of Hain Common Stock issuable to the
Company's shareholders as contemplated by this Agreement shall have been
approved for listing on National Market System of The Nasdaq Stock Market,
Inc., subject to official notice of issuance.
(f) CONSENTS AND APPROVALS. All necessary consents and approvals of any
United States or any other governmental authority or any other third party
required for the consummation of the transactions contemplated by this
Agreement shall have been obtained; except for such consents and approvals
the failure to obtain which individually or in the aggregate would not have
a material adverse effect on the Surviving Corporation.
(g) ARROWHEAD MILLS TRANSACTION. All of the conditions precedent to the
obligations of the parties pursuant to the AMI Merger Agreement shall have
been satisfied or waived by the parties thereto, and Hain shall have
delivered to the Company a certificate of an executive officer thereof that
the parties are prepared to, and intend to, consummate the transactions
contemplated thereby simultaneously with the consummation of the
transactions contemplated hereby at the Effective Time.
9.2 CONDITIONS TO OBLIGATIONS OF HAIN. The obligation of Hain to effect
the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations, warranties
and covenants of the Company set forth herein, to the extent qualified
with respect to materiality, shall be true and correct in all respects,
and to the extent not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and at
and as of the Effective Time as if made at and as of such time (except to
the extent expressly made as of earlier date, in which case as of such
date). The Company shall have delivered to Hain an officer's certificate,
in form and substance satisfactory to Hain and its counsel, to the effect
of the matters stated in this Section 9.2(a) and Section 9.2(b).
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(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) CONSENT OF ACCOUNTANTS. Hain shall have received all consents
required from the independent accountants in connection with the filing
of the Form S-4 of the Company necessary to effect the registration of
the Hain Common Stock.
(d) REAL ESTATE HOLDING CORPORATION. The Company shall have (i)
delivered an affidavit stating, under penalty of perjury, that (A) the
Company is not and has not been at any time during the five-year period
prior to the Effective Time a "United States real property holding
corporation," as defined for purposes of section 897(c)(2) of the Code
and (B) as of the Effective Time, interests in the Company are not United
States real property holding company interests by reasons of Section
897(c)(1)(B) of the Code and (ii) complied with the requirements of
Treas. Reg. Section1.897-2(h) and provided evidence (reasonably
satisfactory to Hain) of such compliance.
(e) TAX OPINION. Hain shall have received an opinion of Cahill
Gordon & Reindel, counsel to Hain, dated on or about the Closing Date,
based upon such representations and assumptions as counsel may reasonably
deem relevant, to the effect that the Merger will be treated for federal
income tax purposes as a reorganization qualifying under the provisions
of Sections 368(a)(1)(a) and 368(a)(2)(D) of the Code; that each of Hain,
Hain Subsidiary and the Company will be a party to the reorganization
within the meaning of Section 368(b) of the Code; that gain, if any,
realized by a shareholder of the Company on the exchange on Company
Common Stock for the Merger Consideration will be recognized only to the
extent of the Cash Merger Consideration received by such shareholder;
that no loss will be recognized by a shareholder of the Company on the
exchange of Company Common Stock for the Merger Consideration pursuant to
the Merger (except with respect to any cash received in lieu of a
fractional share). If the Merger Consideration consists solely of Cash
Merger Consideration, then the condition set forth in this Section 9.2(e)
shall be deemed to be fully satisfied for all purposes of this Agreement.
(f) OPINION OF COMPANY COUNSEL. Hain shall have received an opinion
from Vinson & Elkins L.L.P., counsel to the Company, substantially to the
effect set forth in EXHIBIT A hereto.
(g) VOTING AGREEMENT. The voting agreement and irrevocable proxy
dated the date hereof (the "VOTING AGREEMENT") pursuant to which all of
the shareholders of the outstanding Company Common Stock have agreed to
vote in favor of the Merger and the transactions related thereto shall be
in full force and effect as of the Closing Date.
(h) POST-MERGER OWNERSHIP. Immediately prior to the Effective Time,
the Company shall provide evidence reasonably satisfactory to Hain that,
upon consummation of the Merger and the issuance of the Stock Merger
Consideration, no shareholder of Company Common Stock immediately prior
to the Effective Time shall hold, when aggregated with shares of Hain
Common Stock received by such shareholder under the AMI Merger Agreement,
or have the right to vote immediately after the issuance of the Stock
Merger Consideration greater than 4% (four percent) of the Hain Common
Stock then outstanding (assuming a Closing Date Market Price of $20.00
per share and that 50% of the Merger Consideration is paid in Stock
Merger Consideration).
9.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Hain set forth herein, to the extent qualified with respect
to materiality, shall be true and correct in all respects, and to the
extent not so qualified shall be true and correct in all material
respects, in each case as
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of the date of this Agreement and at and as of the Effective Time as if
made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such date).
(b) PERFORMANCE OF OBLIGATIONS OF HAIN AND HAIN SUBSIDIARY. Hain
and Hain Subsidiary shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Closing Date.
(c) TAX OPINION. The Company shall have received an opinion of
Vinson & Elkins L.L.P., counsel to the Company, dated on or about the
Closing Date, based upon such representations and assumptions as counsel
may reasonably deem relevant, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying
under the provisions of Sections 368(a)(1)(a) and 368(a)(2)(D) of the
Code; that each of Hain, Hain Subsidiary and the Company will be a party
to the reorganization within the meaning of Section 368(b) of the Code;
that gain, if any, realized by a shareholder of the company on the
exchange on Company Common Stock for the Merger Consideration will be
recognized only to the extent of the Cash Merger Consideration received
by such shareholder; that no loss will be recognized by a shareholder of
the Company on the exchange of Company Common Stock for the Merger
Consideration pursuant to the Merger (except with respect to any cash
received in lieu of a fractional share). If the Merger Consideration
consists solely of Cash Merger Consideration, then the condition set
forth in this Section 9.3(d) shall be deemed to be fully satisfied for
all purposes of this Agreement.
(d) OPINION OF HAIN COUNSEL. The Company shall have received an
opinion from Cahill Gordon & Reindel, counsel to Hain, substantially to
the effect set forth as Exhibit B.
(e) MERGER CONSIDERATION. In the event any of the Merger
Consideration consists of Stock Merger Consideration, then at least 50%
of the Merger Consideration shall be comprised of Stock Merger
Consideration and Cash Merger Consideration, when aggregated with the
cash merger consideration paid in connection with the AMI Merger
Agreement, shall be greater than or equal to $20.00 million.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after and approval of this Agreement by
the Company's shareholders:
(a) by mutual written consent of the Company and Hain;
(b) by either the Company or Hain:
(i) if the Merger shall not have been consummated by August 30, 1998;
PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to
this Section 10.1(b)(i) shall not be available to any party whose failure
to perform any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time; or
(ii) if any Restraint having any of the effects set forth in Section
9.1(c) shall be in effect and shall have become final and nonappealable;
(c) by Hain, if the Board of Directors of the Company shall withdraw,
modify or change its recommendation of this Agreement or the Merger in a
manner adverse to Hain;
(d) by Hain, if the Company shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement (which breach is not cured
within 15 business days after receipt by the Company of a written notice of
such breach from Hain specifying the breach and requesting that it be cured)
or if the Voting Agreement ceases to be in full force and effect;
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(e) by the Company, if Hain shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement (which breach is not cured
within 15 business days after receipt by the Company of a written notice of
such breach from Hain specifying the breach and requesting that it be
cured);
(f) by the Company, if, prior to the Effective Time, the Board of
Directors of the Company approves an agreement to effect an Acquisition
Transaction if the Board of Directors has determined in good faith, upon
advice from its outside counsel, that failure to approve such agreement and
terminate this Agreement would constitute a breach of the fiduciary duties
of the Company Board (and so advised Hain) and the Board of Directors
reasonably believes that such Acquisition Transaction is more favorable to
the Company's shareholders than the transaction contemplated by this
Agreement; or
(g) by the Company, if the Form S-4 is not declared effective by July
15, 1998.
10.2 EFFECT OF TERMINATION.
(a) The termination of this Agreement shall become effective upon delivery
to the other party of written notice thereof. In the event of the termination of
this Agreement pursuant to the foregoing provisions of this Article X, this
Agreement shall become void and have no effect, with no liability on the part of
any party (except as provided in paragraph (b) below) or its shareholders or
stockholders or directors or officers in respect thereof except for agreements
which survive the termination of this Agreement and except for liability that
Hain or the Company might have arising from a breach of this Agreement.
(b) In the event of a termination of this Agreement by the Company pursuant
to Section 10.1(f), then the Company shall within two business days of such
termination pay Hain by wire transfer of immediately available funds to an
account specified by Hain, (i) up to $600,000 to reimburse Hain, aggregated
together with amounts provided therefor under Section 10.2(b)(i) of the AMI
Merger Agreement for its documented fees and expenses (including the fees and
expenses of counsel, accountants, consultants and advisors) incurred in
connection with this Agreement and the transactions contemplated hereby and (ii)
a fee of $230,000 as liquidated damages.
ARTICLE XI
MISCELLANEOUS
11.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 11.1 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
(b) Each of the parties is a sophisticated legal entity that was advised by
knowledgeable counsel and, to the extent it deemed necessary, other advisors in
connection with this Agreement. Accordingly, each of the parties hereby
acknowledges that (i) no party has relied or will rely upon any document or
written or oral information previously furnished to or discovered by it or its
representatives, other than this Agreement, the AMI Merger Agreement and the
Voting Agreement or in the Disclosure Schedules or any certificates delivered at
the Effective Time pursuant hereto or thereto and (ii) there are no
representations or warranties by or on behalf of any party hereto or any of its
respective affiliates or representatives other than those expressly set forth in
this Agreement, the AMI Merger Agreement and the Voting Agreement or in the
Disclosure Schedules or in any certificates delivered at the Effective Time
pursuant to hereto or thereto.
(c) The disclosures made on any section of the Disclosure Schedule with
respect to any representation or warranty shall be deemed to be made with
respect to any other representation or warranty requiring the same or similar
disclosure to the extent that the relevance of such disclosure to other
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representations and warranties is evident from the face of the applicable
section of the Disclosure Schedule. All references in this Agreement to the
"knowledge of the Company" (or any similar phrase) will be deemed to be
references solely to the actual knowledge of the executive officers of the
Company. The inclusion of any matter on any disclosure schedule will not be
deemed an admission by any party that such listed matter is material or that
such listed matter has or would have a Company Material Adverse Effect or Hain
Material Adverse Effect, as the case may be.
11.2 CLOSING AND WAIVER.
(a) Unless this Agreement shall have been terminated in accordance with the
provisions of Section 10.1 hereof, a closing (the "CLOSING" and the date and
time thereof being the "CLOSING DATE") will be held as soon as practicable after
the conditions set forth in Sections 9.1, 9.2 and 9.3 shall have been satisfied
or waived. The Closing will be held at the offices of Cahill Gordon & Reindel,
80 Pine Street, New York, New York or at such other places as the parties may
agree. Simultaneously therewith, each of the Delaware Certificate of Merger and
the California Certificate of Merger will be filed.
(b) At any time prior to the Effective Date, any party hereto may (i) extend
the time for the performance of any of the obligations or other acts of any
other party hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements of any
other party or with any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing duly authorized by and
signed on behalf of such party.
11.3 NOTICES.
(a) Any notice or communication to any party hereto shall be duly given if
in writing and delivered in person or mailed by first class mail (registered or
certified, return receipt requested), facsimile or overnight air courier
guaranteeing next day delivery, to such other party's address.
If to Hain or Hain Subsidiary:
The Hain Food Group, Inc.
50 Charles Lindbergh Boulevard
Uniondale, New York 11553
Facsimile No.: (516) 237-6240
Attention: President
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: Roger Meltzer, Esq.
If to the Company:
Garden of Eatin', Inc.
c/o Arrowhead Mills, Inc.
110 South Lawton
Hereford, Texas 79045
Facsimile No.: (806) 364-1068
Attention: Chief Operating Officer
with a copy to:
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Vinson & Elkins L.L.P
2300 First City Tower
1001 Fannin Street
Houston, TX 77002-6760
Facsimile No.: (713) 758-2346
Attention: J. Mark Metts, Esq.
(b) All notices and communications will be deemed to have been duly given:
at the time delivered by hand, if personally delivered; five business days after
being deposited in the mail, if mailed; when sent, if sent by facsimile; and the
next business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
11.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.5 INTERPRETATION. The headings of articles and sections herein are for
convenience of reference, do not constitute a part of this Agreement, and shall
not be deemed to limit or affect any of the provisions hereof. As used in this
Agreement, "person" means any individual, corporation, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof; "subsidiary" of any person means (i) a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by such
person or by one or more other subsidiaries of such person or by such person and
one or more subsidiaries thereof or (ii) any other person (other than a
corporation) in which such person, or one or more other subsidiaries of such
person or such person and one or more other subsidiaries thereof, directly or
indirectly, have at least a majority ownership and voting power relating to the
policies, management and affairs thereof; and "voting stock" of any person means
capital stock of such person which ordinarily has voting power for the election
of directors (or persons performing similar functions) of such person, whether
at all times or only so long as no senior class of securities has such voting
power by reason of any contingency.
11.6 AMENDMENT. This Agreement may be amended by the parties at any time
before or after any required approval of matters presented in connection with
the Merger by the shareholders of the Company; provided, however, that after any
such approval, there shall not be made any amendment that by law requires
further approval by such shareholders without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
11.7 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall confer
any rights upon any person or entity which is not a party or permitted assignee
of a party to this Agreement, except for rights of Indemnified Parties as set
forth in Section 8.10 (Directors' and Officers' Indemnification).
11.8 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
11.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
11.10 NO RECOURSE AGAINST OTHERS. No director, officer or employee, as
such, of Hain, Hain Subsidiary or the Company or any of their respective
subsidiaries shall have any liability for any obligations of Hain, Hain
Subsidiary or the Company, respectively, under this Agreement for any claim
based on, in respect of or by reasons of such obligations or their creation.
11.11 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to
be executed by their duly authorized officers all as of the day and year first
above written.
<TABLE>
<S> <C> <C>
THE HAIN FOOD GROUP, INC.
By: /s/ IRWIN D. SIMON
-----------------------------------------
Irwin D. Simon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GARDEN OF EATIN', INC.
By: /s/ CHARLES ESSERMAN
-----------------------------------------
Charles Esserman
TITLE:
</TABLE>
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ANNEX C
FAIRNESS OPINION OF WASSERSTEIN PERELLA & CO., INC.
April 21, 1998
Board of Directors
Arrowhead Mills, Inc.
Box 2059
Hereford, TX 97045
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the common stock, par value $0.01 per
share (the "Shares"), of Arrowhead Mills, Inc., a Texas corporation (the
"Company"), of the total cash and stock consideration to be received by such
holders pursuant to the terms of the Agreement and Plan of Merger (the "Merger
Agreement"), between the Company and The Hain Food Group, Inc., a Delaware
corporation ("Hain"). The Merger Agreement provides for, among other things, a
merger of the Company into a newly formed subsidiary of Hain (the "Merger")
pursuant to which each Share, with certain exceptions, will convert into the
right to receive shares of common stock, par value $0.01 per share, of Hain (the
"Hain Common Stock") and cash, in the manner and subject to the limitations
described in the Merger Agreement (the total cash and stock consideration
collectively, the "Consideration"). The terms and conditions of the Merger are
set forth in more detail in the Merger Agreement.
In connection with the rendering our opinion, we have reviewed a draft of
the Merger Agreement, and for purposes hereof we have assumed that the final
form of the Merger Agreement will not differ in any material respect from the
draft provided to us. We have also reviewed and analyzed certain business and
financial information relating to the Company, and certain publicly available
business and financial information relating to Hain, in each case for recent
years and interim periods to date, as well as certain internal financial and
operating information, including financial forecasts, analyses, projections, and
certain estimates of the amount and timing of the revenue enhancements, cost
savings and related expenses and synergies expected to result from the Merger
(the "Expected Synergies"), in each case as prepared by or on behalf of the
Company or Hain and provided to us for purposes of our analysis. We have met
with senior management of the Company and certain members of the management of
Hain to review and discuss such information and, among other matters, the
Company's and Hain's respective businesses, operations, assets, financial
condition and future prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company and Hain including, among other things, historical stock
prices and trading volumes relating to Hain, and we have compared that data with
similar data for certain other companies, the securities of which are publicly
traded, that we believe may be relevant or comparable in certain respects to the
Company (or one or more of its businesses or assets) or to Hain. We have
reviewed and considered the financial terms of certain recent acquisitions and
business combination transactions in the specialty foods industry specifically,
and in other industries generally, that we believe to be reasonably comparable
to the Merger or otherwise relevant to our inquiry. We have also performed such
other financial studies, analyses and investigations and reviewed such other
information as we considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We also have relied upon the reasonableness and accuracy of the
financial forecasts, analyses, projections and the Expected Synergies provided
to us and we have assumed, with your consent, that such
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financial forecasts, analyses, projections and Expected Synergies were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's and Hain's respective
managements, and that such forecasts, analyses, projections and Expected
Synergies will be realized in the amounts and at the times currently estimated
by the Company and Hain. We express no opinion herein with respect to such
forecasts, analyses, projections or Expected Synergies or the assumptions upon
which they are based.
In addition, we have not reviewed any of the books and records of the
Company or Hain, or assumed any responsibility for conducting a physical
inspection of the properties or facilities of the Company or Hain, or for making
or obtaining an independent valuation or appraisal of the assets or liabilities
of the Company or Hain, and no such independent valuations or appraisals were
provided to us. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by us as
of the date thereof. We are expressing no opinion herein as to the prices at or
trading ranges in which the securities of Hain (including the Hain Common Stock)
will actually trade at any time.
We note that, provided that Hain does not elect to exercise the option set
forth in the Merger Agreement to structure the Merger Consideration to consist
entirely of cash, the Merger is intended to qualify as a tax-free reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended, and we have assumed that, subject to the proviso set forth above, the
Merger will so qualify.
We understand that the Merger Agreement provides that consummation of the
Merger is conditioned upon the simultaneous completion of a transaction (the
"Garden Transaction") wherein Hain will acquire the assets and businesses of
Garden of Eatin', Inc., a California corporation ("Garden"). We further
understand that Hain and The Shansby Group ("Shansby") negotiated the terms of
the Merger and the Garden Transaction, and the respective definitive agreements
with respect thereto. The majority shareholder of Garden is TSG2 L.P. (of which
an affiliate of Shansby is a general partner) which is also the majority
shareholder of the Company. This opinion does not address the fairness to
Garden, its shareholders or any other person or entity of the consideration to
be received by the shareholders of Garden in the Garden Transaction or any other
aspect of the Garden Transaction. In addition, we were not involved in
establishing the relative amounts of total consideration that holders of Shares
will receive in the Merger and the total consideration that shareholders of
Garden will receive in the Garden Transaction, and we express no opinion herein
as to the relationship between the relative amounts of such consideration;
PROVIDED, HOWEVER, that this sentence is not intended to limit the opinion set
forth in the final paragraph in this letter.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Merger Agreement, without any
modification thereof, and that obtaining the necessary regulatory approvals and
third party consents for the Merger will not have an adverse impact on Hain, on
the Expected Synergies, or on any other anticipated benefits of the Merger.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, which is contingent upon the
consummation of the Merger. We are also acting as financial advisor to Garden in
connection with the Garden Transaction and will receive a fee for our services,
which is contingent upon the consummation of the Garden Transaction. Each of the
Company and Garden has agreed to indemnify us for certain liabilities arising
out of our engagement. We have performed advisory services for the Company and
other entities controlled by Shansby in the past and have received customary
fees for those services. In the ordinary course of our business, we may actively
trade the securities of Hain for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion addresses only the fairness, from a financial point of view, to
the holders of Shares of the total Consideration to be received by such holders
pursuant to the Merger Agreement and does not address any other terms of the
Merger Agreement. Specifically, our opinion does not address the
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Company's underlying business decision to effect the transactions contemplated
by the Merger Agreement, nor does it address the merits of the Merger relative
to any alternative transaction or business strategy that may be available to the
Company.
It is understood that this letter is solely for the benefit and use of the
Board of Directors of the Company in its consideration of the Merger and may not
be relied upon by any other person, and may not be disseminated, quoted,
referred to or reproduced at any time or in any manner without our prior written
consent. This opinion does not constitute a recommendation to any stockholder as
to how such holder should vote with respect to the Merger, and should not be
relied upon by any stockholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the total Consideration to be received by the holders of Shares pursuant to the
Merger Agreement is fair to such holders from a financial point of view.
<TABLE>
<S> <C> <C>
Very truly yours,
/s/ WASSERSTEIN PERELLA & CO., INC.
-----------------------------------------
Wasserstein Perella & Co., Inc.
</TABLE>
C-3
<PAGE>
ANNEX D
ARTICLES 5.11 THROUGH 5.13 OF THE TEXAS BUSINESS CORPORATION ACT
ART. 5.11. RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise provided
in the articles of incorporation) of all, or substantially all, the property
and assets, with or without good will, of a corporation if special
authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the shareholder
are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation system)
or designated as a national market security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or
successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any consideration
that is different than the consideration (other than cash in lieu of
fractional shares that the shareholder would otherwise be entitled to
receive) to be provided to any other holder of shares of the same class or
series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a
class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
D-1
<PAGE>
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if the
action is effective and giving the shareholder's address, to which notice
thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the surviving
or new corporation (foreign or domestic) or other entity that is liable to
discharge the shareholder's right of dissent, in the case of a merger,
shall, within ten (10) days after the action is effected, deliver or mail to
the shareholder written notice that the action has been effected, and the
shareholder may, within ten (10) days from the delivery or mailing of the
notice, make written demand on the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, for payment of
the fair value of the shareholder's shares. The fair value of the shares
shall be the value thereof as of the day immediately preceding the meeting,
excluding any appreciation or depreciation in anticipation of the proposed
action. The demand shall state the number and class of the shares owned by
the shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the ten (10) day
period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of
action other than a merger, and the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's
right of dissent, in the case of a merger, shall, within ten (10) days after
the date the action is effected, mail to each shareholder of record as of
the effective date of the action notice of the fact and date of the action
and that the shareholder may exercise the shareholder's right to dissent
from the action. The notice shall be accompanied by a copy of this Article
and any articles or documents filed by the corporation with the Secretary of
State to effect the action. If the shareholder shall not have consented to
the taking of the action, the shareholder may, within twenty (20) days after
the mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the date the written
consent authorizing the action was delivered to the corporation pursuant to
Section A of Article 9.10 of this Act, excluding any appreciation or
depreciation in anticipation of the action. The demand shall state the
number and class of shares owned by the dissenting shareholder and the fair
value of the shares as estimated by the shareholder. Any shareholder failing
to make demand within the twenty (20) day period shall be bound by the
action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be,
of a demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or
other entity shall deliver or mail to the shareholder a written notice that
shall either set out that the corporation (foreign or domestic) or other
entity accepts the amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate by
the corporation (foreign or domestic) or other entity of the fair value of
the shares, together with an offer to pay the amount of that estimate within
ninety (90) days after the date on which the action was effected, upon
receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
D-2
<PAGE>
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger,
D-3
<PAGE>
be treated as provided in the plan of merger and, in all other cases, may be
held and disposed of by the corporation as in the case of other treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13 PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
D-4
