SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 27, 1999
THE HAIN FOOD GROUP, INC
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-22818 22-3240619
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
50 Charles Lindbergh Boulevard
Uniondale, New York 11553
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 237-6200
- --------------------------------------------------------------------------------
<PAGE>
Item 5. Other Events
On April 6, 1999, The Hain Food Group, Inc. (the "Company") announced that
it had executed a merger agreement pursuant to which the Company would acquire
the stock of privately held Natural Nutrition Group, Inc. ("NNG"), a
manufacturer and marketer of premium natural and organic food products sold
under the Health Valley(R), Breadshop's(R) and Casbah(R) brands.
Under the terms of the merger agreement, the purchase price consists of $70
million in cash and a $10 million convertible note. Consummation of the
acquisition is subject to certain conditions, including satisfaction of the
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired or to be acquired.
(i) The audited consolidated balance sheets of NNG and Subsidiaries
(formerly known as Intrepid Food Holdings, Inc.) as of December 31, 1997 and
1998, and the related audited consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1998 and (ii) the related reports of independent auditors are
included on pages F-1 and F-23.
(b) Pro forma financial information.
The unaudited pro forma combined consolidated balance sheets of the Company
as of December 31, 1998 and the unaudited pro forma combined consolidated
statements of operations for the year ended June 30, 1998 and the six months
ended December 31, 1998 are included in pages F-24 through F-35.
(c) Exhibits.
(2.1) Agreement and Plan of Merger by and among The Hain Food Group, Inc.,
Hain Acquisition Corp. and Natural Nutrition Group, Inc. dated April 6, 1999.
(4.1) Form of Convertible Note.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Consolidated balance sheets of NNG and Subsidiaries (formerly known as Intrepid
Food Holdings, Inc.) as of December 31, 1997 and 1998 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended December 31, 1998 (audited)
Independent Auditor's Report.......................................F-1
Consolidated balance sheets........................................F-2
Consolidated statements of operations..............................F-4
Consolidated statements of stockholders'
deficit......................................................F-5
Consolidated statements of cash flows..............................F-6
Notes to consolidated financial statements.........................F-8
Pro Forma Combined Consolidated Financial Information (unaudited)
Pro forma combined consolidated balance sheets as of
December 31, 1998 ..............................................F-25
Pro forma combined consolidated statement of operations for the
year ended June 30, 1998 .......................................F-28
Pro forma combined consolidated statement of operations for the
six months ended December 31, 1998 .............................F-32
Notes to pro forma combined consolidated financial information....F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Natural Nutrition Group, Inc. and subsidiaries
(formerly known as Intrepid Food Holdings, Inc.)
We have audited the accompanying balance sheets of Natural Nutrition Group, Inc.
and subsidiaries (formerly known as Intrepid Food Holdings, Inc.) (the Company)
as of December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company'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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Natural Nutrition Group, Inc. and
subsidiaries (formerly known as Intrepid Food Holdings, Inc.) as of December 31,
1997 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 18, 1999, except for Note 7,
as to which the date is March 30, 1999
F-1
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(formerly known as Intrepid Food Holdings, Inc.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998
(Dollars in thousands, except share data)
1997 1998
ASSETS
CURRENT ASSETS:
Cash $ 1 $ 7
Accounts receivable, net of allowance for
doubtful accounts of $75 (1997)
and $60 (1998)
4,009 3,117
Other receivables 187 66
Inventories (Note 4) 5,278 5,870
Deferred income taxes (Note 3) 2,188 --
Prepaid expenses and other current assets 376 869
------ ------
Total current assets 12,039 9,929
PLANT AND EQUIPMENT, net (Note 5) 23,358 16,908
INTANGIBLE AND OTHER ASSETS, net (Note 6) 14,815 14,760
------ ------
$50,212 $41,597
======= =======
F-2
See accompanying notes to
consolidated financial statements.
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(formerly known as Intrepid Food Holdings, Inc.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998 (Continued)
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
1997 998
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $1,315 $ 452
Accounts payable 1,474 5,635
Accrued liabilities (Note 13) 3,878 6,386
Current portion of long-term debt (Note 7) 3,025 1,943
------ ------
Total current liabilities 9,692 14,416
LONG-TERM LIABILITIES:
Long-term debt, net of current portion
(Note 7) 18,835 17,131
Deferred income taxes (Note 3) 1,048 -
Other accrued expenses 251 63
------ ------
Total long-term liabilities 20,134 17,194
COMMITMENTS AND CONTINGENCIES (Note 8)
MANDATORY REDEMPTION SERIES A PREFERRED STOCK at
redemption value including cumulative
dividends in arrears of $3,412 and $5,710 in
December 31, 1997 and 1998, respectively;
19,567 shares outstanding in December 31,
1997 and 1998, respectively (Note 9) 22,979 25,277
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value, 2,000,000 shares
authorized, no shares issued and outstanding
Common stock, $.001 par value; 65,000 shares
authorized at December 31, 1997 and
50,000,000 shares authorized at December 31,
1998; 4,156,664 shares issued and outstanding
at December 31, 1997 and 1998, respectively 4 4
Additional paid-in-capital 1,429 1,429
Accumulated deficit (4,026) (16,723)
------- -------
Total stockholders' deficit (2,593) (15,290)
------- -------
$50,212 $41,597
======= =======
F-3
See accompanying notes to
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(formerly known as Intrepid Food Holdings, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share data)
1996 1997 1998
<S> <C> <C> <C>
NET SALES $39,942 $67,898 $67,420
COST OF SALES:
Recurring 27,180 42,370 42,293
Restructuring - - 376
------- ------- ------
GROSS PROFIT 12,762 25,528 24,751
OPERATING EXPENSES:
Marketing, selling, and distribution 7,177 17,366 19,116
General and administrative 5,148 5,759 5,352
Restructuring and other charges (Note 10) - - 7,673
------- ------- ------
Total operating expenses 12,325 23,125 32,141
------ ------ ------
OPERATING INCOME (LOSS) 437 2,403 (7,390)
INTEREST EXPENSE 1,052 1,911 1,733
------ ------ ------
(LOSS) INCOME BEFORE INCOME TAX PROVISION (615) 492 (9,123)
INCOME TAX PROVISION (Note 3) 13 387 1,276
------- ------- -------
NET (LOSS) INCOME $ (628) $ 105 $(10,399)
======== ======= ========
</TABLE>
F-4
See accompanying notes to
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(formerly known as Intrepid Food Holdings, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share data)
Additional Total
paid-in Accumulated stockholders'
Common Stock capital deficit deficit
Shares Amount
<S> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1995 1,450,000 $2 $498 $(91) $ 409
Issuance of common stock on
April 12, 1996 2,416,664 2 831 833
Preferred dividend (Note 9) - - - (1,330) (1,330)
Net Loss - - - (628) (628)
------- ------ ------- --------- ----------
BALANCE,
December 31, 1996 3,866,664 4 1,329 (2,049) (716)
Issuance of common stock on
January 28, 1997 290,000 - 100 - 100
Preferred dividend (Note 9) (2,082) (2,082)
Net Income - - - 105 105
------- ------ ------- ------- --------
BALANCE
December 31, 1997 4,156,664 4 1,429 (4,026) (2,593)
Preferred dividend (Note 9) - - - (2,298) (2,298)
Net loss - - - (10,399) (10,399)
------- ------ ------- ------- ---------
BALANCE
December 31, 1998 4,156,664 $4 $1,429 $(16,723) $(15,290)
========= ====== ========= ======== ========
</TABLE>
F-5
See accompanying notes to
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(formerly known as Intrepid Food Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share data)
1996 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (628) $ 105 $(10,399)
Adjustments to reconcile net (loss) income to net
cash provided by operating
activities:
Depreciation and amortization 2,344 3,445 3,541
Write-off of plant and equipment - - 4,179
Write-off of inventories - - 376
Noncash litigation settlement - - 2,029
Deferred income taxes (187) 499 1,140
Gain on sale of plant and equipment (31) (24) (32)
Effect on cash of changes in operating assets and
liabilities:
Accounts receivable, net 634 (243) 892
Inventories, net (333) (292) (968)
Prepaid expenses and other current
assets 972 224 (372)
Accounts payable (1,061) (610) 3,298
Accrued liabilities 602 (2,836) 291
------- --------- ------
Net cash provided by operating activities 2,312 268 3,975
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (62) (446) (618)
Acquisitions, net of cash
acquired (43,592) - -
Proceeds from sale of plant and equipment 31 390 110
Decrease (increase) in intangible and other assets 424 (801) (675)
------- -------- --------
Net cash used in investing activities (43,199) (857) (1,183)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit
2,356 3,250 239
Proceeds from long-term debt 19,012 - -
Principal payments on long-term debt (690) (3,448) (3,025)
Issuance of common stock 833 51 -
Issuance of mandatory redemption
preferred stock 18,667 424 -
------ -------- -------
F-6
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(formerly known as Intrepid Food Holdings, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (Continued)
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share data)
1996 1997 1998
Net cash provided by (used in) financing activities 40,178 277 (2,786)
------ -------- --------
NET (DECREASE) INCREASE IN CASH (709) (312) 6
CASH, beginning of period $ 1,022 $ 313 $ 1
-------- -------- -------
CASH, end of period $ 313 $ 1 $ 7
======== ======== =======
SUPPLEMENTAL INFORMATION Cash paid during the year for:
Interest $ 1,886 $ 978 $ 1,651
======== ======== =======
Income taxes $ 406 $ 4 $ 4
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of preferred and common stock in exchange for debt $ - $ 525 $ -
======== ======== =======
Mandatory accrued preferred dividends $ 1,330 $ 2,082 $ 2,298
======== ======== =======
Purchase of acquisitions, net of cash acquired:
April 15, 1996 acquisition of Health
Valley Company:
Fair value of assets $ 43,462
Goodwill 4,902
Liabilities assumed (14,025)
---------
Net cash used to acquire business 34,339
October 31, 1996 acquisition of The Breadshop:
Fair value of assets 2,472
Trademarks 5,493
Goodwill 3,519
Liabilities assumed (2,231)
---------
Net cash used to acquire business 9,253
--------
Net cash used to acquire businesses $ 43,592
========
</TABLE>
F-7
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Natural Nutritional Group, Inc. (formerly known as Intrepid
Food Holdings, Inc.) (NNG) was incorporated in the State of Delaware in
October 1995 to acquire and develop natural and organic food companies. In
April 1996, NNG acquired the outstanding capital stock of Health Valley
Foods, Inc. and Health Valley Manufacturing Company (Predecessor Company).
In October 1996, NNG acquired The Breadshop, Inc. (Breadshop) (Note 2).
NNG is a manufacturer and marketer of premium natural and organic food
products in the United States. NNG markets (i) breakfast cereals and
granolas, (ii) granola bars, cereal bars, cookies, crackers and other baked
goods and (iii) canned and instant soups and chilies, as well as other food
products, primarily under its Health Valley(R) and Breadshop(R) brands.
Basis of Presentation - The accompanying consolidated statements of
operations and cash flow include the combined activities of NNG and its
subsidiaries from the dates of acquisition. Certain amounts in the 1996
financial statements have been reclassified to conform with the 1997 and
1998 presentations.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts and operations of NNG and its subsidiaries
(the Company). All material intercompany balances and transactions have
been eliminated.
Stock Split - During 1998, the Company effected a 290-for-1 stock split of
its common stock in connection with an initial public offering which did
not become effective. All share and per share amounts included in the
accompanying consolidated financial statements and footnotes have been
restated to reflect the stock split.
Inventories - Inventories are valued at the lower of first-in, first-out
cost (FIFO) or market value.
F-8
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
Plant and Equipment - Plant and equipment, including capitalized lease
assets, are stated at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets.
Amortization of leasehold improvements is based on the lesser of their
estimated useful lives or the terms of the related leases and is calculated
using the straight-line method. Useful lives are as follows:
Machinery and equipment 3 to 20 years
Furniture and fixtures 3 to 14 years
Leasehold improvements 5 to 10 years
Repairs and maintenance are expensed as incurred, whereas significant
improvements, which materially increase values or extend useful lives, are
capitalized and depreciated over the estimated useful lives of the related
assets. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains or losses resulting from the disposal of assets are charged
or credited to operations as incurred.
Fair Value of Financial Instruments - The carrying values of accounts
receivable and accounts payable approximate fair value due to the short
maturities of such instruments. The carrying values of term loans
approximate fair value due to the fact that they are based on variable
interest rates.
Revenue Recognition - The Company records revenue at the time the related
products are shipped to the customer.
Customer Concentration - The Company had significant sales to a significant
distributor who accounted for 14% of revenue for the fiscal year ended
December 31, 1996. The Company also had significant sales to two individual
distributors who accounted for 14% and 13% of revenue for the fiscal year
ended December 31, 1997, and 17% and 22% of revenue for the fiscal year
ended December 31, 1998. Given the significant amount of revenues derived
from certain customers, collectibility issues arising from financial
difficulties of any of these customers or the loss of any such customers
F-9
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
could have a material adverse effect on the Company's business.
Vendor Concentration - The Company also utilizes a single contract
manufacturer for the production of canned soups and chilis, which accounted
for approximately 25% of revenues for each of the two years ended December
31, 1996 and 1997 and 23% of revenues for the year ending December 31,
1998. The inability of the contract manufacturer to supply the Company with
sufficient product quantities in a timely manner could have a material
adverse effect until alternate sources could be identified or developed.
Use of Estimates - The preparation of the 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.
Long-Lived Assets - In accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the Company
periodically evaluates the recoverability of the net carrying value of
plant and equipment and intangible assets using current and anticipated net
income and undiscounted cash flows, and, if necessary, an impairment is
recorded. During 1998, the Company recorded $1,656 to reflect the
impairments of plant and equipment and $476 to writedown the values of
assets held for sale to net realizable values. These charges are included
in restructuring and other charges in the accompanying consolidated
financial statements. The carrying values of the assets written down to net
realizable values were approximately $2,545 at December 31, 1998. The
Company also wrote off $2,047 of leasehold improvements related to vacated
warehouse facilities (Notes 5 and 10).
Intangible and Other Assets - The excess of purchase price over the fair
value of net assets acquired, as well as
F-10
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
trademarks related to the Breadshop acquisition, are included in intangible
and other assets and are being amortized on a straight-line basis over a
40-year period. Accumulated amortization of intangibles amounted to $113,
$499 and $1,229 at December 31, 1996, 1997 and 1998, respectively.
In 1997, the Company undertook a program to update its packaging designs.
Costs of $420 and $782, associated with development of new packaging
designs, were capitalized during 1997 and 1998, respectively, and are being
amortized over three years, beginning with related product shipments.
Comprehensive Income - The Company adopted SFAS No. 130, Reporting
Comprehensive Income, on January 1, 1998. SFAS No. 130 requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
The Company does not have any comprehensive income components requiring
separate disclosure.
Stock-Based Compensation - The Financial Accounting Standards Board's SFAS
No. 123, Accounting for Stock-Based Compensation, requires expanded
disclosures of stock-based compensation arrangements with employees. The
standard defines a fair value method of accounting for stock options and
other equity instruments. Under the fair value method, compensation cost is
measured at the grant date based on the fair value of the award and is
recognized over the service period, which is usually the vesting period. As
permitted by the SFAS No. 123, the Company has elected to continue to
account for such transactions under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and discloses, in
a note to the financial statements, pro forma net income and earnings per
share as if the Company had applied the fair value method of accounting.
The Company will continue to use APB Opinion No. 25 for measurement and
recognition of employee stock-based transactions.
F-11
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
2. ACQUISITIONS
On April 15, 1996, pursuant to a stock purchase agreement, NNG acquired all
of the outstanding capital stock of the Predecessor Company for $34,339, in
cash, including $2,339 in transaction costs. Additionally, pursuant to the
stock purchase agreement, the former owner was granted an option to
purchase 100 shares of common stock of Health Valley at $22,222.22 per
share. During 1997, this option was terminated and a new option was issued.
The new option enables the former owner to purchase 406,000 shares of NNG
common stock at $.34 per share, and up to an unspecified number of shares
of Series A preferred stock at $1,000 per share to be determined based on
the number of shares of Series A preferred stock redeemed prior to the
exercise of such option.
The acquisition was accounted for using the purchase method. Accordingly,
the purchase price was allocated to assets acquired based on their
estimated fair values. This treatment resulted in approximately $4,903 of
cost in excess of the fair value of net assets acquired. This goodwill is
being amortized on a straight-line basis over 40 years. Health Valley
results of operations have been included in the accompanying financial
statements from the date of acquisition.
On October 31, 1996, the Company completed its acquisition of all of the
outstanding capital stock of Breadshop for $9,253 in cash, including $502
in transaction costs. The acquisition was accounted for using the purchase
method. Accordingly, the purchase price was allocated to assets acquired
based on their estimated fair values. This treatment resulted in
approximately $3,519 of cost in excess of the fair value of net assets
acquired as of October 31, 1996, and a trademark valuation of $5,493. These
amounts are being amortized on a straight-line basis over 40 years.
Breadshop's results have been included in the accompanying consolidated
financial statements from the date of acquisition. The results of the
Company, had Breadshop been acquired as of April 15, 1996 and included in
the accompanying financial statements, would be as follows:
F-12
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
Revenue $45,969
Net loss $ (779)
3. INCOME TAXES
In accordance with SFAS No. 109, Accounting for Income Taxes, deferred tax
assets and deferred tax liabilities reflect the tax consequences in future
years of differences between the income tax bases of assets and liabilities
and the corresponding bases used for financial reporting purposes.
Measurement of the deferred items is based on enacted tax laws. In the
event the future consequences of differences between financial reporting
bases and tax bases of the Company's assets and liabilities result in a
deferred tax asset, SFAS No. 109 requires an evaluation of the probability
of being able to realize the future benefits indicated by such asset. A
valuation allowance related to a deferred tax asset is recorded when it is
more likely than not that some portion or all of the deferred tax asset
will not be realized. The Predecessor Company's income tax benefit for the
period January 1, 1996 to April 15, 1996 reflects the future income tax
benefit expected to be realized.
Components of the income tax expense are as follows at December 31:
<TABLE>
<CAPTION>
1996 1997 1998
Current:
<S> <C> <C> <C>
Federal $ 86 $ - $ 131
State 11 3 5
Other - (115) _ _
------- ------- -------
97 (112) 136
Deferred:
Federal (225) 535 (3,413)
State 141 (36) (333)
------- ------- -------
(84) 499 (3,746)
Change in valuation allowance - -_ 4,886_
------- ------- -------
$ 13 $ 387 $ 1,276
======= ====== =======
</TABLE>
F-13
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
Major components of the Company's net deferred taxes at December 31,
1997 and 1998 are as follows:
1997 1998
Net operating loss carryforwards $2,172 $6,126
Accruals 197 1,320
Reserves 359 760
Basis difference in acquired assets (1,198) (1,477)
Depreciation and amortization (787) (2,007)
AMT credit and carryforwards 80 84
Capitalization of inventory costs 63 80
Other, including state taxes 254 -
------ ------
1,140 4,886
Valuation allowance - (4,886)
------- ------
Net deferred tax asset (liability) $1,140 $ -
====== =======
At December 31, 1998, the Company has available net operating loss
(NOL) carryforwards of approximately $15,150 and $9,313, for federal
and California income taxes, respectively. These NOLs will begin to
expire in the Years 2010 and 2000, respectively. The Internal Revenue
Code of 1986, as amended, contains provisions that may limit the
Company's utilization of its NOL carryforward because of the change in
ownership of the Company's stock. The limitation, if any, applies to
NOL generated prior to the change in ownership (prior to April 15,
1996). Management believes that the limitations, if any, do not have a
material impact on the Company's ability to utilize such net operating
losses to offset future earnings.
Based on the Company's assessment of future realizability of its
deferred tax assets, a valuation allowance has been provided, primarily
related to net operating loss carryforwards, as it is more likely than
not that sufficient taxable
F-14
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
income will not be generated to realize these temporary differences.
In connection with the acquisition of the Predecessor Company and Breadshop
by the Company, a tax liability was recorded to reflect the increase in
book basis over tax basis for tax basis for such net assets acquired. Such
amount is included in noncurrent deferred liabilities in 1997.
4. INVENTORIES
Inventories consist of the following:
1997 1998
Raw materials $2,457 $2,622
Work-in-progress 237 167
Finished goods 2,584 3,081
------ ------
$5,278 $5,870
====== ======
5. PLANT AND EQUIPMENT
Plant and equipment consists of the following:
1997 1998
Machinery and equipment $15,135 $13,715
Leasehold improvements 8,994 6,521
Furniture and fixtures 2,074 2,211
Assets not in use 2,437 2,006
------- -------
28,640 24,453
Less accumulated depreciation (5,282) (7,545)
------- -------
$23,358 $16,908
======= =======
Equipment held for sale as of December 31, 1997 and 1998, is included in
assets not in use. These properties are classified as noncurrent assets and
are carried at the lower of cost or net realizable values of $1,821 and
$1,345 at December 31, 1997 and 1998, respectively. During 1998, the
Com-
F-15
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
pany recorded approximately $476 to adjust the carrying values of these
assets to estimated net realizable values (Note 1).
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
1997 1998
Goodwill $8,881 $8,881
Trademarks 5,493 5,493
Other 940 1,615
------ ------
15,314 15,989
Less accumulated amortization (499) (1,229)
------ ------
$14,815 $14,760
======= =======
7. LONG-TERM DEBT
Debt consists of the following at December 31:
1997 1998
Revolving line of credit $4,732 $4,971
Term Loan A 10,700 9,050
Term Loan B 5,930 4,910
Other 498 143
------ ------
21,860 19,074
Less current portion (3,025) (1,943)
------ ------
$18,835 $17,131
======= =======
As of December 31, 1998, the Company's bank credit agreement consisted of a
$6,500 revolving line of credit facility, and two term loan facilities. All
of the borrowings were collateralized by substantially all of the assets of
the Company's wholly owned subsidiary. Effective December 31, 1998, the
interest rate on the revolving line of credit was
F-16
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
8%, the interest rate on Term Loan A was 7.81%, and the interest rate on
Term Loan B was 7.76%. The revolving line of credit facility limited the
Company's borrowing, based on eligible balances of receivables and
inventories. The maximum credit available was $3,680, $4,844 and $5,231 as
of December 31, 1996, 1997 and 1998, respectively. At December 31, 1998,
the Company was in violation of certain ratio covenants, and on March 30,
1999, obtained a waiver from the lender through April 30, 1999.
On January 12, 1999, in conjunction with the acquisition of Sahara Natural
Foods, Inc. (Note 15), the Company's bank agreement was amended. The
amended agreement included the establishment of a single-term loan, the
principal amount of which was increased by $2,500 to $16,460 and, the
availability on the revolving credit facility was increased by $1,000 to
$7,500.
The new term loan matures January 15, 2004 and the amended revolving credit
facility matures January 15, 2002. The new term loan requires quarterly
principal payments, which commence on March 31, 1999, and end December 31,
2003, in increasing amounts, beginning at $450 and ending at $1,018. All of
these borrowings are collateralized by substantially all of the assets of
the Company's wholly owned subsidiary.
Interest on the borrowings under these agreements are at varying rates
based, at the Company's option, on the bank's prime rate plus .25% per
annum, or the London Interbank Offered Rate (LIBOR) plus 2.5% per annum.
The borrowings at prime rates have daily terms, while the LIBOR borrowings
have terms of one to six months. Interest payments are made at the end of
each quarter for prime rate borrowings, and the end of each respective
period for LIBOR borrowings. The Company pays an annual commitment fee of
.375% on the unused portion of the revolving credit facility.
The long-term debt agreement contains various restrictive covenants which
include a prohibition on payment of dividends, specified minimum net worth
and current ratio levels, and specific limitations on leverage ratios and
capital expenditure amounts. The agreement also contains a mandatory
F-17
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
requirement to make accelerated payments on the term debt in the event of
(i) a significant sale or disposition of fixed assets or (ii) of excess
cash flow (as defined) being generated in a fiscal year. The revolving line
of credit facility limits the Company's borrowing, based on eligible
balances of receivables and inventories.
Other debt includes notes payable to a financing company, with underlying
fixed assets as collateral, payable in monthly installments ranging from $2
to $8, bearing interest rates of 9.64% to 11.81%, and maturing at various
dates through July 2000.
The scheduled repayments of debt, incorporating the amended credit
agreement are as follows:
1999 $ 1,943
2000 2,800
2001 3,820
2002 8,941
2003 4,070
-------
$21,574
=======
8. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases its facilities under the terms of
operating leases. These leases are for terms of five years. During 1998,
the Company exercised its option to renew the lease for a five-year term
commencing October 1, 1998. However, the monthly rental amount is currently
being determined in accordance with the terms of the lease. Currently, the
Company is paying a monthly rental of $75. Rent expense related to these
leases amounted to $812, $1,147, and $1,132 for the years ended December
31, 1996, 1997 and 1998, respectively.
Contingencies - The Company is a party to various legal proceedings arising
from the normal course of operations, including litigation relating to
claims alleging misrepresentation in connection with the Predecessor
Company's prac-
F-18
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
tices regarding the packaging of certain of its canned products. During
1998, the Company reached a tentative settlement relating to the packaging
claims. At December 31, 1998, approximately $2,415 is accrued for the
packaging litigation based on the terms of a settlement agreement. Although
the ultimate disposition of other proceedings is not determinable,
management, based on advice of legal counsel, does not believe that adverse
determinations in any or all of such proceedings will have a material
adverse effect on the Company's financial position, results of operations,
and cash flows.
9. MANDATORY REDEMPTION 10% PREFERRED STOCK
The Company's Series A preferred stock has a mandatory redemption value of
$9,783 on each of the seventh and eighth anniversary dates from the
original issuance or April 12, 2003 and 2004, respectively, plus any
accrued but unpaid dividends. Dividends on the Series A preferred stock are
cumulative and accrue at a 10% annual rate based on a redemption value of
$1,000 per share. In the event of liquidation, dissolution, qualifying
sale, or merger of the Company, each holder of Series A preferred stock has
a liquidation preference equal to $1,000 per share plus any accrued but
unpaid dividends. Subject to certain limitations, the Company, at its
option, may redeem all or part of the outstanding shares of Series A
preferred stock at the redemption value plus all accrued but unpaid
dividends. During fiscal year 1997, the Company issued 900 shares of Series
A preferred stock, liquidation value of $1,000 per share, as repayment for
$900 of debt. As the Series A preferred stock has characteristics similar
to debt instruments, the balance of preferred shares have been classified
above shareholders' equity in the financial statements.
10. RESTRUCTURING AND OTHER CHARGES
During 1998, the Company recorded a $8,049 charge to operations reflecting
its decision to restructure certain operations of the Company in light of
revisions in its business strategies, and for other nonrecurring charges.
Approximately $4,814 was recorded as a restructuring charge com-
F-19
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
prised of the following components (i) a $2,047 noncash charge for the
write-off of the leasehold improvements in the Company's distribution
warehouse as a result of the Company's decision to outsource this function
and not renew the lease on the warehouse, (ii) a $1,656 noncash charge for
the writedown to net realizable value of certain manufacturing assets whose
values have been impaired by the Company's revised product offering and
(iii) a $1,111 charge for the writedown and buyback of inventories
resulting from the Company's decision to accelerate the introduction of new
products and packaging. Other nonrecurring charges of $3,235 consists of
(iv) a $476 noncash charge for the writedown to net realizable value of
certain assets which the Company is holding for sale, (v) approximately
$730 of costs incurred by the Company for an initial public offering which
did not become effective and, (vi) net litigation settlement expenses of
$2,029 (Note 8).
11. RETIREMENT PLANS
The Company maintains a defined contribution retirement plan (401(k)
Savings Plan) (the Plan) that covers all eligible employees who elect to
participate. Employees may contribute between 1% and 15% of their earnings
under the Plan, subject to annual limits set by the Internal Revenue
Service. The Company matches 50% of the participant's contributions, up to
3% of each participant's earnings. In addition, the Company is able to make
additional discretionary contributions. The Company's contributions for the
periods ended December 31, 1996, 1997 and 1998, were $103, $110 and $120,
respectively.
12. RELATED-PARTY TRANSACTIONS
Frontenac Company, a private equity firm and the general partner of
Frontenac VI Limited Partnership, provides consulting and financial
services to the Company. Such services include, but are not limited to,
addressing issues related to strategic direction, long-term growth,
acquisitions and divestitures, executive recruitment, and new financings.
Two directors of the Company are affiliates of Frontenac Company.
F-20
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
Fees paid by the Company to Frontenac Company in 1996 include a $395
transaction fee related to the Health Valley acquisition and a $100
transaction fee related to the Breadshop acquisition. During 1996, in
conjunction with the Breadshop acquisition, the Company entered into a 10%
Convertible Promissory note in the amount of $1,000 which was due to
Frontenac VI Limited Partnership. This note and the related interest was
satisfied on January 31, 1997, through a cash payment of $500 and an
issuance of stock valued at $525. Expenses incurred by the Company from
Frontenac Company for the years ended December 31, 1996, 1997 and 1998
include Board of Directors fees of $83, $88 and $41, respectively.
Management believes that the charges incurred in these transactions were
substantially the same as charges which would have been incurred had
similar services been provided by unrelated parties.
13. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
1997 1998
Accrued salaries, vacation, and
related benefits $ 897 $ 1,038
Accrued packaging litigation (Note 8) 412 2,415
Accrued acquisition expenses 1,348 615
Other accrued liabilities 1,221 2,318
------ ------
$3,878 $6,386
====== ======
14. STOCK OPTIONS
In January 1997, the Company amended the Management Option Agreement
(Option Agreement) with its Chairman and President. The Option Agreement
granted options to purchase 96,570 common shares at increasing option
prices in excess of the fair value ($.34 per share) of the stock at the
grant date. The options become fully vested and exercisable on the earlier
of: (1) a qualified public offering or approved sale or (2) on the third
anniversary from the date of grant.
F-21
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
The Option Agreement also contains certain antidilution provisions.
In March 1997, the Company adopted the 1997 Stock Option Plan (the Option
Plan) to provide for and formalize the grant of stock options to key
employees. In connection with the adoption of the Option Plan, the Company
formalized the grant of options for 212,280 shares at $.34 per share to key
employees. These options vest one third on the first anniversary date of
employment subsequent to the date of grant and one-third on each of the two
subsequent anniversary dates. Options granted under the Plan will become
fully vested in the event of a fundamental change or stock sale (as defined
within the Plan) of the Company.
At December 31, 1998, 129,920 options were vested and exercisable having a
weighted average exercise price of $.34 per share. During fiscal year 1998,
10,150 options were granted, no options were exercised and 9,280 options
were forfeited.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for the Plan. No
compensation cost has been recognized for the Plan. Had compensation cost
for the Company's plan been determined based on the fair value at the grant
date for awards under those plans consistent with the method of SFAS No.
123, the Company's net income would have decreased by the pro forma amounts
indicated below:
December 31,
1997 1998
Net income (loss):
As reported $ 105 $(10,399)
Pro forma $ 101 $(10,403)
The fair value of stock options formalized in 1997 and 1998 had a weighted
average fair value of $.34 per share at December 31, 1998. The fair value
of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model, with the following assumptions used for
grants in 1997 and 1998; dividend yield of 0% for all grants
F-22
<PAGE>
NATURAL NUTRITION GROUP, INC. AND SUBSIDIARIES
(Formerly known as Intrepid Food Holdings, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- -------------------------------------------------------------------------------
(Dollars in thousands, except share data)
risk-free rate of 5.5% in 1998 and 6.68% in 1997; expected life of three
years in 1997 and 1998. Volatility of 0% was used (as the Company is not a
public entity). Forfeitures are recognized as they occur.
15. SUBSEQUENT EVENTS (UNAUDITED)
Acquisition - On January 12, 1999, the Company acquired Sahara Natural
Foods, Inc. (Sahara) a California corporation engaged in the manufacture
and distribution of natural and organic food products. Under the terms of
the acquisition, to be accounted for as a purchase, the Company acquired
all of Sahara's common stock for an initial purchase price of $6,700,
consisting of a combination of cash and a $400 convertible and an $800
nonconvertible promissory note. The purchase price is subject to a
post-closing adjustment based on working capital.
Amendment of Certificate of Incorporation and By-Laws - In February 1999,
the Company approved a third amendment (the third amendment) to its
Certificate of Incorporation and approved a reverse 1-for-290 split of each
outstanding share of common stock. Effective upon the filing of the third
amendment, the Company will have the authority to issue 65,000 shares of
common stock at a $.001 per share par value and 35,000 shares of preferred
stock at a $.001 per share par value. The 35,000 shares of the preferred
stock will be designated "Series A preferred stock."
F-23
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined consolidated financial
statements are presented to give effect to the purchase agreement and
the anticipated acquisition of Natural Nutrition Group, Inc. ("NNG")
under the purchase method of accounting. In addition, the pro forma
combined consolidated financial statements are presented to also
include the historical and pro forma adjusted information of Sahara
Natural Foods, Inc. ("Sahara"), which NNG acquired on January 12, 1999
under the purchase method of accounting (collectively, the Company's
acquisition of NNG and the NNG acquisition of Sahara, are referred to
as the "NNG Acquisition"). The balance sheet assumes that the NNG
Acquisition had been consummated on December 31, 1998. The statement of
operations for the year ended June 30, 1998, assumes that the NNG
Acquisition, the July 1, 1998 acquisition of Arrowhead, Terra and
Garden of Eatin' (collectively, the "Acquired Companies") and the
October 14, 1997 acquisition of Westbrae Natural, Inc. ("Westbrae") had
been consummated on July 1, 1997. The statement of operations for the
six months ended December 31, 1998 assumes that the NNG Acquisition had
been consummated at July 1, 1998. Hain management anticipates that it
will be able to achieve significant cost synergies and savings as a
result of the NNG Acquisition. However, in accordance with the rules
for presentation of pro forma financial information, no effect to such
cost savings has been included herein. In addition, the NNG historical
results include certain restructuring and other nonrecurring charges
for the year ended June 30, 1998 and six months ended December 31, 1998
that are not expected to continue following the NNG Acquisition. The
pro forma financial statements are not necessarily indicative of the
results of operations or the financial position which would have
occurred had the NNG Acquisition, the Acquired Companies acquisition
and the Westbrae acquisition been consummated at such times, nor are
they necessarily indicative of future results of operations or
financial position. The unaudited pro forma combined consolidated
financial statements should be read in conjunction with the historical
consolidated financial statements of Hain, including the notes thereto,
incorporated by reference herein and the financial statements of NNG,
included herein, and the Acquired Companies, incorporated by reference
herein, including the notes thereto.
F-24
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
December 31, 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro
Sahara Forma Pro Forma Pro Forma
Acquisition NNG as Adjusted as Adjusted
Historical Pro Forma Sahara for Companies for NNG
Hain NNG Sahara Adjustments Combined Acquired Acquisition
------------ ------------- -------- ------------- --------- -------------- -------------
(Note 1) (Note 2)
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash..................... $ 471 $ 7 $ 43 $2,500(a) $2,550 $(2,500)(b) $ 521
Trade accounts receivable,
net.................... 18,714 3,183 497 3,680 22,394
Inventories.............. 18,691 5,870 722 6,592 25,283
Other current assets..... 3,024 869 25 894 3,918
------------ ------------- -------- ------------- --------- -------------- -------------
Total current assets... 40,900 9,929 1,287 2,500 13,716 (2,500) 52,116
Property and equipment, net 7,601 16,908 247 17,155 24,756
Goodwill and other intangible
assets, net ............. 130,043 8,381 6,140(c) 14,521 (14,521)(a) 188,451
58,408 (a)
Deferred financing costs, net 1,790 302 200(b) 502 (502)(b) 3,790
2,000 (b)
Other assets............... 3,711 6,077 30 150(d) 6,257 9,986
------------ ------------- -------- ------------- --------- -------------- -------------
Total assets........... $184,045 $41,597 $1,564 $8,990 $52,151 $42,885 $279,081
============ ============= ======== ============= ========= ============== =============
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued $15,807 $12,473 $652 $ 200(a) $13,325 $2,500 (c) $31,632
expenses...............
Current portion of
long-term 9,267 1,943 1,943 (11,043)(b) 167
debt...................
Revolving credit facility 3,728 (b) 3,728
Income taxes payable..... 1,122 1,122
------------ ------------- -------- ------------- --------- -------------- -------------
Total current liabilities 26,196 14,416 652 200 15,268 (4,815) 36,649
Long-term debt, less current
portion.................. 55,630 17,131 152 2,500(a) 19,783 (75,413)(b)
Term Loan A.............. 75,000 (b) 75,000
Term Loan B................ 55,000 (b) 55,000
Seller Notes............... 1,200(a) 1,200 10,000 (a) 10,000
(1,200)(b)
Other liabilities.......... 2,742 63 150(d) 213 2,955
Deferred income taxes...... 1,221 1,221
------------- -------------- -------------
------------ ------------- -------- ---------
Total liabilities...... 85,789 31,610 804 4,050 36,464 58,572 180,825
------------ ------------- -------- ------------- --------- -------------- -------------
Commitments and contingencies
Mandatory Redemption Series A
Preferred Stock.......... 25,777 25,277 (25,277)(b)
Stockholders' equity:
Preferred stock - no shares
issued
(19)(a)
Common stock............ 136 4 19 6 (a) 10 (29)(b) 136
Additional paid-in capital 85,793 1,429 5,694 (a) 7,123 (7,123)(b) 85,793
Retained earnings........ 12,602 (16,723) 741 (741)(a) (16,723) 16,742 (b) 12,602
------------ ------------- -------- ------------- --------- -------------- -------------
98,531 (15,290) 760 4,940 (9,590) 9,590 98,531
Less: treasury stock, at
cost.................... 275 275
------------ ------------- -------- ------------- --------- -------------- -------------
Total stockholders' 98,256 (15,290) 760 4,940 (9,590) 9,590 98,256
equity................
------------ ------------- -------- ------------- --------- -------------- -------------
Total liabilities and
stockholders' equity.. $184,045 $41,597 $1,564 $8,990 $52,151 $42,885 $279,081
</TABLE>
See notes to unaudited pro forma combined consolidated financial information.
F-25
<PAGE>
Pro Forma Balance Sheet Adjustments
Note 1 - Sahara Acquisition
(a) On January 12, 1999, NNG acquired all of the common stock of Sahara in a
business combination accounted for as a purchase. The purchase price
consisted of $5.5 million in cash (of which $.3 million was paid in
December 1998), plus $.2 million of transaction costs, the issuance of a
$.8 million promissory note (bearing interest at prime, 7.75%) and the
issuance of a $.4 million convertible note (bearing interest at prime,
7.75%). The cash portion of the purchase price was funded by an equity
infusion by one of NNG's principal shareholders immediately prior to the
Sahara transaction. Such equity infusion amounted to $5.7 million in
exchange for common stock of NNG. In addition, on January 12, 1999, NNG
borrowed $2.5 million from its bank under an amended term loan agreement.
In connection with Hain's pending acquisition of NNG, all indebtedness,
including that described above, will be paid at closing by NNG.
(b) Represents the financing costs associated with the increase in term loan of
$2.5 million.
(c) Represents the adjustment to record the excess of the estimated purchase
price over the net assets acquired in connection with this acquisition
amounting to $6.14 million.
(d) Represents the value assigned to the noncompete agreement entered into with
the former owner of Sahara.
F-26
<PAGE>
Note 2 - NNG Acquisition
(a) Adjustment to record the excess of the estimated purchase price over the
net assets acquired in connection with this acquisition of $58.4 million,
after elimination of NNG's pro forma goodwill of $15.02 million. A portion
of the financing for this acquisition was done through the issuance of a
$10 million convertible promissory note bearing interest at 7%.
(b) Adjustment to record the elimination of the equity (including $25.3 million
mandatory redemption Series A preferred stock) of NNG of $15.7 million, the
NNG debt of $22.9 million (including $.5 million of debt issuance costs)
not assumed by Hain, and elimination of the Company's existing current and
long term debt of $64.9 million. Adjustment to record the proceeds used
under the Company's $160 million Senior Secured loan facility, net of
available excess cash. The Company incurred approximately $2.0 million of
financing costs associated with this new loan facility.
(c) Adjustment for estimated transaction costs (other than financing costs),
including but not limited to, legal and accounting fees, due diligence
services and other costs.
F-27
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
Amounts in thousands, except per share amounts.
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
as Adjusted NNG Pro Forma
for as Adjusted as Adjusted
Companies for NNG for
Acquired Sahara Pro Forma NNG
July 1, 1998 Acquisition Adjustments Acquisitions
(from page F-29) (from page F-31) (note 4)
<S> <C> <C> <C> <C>
Net sales..................................... $173,249 $74,043 $247,292
Cost of sales................................. 105,513 45,696 151,209
----------------- -------------- ------------ ----- ----------------
Gross profit.................................. 67,736 28,347 96,083
----------------- -------------- ------------ ----- ----------------
Management fees and restructuring expenses.... 6,943 6,943
Selling, general and administrative expenses.. 48,340 25,796 74,136
Depreciation of property and equipment........ 565 861 1,426
$(365) (18) (365)
Amortization of goodwill and other intangibles 3,276 616 1,460 (19) 5,352
----------------- -------------- ------------ ----- ----------------
52,181 34,216 1,095 87,492
----------------- -------------- ------------ ----- ----------------
Operating income (loss)....................... 15,555 (5,869) (1,095) 8,591
----------------- -------------- ------------ ----- ----------------
(7,740) (20)
Interest expense.............................. 5,658 2,082 11,219 (21) 11,219
Amortization of deferred financing costs......
469 88 312 (22) 869
----------------- -------------- ------------ ----- ----------------
6,127 2,170 3,791 12,088
----------------- -------------- ------------ ----- ----------------
Income(loss) before income taxes.............. 9,428 (8,039) (4,886) (3,497)
0
Provision for income taxes.................... 4,148 (2,580) (1,219) (23) 349
----------------- -------------- ------------ ----- ----------------
Income (loss) from continuing
operations................................. $5,280 $(5,459) $(3,667) $(3,846)
================= ============== ============ ===== ================
Earnings (loss) per common share from
continuing operations
Basic..................................... $0.44 ($0.32)
================= ================
Diluted................................... $0.39 (a)
================= ================
Common equivalent shares weighted:
Basic...................................... 11,985 11,895
Diluted.................................... 13,609
</TABLE>
See notes to unaudited pro forma combined consolidated financial information.
(a) Diluted loss per common share from continuing operations is not shown as
such would be anti-dilutive.
F-28
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
Amounts in thousands, except per share amounts.
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Companies as Adjusted
as Adjusted Companies Acquired for
for Acquired July 1, 1998 Companies
Westbrae July 1, 1998 Pro Forma Acquired
Acquisition Historical Adjustments July 1, 1998
(from page F-30) (note 2) (to page F-28)
<S> <C> <C> <C> <C>
Net sales..................................... $114,892 $58,357 $173,249
Cost of sales................................. 68,043 37,470 105,513
----------------- ---------------- ---------------- ----------------
Gross profit.................................. 46,849 20,887 67,736
----------------- ---------------- ---------------- ----------------
Management fees and restructuring expenses.... 1,479 $(1,479)(7)
Selling, general and administrative
expenses................................... 33,822 14,518 48,340
Depreciation of property and equipment........ 257 1,333 (1,025)(8) 565
(138)(9)
Amortization of goodwill and other intangibles 1,393 139 1,882(10) 3,276
----------------- ---------------- ---------------- ----------------
35,472 17,469 (760) 52,181
----------------- ---------------- ---------------- ----------------
Operating income.............................. 11,377 3,418 760 15,555
----------------- ---------------- ---------------- ----------------
(1,518)(11)
Interest expense.............................. 2,606 1,518 3,052 (12) 5,658
Write-off of deferred loan
financing fees............................. 560 (560)(13)
Amortization of deferred financing costs... 469 469
----------------- ---------------- ---------------- ----------------
3,075 2,078 974 6,127
----------------- ---------------- ---------------- ----------------
Income(loss) before income taxes.............. 8,302 1,340 (214) 9,428
Provision for income taxes.................... 3,427 979 (258)(14) 4,148
----------------- ---------------- ---------------- ----------------
Income from continuing
operations................................. $4,875 $361 $44 $5,280
================= ================ ================ ================
Earnings per common share from
continuing operations
Basic..................................... $0.47 $0.44
================= ================
Diluted................................... $0.41 $0.39
================= ================
Common equivalent shares weighted:
Basic...................................... 10,269 11,985
Diluted.................................... 11,893 13,609
</TABLE>
See notes to unaudited pro forma combined consolidated
financial information.
F-29
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
Amounts in thousands, except per share amounts.
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Westbrae Pro Forma
July 1, 1997 to as Adjusted
October 13, Westbrae for
Hain 1997 Pro Forma Westbrae
Historical Historical Adjustments Acquisition
(note 1) (to page F-29)
<S> <C> <C> <C> <C>
Net sales..................................... $104,253 $10,639 $114,892
Cost of sales................................. 61,797 6,246 68,043
--------------- ------------------- ---------------- ---------------
Gross profit.................................. 42,456 4,393 46,849
--------------- ------------------- ---------------- ---------------
Management fees and restructuring expenses....
Selling, general and administrative
expenses................................... 30,402 3,706 $(286)(1) 33,822
Depreciation of property and equipment........
257 257
(54)(2)
Amortization of goodwill and other intangibles 1,311 136 (3) 1,393
--------------- ------------------- ---------------- ---------------
31,970 3,706 (204) 35,472
--------------- ------------------- ---------------- ---------------
Operating income.............................. 10,486 687 204 11,377
--------------- ------------------- ---------------- ---------------
Interest expense.............................. 2,128 31 447 (4) 2,606
Amortization of deferred financing costs...... 474 (5)(5) 469
--------------- ------------------- ---------------- ---------------
2,602 31 442 3,075
--------------- ------------------- ---------------- ---------------
Income(loss) before income taxes.............. 7,884 656 (238) 8,302
Provision for income taxes.................... 3,250 31 146 (6) 3,427
--------------- ------------------- ---------------- ---------------
Income (loss) from continuing
operations................................. $4,634 $625 $(384) $4,875
=============== =================== ================ ===============
Earnings per common share from
continuing operations
Basic..................................... $0.45 $0.47
===============
===============
Diluted................................... $0.39 $0.41
=============== ===============
Common equivalent shares weighted:
Basic...................................... 10,269 10,269
Diluted.................................... 11,893 11,893
</TABLE>
See notes to unaudited pro forma combined consolidated
financial information.
F-30
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
Amounts in thousands, except per share amounts.
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Pro Forma NNG
as Adjusted
Sahara for
NNG Sahara Pro Forma Sahara
Historical Historical Acquisitions Acquisitions
(note 3) (to page F-28)
<S> <C> <C> <C> <C>
Net sales..................................... $68,660 $5,383 $74,043
Cost of sales................................. 42,723 2,973 45,696
---------------- --------------- ----------------- ----------------
Gross profit.................................. 25,937 2,410 28,347
---------------- --------------- ----------------- ----------------
Management fees and restructuring expenses.... 6,943 6,943
Selling, general and administrative expenses..
23,362 2,434 25,796
Depreciation of property and equipment........ 851 10 861
Amortization of goodwill and other intangibles 462 $154 (15) 616
---------------- --------------- ----------------- ----------------
31,618 2,444 154 34,216
---------------- --------------- ----------------- ----------------
Operating income (loss)....................... (5,681) (34) (154) (5,869)
---------------- --------------- ----------------- ----------------
Interest expense.............................. 1,789 293 (16) 2,082
Amortization of deferred financing costs...... 48 40 (17) 88
---------------- --------------- ----------------- ----------------
1,837 333 2,170
---------------- --------------- ----------------- ----------------
Loss before income taxes...................... (7,518) (34) (487) (8,039)
Provision for income taxes.................... (2,580) (2,580)
---------------- --------------- ----------------- ----------------
Loss from continuing operations............... $(4,938) $(34) $(487) $(5,459)
================ =============== ================= ================
</TABLE>
See notes to unaudited pro forma combined consolidated
financial information.
F-31
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
Amounts in thousands except per Share Amounts.
(Unaudited)
<TABLE>
<CAPTION>
Combined Pro Forma
Pro Forma as Adjusted
Sahara as Adjusted NNG for
Historical Pro-Forma for Sahara Pro Forma NNG
Hain NNG Sahara Adjustments Acquisition Adjustments Acquisitions
(note 3) (note 4)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $94,098 $34,592 $3,110 $37,702 $131,800
Cost of sales......... 57,080 21,859 1,856 23,715 80,795
------------- ------------- ---------- -------------- -------------- ----------------- --------------
Gross profit.......... 37,018 12,733 1,254 13,987 51,005
------------- ------------- ---------- -------------- -------------- ----------------- --------------
Selling, general and
administrative
expenses........... 24,783 11,691 1,325 13,016 37,799
Depreciation of
property and
equipment.......... 314 421 10 431 745
Amortization of
goodwill and other $ (192)(18) (192)
intangible assets.. 1,702 384 77(15) 461 730 (19) 2,893
Restructuring and
Other charges...... 730 730 730
------------- ------------- ---------- -------------- -------------- ----------------- --------------
26,799 13,226 1,335 77 538 41,975
------------- ------------- ---------- -------------- -------------- ----------------- --------------
Operating income
(loss)............. 10,219 (493) (81) (77) (651) (538) 9,030
------------- ------------- ---------- -------------- -------------- ----------------- --------------
Interest expense, net. 2,412 815 147(16) 962 5,610 (21) 5,487
Amortization of
deferred financing
costs.............. 163 24 20(17) 44 156 (22) 363
------------- ------------- ---------- -------------- -------------- ----------------- --------------
2,575 839 167 1,006 2,269 5,850
------------- ------------- ---------- -------------- -------------- ----------------- --------------
Income(loss) before 7,644 (1,332) (81) (244) (1,657) (2,807) 3,180
income taxes.......
Provision for income 3,325 4,136 29 4,165 (5,394)(23) 2,096
taxes..............
------------- ------------- ---------- -------------- -------------- ----------------- --------------
Net income (loss)..... $4,319 $(5,468) $(110) $(244) $(5,822) $2,586 $1,083
============= ============= ========== ============== ============== ================= ==============
Earnings Per Common
Share:
Basic.............. $0.32 $0.08
=============
==============
Diluted............ $0.28 $0.07
============= ==============
Common equivalent shares weighted:
Basic.............. 13,429 13,429
Diluted............ 15,402 15,402
</TABLE>
F-32
<PAGE>
Pro Forma Combined Consolidated Financial Information
Pro Forma Statement of Operations Adjustments:
Note 1 - Westbrae Acquisition:
General
On October 14, 1997, the Company completed the acquisition of Westbrae in a
transaction that has been accounted for as a purchase. The cost of the
acquisition (including transaction costs) amounted to approximately $24 million,
plus the repayment of Westbrae debt of $2.1 million. To finance this
acquisition, the Company repaid its existing credit facility with IBJ Whitehall
Bank & Trust Company ("IBJ") with IBJ providing for a then new $30 million
senior term loan and a $10 million revolving credit facility.
Details of the pro forma adjustments relating to this acquisition and the
financing are set forth below.
(1) Adjustment to give effect to the reduction of certain costs and expenses
associated with the elimination of the principal corporate office 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
taxes to the expected effective tax rate following acquisition.
Note 2 - Acquired Companies
General
On July 1, 1998, the Company acquired the following businesses and brands
from the Shansby Group and other investors: Arrowhead Mills, Inc., DeBoles
Nutritional Foods, Dana Alexander, Inc. (Terra Chips) and Garden of Eatin', Inc.
("Companies Acquired July 1, 1998") in a transaction that has been accounted
F-33
<PAGE>
for as a purchase. The purchase price was $80 million, less the assumption
of approximately $20 million of debt. Approximately $40 million of the
purchase price was paid by the issuance of 1,716 million shares of the
Company's Common Stock. The Company borrowed approximately $40 million
under a New Credit Facility with IBJ to fund the cash portion of the
purchase price and to repay the $20 million of existing debt of the
Acquired Companies.
Details of the pro forma adjustments relating to this acquisition and the
financing are set forth below.
(7) Elimination of management fees paid to former owners and restructuring
expenses incurred under prior ownership that will not be recurring
following the acquisition.
(8) Adjustment of depreciation expense based on revaluation of fixed assets of
the Acquired Companies.
(9) Elimination of historical goodwill amortization of the Acquired Companies.
(10) Goodwill amortization arising from the acquisition of the Acquired
Companies.
(11) Elimination of historical interest expense of the Acquired Companies.
(12) Adjustment of historical interest expense to reflect the additional
long-term debt that will be incurred in connection with the acquisition of
the Acquired Companies.
(13) Elimination of the write-off of deferred financing costs applicable to debt
of the acquired companies paid off at the closing of the acquisition.
(14) 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.
Note 3 - Sahara Acquisition
Details of the pro forma adjustments relating to this acquisition and the
financing are set forth below.
(15) Goodwill amortization with respect to goodwill acquired in the acquisition
of Sahara for the year ended June 30, 1998 and six months ended December
31, 1998.
(16) Increase in interest cost resulting from the increased proceeds of the NNG
term loan and issuance of the promissory
F-34
<PAGE>
note in connection with the acquisition of Sahara for the year ended June
30, 1998 and six months ended December 31, 1998.
(17) Reflects the adjustment to record the increased amortization associated
with NNG's financing costs on its increased term loan for the year ended
June 30, 1998 and six months ended December 31, 1998.
Note 4 - NNG Acquisition
Details of the pro forma adjustments relating to this acquisition and the
financing are set forth below.
(18) Elimination of NNG pro forma combined historical amortization expense of
goodwill for the year ended June 30, 1998 and six months ended December 31,
1998.
(19) Goodwill amortization arising from the NNG acquisition (assuming a 40 year
life) for the year ended June 30, 1998 and six months ended December 31,
1998.
(20) Elimination of historical interest expense of all acquired companies for
the year ended June 30, 1998 and for the six months ended December 31,
1998.
(21) Adjustment of historical interest expense to reflect the new revolving
credit facility, long term debt and convertible note issued in connection
with the NNG acquisition for the year ended June 30, 1998 and six months
ended December 31, 1998.
(22) Reflects the adjustment to record the increased amortization associated
with the Company's financing costs on its new senior secured facility
offset by the elimination of NNG's financing cost amortization for the year
ended June 30, 1998 and six months ended December 31, 1998.
(23) Adjustment of income taxes to give effect to the pro forma pre-tax
adjustments, and to adjust for the expected effective income tax rate
following the acquisition for the year ended June 30, 1998 and for the six
months ended December 31, 1998.
F-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE HAIN FOOD GROUP, INC.
Dated: April 27, 1999 By: /s/ Gary M. Jacobs
--------------------------
Gary M. Jacobs
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Description
(2.1) Agreement and Plan of Merger by and among The Hain Food Group, Inc.
Hain Acquisition Corp. and Natural Nutrition Group, Inc. dated April
6, 1999.
(4.1) Form of Convertible Note.
EXHIBIT 2.1
===============================================================================
AGREEMENT AND PLAN OF MERGER
dated as of April 6, 1999
by and among
HAIN ACQUISITION CORP.,
THE HAIN FOOD GROUP, INC.
and
NATURAL NUTRITION GROUP, INC.
===============================================================================
<PAGE>
Table of Contents
Page
SECTION 1. DEFINITIONS
1.1 Definitions.................................................1
1.2 Other Defined Terms.........................................8
1.3 Interpretation..............................................9
SECTION 2. THE MERGER
2.1 The Merger.................................................10
2.2 Consummation of the Merger.................................10
2.3 Effects of the Merger......................................10
2.4 Certificate of Incorporation; By-Laws......................10
2.5 Directors and Officers.....................................10
2.6 Conversion of Securities...................................10
2.7 Closing of Transfer Records................................12
SECTION 3. CLOSING
3.1 The Closing Date...........................................12
3.2 Deliveries by the Company at the Closing...................12
3.3 Deliveries by Parent and Buyer at Closing..................12
3.4 Payment of Merger Consideration after the Closing..........13
SECTION 4. REPRESENTATIONS AND WARRANTIES
OF PARENT AND BUYER
4.1 Organization and Corporate Power...........................13
4.2 Authorization; No Breach...................................13
4.3 Brokerage..................................................14
4.4 Governmental Consents etc..................................14
4.5 Solvency...................................................14
4.6 Regulatory Filings.........................................14
4.7 Note Shares................................................15
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.1 Organization and Corporate Power...........................15
5.2 Subsidiaries...............................................16
5.3 Authorization; No Breach...................................16
-i-
<PAGE>
5.4 Capital Stock..............................................17
5.5 Financial Statements.......................................18
5.6 Absence of Certain Developments............................19
5.7 Title to Properties........................................20
5.8 Tax Matters................................................20
5.9 Contracts and Commitments..................................22
5.10 Proprietary Rights.........................................23
5.11 Litigation.................................................23
5.12 Brokerage..................................................23
5.13 Governmental Consents etc..................................23
5.14 Employee Benefit Plans.....................................24
5.15 Insurance..................................................26
5.16 Compliance with Laws.......................................26
5.17 Environmental Compliance and Conditions....................26
5.18 Labor Relations............................................28
5.19 Absence of Undisclosed Liabilities.........................29
5.20 Agreements in Full Force and Effect........................29
5.21 Inventory..................................................29
5.22 Balance Sheet Reserves.....................................29
5.23 Board Recommendation.......................................29
5.24 Year 2000 Compliance.......................................30
5.25 Product Warranty...........................................30
SECTION 6. PRECLOSING COVENANTS OF THE COMPANY
6.1 Conduct of the Business....................................30
6.2 Access to Information......................................32
6.3 Notification...............................................33
6.4 Conditions.................................................33
6.5 Exclusive Dealing..........................................33
SECTION 7. PRECLOSING COVENANTS OF PARENT AND BUYER
7.1 Action.....................................................33
7.2 Confidentiality............................................34
7.3 Conditions.................................................34
SECTION 8. CONDITIONS OF CLOSING
8.1 Conditions to Obligations of Parent and Buyer..............34
8.2 Conditions to Obligations of the Company...................36
-ii-
<PAGE>
SECTION 9. ADDITIONAL COVENANTS OF THE PARTIES
9.1 Confidentiality of Information.............................38
9.2 Access to Books and Records................................38
9.3 Notification...............................................38
9.4 Director and Officer Liability and Indemnification.........38
9.5 Regulatory Filings.........................................39
9.6 Contact with Customers and Suppliers.......................39
9.7 Disclosure Generally.......................................39
9.8 ACKNOWLEDGMENT BY PARENT AND BUYER.........................40
9.9 Nonsurvival of Representations and Warranties..............40
9.10 Joint and Several Obligations..............................40
SECTION 10. REGISTRATION OF PARENT COMMON STOCK
10.1 Registration...............................................40
10.2 Expenses...................................................42
10.3 Noteholders' Covenants Regarding Registrable Shares........42
10.4 Indemnification............................................43
SECTION 11. TERMINATION
11.1 Termination................................................44
11.2 Effect of Termination......................................45
SECTION 12. MISCELLANEOUS
12.1 Notices....................................................45
12.2 Entire Agreement...........................................47
12.3 Assignability and Amendments...............................47
12.4 Waiver.....................................................47
12.5 Governing Law..............................................47
12.6 Captions...................................................48
12.7 Press Releases and Communications..........................48
12.8 Counterparts...............................................48
12.9 Expenses...................................................48
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of April 6,
1999, is by and among The Hain Food Group, Inc., a Delaware corporation
("Parent"), Hain Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Buyer"), and Natural Nutrition Group, Inc., a Delaware
corporation (the "Company").
RECITALS
A. The Persons listed as stockholders (collectively, the "Stockholders") on
Section A of the Disclosure Schedule attached hereto (the "Disclosure Schedule")
own all of the issued and outstanding shares of (i) the Company's Common Stock,
par value $0.001 per share (the "Common Stock"), and (ii) the Company's Series A
Preferred Stock, par value $0.001 per share (the "Preferred Stock"), and the
Persons listed as optionholders on Section A of the Disclosure Schedule
(collectively, together with the holders of the Sahara Convertible Note (as
hereinafter defined), the "Optionholders") own all of the options or other
rights (collectively, together with the Sahara Convertible Note, the "Options")
to purchase or acquire Common Stock and Preferred Stock described thereon.
B. Subject to and in accordance with the terms and conditions of this
Agreement, the respective boards of directors and stockholders of the Company
and Buyer and the board of directors of Parent have approved the merger of Buyer
with and into the Company (the "Merger"), and the Company, Parent and Buyer
desire to consummate the Merger in accordance with the terms and conditions set
forth herein.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged by all of the parties to this Agreement, the parties to
this Agreement agree as follows:
SECTION 1. DEFINITIONS
1.1. Definitions. As used in this Agreement, in addition to terms elsewhere
defined herein, the following terms shall have the following respective
meanings:
"Adjusted Cash Value to Common Equivalents" shall mean (i) the Aggregate
Cash Purchase Price, minus (ii) the amount of the Debt outstanding as of the
Closing, minus
<PAGE>
-2-
(iii) the Aggregate Preferred Stock Redemption Value, plus (iv) the Aggregate
Option Exercise Price Value, minus (v) the Aggregate Option Exercise Price Value
of all Note Only In-The-Money Options.
"Adjusted Fully Diluted Number of Shares" shall mean (i) the Fully Diluted
Number of Shares minus (ii) the number of shares of Common Stock that would be
issuable upon exercise of Part II In-The-Money Options and Note Only
In-The-Money Options.
"Adjusted Value Per Common Equivalent" shall mean the quotient obtained by
dividing (A) the sum of (i) the Adjusted Cash Value to Common Equivalents plus
(ii) the Principal Amount of the Hain Note by (B) the Fully Diluted Number of
Shares.
"Affiliate" shall mean any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by, or under common control
with, the Person specified. A Person shall be deemed to control a corporation
(or other entity) if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such corporation
(or other entity), whether through the ownership of voting securities, by
contract or otherwise.
"Aggregate Cash Purchase Price" shall mean $70,000,000 minus the unpaid
Stockholder Expenses as of the Effective Time.
"Aggregate Option Exercise Price Value" shall mean (i) the amount of
consideration actually paid by any Optionholder to the Company upon exercise of
any Options on or after the date hereof and prior to the Closing plus (ii) the
amount of consideration that would be payable upon exercise of the In-The-Money
Options with respect to those Options that are not exercised prior to the
Closing and are canceled and converted at the Effective Time in accordance with
Section 2.6(a)(iii) or Section 2.6(a)(iv) hereof.
"Aggregate Preferred Stock Redemption Value" shall mean the aggregate
Preferred Stock Redemption Value of all shares of Preferred Stock which are
outstanding immediately prior to the Closing.
"Agreement" shall mean this Agreement and Plan of Merger, including all
Schedules (including the Disclosure Schedule and the Revised Disclosure
Schedule) and Exhibits hereto and amendments hereto or thereto.
"Bank Debt" shall mean the indebtedness of HVC under that certain Amended
and Restated Credit Agreement, dated as of October 31, 1996, by and among HVC
and LaSalle National Bank, as amended from time to time, including any
prepayment penalties or similar payments required upon early termination
thereof.
<PAGE>
-3-
"Cados Non-Compete Agreement" shall mean the Non-Competition Agreement,
dated as of January 12, 1999, between HVC, Sahara and Dimitri V. Cados.
"Cados Stockholder" shall mean Dimitri V. Cados and Navah Cados, as
Trustees of that certain Cados Family Trust under agreement dated June 3, 1992.
"Cash Amount Per Adjusted Common Equivalent" shall mean (i) the Net Cash
Available For Adjusted Common Equivalents divided by (ii) the Adjusted Fully
Diluted Number of Shares.
"Cash Option Value" shall mean, with respect to a Part I In-The-Money
Option, the greater of (i) (a) the product of (x) the Cash Amount Per Adjusted
Common Equivalent and (y) the number of shares of Common Stock issuable upon
exercise of such Option minus (b) an amount equal to the Option Exercise Price
of such Option and (ii) zero (0).
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Certificate of Merger" shall mean the Certificate of Merger to be filed
with the Secretary of State of the State of Delaware in connection with the
Merger.
"Certificates" shall mean certificates representing shares of Common Stock
or Preferred Stock prior to the Effective Time.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Material Adverse Change" shall mean any material adverse change,
or any development resulting in a material adverse change, in the financial
condition, assets, operations or operating results of the Company and its
Subsidiaries taken as a whole.
"Company Material Adverse Effect" shall mean, with respect to any event,
matter, condition or circumstance, an effect that would have a material adverse
effect upon the financial condition, assets, operations or operating results of
the Company and its Subsidiaries taken as a whole.
"Confidentiality Agreement" shall mean that certain Confidentiality
Agreement between Parent and the Company dated March 2, 1999.
"Debt" shall mean the sum of (i) the principal amount outstanding under the
Bank Debt, (ii) the principal amount outstanding under the Sahara
Non-Convertible Note, (iii) the present value (assuming a discount rate of 9%)
of the outstanding lease payments under leases to which the Company, HVC or
Sahara is a party as lessee and which leases are required to be accounted for as
"capital leases" in accordance with GAAP, (iv) the present value
<PAGE>
-4-
(assuming a discount rate of 9%) of the amounts owed under the Cados Non-Compete
Agreement, (v) the principal amount outstanding under the Sahara Convertible
Note (and including any change of control premium), but only to the extent such
note is not converted into Common Stock simultaneously with, or prior to, the
Closing, and (vi) "bank" or "cash" overdrafts (net of cash receipts which have
not been applied against the Bank Debt).
"Environment" shall mean any surface water, ground water, drinking water
supply, land surface or subsurface strata, or ambient air and shall include,
without limitation, any indoor location.
"Environmental Claim" shall mean (A) any written notice or claim by any
governmental authority or Person received or made prior to the Closing alleging
liability (including, without limitation, such liability for investigatory
costs, cleanup costs, remedial, removal or other response costs, governmental
costs (including, without limitation, oversight costs), or harm, injury or
damage to any person, property or natural resources, and any fines or penalties)
arising out of or resulting from (1) the emission, discharge, disposal or other
release or threatened release in or into the Environment of any Hazardous
Substance or (2) any violation of any Environmental Requirement or (B) any
liabilities, damages, costs, fines, penalties or expenses (including, without
limitation, reasonable attorneys' and consultants' fees and disbursements)
arising out of, based upon, resulting from or relating to any investigatory,
remedial, removal or other response action required under any Environmental
Requirement and arising out of or resulting from or required under the
operations of the Company or any of its Subsidiaries or any Predecessor in
Interest, in each case, as existing prior to the Closing Date.
"Environmental Requirements" shall mean all federal, state and local
statutes, laws, regulations and rules of common law relating to pollution or the
protection of public health or the Environment or worker health and safety,
including laws and regulations relating to emissions, discharges, releases or
threatened releases of Hazardous Substances in or into the Environment or
otherwise relating to the manufacture, generation, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Exhibits" shall mean the Exhibits annexed to this Agreement, each of which
is hereby incorporated as a part of this Agreement.
"Financing Amendment" shall mean any amendment, modification, replacement,
renewal or refinancing of the Parent's Third Amended and Restated Revolving
Credit and Term Loan Agreement dated as of July 1, 1998 among the Parent, the
Lenders named therein and IBJ Whitehall Bank & Trust Company, as agent, in
connection with the consum-
<PAGE>
-5-
mation of this Agreement and the Merger and the transactions contemplated hereby
and thereby.
"Fully Diluted Number of Shares" shall mean the sum of (i) the number of
outstanding shares of Common Stock immediately prior to the Closing plus (ii)
with respect to Options (other than the Sahara Convertible Note) not exercised
prior to the Closing, the number of shares of Common Stock that would be
issuable upon exercise of all the In-The-Money Options if all such Options were
vested and exercisable as of the Closing plus (iii) with respect to the Sahara
Convertible Note, the number of shares of Common Stock actually issued upon
conversion of such note simultaneously with, or prior to, the Closing. The Fully
Diluted Number of Shares shall not include any number of shares of Common Stock
issuable upon exercise of Options which are not In-The-Money Options.
"Hain Notes" shall mean the Convertible Notes in the form of Exhibit A
hereto in the initial aggregate principal amount equal to the Principal Amount
of the Hain Notes issued by the Parent to each Noteholder.
"Hazardous Substance" shall mean any solid waste or hazardous, toxic or
radioactive substance, material or waste, as defined, listed or regulated under
any Environmental Requirement including, without limitation, petroleum, oil and
any petroleum or oil product, derivative, constituents or waste.
"HVC" shall mean Health Valley Company, a Delaware corporation.
"In-The-Money Options" shall mean those Options for which the Adjusted
Value Per Common Equivalent exceeds the Option Exercise Price for such Options.
"Net Cash Available For Adjusted Common Equivalents" shall mean the
Adjusted Cash Value to Common Equivalents minus the product of (i) the Adjusted
Value Per Common Equivalent multiplied by (ii) the aggregate number of shares of
Common Stock issuable upon exercise of all Part II In-The-Money Options.
"Note Amount Per Adjusted Common Equivalent" shall mean (i) (a) the
Principal Amount of the Hain Note minus (b) the principal amount of Hain Notes
issued to holders of Note Only In-The-Money Options pursuant to Section
2.6(a)(iii) hereof, divided by (ii) the Adjusted Fully Diluted Number of Shares.
"Noteholders" shall mean each of the Stockholders and each Optionholder
with Part I In- The-Money Options.
"Note Only In-The-Money Option" shall mean any Part I In-The-Money Option
with a Cash Option Value equal to zero.
<PAGE>
-6-
"Note Shares" shall mean shares of Parent Common Stock issued or issuable
upon conversion of the Hain Notes.
"Option Exercise Price" shall mean, with respect to each Option which is
not exercised prior to the Closing, the consideration which would be payable to
the Company upon the exercise of such Option. For purposes of this Agreement,
the Option Exercise Price of the Sahara Convertible Note shall be zero (0).
"Option Value" shall mean, with respect to a Part I In-The-Money Option, (a) the
product of (i) the number of shares of Common Stock issuable upon exercise of
such Option multiplied by (ii) the Adjusted Value Per Common Equivalent minus
(b) an amount equal to the Option Exercise Price for such Option.
"Parent Common Stock" shall mean Common Stock, par value $0.01 per share,
of Parent.
"Parent Material Adverse Change" shall mean any material adverse change or
any development resulting in a material adverse change in the financial
condition, assets, operations or operating results of Parent and its
subsidiaries taken as a whole.
"Parent Material Adverse Effect" shall mean, with respect to any event,
matter, condition or circumstance, an effect that would have a material adverse
effect upon the financial condition, assets, operations or operating results of
Parent and its Subsidiaries taken as a whole.
"Part I In-The-Money Options" shall mean In-The-Money Options held by
Optionholders listed in Part I of Section A of the Disclosure Schedule.
"Part II In-The-Money Options" shall mean In-The-Money Options held by
Optionholders listed in Part II of Section A of the Disclosure Schedule, to the
extent such Options have not been exercised prior to the Closing.
"Person" shall include any individual, corporation, trust, estate,
partnership, limited liability company, joint venture, company, organization or
association (whether incorporated or not), governmental bureau, department or
agency thereof, or other entity of whatsoever kind or nature.
"Preferred Stock Redemption Value" shall mean, with respect to any share of
Preferred Stock which is outstanding immediately prior to the Closing, the
redemption price of such share of Preferred Stock, which redemption price is
determined as of the Closing pursuant to the Certificate of Incorporation of the
Company.
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"Principal Amount of the Hain Notes" shall mean $10,000,000.
"Sahara" shall mean Sahara Natural Foods, Inc., a California corporation.
"Sahara Convertible Note" shall mean the Convertible Note in the initial
principal amount of $400,000, dated as of January 12, 1999, issued by the
Company to the Cados Stockholder, which Promissory Note is convertible into
shares of Common Stock.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated pursuant thereunder.
"Sahara Non-Convertible Note" shall mean the Non-Convertible Note in the
initial principal amount of $800,000, dated as of January 12, 1999, issued by
the Company to the Cados Stockholder.
"Security Interest" shall mean any mortgage, pledge, security interest,
encumbrance, charge or other lien, other than (i) mechanic's, materialmen's and
similar liens, (ii) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings and for
which the Company has set aside adequate reserves on its books with respect
thereto, (iii) liens arising under worker's compensation, unemployment
insurance, social security, retirement and similar legislation, (iv) liens
arising in connection with sales of foreign receivables, (v) liens on goods in
transit incurred pursuant to documentary letters of credit, (vi) purchase money
liens and liens securing rental payments under capital lease arrangements and
(vii) other liens arising in the ordinary course of business and not incurred in
connection with the borrowing of money which do not, individually or in the
aggregate, have a Company Material Adverse Effect.
"Stockholder Expenses" shall mean the fees, costs and expenses incurred by
the Company in connection with this Agreement and the consummation of the
transactions contemplated hereby, including attorneys' fees and expenses.
"Stockholder Representative" shall mean Roger S. McEniry, in his capacity
as representative of the Stockholders and Optionholders.
"Subsidiary" of a Person shall mean an Affiliate controlled by such Person,
directly or indirectly through one or more intermediaries.
"Tax" or "Taxes" shall mean (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, trans-
<PAGE>
-8-
fer, 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. ss. 1.1502-6 (or any similar state, local or foreign
provision)) in respect of any items described in clause (i) or (ii).
"Tax Returns" shall mean any return, report, estimate, declaration,
information return or other document (including schedules or any related or
supporting information) filed or required to be filed with any governmental
entity or other authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.
1.2......Other Defined Terms. The capitalized terms set forth below are
defined in the following sections of this Agreement:
Defined Term Section
------------ -------
Agreement...................................... Preface
Buyer.......................................... Preface
Buyer's Representatives........................ 6.2
Closing........................................ 3.1
Closing Date................................... 3.1
Common Stock................................... Recitals
Company........................................ Preface
Disclosure Schedule............................ Recitals
Effective Time................................. 2.2
Environmental Requirements..................... 5.17(a)
ERISA.......................................... 5.14(a)
GAAP........................................... 5.5
General Corporation Law........................ 2.1
HSR Act........................................ 4.5
HVC............................................ 5.1(b)
Latest Month End............................... 8.1(i)
Latest Monthly Balance Sheet................... 8.1(i)
Latest Monthly Financials...................... 8.1(i)
Leases......................................... 5.7(a)
Material Contracts............................. 5.9
Merger......................................... Recitals
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Merger Consideration........................... 2.6(a)
Notices........................................ 11.1
Obligations.................................... 9.12
Options........................................ Recitals
Optionholders.................................. Recitals
Parent......................................... Preface
Parent Indemnified Parties..................... 10.4
Pension Plans.................................. 5.14(a)
Plans.......................................... 5.14(a)
Predecessor In Interest........................ 5.17
Preferred Stock................................ Recitals
Proprietary Rights............................. 5.10
Process........................................ 5.24
Prospectus..................................... 10.4
Registrable Shares............................. 10.1(c)
Registration Statement......................... 10.1(a)(i)
Revised Disclosure Schedule.................... 6.3
Stockholder Indemnified Parties................ 10.4
Stockholders................................... Recitals
Surviving Corporation.......................... 2.1
Welfare Plans.................................. 5.14(a)
Year 2000 Complaint............................ 5.24
Y2K Project Plan............................... 5.24
1998 Audited Financials........................ 5.5
1.3......Interpretation. The following rules shall be used in interpreting
this Agreement:
(a) the language used in this Agreement shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any Person;
(b) the descriptive headings of this Agreement are inserted for
convenience of reference only and do not constitute part of this Agreement
and shall not be used in the interpretation of this Agreement;
(c) the use of the word "including" in this Agreement shall be by way
of example rather than by limitation; and
<PAGE>
-10-
(d) "the Company's knowledge" shall mean the actual knowledge of any
of the executive officers of the Company.
SECTION 2. THE MERGER
2.1. The Merger. Subject to and in accordance with the terms and conditions
of this Agreement and in accordance with the General Corporation Law of the
State of Delaware (the "General Corporation Law"), at the Effective Time, Buyer
shall be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Buyer shall cease and the Company shall continue
as the surviving corporation (sometimes referred to herein as the "Surviving
Corporation") and shall succeed to and assume all of the rights and obligations
of Buyer in accordance with the General Corporation Law.
2.2. Consummation of the Merger. The Merger shall become effective when a
properly executed Certificate of Merger is filed with the Secretary of State of
the State of Delaware as provided in Section 251 of the General Corporation Law.
When used in this Agreement, the term "Effective Time" shall mean the date and
time at which such Certificate of Merger is so filed.
2.3. Effects of the Merger. The Merger shall have the effects set forth in
the General Corporation Law.
2.4. Certificate of Incorporation; By-Laws. The Certificate of
Incorporation of the Surviving Corporation shall be restated in its entirety as
attached to the Certificate of Merger and the By-Laws of the Surviving
Corporation shall be the By-Laws of the Buyer, as in effect immediately prior to
the Effective Time, and thereafter such Certificate of Incorporation and By-Laws
shall continue to be the Surviving Corporation's Certificate of Incorporation
and By-Laws until amended as provided therein and under the General Corporation
Law.
2.5......Directors and Officers. The directors of Buyer immediately prior
to the Effective Time shall be the initial 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
Buyer 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.
2.6. Conversion of Securities. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of the Company, Buyer or their respective stockholders:
<PAGE>
-11-
(a) (i) Each share of Common Stock issued and outstanding immediately
prior to the Effective Time shall be canceled and extinguished and be
converted into the right to receive the Adjusted Value Per Common
Equivalent, to be paid by delivery to the holder of such share of (i) cash
in an amount equal to the Cash Amount Per Adjusted Common Equivalent and
(ii) a Hain Note payable to the order of the holder of such share in a
principal amount equal to the Note Amount Per Adjusted Common Equivalent.
(ii) Each share of Preferred Stock issued and outstanding immediately
prior to the Effective Time shall be canceled and extinguished and be
converted into the right to receive an amount of cash equal to the
Preferred Stock Redemption Value of such share.
(iii) Each Part I In-The-Money Option outstanding immediately prior to
the Effective Time shall be converted into the right to receive an amount
equal to the Option Value, to be paid by delivery to the holder of such
Option of (x) cash, if any, equal to the Cash Option Value, and (y) a Hain
Note payable to the order of the holder of such Option in a principal
amount equal to the amount by which the Option Value of such Option exceeds
the Cash Option Value of such Option.
(iv) Each Part II In-The-Money Option outstanding immediately prior to
the Effective Time shall be converted into the right to receive an amount
of cash equal to the product of (A) the number of shares of Common Stock
issuable upon exercise of such Option and (B) the Adjusted Value Per Common
Equivalent, minus an amount equal to the Option Exercise Price for such
Option (the aggregate amount payable under (i), (ii), (iii) and (iv) above
is referred to herein as the "Merger Consideration").
(b) All Common Stock and all Preferred Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing shares of Common
Stock or Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive such holder's appropriate portion of
the Merger Consideration.
(c) Each share of Common Stock or Preferred Stock held in the treasury
of the Company, if any, shall be canceled and extinguished at the Effective
Time without any conversion thereof and no payment shall be made with
respect thereto.
(d) Each Option which is not an In-The-Money Option as of the Closing
shall be canceled at the Effective time without any conversion thereof and
no payment shall be made with respect thereto.
<PAGE>
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(e) Each share of Common Stock, par value $.01 per share, of Buyer
issued and outstanding immediately prior to the Effective Time shall
automatically without any action on the part of the holder thereof be
converted into one validly issued, fully paid and nonassessable share of
Common Stock of the Surviving Corporation.
2.7. Closing of Transfer Records. After the close of business on the
Closing Date, transfers of Common Stock and Preferred Stock outstanding prior to
the Effective Time shall not be made on the stock transfer books of the
Surviving Corporation.
SECTION 3. CLOSING
3.1. The Closing Date. Unless the parties hereto shall agree in writing
upon a different location, time or date, the closing of the Merger (the
"Closing") shall take place at the offices of Cahill Gordon & Reindel, 80 Pine
Street, New York, New York 10005, at 10:00 a.m. on the earlier of (i) June 15,
1999 and (ii) if the conditions required to be satisfied or waived pursuant to
Sections 8.1 and 8.2 (other than those requiring the delivery of a certificate
or other document, or the taking of other action, at the Closing) have been
satisfied or waived prior to June 15, 1999, then on such earlier date which is
the later of (x) April 30, 1999 and (y) the date designated by the Company which
is not less than five (5) business days after the satisfaction or waiver of the
last of the conditions required to be satisfied or waived pursuant to Sections
8.1 and 8.2 (other than those requiring the delivery of a certificate or other
document, or the taking of other action, at the Closing). If on any date set
forth for the Closing pursuant to the prior sentence or pursuant to this
sentence the Closing is not consummated because all of such conditions to the
obligations of the parties hereto have not been satisfied or waived, the Company
may specify a new date for Closing. The date of the Closing is referred to
herein as the "Closing Date."
3.2. Deliveries by the Company at the Closing. At the Closing, the
Company shall deliver to Parent and Buyer each of the documents, instruments or
evidences of satisfaction of conditions required to be delivered by the Company
as a condition to the Closing pursuant to Section 8.1 of this Agreement, in form
and substance reasonably satisfactory to Parent and Buyer.
3.3. Deliveries by Parent and Buyer at Closing. At the Closing, Parent
and Buyer shall deliver (i) to each Stockholder that delivers at the Closing
Certificates representing shares of Common Stock or Preferred Stock and each
Optionholder holding In-The-Money Options the cash portion of the Merger
Consideration payable to such Stockholder with respect to the shares represented
by such Certificates and to such Optionholder by wire transfer of immediately
available funds to the account specified by such Stockholder or Optionholder, as
the case may be, and (ii) to each Noteholder a Hain Note duly executed by Parent
in a prin-
<PAGE>
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cipal amount equal to the principal amount of the Hain Note payable to such
Noteholder pursuant to Section 2.6(a)(i) or 2.6(a)(iii), as the case may be, and
(iii) to the Stockholder Representative each of the documents, instruments or
evidences of satisfaction of conditions required to be delivered by Parent and
Buyer as a condition to Closing pursuant to Section 8.2 of this Agreement, in
form and substance reasonably satisfactory to the Stockholder Representative.
3.4. Payment of Merger Consideration after the Closing. Not later than
one day after the Effective Time, Parent shall mail to each Stockholder that did
not deliver Certificates representing all of the shares of Common Stock and
Preferred Stock held by such Stockholder instructions for use in effecting the
surrender of such Certificates in exchange for the Merger Consideration with
respect to the Common Stock or Preferred Stock represented thereby. Upon
surrender to Parent of such a Certificate, Parent shall promptly pay to such
Stockholder the Merger Consideration payable with respect to the shares
represented by such Certificate and the Certificate so surrendered shall be
canceled. No interest will be paid or accrued on the amount payable upon
surrender of Certificates.
SECTION 4. REPRESENTATIONS AND WARRANTIES
OF PARENT AND BUYER
Parent and Buyer, jointly and severally, represent and warrant to the
Company that:
4.1. Organization and Corporate Power. Each of Parent and Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and each of Parent and Buyer has all requisite
corporate power and authority and all authorizations, licenses and permits
necessary to own and operate its properties and to carry on its businesses as
now conducted, if any, except where the failure to hold such authorizations,
licenses and permits would not reasonably be expected to have a Parent Material
Adverse Effect.
4.2. Authorization; No Breach. Each of Parent and Buyer has all
requisite corporate power and authority to execute and deliver this Agreement
and the Hain Notes and to consummate the transactions contemplated hereby and
thereby. Except for the Financing Amendment, the execution, delivery and
performance of this Agreement and the Hain Notes by Parent and Buyer and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized and approved by all necessary corporate action on the part of
Parent's and Buyer's respective boards of directors and stockholders and no
further corporate authorization on the part of Parent and Buyer is necessary to
authorize the execution, delivery and performance of Parent's or Buyer's
obligation under this Agreement and the Hain
<PAGE>
-14-
Notes. The execution, delivery and performance of this Agreement by Parent and
Buyer and the Hain Notes by Parent and the consummation of the transactions
contemplated hereby and thereby do not conflict with or result in any material
breach of, or constitute a material default under, result in a material
violation of, or require any material authorization, consent, approval,
exemption or other action by or notice to any court or other governmental body
under the provisions of Parent's or Buyer's respective Certificates of
Incorporation or By-Laws or any material indenture, mortgage, lease, loan
agreement or other material agreement or instrument to which Parent or Buyer is
bound, or any material law, statute, rule, regulation, order, judgment or decree
to which either Parent or Buyer is subject. None of the foregoing items shall be
deemed to be "material" unless the failure to meet the requirements thereof
would reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. This Agreement constitutes a valid and binding
obligation of each of Parent and Buyer, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy laws, similar laws
of debtor relief and general principles of equity.
4.3. Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any agreement made by or on behalf of Parent or Buyer,
except in connection with the retention by Parent of Bear, Stearns & Co. Inc. as
its financial advisor.
4.4. Governmental Consents etc. Except for the applicable requirements
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), to Parent's and Buyer's knowledge, no material permit, consent,
approval or authorization of, or declaration to or filing with, any governmental
or regulatory authority is required in connection with any of the execution,
delivery or performance of this Agreement by Parent and Buyer and the Hain Notes
by Parent or the consummation by Parent and/or Buyer of any other transaction
contemplated hereby or thereby.
4.5. Solvency. Immediately after giving effect to the transactions
contemplated by this Agreement, each of Parent and the Surviving Corporation
shall be able to pay its respective debts as they become due and shall own
property which has a fair saleable value greater than the amounts required to
pay their respective debts (including a reasonable estimate of the amount of all
contingent liabilities). Immediately after giving effect to the transactions
contemplated by this Agreement, each of Parent and the Surviving Corporation
shall have adequate capital to carry on its business. No transfer of property is
being made and no obligation is being incurred in connection with the
transactions contemplated by this Agreement with the intent to hinder, delay or
defraud either present or future creditors of Parent, Buyer or the Surviving
Corporation.
4.6. Regulatory Filings. Parent and its Subsidiaries have filed and
will continue to file in a timely manner all required filings with the SEC,
including all reports on Form
<PAGE>
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10-K, Form 10-Q, Form 8-K and proxy and information statements and all such
filings were, and will be, true, complete and accurate in all material respects
as of the dates of the filings, and no such SEC filing contained, or will
contain, any untrue statement of a material fact or omitted, or will omit, to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. Since
the date of filing of the last Form 10-Q of Parent, there has been (i) no event,
condition or occurrence which could reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect and (ii) no Parent
Material Adverse Change. No federal, state or local governmental agency,
commission or other entity has initiated within the past three years, and there
is not currently pending, any material proceeding, action, examination or, to
the knowledge of Parent, investigation into the business or operations of Parent
or its Subsidiaries.
4.7. Note Shares. The Note Shares have been duly authorized and, when
issued in accordance with the conversion of the Hain Notes in accordance with
their terms, will be validly issued, fully paid, nonassessable, free of
pre-emptive rights, and not subject to any restrictions on transfer other than
those set forth in Section 10 hereof.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the representations and warranties to Parent set forth in
this Section 5. All such representations and warranties are made, except as
expressly set forth therein, as of the date hereof and are made subject to the
exceptions noted in the applicable section of the disclosure schedule delivered
by the Company to the Parent and the Buyer concurrently herewith and identified
as the "Disclosure Schedule" (the "Disclosure Schedule").
5.1. Organization and Corporate Power.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and the Company has all
requisite corporate power and authority necessary to own and operate its
properties and to carry on its businesses as now conducted. Section 5.1(a) of
the Disclosure Schedule sets forth all the jurisdictions in which the Company is
qualified to do business as a foreign corporation. The Company is not required
to be qualified to do business in any jurisdiction other than the jurisdictions
in which it is currently so qualified, except where the failure to be so
qualified would not reasonably be expected to, individually or in the aggregate,
have a Company Material Adverse Effect.
(b) HVC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and HVC has all requisite
corporate power and authority necessary to own and operate its properties and to
carry on its businesses as now
<PAGE>
-16-
conducted. Section 5.1(b) of the Disclosure Schedule sets forth all the
jurisdictions in which HVC is qualified to do business as a foreign corporation.
HVC is not required to be qualified to do business in any jurisdiction other
than the jurisdictions in which it is currently so qualified, except where the
failure to be so qualified would not reasonably be expected to, individually or
in the aggregate, have a Company Material Adverse Effect.
(c) Sahara is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and Sahara has all requisite
corporate power and authority necessary to own and operate its properties and to
carry on its businesses as now conducted. Section 5.1(c) of the Disclosure
Schedule sets forth all the jurisdictions in which Sahara is qualified to do
business as a foreign corporation. Sahara is not required to be qualified to do
business in any jurisdiction other than the jurisdictions in which it is
currently so qualified, except where the failure to be so qualified would not
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect.
5.2. Subsidiaries. HVC and Sahara are the Company's only Subsidiaries.
Except for the Company's ownership of the capital stock of HVC and HVC's
ownership of the capital stock of Sahara, none of the Company, HVC or Sahara
owns or holds the right to acquire any stock, partnership interest or joint
venture interest or other equity ownership interest in any other Person.
5.3. Authorization; No Breach. The Company has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly authorized and approved by all necessary
corporate action on the part of the Company's board of directors and
stockholders and no further corporate authorization on the part of the Company
is necessary to authorize the execution, delivery and performance of the
Company's obligations under this Agreement. Except for any net worth requirement
in the Company's real property leases with respect to the parent corporation or
the tenant after a merger, and except for the lease with respect to the property
at 16007 and 16009 Camino De La Cantera (Irwindale, California) which HVC is
currently leasing on a month-to-month basis, the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby do not conflict with or result in any material
breach of, or constitute a material default under, result in a material
violation of, result in the creation of any material Security Interest upon any
material assets of the Company or any of its Subsidiaries, or require any
material authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body, under the provisions of the
Certificate of Incorporation or By-Laws or any material indenture, mortgage,
lease, loan agreement or other material agreement or instrument to which the
Company or any of its Subsidiaries is bound, or any material law, statute, rule,
regulation, order, judgment or decree to which the Company or
<PAGE>
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any of its Subsidiaries is subject. Except as set forth on Section 5.3 of the
Disclosure Schedule, there is no Security Interest upon any material assets of
the Company or its Subsidiaries. As of the date hereof, none of the Company or
its Subsidiaries is in violation of or default under its respective Certificate
of Incorporation or By-Laws. None of the items set forth in this Section 5.3
shall be deemed to be "material" unless the failure to meet the requirements
thereof would reasonably be expected to, individually or in the aggregate, have
a Company Material Adverse Effect. This Agreement constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy laws, similar laws of
debtor relief and general principles of equity.
5.4. Capital Stock.
(a) The authorized number of shares of capital stock of the Company
consists of 65,000 shares of Common Stock and 35,000 shares of Preferred Stock.
As of the date hereof, all of the issued and outstanding shares of capital stock
of the Company are owned of record by the Stockholders in the amounts as set
forth on Section 5.4 of the Disclosure Schedule. All of the outstanding capital
stock of the Company have been duly authorized and are validly issued, fully
paid and nonassessable and are owned by the Stockholders, free and clear of all
liens, encumbrances, security interests and claims. Except as set forth in
Section 5.4 of the Disclosure Schedule, the Company does not have any other
capital stock, equity securities or securities containing any equity features
authorized, issued or outstanding, and there are no agreements or other rights
or arrangements existing or outstanding which provide for the sale or issuance
of any of the foregoing by the Company. Except as set forth in Section 5.4 of
the Disclosure Schedule, there are no rights, subscriptions, warrants, options,
conversion rights or agreements of any kind outstanding to purchase or otherwise
acquire any shares of capital stock or other equity securities of the Company of
any kind. There are no agreements or other obligations (contingent or otherwise)
which require the Company to repurchase or otherwise acquire any shares of the
Company's capital stock or other equity securities.
(b) The authorized number of shares of capital stock of HVC consists of
1,000 shares of Common Stock, par value $.001 per share. As of the date hereof,
all of the issued and outstanding shares of capital stock of HVC are owned of
record by the Company. All of the outstanding capital stock of HVC have been
duly authorized and are validly issued, fully paid and nonassessable and are
owned by the Company, free and clear of all liens, encumbrances, security
interests and claims. HVC does not have any other capital stock, equity
securities or securities containing any equity features authorized, issued or
outstanding, and there are no agreements or other rights or arrangements
existing or outstanding which provide for the sale or issuance of any of the
foregoing by HVC. There are no rights, subscriptions, warrants, options,
conversion rights or agreements of any kind outstanding to purchase or otherwise
acquire any shares of capital stock or other equity securities of HVC of any
kind.
<PAGE>
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There are no agreements or other obligations (contingent or otherwise) which
require HVC to repurchase or otherwise acquire any shares of HVC's capital stock
or other equity securities.
(c) The authorized number of shares of capital stock of Sahara consists of
300 shares of Common Stock, no par value. As of the date hereof, all of the
issued and outstanding shares of capital stock of Sahara are owned of record by
HVC. All of the outstanding capital stock of Sahara have been duly authorized
and are validly issued, fully paid and nonassessable and are owned by HVC, free
and clear of all liens, encumbrances, security interests and claims. Sahara does
not have any other capital stock, equity securities or securities containing any
equity features authorized, issued or outstanding, and there are no agreements
or other rights or arrangements existing or outstanding which provide for the
sale or issuance of any of the foregoing by Sahara. There are no rights,
subscriptions, warrants, options, conversion rights or agreements of any kind
outstanding to purchase or otherwise acquire any shares of capital stock or
other equity securities of Sahara of any kind. There are no agreements or other
obligations (contingent or otherwise) which require Sahara to repurchase or
otherwise acquire any shares of Sahara's capital stock or other equity
securities.
5.5. Financial Statements. The Company has furnished Buyer with copies
of (i) its audited consolidated balance sheet and audited consolidated
statements of income, stockholders equity and cash flows as of, and for the
fiscal year ended, December 31, 1998 (such financial statements are referred to
herein as the "1998 Audited Financials"), together with the audit report thereon
of Deloitte & Touche, the Company's independent auditors, and (ii) its audited
consolidated balance sheets and statements of income, stockholders equity and
cash flows as of, and for the fiscal years ended, December 31, 1997 and December
31, 1996. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied ("GAAP"), and
present fairly in all material respects the financial condition and results of
operations of the Company and its Subsidiaries as of the times and for the
periods referred to therein. The Company also has furnished Buyer with a copy of
the unaudited consolidated balance sheet of the Company as of January 31, 1999
(the "Interim Balance Sheet"), together with the unaudited statement of income
of the Company and HVC for the one month period then ended (the "Interim Income
Statement"). The Interim Balance Sheet reflects the purchase of Sahara as a
long-term investment asset and accompanying adjustments for the debt and equity
arising from the acquisition. The Interim Income Statement does not include any
results of operations of Sahara. The net sales for Sahara for the one month
period ending January 31, 1999 were approximately $390,000; the combined net
sales for the Company and HVC for the one month period ending February 28, 1999
were approximately $5,755,000; and the net sales for Sahara for the one month
period ending February 28, 1999 were approximately $450,000. Section 5.5 of the
Disclosure Schedule sets forth the 1998 Audited Financials, the Interim Balance
Sheet and the Interim Income Statement.
<PAGE>
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5.6. Absence of Certain Developments. Except as otherwise contemplated
by this Agreement, since December 31, 1998, the businesses of the Company and
each of its Subsidiaries have been conducted, in all material respects, in the
ordinary course and there has been (i) no event which would reasonably be likely
to, individually or in the aggregate, have a Company Material Adverse Effect and
(ii) no Company Material Adverse Change. For purposes of this Section 5.6, no
event or change shall be considered to have a Company Material Adverse Effect or
be a Company Material Adverse Change if such change or event is substantially
the result of (A) changes in general economic, regulatory or political
conditions, or (B) this Agreement or the transactions contemplated hereby or the
announcement thereof. Except as set forth on Section 5.6 of the Disclosure
Schedule or as otherwise specifically contemplated by this Agreement, since
December 31, 1998, neither the Company nor any of its Subsidiaries has:
(a) except in the ordinary course of business, borrowed any amount or
incurred or become subject to any material liabilities;
(b) except in the ordinary course of business, mortgaged, pledged or
subjected to any Security Interest, any of its assets;
(c) except in the ordinary course of business, sold, assigned or
transferred any of its material tangible assets;
(d) sold, assigned or transferred any patents, trademarks, trade
names, copyrights, trade secrets or other intangible assets;
(e) suffered any material losses not covered by insurance or waived
any rights of material value;
(f) issued, sold or transferred any of its capital stock or other
equity securities, securities convertible into its capital stock or other
equity securities or warrants, options or other rights to acquire its
capital stock or other equity securities, or any bonds or debt securities;
(g) declared or paid any dividends or made any distributions on the
Company's capital stock or other equity securities or redeemed or purchased
any shares of the Company's capital stock or other equity securities;
(h) except for purchases of supplies and raw materials and sales of
inventory in the ordinary course of business, entered into any other
material transaction;
<PAGE>
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(i) settled or compromised any material federal, state, local or
foreign Tax liability, made any new material Tax election, revoked or
modified any existing Tax election, or requested or consented to a change
in any method of Tax accounting; or
(j) agreed to do any of the foregoing.
5.7. Title to Properties.
(a) Neither the Company nor any of its Subsidiaries owns any real property.
The real property demised by the leases described on Section 5.7 of the
Disclosure Schedule (the "Leases") constitutes all of the real property leased
by the Company and its Subsidiaries. Each Lease (i) is in full force and effect,
(ii) constitutes the legal, valid and binding obligation of the Company or the
applicable Subsidiary and, to the knowledge of the Company or applicable
Subsidiary, each other party thereto and (iii) is enforceable against the
Company or applicable Subsidiary and, to the knowledge of the Company, each
other party thereto in accordance with its terms. The Company or one of its
Subsidiaries holds a valid and existing leasehold interest under each of the
Leases, free and clear of all Security Interests (except as set forth in Section
5.3 of the Disclosure Schedule). The Company has delivered to Buyer complete and
accurate copies of each of the Leases, and none of the Leases have been
modified, except to the extent that such modifications are disclosed by the
copies delivered to Buyer. Except for any net worth requirement in the Company's
real property leases with respect to the parent corporation or the tenant after
a merger, and except for the lease with respect to the property at 16007 and
16009 Camino De La Cantera (Irwindale, California) which HVC is currently
leasing on a month-to-month basis, none of the leases listed on Section 5.7 of
the Disclosure Schedule requires, pursuant to the terms thereof, the consent of,
or notice to, any third Person to remain in full force and effect after the
consummation of the Merger. Neither the Company nor any of its Subsidiaries is
in default under any of such Leases nor does any event exist which, with notice
or lapse of time, or both, would constitute a default on the part of the Company
or applicable Subsidiary (nor, to the knowledge of the Company, on the part of
any other party thereto), except where such default would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
(b) The Company or one of its Subsidiaries owns good title (or leasehold
interest with respect to capital leases) to all material items of the personal
property shown on the Latest Balance Sheet, free and clear of all Security
Interests, except such personal property which has been disposed of in the
ordinary course of business consistent with past business practices since
December 31, 1998.
5.8. Tax Matters.
(a) The Company and each of its Subsidiaries has timely filed all federal
and all material foreign, state, county and local income, excise, property and
other Tax Returns
<PAGE>
-21-
which are required to be filed by them. All such Tax Returns are true and
correct in all material respects. The Company and each Subsidiary have timely
paid all Taxes shown as owing by the Company or such Subsidiary on all such Tax
Returns and, to the knowledge of the Company, have made adequate provision (in
accordance with GAAP) for any Taxes attributable to any taxable period (or
portion thereof) of the Company and/or such Subsidiary ending on or prior to the
date hereof that are not yet due and payable. To the knowledge of the Company,
the Company and each Subsidiary have withheld and paid in a timely manner all
Taxes required to have been withheld and paid by them.
(b) No claim or deficiency for any Taxes has been asserted or assessed
against the Company or any of its Subsidiaries which has not been resolved and
paid in full except for a claim or deficiency that if paid would not reasonably
be likely to have, individually or in the aggregate, a Company Material Adverse
Effect. As of the date hereof, there is no outstanding waiver of any statute of
limitations with respect to the period for the assessment or collection of any
federal or other material Tax. No Tax audit or similar governmental proceeding
is currently in progress, pending or, to the Company's knowledge, threatened in
writing, except for such audits that would not reasonably be likely to have,
individually or in the aggregate, a Company Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries has filed a consent
under Section 341(f) of the Code or any similar provision of state, local or
foreign laws concerning collapsible corporations. Neither the Company nor any of
its Subsidiaries is obligated to make any payments or provide any other
benefits, or is a party to any agreement that under certain circumstances could
obligate it to make any payments or provide any other benefits, that will not be
deductible under Section 280G of the Code or any similar provision of state,
local or foreign laws. Neither the Company nor any of its Subsidiaries has been
a United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(d) Except as set forth on Section 5.8 of the Disclosure Schedule, neither
the Company nor any Subsidiary has made or agreed to make or was or is required
to make any adjustment under Section 481 of the Code (or any similar provision
of state, local or foreign law). There are no Tax sharing agreements or
arrangements to which the Company or any Subsidiary is a party other than Tax
sharing agreements or arrangements between only the Company and its
Subsidiaries. There are no "excess loss accounts" (as defined in Treas. Reg. ss.
1.1502-19) with respect to any stock of any Subsidiary. Except as set forth on
Section 5.8 of the Disclosure Schedule, neither the Company nor any Subsidiary
has any (a) deferred gain or loss (1) arising from any deferred intercompany
transactions (as described in Treas. Reg. ss.ss. 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. ss.ss. 1.1502-14 and 1.1502-14T prior to amendment
by
<PAGE>
-22-
Treasury Decision 8597) or (b) any gain subject to Treas. Reg. ss. 1.1502-13, as
amended by Treasury Decision 8597. To the knowledge of the Company, except for
any group of which it is currently a member, neither the Company nor any
Subsidiary has ever been a member of any affiliated, consolidated, combined,
unitary or similar group for any Tax purpose. Except as set forth on Section 5.8
of the Disclosure Schedule, neither the Company nor any Subsidiary has requested
a ruling from, or entered into a closing agreement, with the IRS or any other
taxing authority within the last three years. The Company has made available to
Buyer true and complete copies of (a) all material Federal, state, local and
foreign income or franchise Tax Returns filed by the Company and/or any
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.
5.9. Contracts and Commitments.
(a) Except as set forth on Schedule 5.9(a) of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries is a party to any Material
Contract. For purposes hereof, "Material Contract" shall mean any: (i)
collective bargaining agreement or contract with any labor union, (ii) bonus,
pension, profit sharing, retirement or other form of deferred compensation plan,
other than as described pursuant to Section 5.14, (iii) stock purchase, stock
option or similar plan, (iv) contract for the employment of any officer,
employee or other person on a full-time or consulting basis, (v) agreement or
indenture relating to the borrowing of money or to mortgaging, pledging or
otherwise placing a Security Interest on any of the Company's or any of its
Subsidiaries' material assets, (vi) guaranty of any obligation for borrowed
money, (vii) lease or agreement under which it is lessee of, or holds or
operates any personal property owned by any other Person, for which the annual
rental exceeds $50,000, (viii) lease or agreement under which it is lessor of or
permits any third Person to hold or operate any property, real or personal, for
which the annual rental exceeds $50,000, (ix) written contract or group of
related written contracts with the same Person for the purchase of products or
services, under which the undelivered balance of such products and services has
a selling price in excess of $50,000, other than purchase orders relating to
supplies and raw materials entered into in the ordinary course of business, (x)
written contract or group of related written contracts with the same Person for
the sale of products or services under which the undelivered balance of such
products or services has a sales price in excess of $50,000, other than sale
orders relating to inventory entered into in the ordinary course of business,
(xi) contract which prohibits, in any material respect, the Company or any of
its Subsidiaries from freely engaging in business anywhere in the world, or
(xii) contract with any officer, director or stockholder of the Company or any
of its Subsidiaries.
(b) Buyer either has been supplied with, or has been given access to, a
true and correct copy of all written contracts which are referred to on Section
5.9(a) of the Disclosure Schedule.
<PAGE>
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(c) Neither the Company nor any of its Subsidiaries is in default under any
contract listed on Section 5.9(a) of the Disclosure Schedule, except where such
default would not, individually or in the aggregate, have a Company Material
Adverse Effect.
5.10.....Proprietary Rights. Section 5.10 of the Disclosure Schedule sets
forth a list of all material patents, patent applications, trademarks, service
marks, trade names, corporate names, copyright registrations or copyright
applications (collectively, the "Proprietary Rights") necessary to the conduct
of the Company's or any of its Subsidiaries' businesses as now conducted. Except
as set forth on Section 5.10 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 Proprietary Rights or has the perpetual right to use such
Proprietary Rights without consideration; none of the rights of the Company and
its Subsidiaries in or use of such Proprietary Rights is currently being, or, to
the knowledge of the Company, is threatened to be, infringed or challenged,
except where such infringement or challenge would not have, individually or in
the aggregate, a Company Material Adverse Effect; (ii) all of the material
patents, trademark registrations, service mark registrations, trade name
registrations and copyright registrations included in such Proprietary Rights
have been duly issued and have not been canceled, abandoned or otherwise
terminated, except where such cancellation, abandonment or termination would not
have a Company Material Adverse Effect; and (iii) all of the material patent
applications, trademark applications, service mark applications, trade name
applications and copyright applications included in such Proprietary Rights have
been duly filed. No representations or warranties elsewhere in this Agreement,
including but not limited to those regarding the Company and its Subsidiaries'
compliance with applicable laws or any other aspects of the Company and its
Subsidiaries' operations, shall be deemed to relate to proprietary rights
matters.
5.11.....Litigation. Section 5.11 of the Disclosure Schedule lists all
actions, suits or proceedings pending or, to the Company's knowledge, threatened
in writing against the Company or any of its Subsidiaries, at law or in equity,
or before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
would, individually or in the aggregate, have a Company Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is subject to any outstanding
orders, judgments or decrees that limit, in any material respect, its ability to
conduct its business as presently being conducted.
5.12.....Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any agreement made by or on behalf of the Company.
5.13.....Governmental Consents etc. Except for the applicable requirements
of the HSR Act, no material consent, approval or authorization of, or
declaration to or filing
<PAGE>
-24-
with, any governmental or regulatory authority is required in connection with
any of the execution, delivery or performance of this Agreement by the Company
or the consummation by the Company of any other transaction contemplated hereby
except where the failure to obtain such consent, approval or authorization or
make such declaration or filing would not reasonably be expected to have a
Company Material Adverse Effect.
5.14.....Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a list of all (i) nonqualified
deferred compensation or retirement plans, stock option, stock purchase, bonus,
incentive, severance, or vacation plans or employment or consulting agreements,
(ii) qualified defined contribution retirement plans, (iii) qualified defined
benefit pension plans (the plans described in (ii) and (iii) are collectively
referred to as the "Pension Plans"), and (iv) material welfare benefit plans
(the "Welfare Plans") maintained or contributed to by the Company or any of its
Subsidiaries or any of their ERISA Affiliates (as hereinafter defined), or to
which the Company or any of its Subsidiaries or any of their ERISA Affiliates
contributes or is obligated to make payments thereunder or otherwise may have
any material liability. The Pension Plans and the Welfare Plans are collectively
referred to as the "Plans." For purposes of this Agreement, "ERISA Affiliate"
shall mean any person (as defined in Section 3(9) of ERISA) that is a member of
any group of persons described in Section 414(b), (c), (m) or (o) of the Code
including the Company or a Subsidiary. Each of the Pension Plans has received or
applied for a favorable determination letter from the Internal Revenue Service
that such Plan is a "qualified plan" under Section 401(a) of the Code on which
it can rely; the related trusts are exempt from tax under Section 501(a) of the
Code, and the Company is not aware of any facts or circumstances that would
jeopardize the qualification of such Pension Plan. The Plans comply in form and
in operation with the requirements of the Code and the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), except where the failure to
so comply would not, individually or in the aggregate, reasonably be likely to
have a Company Material Adverse Effect.
(b) With respect to the Plans, (i) all required contributions have been
made or properly accrued and (ii) there are no actions, suits or claims, or
government or PBGC investigations known to the Company pending or, to the
knowledge of the Company, threatened (other than routine claims for benefits)
which would, individually or in the aggregate, reasonably be likely to have a
Company Material Adverse Effect. No Plan has incurred an "accumulated funding
deficiency" (as defined in Section 412 of the Code), whether or not waived. With
respect to any Plan subject to Section 412 of the Code, there has been no
application for or waiver of the minimum funding standards imposed by such
section.
(c) The Company has made available to Buyer true and complete copies of
each written plan document and summary plan description, related trust agreement
and
<PAGE>
-25-
amendments, most recent Forms 5500, if applicable, most recent IRS determination
letter, if applicable, and most recent actuarial report, if applicable, for the
Plans.
(d) Neither the Company, its Subsidiaries nor, to the Company's knowledge,
any of their respective directors, officers, employees or any other "fiduciary,"
as such term is defined in Section 3 of ERISA, has committed any material breach
of fiduciary responsibility imposed by ERISA or any other applicable law with
respect to the Plans which would reasonably be likely to subject Buyer or any of
its directors, officers or employees to any material liability under ERISA or
any applicable law.
(e) Neither the Company nor any of its Subsidiaries has incurred or is
reasonably likely to incur any material liability for any tax or civil penalty
imposed by Section 4975 of the Code or Section 502 of ERISA.
(f) None of the Company, any of its Subsidiaries or any ERISA Affiliate has
any material liability, or is reasonably likely to incur any material liability,
with respect to any Plan which is subject to Title IV of ERISA or a "multiple
employer welfare arrangement" within the meaning of Section 3(40) of ERISA.
(g) Except as disclosed on the Disclosure Schedule, with respect to any
Pension 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, and the Company is not aware of any facts or circumstances that would
materially change the funded status of any such plan.
(h) Except as set forth in Section 5.14 of the Disclosure Schedule, neither
the Company nor any of its Subsidiaries has at any time maintained, contributed
to or obligated itself or otherwise had any liability with respect to any funded
or unfunded employee welfare plan, whether or not terminated, which provides
medical, health, life insurance or other welfare-type benefits for current
retirees or future retirees or current former employees or future former
employees, their spouses or dependents or any other persons (except for limited
continued medical benefit coverage for former employees, their spouses and other
dependents as required to be provided under Section 4980B of the Code and Part 6
of Subtitle B of Title I of ERISA and the accompanying proposed regulations or
state continuation coverage laws).
(i) Except as set forth on Section 5.14(i) of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not 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.
<PAGE>
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(j) As of the Closing, the Company, its Subsidiaries and any entity with
which the Company or its Subsidiaries could be considered a single employer
under 29 U.S.C. section 2101(a)(1) or under any relevant case law, has not
incurred any liability or obligation under the Worker Adjustment and Retraining
Notification Act, as it may be amended from time to time, and within the 90-day
period immediately following the Closing, will not incur any such liability or
obligation if, during such 90-day period, only terminations of employment in the
normal course of operations occur.
(k) No representations or warranties elsewhere in this Agreement, including
but not limited to those regarding the Company and its Subsidiaries' compliance
with applicable laws and any other aspect to the Company and its Subsidiaries'
operations, shall be deemed to relate to employee benefit matters.
5.15.....Insurance. Section 5.15 of the Disclosure Schedule lists each
material insurance policy maintained by the Company or any of its Subsidiaries.
All of such insurance policies are in full force and effect, and neither the
Company nor any of its Subsidiaries is in material default with respect to its
obligations under any of such insurance policies.
5.16.....Compliance with Laws. The Company and its Subsidiaries have
complied with all statutes, laws, ordinances, regulations, rules or orders 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),
and all judgments, decrees or orders of any court, applicable to its business or
operations, except where the failure to so comply would not reasonably be
expected to have a Company Material Adverse Effect. The Company and each of its
Subsidiaries have all permits, licenses, franchises and other authorizations
necessary for the conduct of its business as presently conducted, except where
the failure to hold such permits, licenses, franchises and authorizations would
not reasonably be expected to have a Company Material Adverse Effect. The
Company and its Subsidiaries are in compliance with all terms and conditions of
such permits, licenses and authorizations except where the failure to so comply
would not reasonably be likely to have a Company Material Adverse Effect.
5.17.....Environmental Compliance and Conditions. Except as set forth on
Section 5.17 of the Disclosure Schedule:
(a) The Company and its Subsidiaries have all permits, licenses and other
authorizations required under all Environmental Requirements, except where the
failure to hold such licenses, permits and authorizations would not reasonably
be expected to, individually or in the aggregate, have a Company Material
Adverse Effect. The Company and its Subsidiaries are in compliance with all
terms and conditions of such permits, licenses, and authorizations and are also
in compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any
<PAGE>
-27-
Environmental Requirements or any written notice, demand letter, order, decree
or judgment issued, entered, promulgated or approved thereunder, except where
the failure to so comply would not reasonably be expected to, individually or in
the aggregate, have a Company Material Adverse Effect. To the Company's
knowledge, no such permits, licenses or other authorizations scheduled to expire
within three years of the date of this Agreement (a) will not be renewed or (b)
will require material expenditures in connection with such renewal.
(b) Neither the Company nor any of its Subsidiaries has ever used, handled,
generated, transported, treated, stored, or disposed of any Hazardous Substance
at any site, location or facility in violation of any Environmental
Requirements, except where such violation would not reasonably be likely to,
individually or in the aggregate, have a Company Material Adverse Effect. No
Hazardous Substance is present at, on, in or under or is emanating from any real
property or facility currently, or to the knowledge of the Company, formerly,
owned, operated or leased by the Company or any of its Subsidiaries, except
where the presence or emanation of such Hazardous Substances would not
reasonably be likely to have, individually or in the aggregate, a Company
Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries is or, to the Company's
knowledge, has been subject to, and neither the Company nor any of its
Subsidiaries has received any notice of, any Environmental Claim which would
reasonably be likely to, individually or in the aggregate, have a Company
Material Adverse Effect and, to the Company's knowledge, no such Environmental
Claim is (1) pending or threatened against the Company or any of its
Subsidiaries or (2) pending or threatened against any Person whose liability for
such Environmental Claim has been retained or assumed by the Company or any of
its Subsidiaries by contract or otherwise or can be imputed or attributed to the
Company or any of its Subsidiaries by law (collectively, such Person shall
hereinafter be referred to as a "Predecessor in Interest").
(d) No real property owned, operated or leased by the Company or any of its
Subsidiaries and, to the Company's knowledge, no real property used by the
Company or any of its Subsidiaries or any Predecessor in Interest is (A) listed
or proposed for listing on the National Priorities List promulgated under CERCLA
or (B) listed on the Comprehensive Environmental Response, Compensation,
Liability Information System List promulgated under CERCLA or listed on any
comparable list published by any governmental authority (including, without
limitation, any such list relating to petroleum or oil).
(e) No Hazardous Substance underground or above ground storage tank, or
related underground piping, is located at, under or on any real property owned,
operated or leased by the Company or any of its Subsidiaries nor, to the
Company's knowledge, has any such underground storage tank or underground piping
been removed or decommissioned from or at such property.
<PAGE>
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(f) All material environmental investigations, studies, audits and
assessments conducted in relation to any business, real property, facility or
asset currently or formerly owned, operated, leased or used by the Company or
any of its Subsidiaries or any Predecessor in Interest and of which the Company
has knowledge and custody or control have been made available to Buyer.
(g) To the knowledge of the Company, no Lien has been recorded under any
Environmental Requirement with respect to any real property, facility or asset
currently or formerly owned, operated or leased by the Company or any of its
Subsidiaries or any Predecessor in Interest and, in each case, for which the
Company or any of its Subsidiaries may be responsible under any Environmental
Requirement.
(h) To the Company's knowledge, no facts, events or conditions exist which
would be expected to give rise to or otherwise form the basis of any
Environmental Claim which would reasonably be likely to, individually or in the
aggregate, have a Company Material Adverse Effect.
(i) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and the exercise by Buyer of rights to own
and operate the business and assets of the Company and any of its Subsidiaries
substantially as presently conducted will not require any notification,
disclosure, registration, reporting, filing or any material investigatory,
remedial, removal, response or other action under any Environmental Requirement,
except where the failure to make such notification, disclosure, registration,
reporting or filing or take such action would not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect.
(j) No representations or warranties elsewhere in this Agreement, including
but not limited to those regarding the Company and its Subsidiaries' compliance
with applicable laws or any other aspects of the Company and its Subsidiaries'
operations, shall be deemed to relate to Environmental Requirements or other
environmental matters.
5.18.....Labor Relations. Except as set forth on Section 5.18 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has (i) any
unfair labor practice charge or complaint pending or, to the Company's
knowledge, threatened in writing against it, (ii) any labor strike pending or,
to the Company's knowledge, threatened against it or (iii) any petitions for
recognition of a labor union as the exclusive bargaining agent for any material
group of employees of the Company or its Subsidiaries or any general
solicitation of representation cards by any union seeking to represent a
material group of employees of the Company as their exclusive bargaining agent,
in each case which would reasonably be likely to have a Company Material Adverse
Effect. The Company has not agreed to any retroactive pay adjustments for
employees of the Company to be represented by the Bakery, Confectionary
<PAGE>
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and Tobacco Worker's Union (the "Union") in the event that a collective
bargaining agreement is entered into between the Company and the Union.
5.19.....Absence of Undisclosed Liabilities. Except as set forth in Section
5.5 or 5.19 of the Disclosure Schedule or in the 1998 Audited Financials,
neither 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, except (i) the liabilities recorded on
the 1998 Unaudited Financials and the notes thereto, (ii) liabilities or
obligations incurred in the ordinary course of business and consistent with past
practice since December 31, 1998 and (iii) liabilities or obligations that would
not, individually or in the aggregate, have a Company Material Adverse Effect.
The representations and warranties made by the Company in this Section 5.19 will
not be deemed to have been breached with respect to a particular liability or
obligation if the subject matter of such liability or obligation is addressed
under a separately articulated representation or warranty in this Section 5
where the scope or limitations applicable to such representation or warranty
with respect to the matters giving rise to such liability or obligation
(including, but not limited to, through the use of qualifiers regarding
knowledge, materiality or dollar thresholds and survival periods) are more
restrictive than those with respect to the liability or obligation as set forth
in this Section 5.19.
5.20.....Agreements in Full Force and Effect. Except as specifically noted
on the Disclosure Schedules, all material contracts, leases, certificates,
permits and licenses listed on Section 5.9(a) or 5.7 of the Disclosure Schedule
or contemplated by Section 5.16 are valid and in full force and effect, except
where the failure to be valid and in full force and effect, individually or in
the aggregate, would not have a Company Material Adverse Effect.
5.21.....Inventory. All inventory of the Company is valued on the Company's
books and records at the lower of cost or market. To the knowledge of the
Company, subject to reserves reflected on the 1998 Audited Financials, 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 contractual, United States Department of
Agriculture, Food and Drug Administration and Nutrition Labeling and Education
Act of 1990 requirements, in each case, as would not cause, individually or in
the aggregate, a Company Material Adverse Effect.
5.22.....Balance Sheet Reserves. The reserves for accounts receivable, as
reflected on the 1998 Audited Financials have been established in accordance
with generally accepted accounting principles.
5.23.....Board Recommendation. The Board of Directors of the Company has,
by a majority vote at a meeting of such Board or by written consent of all of
the members of such Board, approved and adopted this Agreement, the Merger and
the other transactions
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contemplated hereby, determined that the Merger is fair to the stockholders of
the Company and recommended that the stockholders of the Company approve and
adopt this Agreement, the Merger and the other transactions contemplated hereby.
5.24.....Year 2000 Compliance. The Company has provided to the Parent a
true and correct copy of a summary of its Year 2000 compliance project, a copy
of which is attached hereto in Section 5.24 of the Disclosure Schedule (the "Y2K
Project Plan"). The out-of-pocket costs and expenses for goods and services,
together with any incremental hiring costs, spent after the date hereof in order
to become Year 2000 Compliant shall not exceed $150,000 in the aggregate. "Year
2000 Compliant" means that, prior to January 1, 2000, the software, hardware,
systems and devices used by the Company and its Subsidiaries will correctly
Process all dates, including those before, on or after January 1, 2000 (taking
into account leap year consideration), without any loss of functionality,
interoperability or performance, and whether used on a stand-alone basis or in
combination with any other software, hardware, system, or device used by the
Company and its Subsidiaries, as of the date hereof. For purposes of the
foregoing, "Process" means all functions, including accepting as input,
calculating, sorting, displaying and generating as output.
5.25.....Product Warranty. Except as would not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect: (a)
the Company has not agreed to become responsible for consequential damages
(exclusive of responsibilities imposed by law) and has not made any express
warranties to third parties with respect to any products created, manufactured,
sold, distributed or licensed, or any services rendered, by the Company; (b)
there are no warranties (express or implied) outstanding with respect to any
such product or products or services other than any such implied by law or the
Company's customer purchase order or contracts or contract forms or the
Company's order information forms; (c) there are no material defects, latent or
otherwise, with respect to any such products; and (d) such products are
nontoxic.
SECTION 6. PRECLOSING COVENANTS OF THE COMPANY
6.1. Conduct of the Business.
(a) From the date hereof until the Closing Date, except as contemplated by
this Agreement, the Company shall carry on its businesses, and cause its
Subsidiaries to carry on their businesses, in the ordinary course, and
substantially in the same manner as heretofore conducted.
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(b) Without limiting the generality of the foregoing, from the date hereof
until the Closing Date, except as contemplated by this Agreement or consented to
by Parent or Buyer, the Company shall not, and shall cause its Subsidiaries not
to:
(i) amend its certificate or articles of incorporation or organization
or by-laws;
(ii) except for the issuance of capital stock upon the exercise of
outstanding options or conversion of the Sahara Convertible Note, 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;
(iii) 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;
(iv) (1) create, incur, assume, maintain or permit to exist any
indebtedness for borrowed money other than under existing lines of credit
in the ordinary course of business and consistent with prior practice; (2)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other Person except for endorsement of checks and for the Company's
wholly-owned Subsidiaries in the ordinary course of business and consistent
with past practices; or (c) make any loans or advances (except in the
ordinary course of business consistent with past practice) or capital
contributions to, or investments in, any other person;
(v) except pursuant to existing agreements and commitments, make any
capital expenditure in excess of $200,000 in the aggregate;
(vi) (1) 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; (2) 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; (3) except in
accordance with this Agreement, 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
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(4) 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, multi-employer 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;
(vii) except as otherwise expressly contemplated by this Agreement,
enter into any other Material Contract except in the ordinary course of
business consistent with past practice;
(viii) 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 (other than in the ordinary
course of business consistent with past practice) or securities, any sale,
transfer, lease, license, pledge, mortgage, or other disposition or
encumbrance of a material amount of assets (other than those listed on
Section 6.1 of the Disclosure Schedule or in the ordinary course of
business consistent with past practice) or securities or any material
change in its capitalization;
(ix) make any change in the accounting methods or accounting practices
followed by the Company;
(x) except as set forth on Section 6.1 of the Disclosure Schedule,
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; or
(xi) agree to do any of the foregoing.
6.2. Access to Information. From the date hereof until the Closing
Date, subject to Section 9.6, the Company shall afford to Parent, Buyer and
their authorized representatives (the "Buyer's Representatives") access at all
reasonable times and upon reasonable notice to the offices, properties, books
and records of the Company and its Subsidiaries in order for Parent and Buyer to
have the opportunity to make such investigation as it shall reasonably desire to
make of the affairs of the Company and its Subsidiaries. Notwithstanding the
foregoing, prior to the Effective Time, neither Parent, Buyer nor any Buyer's
Representatives shall be permitted to conduct a Phase II environmental
assessment of any real property
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owned or leased by the Company or any of its Subsidiaries or any other water or
soil testing with respect to any such real property without the prior written
consent of the Company.
6.3. Notification. From the date hereof until the Closing Date, the
Company shall disclose to Parent or Buyer in writing any material variances from
the representations and warranties contained in Section 5 promptly upon
discovery thereof, and such disclosures shall be deemed to amend and/or
supplement the Disclosure Schedule attached hereto in the form of a "Revised
Disclosure Schedule" delivered to Parent. Parent shall advise the Company within
five (5) days of receipt of such Revised Disclosure Schedule as to whether (i)
the Parent accepts the information provided in the Revised Disclosure Schedule,
in which case such Revised Disclosure Schedule shall cure and correct for all
purposes any breach of any representation or warranty which would have existed
by reason of the Company not having added such Revised Disclosure Schedule or
(ii) the Parent elects to terminate this Agreement in accordance with Section
10.1(b) based on such Revised Disclosure Schedule. Notwithstanding the
foregoing, Parent shall not have the right to elect to terminate this Agreement
based on such Revised Disclosure Schedule (and will be deemed to have accepted
the Revised Disclosure Schedule) unless the information in such Revised
Disclosure Schedule would result in a Company Material Adverse Effect or a
Company Material Adverse Change.
6.4. Conditions. The Company shall use reasonable efforts to cause the
conditions set forth in Section 8.1 to be satisfied and to consummate the
transactions contemplated herein as soon as reasonably possible.
6.5. Exclusive Dealing. During the period from the date of this
Agreement through the Closing or the earlier termination of this Agreement
pursuant to Section 10.1, the Company shall not engage in discussions or
negotiations with any Person (other than Parent, Buyer and Buyer's
Representatives) concerning, or enter into any agreement with respect to, any
purchase or sale of the Common Stock or any merger, sale of substantial assets
or similar transaction involving the Company (other than the sale of assets in
the ordinary course of business).
SECTION 7. PRECLOSING COVENANTS OF PARENT AND BUYER
Each of Parent and Buyer agrees that, from the date hereof, through and
including the Effective Time, Parent and Buyer shall:
7.1. Action. Subject to the terms and conditions of this Agreement,
take, or cause to be taken, all actions, and do or cause to be done all things
necessary, proper or advisable (to the extent commercially reasonable) under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby.
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7.2. Confidentiality. Continue to comply in all respects with the terms
of the Confidentiality Agreement.
7.3. Conditions. Use reasonable efforts to cause the conditions set
forth in Section 8.2 to be satisfied and to consummate the transactions
contemplated herein as soon as reasonably possible.
SECTION 8. CONDITIONS OF CLOSING
8.1. Conditions to Obligations of Parent and Buyer. The obligations of
Parent and Buyer to effect the transactions contemplated by this Agreement shall
be subject to the satisfaction or waiver prior to the Effective Time of the
following conditions:
(a) Representations and Warranties of the Company. The representations
and warranties made by the Company in Section 5 of this Agreement, to the
extent qualified by materiality, shall be true and correct in all respects
and otherwise shall be true and correct in all material respects at and as
of the Closing Date as though then made and as though the Closing Date was
substituted for the date of this Agreement throughout such representations
and warranties, after taking into account all disclosures by the Company
set forth in the Revised Disclosure Schedule accepted by the Parent in
accordance with Section 6.3.
(b) Compliance With Agreement. The Company shall have complied in all
material respects with all of its obligations under this Agreement to be
performed by it prior to or on the Closing Date.
(c) HSR Act. Any applicable waiting period under the HSR Act shall
have expired or been terminated.
(d) No Proceedings. No party to this Agreement shall be subject to any
final order, stay, injunction or decree of any court of competent
jurisdiction or governmental authority restraining or prohibiting the
consummation of the transactions contemplated by this Agreement.
(e) Merger Effective. The Certificate of Merger shall have been
executed on or before the Closing Date and, prior to the Effective Time,
shall be filed with the Secretary of State of the State of Delaware and the
Merger shall have become effective in accordance with the provisions of the
General Corporation Law.
(f) Certificate of Fulfillment of Conditions. The Company shall have
delivered to Parent or Buyer a certificate, executed by its President,
certifying, to such ind-
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ividual's knowledge, on behalf of the Company, as to (i) fulfillment, as to
the Company, of the condition set forth in Section 8.1(b) of this
Agreement, and (ii) that the representations and warranties of the Company
set forth in Section 5 of this Agreement are, to the extent qualified by
materiality, true and correct and otherwise shall be true and correct in
all material respects as of the Closing Date and the Effective Time (taking
into account all disclosures set forth on the Revised Disclosure Schedule
accepted by Parent in accordance with Section 6.3).
(g) Organizational Documents. The Company shall have delivered to
Parent or Buyer each of the following: (i) certified copies of the
certificate of incorporation of and by-laws of each of the Company and its
Subsidiaries and all board and stockholder resolutions of the Company
necessary to consummate the transactions contemplated by this Agreement;
(ii) good standing certificates for the jurisdiction of incorporation of
each of the Company and its Subsidiaries; and (iii) a certificate, signed
by the secretary or assistant secretary of the Company, certifying as to
the names of the officers of the Company authorized to sign this Agreement
and the other documents contemplated hereby and as to specimens of the true
signature of such officers.
(h) Opinion of Company Counsel. Parent and Buyer shall have received
an opinion from Katten Muchin & Zavis, counsel to the Company,
substantially to the effect set forth in Exhibit B hereto.
(i) Monthly Financials. The Company shall provide to the Parent and
Buyer as soon as they become available but in no event later than five days
prior to Closing true and complete copies of the unaudited balance sheet of
the Company and HVC at the Latest Month End (as defined below) (the "Latest
Monthly Balance Sheet") and the unaudited statements of income of the
Company and HVC for the period then ended (together with the Latest Monthly
Balance Sheet, the "Latest Monthly Financials"). The Latest Monthly
Financials will fairly present, in all material respects, the financial
position of the Company and HVC at the date specified therein, and the
results of operations of the Company and HVC for the period then ended, in
accordance with generally accepted accounting principles consistently
applied, except that such Latest Monthly Financials 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 "Latest Month End"
shall mean, as of any given date, the last day of the immediately preceding
month; provided, if such given date is prior to the twentieth day of the
current month, "Latest Month End" shall mean the last day of the month
ending immediately before the immediately preceding month.
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(j) Consents. The consent and irrevocable proxy, substantially to the
effect set forth in Exhibit C hereto, pursuant to which each of the
Company's Stockholders and Optionholders shall have consented to the Merger
and the transactions related thereto and appointed the Stockholder
Representative as attorney-in-fact in connection therewith shall be in full
force and effect as of the Closing Date.
(k) Cancellation of Options. At the Effective Time, the Company shall
have taken all such action necessary to cause all outstanding Options to be
canceled or converted pursuant to Section 2.6(a)(iii) or Section 2.6(a)(iv)
as of the Effective Time (irrespective of whether such options are then
exercisable pursuant to the provisions thereof).
(l) Pay-Off Letters. The Parent and Buyer shall have received letters,
reasonably satisfactory to the Parent, dated on or prior to the Closing
Date, indicating (i) the amount to be paid by Parent or Buyer as of the
Closing Date to pay in full the Bank Debt and (ii) that payment in full of
such amount is the only material condition precedent to the full
satisfaction of the Company's obligations regarding such Bank Debt.
(m) FIRPTA Affidavit. Each Stockholder and Optionholder shall have
provided an affidavit reasonably satisfactory to Buyer, stating, under
penalties of perjury, such person's U.S. taxpayer identification number and
that such person is not a foreign person (within the meaning of Section
1445(b)(3) of the Code).
(n) Section 280G Stockholder Approval. The Stockholders (and
Optionholders, if necessary) shall have obtained any stockholder approvals
reasonably requested by Buyer prior to the date of the execution of this
Agreement pursuant to Section 280G(b)(5)(B) of the Code and have provided
Buyer with documentation thereof (in a manner reasonably satisfactory to
Buyer).
Parent and Buyer may waive any condition specified in this Section 8.1 if Parent
or Buyer executes a writing so stating at or prior to the Closing; provided that
if the Closing is consummated, all such conditions shall be deemed to have been
satisfied or waived by Parent and Buyer.
8.2. Conditions to Obligations of the Company. The obligations of the
Company to effect the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver immediately prior to the Effective Time of
the following conditions:
(a) Representations and Warranties of Parent and Buyer. The
representations and warranties made by Parent and Buyer in or pursuant to
this Agreement shall be true and correct in all material respects at and as
of the Closing Date as though then
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made and as though the Closing Date was substituted for the date of this
Agreement at or prior to the Closing.
(b) Compliance With Agreement. Parent and Buyer shall have complied in
all material respects with all of their obligations under this Agreement to
be performed by them prior to or on the Closing Date.
(c) HSR Act. Any applicable waiting period under the HSR Act shall
have expired or been terminated.
(d) No Proceedings. No party to this Agreement shall be subject to any
final order, stay, injunction or decree of any court of competent
jurisdiction or governmental authority restraining or prohibiting the
consummation of the transactions contemplated by this Agreement.
(e) Delivery of Merger Consideration. Buyer or Parent shall have
delivered the Merger Consideration payable at the Closing in accordance
with Section 3.3 hereof.
(f) Certificate of Fulfillment of Conditions. Parent and Buyer shall
have delivered to the Company a certificate of the President and the
Secretary of each of Parent and Buyer certifying, on behalf of Parent or
Buyer, as appropriate, and to such individual's knowledge, as to (i) the
fulfillment of the condition set forth in Section 8.2(b) of this Agreement
and (ii) that the representations and warranties of Parent and Buyer set
forth in Section 4 of this Agreement are true and correct in all material
respects as of the Closing Date and the Effective Time.
(g) Organizational Documents. Parent and Buyer shall have delivered to
the Company each of the following: (i) certified copies of all of Parent
and Buyer's board and stockholder resolutions necessary to consummate the
transactions contemplated by this Agreement; (ii) good standing
certificates for the jurisdiction of incorporation of Parent and Buyer; and
(iii) a certificate, signed by the secretary or assistant secretary of each
of Parent and Buyer, respectively, certifying as to the names of the
officers of Parent and Buyer authorized to sign this Agreement and the
other documents contemplated hereby and as to specimens of the true
signature of such officers.
(h) Opinion of Parent and Buyer Counsel. Cahill Gordon & Reindel,
counsel to Parent and Buyer, shall have delivered an opinion substantially
in the form of Exhibit D hereto addressed to the Stockholders and
Optionholders.
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The Company may waive any condition specified in this Section 8.2 if the
Company executes a writing so stating at or prior to the Closing; provided that
if the Closing is consummated, all such conditions shall be deemed to have been
satisfied or waived by the Company.
SECTION 9. ADDITIONAL COVENANTS OF THE PARTIES
9.1. Confidentiality of Information. Each of Parent and Buyer
acknowledges that the terms and provisions of the Confidentiality Agreement are
in full force and effect. In the event that this Agreement is terminated and the
transactions contemplated hereby are not consummated, the Confidentiality
Agreement shall continue to be in full force and effect in accordance with its
terms and shall be binding upon both Parent and Buyer and their Affiliates.
9.2. Access to Books and Records. From and after the Closing, Parent
and Buyer shall, and shall cause the Surviving Corporation to, provide the
Stockholder Representative, the Stockholders and their agents with reasonable
access (for the purpose of examining and copying), during normal business hours,
to the books and records of the Surviving Corporation pertaining to periods or
occurrences prior to the Closing Date in connection with any matter, whether or
not relating to or arising out of this Agreement or the transactions
contemplated hereby. Unless otherwise consented to in writing by the Stockholder
Representative, the Surviving Corporation shall not, for a period of seven years
following the Closing Date, destroy, alter or otherwise dispose of any of the
books and records of the Surviving Corporation pertaining to the period prior to
the Closing Date without first offering to surrender to the Stockholder
Representative such books and records or any portion thereof which Parent, Buyer
or the Surviving Corporation intends to destroy, alter or dispose of.
9.3. Notification. Prior to the Closing, Parent and Buyer shall
promptly notify the Company if Parent or Buyer obtains actual knowledge that (i)
any of the representations and warranties of the Company in this Agreement and
the Disclosure Schedule or the Revised Disclosure Schedule are not true and
correct in all material respects, or if Parent or Buyer obtains knowledge of any
material errors in, or omissions from, the Disclosure Schedule or the Revised
Disclosure Schedule, or (ii) the representations and warranties of Parent or
Buyer in this Agreement and the Schedules hereto are not true and correct in all
material respects.
9.4. Director and Officer Liability and Indemnification. From and after
the Closing, Parent and Buyer shall not, and shall not permit the Surviving
Corporation to, amend, repeal or modify any provision in the Certificate of
Incorporation or By-Laws of the Company or any of its Subsidiaries relating to
the exculpation or indemnification of former officers and directors of the
Company or any of its Subsidiaries (unless required by law), it being the intent
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of the parties that the officers and directors of the Surviving Corporation
prior to the Closing shall continue to be entitled to such exculpation and
indemnification to the fullest extent permitted under applicable law. From and
after the Closing, for seven (7) years from the Effective Time, Parent shall,
and shall cause the Surviving Corporation to, indemnify, defend and hold
harmless (and advance expenses to) all past and present officers, directors and
employees of the Company and its Subsidiaries to the same extent that
individuals acting in similar capacities are indemnified by the Parent and Buyer
prior to the Effective Time. In the event of any dispute regarding whether a
director, officer or employee has met the standards of conduct set forth
therein, such question shall be conclusively determined by the written opinion
of reputable disinterested legal counsel selected by the Company's Board of
Directors and acceptable to the director, officer or employee involved in the
dispute. Any heirs or legal representative entitled to the benefits of such
indemnification shall be deemed express third party beneficiaries of this
Section 9.4.
9.5. Regulatory Filings. Within five (5) business days after the date
hereof, Parent, Buyer and the Company shall make or cause to be made all filings
and submissions under the HSR Act (and request early termination of the waiting
period under the HSR Act) and any other laws or regulations applicable to
Parent, Buyer or the Company and as may be required of any of them for the
consummation of the transactions contemplated herein, and Parent and Buyer shall
be responsible for all filing fees under the HSR Act. Parent, Buyer and the
Company shall coordinate and cooperate with each other in exchanging such
information and assistance as any of them may reasonably request in connection
with all of the foregoing.
9.6. Contact with Customers and Suppliers. Parent, Buyer and Buyer's
Representatives shall contact and communicate with the employees, customers and
suppliers of the Company or its Subsidiaries in connection with the transactions
contemplated hereby only with the prior written consent of the Company, which
consent may be conditioned upon an officer of the Company being present at any
such meeting or conference.
9.7. Disclosure Generally. If and to the extent any information
required to be furnished in the Disclosure Schedule or the Revised Disclosure
Schedule in order to avoid a breach of, or inaccuracy with respect to, a
representation or warranty or satisfy a condition contained in this Agreement is
contained in this Agreement or in the Disclosure Schedule or the Revised
Disclosure Schedule, such information shall be deemed to be included in all
parts of the Disclosure Schedule or the Revised Disclosure Schedule in which the
information is required to be included in order to avoid a breach of, or
inaccuracy with respect to, a representation or warranty or satisfy a condition
contained in this Agreement. The inclusion of any information in the Disclosure
Schedule or the Revised Disclosure Schedule shall not be deemed to be an
admission or acknowledgment by the Company, in and of itself, that such
information is material to or outside the ordinary course of the business of the
Company or required to be disclosed on the Disclosure Schedule or the Revised
Disclosure Schedule.
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9.8. ACKNOWLEDGMENT BY PARENT AND BUYER. EACH OF PARENT AND BUYER HAS
CONDUCTED TO ITS SATISFACTION, AN INDEPENDENT INVESTIGATION AND VERIFICATION OF
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS, LIABILITIES, PROPERTIES
AND PROJECTED OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES. IN MAKING ITS
DETERMINATION TO PROCEED WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT,
EACH OF PARENT AND BUYER HAS RELIED ON THE RESULTS OF ITS OWN INDEPENDENT
INVESTIGATION AND VERIFICATION AND THE REPRESENTATIONS AND WARRANTIES OF THE
COMPANY EXPRESSLY AND SPECIFICALLY SET FORTH IN THIS AGREEMENT, INCLUDING THE
DISCLOSURE SCHEDULES AND THE REVISED DISCLOSURE SCHEDULES. SUCH REPRESENTATIONS
AND WARRANTIES BY THE COMPANY CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS
AND WARRANTIES OF THE COMPANY TO EACH OF PARENT AND BUYER IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF PARENT AND BUYER UNDERSTANDS,
ACKNOWLEDGES AND AGREES THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY
KIND OR NATURE EXPRESSED OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY RELATING
TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS
OR LIABILITIES OF THE COMPANY AND ITS SUBSIDIARIES) ARE SPECIFICALLY DISCLAIMED
BY THE COMPANY.
9.9. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (other than representations and warranties made in
the Hain Note) or the covenants contained in Section 6 shall survive the
Effective Time. No action may be brought with respect to the breach of or
inaccuracy with respect to any such representation or warranty or breach of any
such covenant after the Effective Time.
9.10. Joint and Several Obligations. The obligations of each of the
Parent and Buyer under this Agreement are joint and several obligations of the
Buyer and Parent.
SECTION 10. REGISTRATION OF PARENT COMMON STOCK
10.1.Registration. (a) Parent covenants with respect to the Registrable
Shares (as hereinafter defined) for the benefit of the Noteholders:
(i) Parent will prepare and file with the SEC promptly after the
execution of this Agreement, but in any event not later than ten (10)
business days thereafter, a registration statement on Form S-3 (or any
successor or equivalent form of registration
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statement adopted by the SEC) (the "Registration Statement") relating to
all of the Registrable Shares and will use reasonable best efforts to cause
the Registration Statement to become effective as soon as possible
thereafter so as to permit the secondary resale of the Registrable Shares
by the Noteholders at any time without restriction.
(ii) Parent will use reasonable best efforts to cause the Registration
Statement to remain effective and available for resale of the Registrable
Shares and to file with the SEC such amendments and supplements as may be
necessary to keep the prospectus included in the Registration Statement
(the "Prospectus") current and in compliance in all material respects with
the Securities Act and the rules and regulations of the SEC promulgated
thereunder until the sooner to occur of the following events: the
expiration of the 24 month period following the Closing Date or the sale of
all the Registrable Shares covered by the Registration Statement. If
necessary to permit the resale of all Registrable Shares, Parent will file
one or more additional registration statements and use reasonable best
efforts to cause such registration statements to become and remain
effective so as to permit the secondary resale of all Registrable Shares by
the Noteholders at any time without restriction. Such additional
registration statements shall be included within the meaning of
"Registration Statement" as defined herein.
(iii) Parent will furnish to each Noteholder a conformed copy of the
Registration Statement as declared effective by the SEC and each
post-effective amendment thereto, including financial statements and all
exhibits and reports incorporated therein by reference, and such number of
copies of the final Prospectus and each post-effective amendment or
supplement thereto as such Noteholder may reasonably request.
(iv) Parent will cooperate with the Noteholders in connection with the
registration or qualification of the Registrable Shares for offering and
sale by the Noteholders under the securities or "Blue Sky" laws and
regulations of such states as any of the Noteholders may request,
including, but not limited to, the filing of any necessary registration
statements or applications in any such state; provided, however, that
Parent shall not be required to do so in states which (i) would require of
Parent a general consent to the jurisdiction of the state or (ii) would
require that Parent qualify as a foreign corporation (except that the
provisions contained in clauses (i) and (ii) above shall not apply in
states in which Parent has already so consented or qualified and Parent
shall inform the Noteholders of the identity of such states).
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(v) Parent will cause all Registrable Shares to be qualified for
quotation on the National Market System of The Nasdaq Stock Market and
qualified for listing on each securities exchange on which similar
securities of Parent are then listed.
(b) Parent represents and warrants to the Noteholders that it is eligible
to use Form S-3 for the registration of the sale of the Registrable Shares and
agrees that it will use reasonable best efforts to take all actions that may be
necessary to maintain such eligibility for so long as Parent is obligated to
keep the Registration Statement effective.
(c) For purposes of this Agreement, "Registrable Shares" shall mean the
Note Shares and any other shares of Parent Common Stock issued or issuable with
respect to such shares as a result of stock dividends or reclassifications,
recapitalizations, mergers or similar events.
10.2.....Expenses. Parent shall pay all expenses incurred by Parent in
connection with any registration or qualification of the Registrable Shares
pursuant to this Section 10, including, but not limited to, all registration or
filing fees, all fees and expenses for qualifying the Registrable Shares for
quotation on the National Market System of The Nasdaq Stock Market or listing on
any securities exchange on which similar securities of Parent are admitted for
trading, fees and expenses of compliance with state securities laws, printing
expenses, fees and disbursements of counsel for Parent and fees and expenses in
connection with any special audits incident to or required by any such
registration, and shall pay or reimburse the Noteholders for the reasonable fees
(not to exceed $10,000) and disbursements of one counsel selected by Noteholders
who own a majority of the aggregate principal amount of the outstanding Hain
Notes, for services rendered in connection with the registration of the
Registrable Shares; provided, however, each Noteholder shall pay any brokerage
discounts, commissions or similar fees and Taxes attributable to the sale of the
Registrable Shares for such Noteholder's account.
10.3. Noteholders' Covenants Regarding Registrable Shares. Each
Noteholder covenants and agrees with Parent that such Noteholder will cooperate
with Parent in connection with the preparation of the Registration Statement
prior to and after the Closing Date for so long as Parent is obligated to keep
the Registration Statement effective, and will provide to Parent, in writing,
for use in the Registration Statement, all information reasonably requested by
Parent regarding such Noteholder and its plan of distribution and such other
information as may be reasonably necessary to enable Parent to prepare the
Registration Statement and Prospectus covering the Registrable Shares and to
maintain the currency and effectiveness thereof. If any Noteholder breaches his
covenants under this Section 10.3, Parent may exclude the Registrable Shares
held by such Noteholder from the Registration Statement until such time as such
breach is cured and such remedy shall be the sole remedy of Parent for
<PAGE>
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such breach and shall not otherwise affect Parent's obligations hereunder,
including, but not limited to, Parent's obligation to file and keep effective
the Registration Statement.
10.4. Indemnification. (a) In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this Section 10,
Parent will indemnify and hold harmless each Noteholder, its officers and
directors and each person, if any, who controls such Noteholder within the
meaning of the Securities Act or the Exchange Act (the "Noteholder Indemnified
Parties"), against any losses, claims, damages or liabilities, joint or several,
to which such Noteholder Indemnified Parties may become subject, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or (iii) any
violation of any federal or state securities law, rule or regulation thereunder
committed by any of the Parent Indemnified Parties (as hereinafter defined); and
Parent will reimburse such Noteholder Indemnified Parties for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage or liability; provided, however, that
Parent will not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon any actual or
alleged statement in, or actual or alleged omission from, the Registration
Statement made by Parent in reliance upon and in conformity with written
information furnished to Parent by or on behalf of such Noteholder expressly for
use in connection with the preparation of the Registration Statement. To the
extent that the foregoing undertaking may be unenforceable for any reason,
Parent shall make the maximum contribution to the payment and satisfaction of
each of the losses, claims, damages or liability, or expenses which is
permissible under applicable law.
(b) In the event of any registration of any Registrable Shares under the
Securities Act pursuant to this Section 10, each Noteholder will severally
indemnify and hold harmless Parent, its directors or officers and each person,
if any, who controls Parent within the meaning of the Securities Act or the
Exchange Act (the "Parent Indemnified Parties"), against any losses, claims,
damages, or liabilities, joint or several to which the Parent Indemnified
Parties may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with written information furnished to Parent by or on behalf
of such Noteholder expressly for use in connection with the preparation of the
Registration Statement; or such Noteholder will reimburse such Parent
Indemnified Parties for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage or
liability; provided, however, that the liability of any Noteholder under this
Section
<PAGE>
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10.4(b) shall be limited in all events and circumstances to the net amount
received by such Noteholder from the sale of Registrable Shares pursuant to the
Registration Statement.
(c) Any person who proposes to assert the right to be indemnified under
this Section 10.4 will, promptly after receipt of notice of commencement of any
action against any person in respect of which a claim is to be made against an
indemnifying party under this Section 10.4, notify each such indemnifying party
of the commencement of such action, enclosing a copy of all papers served, but
the omission to so notify such indemnifying party of any such action shall not
release such indemnifying party from any liability that it may have to any
indemnified party under this Section 10.4, except to the extent such
indemnifying party is actually prejudiced by such omission. In case any such
action shall be brought and notice given to the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent that it shall wish and provided that such indemnifying party
admits in writing its indemnification obligations under this Section 10.4 with
respect to losses, claims, damages, liabilities or expenses arising out of or in
connection with such action, jointly with any other indemnifying party similarly
notified and admitting, to assume the defense thereof, with counsel reasonably
satisfactory to the indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses, except as provided below and except for the
reasonable cost of investigation subsequently incurred by such indemnified party
in connection with the defense thereof. The indemnified party shall have the
right to employ separate counsel and to participate in (but not to control) any
such action, but the fees and expenses of such counsel shall be the expense of
such indemnified party unless (i) the employment of counsel by such indemnified
party has been authorized by the indemnifying parties, (ii) the indemnified
party shall have been advised by its counsel that there may be a conflict of
interest between the indemnifying parties and the indemnified party in the
conduct of the defense of such action (in which case the indemnifying party
shall not have the right to direct the defense of such action on behalf of the
indemnified party) or (iii) the indemnifying parties shall not in fact have
employed counsel reasonably satisfactory to the indemnified party to assume the
defense of such action, in each of which cases, the fees and expenses of counsel
shall be at the expense of the indemnifying parties. An indemnifying party shall
not be liable for any settlement of any action or claims effected without its
written consent.
SECTION 11. TERMINATION
11.1. Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual written consent of Parent, Buyer and the Company;
<PAGE>
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(b) by Parent and Buyer, if there has been a material violation or
breach by the Company of any covenant, representation or warranty contained
in this Agreement which has prevented the satisfaction of any condition to
the obligations of Parent and Buyer at the Closing and such violation or
breach has not been waived by Parent and Buyer or, in the case of a
covenant breach, cured by the Company within ten days after written notice
thereof from Parent and Buyer;
(c) by Parent, 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 Parent;
(d) by the Company, if there has been a material violation or breach
by Parent or Buyer of any covenant, representation or warranty contained in
this Agreement which has prevented the satisfaction of any condition to the
obligations of the Company at the Closing and such violation or breach has
not been waived by the Company or, with respect to a covenant breach, cured
by Parent or Buyer within ten days after written notice thereof by the
Company; or
(e) by either Parent and Buyer or the Company if the transactions
contemplated hereby have not been consummated by June 15, 1999; provided
that neither Parent and Buyer nor the Company shall be entitled to
terminate this Agreement pursuant to this Section 11.1(e) if (i) such
Person's knowing and willful breach of this Agreement has prevented the
consummation of the transactions contemplated hereby or (ii) the failure of
such Person to perform its obligations under this Agreement results in the
failure of the Merger to be consummated at such time.
11.2. Effect of Termination. In the event of termination of this
Agreement by either Parent or Buyer or the Company as provided above, the
provisions of this Agreement shall immediately become void and of no further
force and effect (other than Section 9.1, this Section 11.2 and Section 12
hereof, which shall survive the termination of this Agreement), and there shall
be no liability on the part of either Parent and Buyer or the Company to one
another, except for any breaches of this Agreement (including failure to close
after the terms and conditions precedent to Closing have been satisfied) prior
to the time of such termination. The Confidentiality Agreement shall survive the
termination of this Agreement.
SECTION 12. MISCELLANEOUS
12.1. Notices. All notices, requests, demands and other communications
(collectively, "Notices") given or made pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given or made as follows: (a) if
sent by registered or certi-
<PAGE>
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fied mail in the United States return receipt requested, postage and fees
prepaid, upon receipt; (b) if sent by reputable overnight air courier (such as
Federal Express), one business day after mailing or (c) if otherwise actually
personally delivered, when delivered. All Notices shall be delivered to the
following addresses: If to the Company:
Natural Nutrition Group, Inc.
120 South La Salle Street
Suite 1335
Chicago, Illinois 60603
Attention: Chief Executive Officer
with required copies to:
Frontenac Company
135 South La Salle Street
Suite 3800
Chicago, Illinois 60603
Attention: David S. Katz
and
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Kenneth W. Miller
If to the Stockholder Representative:
Roger S. McEniry
Frontenac Company
135 South La Salle Street
Suite 3800
Chicago, Illinois 60603
with a required copy to Katten Muchin & Zavis
as set forth above
If to Parent or Buyer:
<PAGE>
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The Hain Food Group, Inc.
50 Charles Lindbergh Boulevard
Uniondale, New York 11553
Attention: Chief Executive Officer
with a required copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Roger Meltzer
Any of the parties to this Agreement may from time to time change its address
for receiving notices by giving written notice thereof in the manner set forth
above.
12.2. Entire Agreement. This Agreement and the Schedules and Exhibits
and the other writings and agreements specifically identified herein and the
Confidentiality Agreement contain the entire agreement between the parties with
respect to the transactions contemplated hereby and supersede all previous oral
negotiations, commitments, understandings and agreements.
12.3. Assignability and Amendments. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of Parent,
Buyer, and the Company and each of their respective successors and assigns,
except that neither this Agreement nor any of the rights, interests or
obligations hereunder may be assigned by any party without the prior written
consent of the other parties. Except as otherwise provided herein, this
Agreement cannot be altered or otherwise amended except pursuant to an
instrument in writing signed by Parent, Buyer and the Company (and, following
the Effective Time, the Stockholder Representative).
12.4. Waiver. No provision of this Agreement may be waived unless in
writing signed by Parent, Buyer and the Company (and, following the Effective
Time, the Stockholder Representative) and waiver of any one provision of this
Agreement shall not be deemed to be a waiver of any other provision.
12.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE>
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12.6. Captions. The various captions and headings contained in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation of this Agreement.
12.7. Press Releases and Communications. No press release or public
announcement related to this Agreement or the transactions contemplated herein,
or prior to the Closing any other announcement or communication to the
employees, customers or suppliers of the Company, shall be issued or made
without the joint approval of Parent, Buyer and the Company, which approval
shall not be unreasonably withheld, unless required by law in which case Parent,
Buyer and the Company shall have the right to review such press release or
announcement prior to publication.
12.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
12.9. Expenses. Except as otherwise expressly provided herein, the
Company shall pay all of the Company's, the Stockholders' and the Optionholders'
expenses (including attorneys' fees and expenses) incurred in connection with
the negotiation of this Agreement, the performance of their respective
obligations hereunder and the consummation of the transactions contemplated by
this Agreement (whether consummated or not). Parent and Buyer shall pay all of
their own respective expenses.
* * * * *
<PAGE>
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IN WITNESS WHEREOF, each of the parties hereto have executed or caused this
Agreement and Plan of Merger to be executed on its behalf all as of the day and
year first above written.
THE HAIN FOOD GROUP, INC.
By:
-----------------------------------
Its:
-----------------------------------
HAIN ACQUISITION CORP.
By:
-----------------------------------
Its:
-----------------------------------
NATURAL NUTRITION GROUP, INC.
By:
-----------------------------------
Its:
-----------------------------------
EXHIBIT 4.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO TRANSFER, SALE OR OTHER DISPOSITION OF THIS NOTE MAY BE MADE UNLESS A
REGISTRATION STATEMENT WITH RESPECT TO THIS NOTE HAS BECOME EFFECTIVE UNDER SAID
ACT, OR UNLESS SUCH REGISTRATION IS NOT REQUIRED.
THE HAIN FOOD GROUP, INC.
CONVERTIBLE NOTE
Principal Amount: $_______________________________, 1999
Uniondale, New York
SECTION 1. THE HAIN FOOD GROUP, INC., a Delaware corporation (the
"Corporation"), for value received, hereby promises to pay to
_________________________, or its assigns ("Payee"), the principal amount of
____________________________________ Dollars and ____/100 ($__________________),
and to pay interest (computed on the basis of a 360-day year) on the unpaid
principal amount hereof outstanding from time to time from and including the
date hereof until and including the date the principal amount hereof is paid in
full at the rate of seven percent (7%) per annum (or at such other rate provided
for herein). Interest shall be payable quarterly on September 30, December 31,
March 31 and June 30 of each year (commencing September 30, 1999) and on the
date this Note is payable in full, until the principal amount hereof and all
interest accruing from the date hereof is paid in full.
SECTION 2. The principal amount hereof and all accrued interest shall be
payable in full in immediately available funds on ____________________, 2004
[the fifth anniversary of the Closing Date].
SECTION 3. This Note is issued pursuant to that certain Agreement and Plan
of Merger dated as of April 6, 1999 (the "Merger Agreement"), entered into by
the Corporation, Hain Acquisition Corp. and Natural Nutrition Group, Inc. This
Note is one of the Hain Notes described in the Merger Agreement.
SECTION 4. All payments on or in respect of this Note, including principal
and interest thereon shall be made in such coin and currency of the United
States of America as at the time of payment is legal tender for the payment of
public and private debts in immediately available funds to such account as the
holder hereof specifies, or, at the option of the holder hereof, in such manner
and at such other place in the United States of America as the holder hereof
shall have indicated to the Corporation. Whenever a payment to be made hereunder
shall be due and payable on a day which is not a business day in New York, New
York, such payment shall be made on the next succeeding business day and such
extension of time
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<PAGE>
shall be included in the computation of the payment of interest hereunder. All
payments hereunder shall be made (without counterclaim, setoff or withholding of
any kind) to the holder's account as designated in writing from time to time by
the holder hereof.
SECTION 5. (a) If any one or more of the following events ("Events of
Default") shall have occurred:
(i) the Corporation shall (x) default in the payment when due of any
principal of this Note, (y) default, and such default shall continue for
five or more days, in the payment when due of any interest on this Note, or
(z) fail to pay any other amounts owing under this Note for ten days after
receiving notice thereof; or
(ii) default shall occur in the observance or performance of any of
the other covenants or agreements of the Corporation contained in this Note
which is not remedied within 30 days after notice thereof to the
Corporation; or
(iii) any default shall occur in the terms governing any Indebtedness
(as hereinafter defined) of the Corporation in an aggregate principal
amount of $10,000,000 or more and the holder or holders of such
Indebtedness has declared the unpaid balance thereof to be due and payable;
or
(iv) the Corporation or any of its Subsidiaries shall commence a
voluntary case concerning itself under Title 11 of the United States Code
entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Corporation or any of its Subsidiaries and the petition is not
controverted within 30 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy
Code) or the like is appointed for, or takes charge of, all or
substantially all of the property of the Corporation or any of its
Subsidiaries; or the Corporation or any of its Subsidiaries commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction whether now or hereafter in effect relating to the
Corporation or any of its Subsidiaries, or there is commenced against the
Corporation or any of its Subsidiaries any such proceeding which remains
undismissed for a period of 60 days; or the Corporation or any of its
Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief
or other order approving any such case or proceeding is entered; or the
Corporation or any of its Subsidiaries suffers any appointment of any
custodian or the like for it or any substantial part of its property to
continue undischarged or unstayed for a period of 60 days; or the
Corporation or any of its Subsidiaries makes a general assignment for the
benefit of creditors; or any corporate action is taken by the Corporation
or any of its Subsidiaries for the purpose of effecting any of the
foregoing; or
(v) any representation or warranty made by the Corporation in this
Note shall prove to have been false or incorrect in any material respect on
the date made;
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<PAGE>
then, when any Event of Default described in clauses (i), (ii), (iii), or (v)
above has occurred and shall be continuing, the principal of this Note and the
interest accrued thereon and all other amounts due hereunder (the "other
payments") shall, upon written notice from the holder of this Note forthwith
become and be due and payable, if not already due and payable, without
presentment, further demand or notice of any kind. When any Event of Default
described in clause (iv) above has occurred, then the principal of this Note,
the interest accrued thereon and the other payments shall immediately become due
and payable, upon the occurrence thereof, without presentment, demand, or notice
of any kind. If any principal, installment of interest or other payment is not
paid in full on the due date thereof (whether by maturity, prepayment, or
acceleration) or any Event of Default has occurred and is continuing, then the
outstanding principal of this Note, any overdue installment of interest (to the
extent permitted by applicable law), including interest accruing after the
commencement of any proceeding under any bankruptcy or insolvency law, and all
other payments will bear interest from the due date of such payment, or from and
after an Event of Default, at a rate equal to nine percent (9%) per annum
("Default Rate"). If payment of this Note is accelerated, then the outstanding
principal of this Note shall bear interest at the Default Rate from and after
the Event of Default. The Corporation shall pay to the holder of this Note all
reasonable out-of-pocket costs and expenses incurred by such holder in any
effort to collect the principal of this Note, the interest accrued thereon and
the other payments, including the reasonable attorneys fees and expenses for
services rendered in connection therewith, and pay interest on such costs and
expenses to the extent not paid when demanded at the Default Rate.
(b) If any Event of Default specified in Section 5(a) above has occurred
and is continuing, the holder of this Note may, subject to Section 11 hereof,
proceed to protect and enforce such holder's rights either by suit in equity or
by action at law, or both, whether for the specific performance of any covenant
or agreement contained in this Note, or in aid of the exercise of any power
granted in this Note, or to enforce any other legal or equitable right or remedy
of such holder.
(c) No failure to exercise or delay in the exercise of any right, power or
remedy accruing to any holder of this Note upon any breach or default of the
Corporation under this Note shall impair any such right, power or remedy of such
holder nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring.
(d) All remedies under this Note, by law or otherwise afforded to any
holder of this Note, shall be cumulative and not alternative.
SECTION 6. (a) Subject to the requirements of this Section 6, at any time
or from time to time after the date hereof, Payee shall be entitled to convert,
by delivering the Note to the Corporation, duly endorsed or assigned in blank,
accompanied by written notice of such conversion to the Corporation (the
"Conversion Notice"), any or all of the principal amount then outstanding under
this Note into a number of shares of Common Stock of the Corporation, par value
$0.01 per share ("Parent Common Stock"), determined by dividing the
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<PAGE>
principal amount of this Note being converted into shares of Parent Common Stock
by the Conversion Price determined as of the date on which the Conversion Notice
is given. The "Conversion Price" means, as of any date of determination, the
average of the closing (last) prices for a share of Parent Common Stock, as
reported on the National Market System of The Nasdaq Stock Market or the
principal stock exchange on which the Parent Common Stock is then listed (as
reported in The Wall Street Journal) for the most recent ten (10) days that the
shares of Parent Common Stock have traded ending on the trading day immediately
prior to such date of determination; provided, however, that prior to
_________________, 1999 [the six-month anniversary of the Closing Date] if such
average as of the date of determination is less than $22.00 (such amount to be
appropriately and proportionately adjusted to reflect any Subdivision (as
hereinafter defined) or any Combination (as hereinafter defined) after the date
hereof), then as of such date the Conversion Price shall be deemed to be $22.00
(such amount to be appropriately and proportionately adjusted to reflect any
Subdivision or any Combination after the date hereof). The closing (last) prices
referred to above shall be appropriately and proportionately adjusted to reflect
any subdivision of the Parent Common Stock, whether by stock split, stock
dividend or otherwise (a "Subdivision"), or any combination of the Parent Common
Stock, whether by reverse stock split or otherwise (a "Combination"), with a
record date occurring after the commencement of such ten-day period and prior to
such conversion.
(b) The Conversion Notice shall state the amount of principal to be
converted pursuant to this Section 6, which amount, if less than the total
principal amount then outstanding under this Note, shall be at least $25,000.
The conversion pursuant to such Conversion Notice shall occur on the date on
which such Conversion Notice is given to the Corporation (the "Conversion
Date").
(c) If a Conversion Notice is given with respect to less than the total
principal amount outstanding under this Note, the Corporation shall issue to
Payee a new Note in the principal amount outstanding after such conversion and
otherwise in a form identical to such Note; provided, however, in the event the
principal amount of such new Note is less than $25,000, the Corporation may, at
its option, add such amount to the amount of principal specified for conversion
in the Conversion Notice in lieu of issuing such new Note.
(d) In the event of any conversion of this Note pursuant to this Section 6,
such conversion shall be deemed to have been made on the Conversion Date
(whether or not this Note has been surrendered to the Corporation as provided
herein); and after such Conversion Date, Payee shall be entitled to receive the
shares of Parent Common Stock issuable upon such conversion and shall be treated
for all purposes as the record holder of such shares. Interest shall cease to
accrue on the Conversion Date for any principal amount with respect to which a
Conversion Notice has been given and such interest shall be paid on the next
scheduled interest payment date provided for in Section 1 of this Note,
regardless of whether this Note has been paid in full.
(e) As promptly as practicable after a Conversion Date (but in any event no
later than two trading days after delivery of the applicable Conversion Notice),
the Corporation will issue and deliver to Payee a certificate or certificates
for the number of shares of
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<PAGE>
Parent Common Stock issuable upon conversion pursuant to this Section 6. The
Corporation will pay all issuance taxes, if any, applicable upon conversion
pursuant to this Section 6. The Corporation may pay cash in lieu of the issuance
of a fractional share, based on the applicable Conversion Price.
(f) The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Parent Common Stock, solely for the
purpose of effecting the conversion of this Note, such number of shares of
Parent Common Stock as shall from time to time be sufficient to effect the
conversion of this Note; and if at any time the number of authorized but
unissued shares of Parent Common Stock shall not be sufficient to effect the
conversion of the entire outstanding principal amount of this Note, in addition
to such other remedies as shall be available to Payee, the Corporation will take
such corporate action as may be necessary to increase its authorized but
unissued shares of Parent Common Stock to the number of shares which is
sufficient for such purpose.
(g) In the case of any consolidation or merger of the Corporation with
another entity, or the sale of all or substantially all of its assets to another
entity, or any reorganization or reclassification of the Parent Common Stock or
other equity securities of the Corporation (except a subdivision or
combination), lawful and adequate provision shall be made whereby the holder of
this Note shall thereafter have the right to receive upon conversion of this
Note in lieu of or in addition to the shares of Parent Common Stock, such shares
of stock, securities or assets as may (by virtue of such consolidation, merger,
sale, reorganization or reclassification) be issued or payable with respect to
or in exchange for a number of outstanding shares of Parent Common Stock equal
to the number of shares of Parent Common Stock immediately theretofore so
issuable upon such conversion hereunder had such consolidation, merger, sale,
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holder of this Note to the end that the provisions hereof shall thereafter
be applicable as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon conversion of this Note.
(h) In the event of any proposed distribution, dissolution or liquidation
of the assets of the Corporation, the Corporation shall mail notice thereof to
the holder of this Note and shall not make any such distribution to stockholders
or effectuate any such dissolution or liquidation until the expiration of ninety
(90) days from the date of mailing of such notice and, in any such case, the
holder of this Note may exercise the conversion rights with respect to this Note
at any time prior to such distribution.
(i) The Conversion Shares, and the holders thereof, are entitled to the
benefits of the registration rights and other provisions contained in Section 10
of the Merger Agreement (the "Registration Provisions"), which Registration
Provisions are incorporated in this Note by this reference as if fully set forth
herein.
SECTION 7. (a) The Corporation acknowledges and agrees that the holder of
this Note will suffer damages if the Registration Statement (as defined in the
Registration
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<PAGE>
Provisions) has not become effective under the Securities Act and available for
re-sales of the Registrable Shares on or prior to the date 75 days after the
date of the Merger Agreement (the "Target Effective Date") and that it would be
impossible to ascertain such damages. Accordingly, in the event that the
Registration Statement has not become effective under the Securities Act and
available for re-sales of the Registrable Shares on or prior to the Target
Effective Date (an "Initial Registration Default"), then, until the Registration
Statement has become effective under the Securities Act and available for
re-sales of the Registrable Shares, the principal amount of this Note then
outstanding shall bear interest at the rate of (i) twelve percent (12%) with
respect to the first 30-day period following the Target Effective Date; (ii)
sixteen percent (16%) with respect to the next 30-day period after the Target
Effective Date; and (iii) twenty percent (20%) with respect to any period
thereafter.
(b) In the event that the Registration Statement becomes effective under
the Securities Act but thereafter ceases to be effective or available for
re-sales of the Registrable Shares for any reason while any portion of this Note
is outstanding (each, a "Subsequent Registration Default"), the principal amount
of this Note outstanding shall bear interest at the rate of thirteen percent
(13%) per annum during the period of any Subsequent Registration Default.
(c) Nothing contained in this Note (including this Section 7) shall limit,
alter, waive or otherwise adversely affect, or be deemed to limit, alter, waive
or otherwise adversely affect, in any way any other rights, claims, actions or
remedies otherwise available to a holder of this Note under this Note or the
Merger Agreement (including the Registration Provisions) with respect to an
Initial Registration Default or a Subsequent Registration Default.
SECTION 8. (a) Payee understands and acknowledges that:
(i) the issuance of this Note is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by virtue of the provisions of Section 4(2) of the Securities Act;
and
(ii) there is no existing public or other market for this Note or the
other Hain Notes and there can be no assurance that Payee will be able to
sell or dispose of this Note.
(b) Payee represents and warrants to the Corporation that:
(i) he, she or it is acquiring this Note, and any shares of Parent
Common Stock acquired by him, her or it upon conversion of this Note
pursuant to Section 6 (the "Conversion Shares"), for investment and not
with a view to distributing all or any part thereof in any action which
would constitute a "distribution" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act");
(ii) he, she or it is (A) a "qualified institutional buyer" as such
term is defined in Rule 144A under the Securities Act or (B) an "accredited
investor" as such
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term is defined in Regulation D under the Securities Act and he, she or it
has such knowledge and experience in financial and business matters that
he, she or it is capable of evaluating the merits and risks of his, her or
its investment in this Note and the Conversion Shares;
(iii) he, she or it is able to bear the complete loss of his, her or
its investment in this Note and the Conversion Shares; and
(iv) he, she or it has had the opportunity to ask questions of, and
receive answers from, the Corporation and its managements concerning his,
her or its investment in this Note and the Conversion Shares.
(v) the execution, delivery and performance of this Note is within
Payee's powers (corporate or otherwise) and has been duly authorized by all
requisite action (corporate or otherwise) and (ii) Payee's receipt of the
Note does not, if applicable, violate its charter, bylaws or any law or
regulation to which it is subject.
(vi) Payee acknowledges that the Note has not been registered under
the Securities Act.
(c) (i) Payee covenants to the Corporation that if he, she or it offers,
sells or otherwise transfers, pledges or hypothecates all or any part of this
Note, that he, she or it shall do so only (x) to a transferee who complies with
clauses (a) and (b) of this Section 8 and (y) in compliance with applicable law.
(ii) Notwithstanding the foregoing, Payee covenants to the Corporation that
he, she or it will not sell or otherwise transfer, pledge or hypothecate, in a
privately negotiated transaction, all or any part of this Note or any Conversion
Shares to any Person or an Affiliate of any Person who, as of the date hereof,
to the actual knowledge of Payee, beneficially owns (determined in accordance
with Rule 13d-3(d) of the Securities Exchange Act of 1934, as amended) 15% or
greater of the Parent Common Stock.
SECTION 9. The Corporation represents and warrants to Payee, as of the date
of delivery of this Note, that:
(a) The Corporation is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority and all authorizations, licenses
and permits necessary to own and operate its properties and to carry on its
businesses as now conducted, if any, except where the failure to hold such
authorizations, licenses and permits would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect
(as defined in the Merger Agreement).
(b) The Corporation has all requisite corporate power and authority to
execute and deliver this Note and to perform its obligations under this
Note and the Registration Provisions. The execution, delivery and
performance of this Note by the
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Corporation and the performance of the Corporation's obligations under the
Registration Provisions have been duly authorized and approved by all
necessary corporate action on the part of the Corporation's board of
directors and stockholders and no further corporate authorization on the
part of the Corporation is necessary to authorize the execution, delivery
and performance of the Corporation's obligation under this Note and the
performance of the Corporation's obligations under the Registration
Provisions. The execution, delivery and performance of this Note and the
performance of the Corporation's obligations under the Registration
Provisions do not conflict with or result in any material breach of, or
constitute a material default under, result in a material violation of, or
require any material authorization, consent, approval, exemption or other
action by or notice to any court or other governmental body, under the
provisions of the Corporation's Certificate of Incorporation or By-Laws or
any material indenture, mortgage, lease, loan agreement or other material
agreement or instrument to which the Corporation is bound, or any material
law, statute, rule, regulation, order, judgment or decree to which the
Corporation is subject. None of the foregoing items shall be deemed to be
"material" unless the failure to meet the requirements thereof would
reasonably be expected to have, individually or in the aggregate, a Parent
Material Adverse Effect. This Note constitutes a valid and binding
obligation of the Corporation, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy laws, similar laws of
debtor relief and general principles of equity.
(c) No material permit, consent, approval or authorization of, or
declaration to or filing with, any governmental or regulatory authority is
required in connection with any of the execution, delivery or performance
of this Note by the Corporation.
(d) The Conversion Shares have been duly authorized and, when issued
upon conversion of this Note in accordance with its terms, will be validly
issued, fully paid, nonassessable, free of pre-emptive rights.
(e) The Corporation is not in violation of its Certificate of
Incorporation or By-Laws. Neither the Corporation nor any of its
Subsidiaries is in default under the Credit Agreement nor does any event
exist, which with the giving of notice or lapse of time or both would
constitute a default.
SECTION 10. (a) This Note may be prepaid (upon written notice by the
Corporation to Payee at least thirty (30) days prior to such prepayment), in
whole or in part, without penalty, at any time after _________, 2002 [the third
anniversary of the Closing Date] at 100% of the aggregate principal amount
thereof being prepaid, plus accrued and unpaid interest (if any) thereon to such
prepayment date.
(b) (i) In the event of a Public Offering (as defined below), the
Corporation shall have the right, at its option, to apply the Net Proceeds (as
defined below) of such Public Offering to the redemption, in whole but not in
part, of this Note on the date (the "Public Offering Payment Date") which is
thirty business days after the date the Public Of-
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fering Notice (as defined below) is required to be mailed to the holder of this
Note (or such later date as is required by applicable law) at 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest (if any) to
the Public Offering Payment Date.
(ii) The Corporation shall give the holder of this Note irrevocable written
notice (the "Public Offering Notice") of any redemption pursuant to this Section
10(b) specifying the redemption date and the principal amount of the Note held
by such holder to be redeemed on such date and stating that such redemption is
to be made pursuant to the Public Offering. Notice of redemption having been
given as aforesaid, the principal amount of the Note specified in such notice,
together with accrued and unpaid interest (if any) thereon to the redemption
date with respect thereto, shall become due and payable on such redemption date.
(iii) For purposes of this Section 10(b), "Net Proceeds" shall mean all the
net proceeds of a Public Offering available for such redemption and "Public
Offering" means a public offering or an offering under Rule 144A promulgated
under the Securities Act (a "Rule 144A Offering") by the Corporation of shares
of Parent Common Stock or subordinated indebtedness.
(c) This Note shall be prepaid (upon written notice by Payee to the
Corporation (the "Payee Optional Redemption Notice"), within sixty (60) days of
the giving of such notice), in whole or in part, without penalty, at any time
after the earlier of _________, 2002 [the third anniversary of the Closing Date]
a ("Payee Optional Redemption"), and a Change in Control, in each case at 100%
of the aggregate principal amount thereof being prepaid under the Payee Optional
Redemption Notice, plus accrued and unpaid interest (if any) thereon to such
prepayment date. Notwithstanding the foregoing, the Corporation shall not be
required to effect a Payee Optional Redemption if a redemption by the
Corporation would result in a default or an event of default under the Credit
Agreement (as defined) (a "Redemption Block"). In the event that Payee has
delivered a Payee Optional Redemption Notice to the Corporation in accordance
with this Section, (i) the Corporation shall promptly notify Payee if a
Redemption Block is in effect and when the Redemption Block is no longer in
effect and (ii) from and including the date the Redemption Block is commenced
through the date such Redemption Block is removed, the principal amount of this
Note outstanding shall bear interest at the rate of thirteen percent (13%) per
annum. For purposes of this Note, a "Change in Control" shall mean the
occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of fifty percent (50%) or more of either (i) the
then-outstanding shares of Common Stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting power
of the then-outstanding voting securities of the Corporation entitled to
vote generally in the election of directors (the "Outstanding Corporation
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change in
Control; (1) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or
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any corporation controlled by the Corporation, or (2) any acquisition by
any corporation pursuant to a transaction which complies with clauses (1)
or (2) of subsection (iii) of this Section.
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Corporation (the "Incumbent Board") cease for any reason
to constitute at least a majority of such Board; provided, however, that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Corporation's stockholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than such Board.
(iii) Consummation of a reorganization, merger or consolidation of the
Corporation or sale or other disposition of all or substantially all of the
assets of the Corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (1) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than fifty percent (50%) of, respectively, the
then-outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Corporation or
all of substantially all of the Corporation's assets either directly or
through one or more Subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the
Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (2) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Corporation or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, fifty
percent (50%) or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination,
or the combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed prior to
the Business Combination and (3) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation other than to a corporation
which would satisfy
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the requirements of clauses (1) or (2) of subsection (iii) of this Section,
assuming for this purpose that such liquidation or dissolution was a
Business Combination.
(d) Notwithstanding the foregoing, Payee may exercise the conversion rights
pursuant to Section 6 of this Note at any time prior to the applicable
prepayment.
SECTION 11. (a) All principal of and interest on this Note and all other
amounts payable by the Corporation hereunder or in respect of any claim or cause
of action asserted in respect hereof or otherwise relating in any way hereto
("Subordinated Debt") is subordinate and junior in right of payment to the prior
payment in full in cash or cash equivalents of all Superior Indebtedness (as
defined in Section 11(b)) to the extent provided below.
(b) For purposes of this Note, the term "Superior Indebtedness" shall mean
(i) all Indebtedness of the Corporation incurred under the Credit Agreement,
including all principal of and premium, if any, and interest thereon and all
commitment fees and other amounts payable thereunder and (ii) any Indebtedness
of the Corporation pursuant to a public offering or Rule 144A Offering by the
Corporation of subordinated indebtedness. The Superior Indebtedness shall
continue to be Superior Indebtedness and entitled to the benefits of these
subordination provisions irrespective of any amendment, modification or waiver
of any term of the Superior Indebtedness or any extension or renewal of the
Superior Indebtedness and regardless of whether any holders of Superior
Indebtedness shall have done any of the following: (i) sold, exchanged,
released, or otherwise dealt with any property pledged, mortgaged or otherwise
securing Superior Indebtedness, (ii) released any Person liable in any manner
for the collection of the Superior Indebtedness or (iii) exercised or refrained
from exercising any rights against the Corporation or any other Person.
(c) (i) In the event the Corporation shall default in the payment of any
principal of or premium, if any, or interest on any Superior Indebtedness when
the same becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise, then, unless and until such default
shall have been cured or waived or shall have ceased to exist, no direct or
indirect payment (in cash, property or securities or by setoff) shall be made on
account of the principal of, premium, if any, or interest on any Subordinated
Debt, or as a sinking fund for any Subordinated Debt, or in respect of any
redemption, retirement, purchase or other acquisition of any Subordinated Debt,
during any period ("Payment Blockage Period");
(1) of 179 days after such default, provided that only one such period
may be commenced pursuant to the terms of this subdivision (c)(i)(1) in any
360-day period; or
(2) in which an effective notice of acceleration of the maturity of
such Superior Indebtedness shall have been transmitted to the Corporation
in respect of such default and such notice remains in effect.
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(ii) Upon the happening of any Specified Superior Nonpayment Default, then,
unless and until such default shall have been cured or waived or shall have
ceased to exist, no direct or indirect payment or distribution of any assets of
the Corporation of any kind or character (in cash, property, securities or by
setoff) shall be made on account of the principal of or premium, if any, or
interest on any Subordinated Debt, or as a sinking fund for any Subordinated
Debt, or in respect of any redemption, retirement, purchase or other acquisition
of any Subordinated Debt, during any period:
(1) of 179 days after written notice of such default shall have been
given to the Corporation by any holder of Superior Indebtedness, provided
that only one such notice shall be given pursuant to the terms of this
subdivision (c)(ii)(1) in any 360-day period; or
(2) in which an effective notice of acceleration of the maturity of
such Superior Indebtedness shall have been transmitted to the Corporation
in respect of such default and such notice remains in effect.
For purposes of this Section 11(c)(ii), the term "Specified Superior
Nonpayment Default" shall mean an Event of Default (as defined in the
Credit Agreement) under the Credit Agreement.
(d) In the event of:
(i) any insolvency, bankruptcy case or proceeding, receivership,
liquidation (total or partial), reorganization, readjustment, composition
or other similar proceeding relating to the Corporation, its creditors or
its property;
(ii) any proceeding for the total or partial liquidation, dissolution
or other winding-up of the Corporation, voluntary or involuntary, whether
or not involving insolvency or bankruptcy proceedings;
(iii) any assignment by the Corporation for the benefit of creditors;
or
(iv) any other marshaling of the assets of the Corporation;
all Superior Indebtedness (including principal, premium, if any, and interest
thereon, including interest accruing after such proceeding at the contract rate
(which in the case of the Credit Agreement shall include interest at the Default
Rate (as defined in the Credit Agreement), so long as such interest is an
allowable claim in any such proceeding) shall first be paid in full in cash or
cash equivalents before any payment or distribution, except as provided in the
next sentence, shall be made to any holder of any Subordinated Debt on account
of any Subordinated Debt. Any payment or distribution, whether in cash,
securities or other property (other than debt securities of the Corporation or
any other corporation provided for by a plan of reorganization or readjustment
the payment of which is subordinated, at least to the extent provided in this
Section 11 with respect to Subordinated Debt, to the payment of all Superior
Indebtedness at the time outstanding and to any securities issued in respect
thereof under any
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such plan or reorganization or readjustment but only if the claims of holders of
Superior Indebtedness in such proceeding shall not have been impaired (in
accordance with the provisions of ss.1124 of the Bankruptcy Code)), which would
otherwise (but not for this Section 11) be payable or deliverable in respect of
Subordinated Debt shall be paid or delivered directly to the holders of Superior
Indebtedness in accordance with the priorities then existing among such holders
until all Superior Indebtedness (including principal, premium, if any, and
interest thereon, including interest accruing after such proceeding at the
contract rate (which in the case of the Credit Agreement shall include interest
at the Default Rate (as defined in the Credit Agreement) so long as such
interest is allowable as a claim in such proceedings) shall have been paid in
full in cash or cash equivalents.
(e) In the event that any Subordinated Debt shall be declared due and
payable as a result of the occurrence of any one or more defaults in respect
thereof, under circumstances when the terms of Section 11(c) do not prohibit
payment on Subordinated Debt, then, without limiting the effect of any other
provision hereof, no payment shall be made in respect of any Subordinated Debt
in the event the Superior Indebtedness shall have been accelerated, until all
Superior Indebtedness shall have been paid in full in cash or cash equivalents
or such acceleration of Superior Indebtedness shall have been rescinded.
(f) If any payment or distribution shall be collected or received by any
holders of Subordinated Debt in contravention of any of the terms of this
Section 11 and prior to the payment in full in cash or cash equivalent of the
Superior Indebtedness at the time outstanding, such holders of Subordinated Debt
will deliver such payment or distribution, to the extent necessary to pay all
such Superior Indebtedness in full, to such holders of such Superior
Indebtedness and, until so delivered, the same shall be held in trust by such
holders of Subordinated Debt as the property of the holders of such Superior
Indebtedness. If after any amount is delivered to the holders of Superior
Indebtedness pursuant to this Section 11(f), whether or not such amounts have
been applied to the payment of Superior Indebtedness, and the outstanding
Superior Indebtedness shall thereafter be paid in full by the Corporation or
otherwise other than pursuant to this Section 11(f), the holders of Superior
Indebtedness shall return to such holders of Subordinated Debt an amount equal
to the amount delivered to such holders of Superior Indebtedness pursuant to
this Section 11(f).
(g) No present or future holder of any Superior Indebtedness shall be
prejudiced in the right to enforce subordination of Subordinated Debt by any act
or failure to act on the part of the Corporation, or by any noncompliance by the
Corporation with any of the terms, provisions and covenants of the Subordinated
Debt regardless of any knowledge thereof that any such holder of Superior
Indebtedness may have or be otherwise charged with. Nothing contained in this
Section 11 shall impair, as between the Corporation and any holder of
Subordinated Debt, the obligation of the Corporation to pay to such holder the
principal thereof and premium, if any, and interest thereon as and when the same
shall become due and payable in accordance with the terms hereof, or prevent any
holder of any Subordinated Debt from exercising all rights, powers and remedies
otherwise permitted by applicable law or under this Note all subject to the
rights of the holders of the Superior Indebtedness set forth in this Section 11.
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(h) Upon the payment in full in cash or cash equivalents of all Superior
Indebtedness, the holders of Subordinated Debt shall be subrogated to all rights
of any holder of Superior Indebtedness to receive any further payments or
distributions applicable to the Superior Indebtedness until the Subordinated
Debt shall have been paid in full, and such payments or distributions received
by the holders of Subordinated Debt by reason of such subrogation, of cash,
securities or other property which otherwise would be paid or distributed to the
holders of Superior Indebtedness, shall, as between the Corporation and its
creditors other than the holders of Superior Indebtedness, on the one hand, and
the holders of Subordinated Debt, on the other hand, be deemed to be a payment
by the Corporation on account of Superior Indebtedness and not on account of
Subordinated Debt. In the event that, after prior payment in full in cash or
cash equivalents of all Superior Indebtedness, the holders of any Superior
Indebtedness are required to disgorge, turnover, or otherwise repay to the
Corporation any amounts paid in respect of such Superior Indebtedness, the
provisions of this Section 11 shall be reinstated to the extent of such
disgorgement, turnover or repayment.
(i) Each holder of Subordinated Debt undertakes and agrees for the benefit
of each holder of Superior Indebtedness to execute, verify, deliver and file any
proofs of claim, consents, assignments or other instruments which any holder of
Superior Indebtedness may at any time require in order to effectuate the full
benefit of the subordination contained herein; and upon failure of the holder of
any Subordinated Debt to do so reasonably promptly after the first day on which
such filing may be made, any such holder of Superior Indebtedness shall be
deemed to be irrevocably appointed the agent and attorney-in-fact of the holder
of such Subordinated Debt to execute, verify, deliver and file any such proofs
of claim, consents, assignments or other instrument.
(j) The Corporation agrees, that in the event that any Subordinated Debt is
declared due and payable before its expressed maturity, (i) the Corporation will
give prompt notice in writing of such happening to the holders of Superior
Indebtedness and (ii) all Superior Indebtedness shall forthwith become
immediately due and payable upon demand, regardless of the expressed maturity
thereof.
(k) Each holder of Subordinated Debt by its acceptance thereof shall be
deemed to acknowledge and agree that the foregoing subordination provisions are,
and are intended to be, an inducement to and a consideration of each holder of
any Superior Indebtedness, whether such Superior Indebtedness was created or
acquired before or after the creation of Subordinated Debt, to acquire and hold,
or to continue to hold, such Superior Indebtedness, and such holder of Superior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and holding, or in continuing to hold, such Superior
Indebtedness.
(l) Nothing contained in this Section 11 shall prohibit the holder of this
Note from exercising his, her or its right to convert all or any portion of the
principal amount of this Note at any time and from time to time into shares of
Parent Common Stock pursuant to Section 6.
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SECTION 12. This Note is a registered Note and is transferable only by
surrender thereof at the principal office of the Corporation, duly endorsed or
accompanied by a written instrument of transfer duly executed by the holder of
this Note or its attorney duly authorized in writing.
SECTION 13. The Corporation hereby waives diligence, presentment, demand,
protest and notice of every kind whatsoever. The failure of the holder hereof to
exercise any of its rights hereunder in any particular instance shall not
constitute a waiver of the same or of any other right in that or any subsequent
instance.
SECTION 14. This Note shall be binding upon the Corporation, its successors
and assigns, and shall inure to the benefit of the holder hereof, its successors
and assigns.
SECTION 15. THIS NOTE IS MADE UNDER, AND SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (EXCLUSIVE OF THE CONFLICT
OF LAW PRINCIPLES AND PROVISIONS THEREOF).
SECTION 16. This Note may be amended, and the Corporation may take any
action herein prohibited, or omit to perform any act herein required to be
performed by them, if the Corporation shall obtain the written consent to such
amendment, action or omission to act, of the Required Holders except that,
without the written consent of the holders of all the Hain Notes at the time
outstanding, no amendment to this Note shall change the maturity hereof, or
change the principal of, or the rate or time of payment of interest on this
Note, or affect the time, amount of allocation of any conversion, redemptions or
change the proportion of the principal amount of this Note required with respect
to any consent, amendment, waiver or declaration. The holder of this Note at the
time or thereafter outstanding shall be bound by any consent authorized by this
Section 16, whether or not this Note shall have been amended to indicate such
consent, but any new Note issued thereafter in accordance with Section 6 hereof,
may bear a notation referring to any such consent. No course of dealing between
the Corporation and the holder of this Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of this Note.
SECTION 17. For purposes of this Note, in addition to capitalized terms
elsewhere defined in this Note, the following capitalized terms have the
following meanings:
"Affiliate" shall mean any Person that, directly or indirectly through one
or more intermediaries, controls or is controlled by, or under common control
with, the Person specified. A Person shall be deemed to control a corporation
(or other entity) if such person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such corporation
(or other entity), whether through the ownership of voting securities, by
contract or otherwise.
"Credit Agreement" means the Corporation's Amended and Restated Revolving
Credit and Term Loan Agreement among the Corporation, the Lenders named therein
and
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IBJ Whitehall Bank & Trust Company, as agent, as such agreement may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring all or any
portion of the Superior Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Indebtedness" of any Person means the principal of, premium, if any, and
unpaid interest on (a) indebtedness for borrowed money, (b) indebtedness
guaranteed, directly or indirectly, in any manner by such Person, or in effect
guaranteed, directly or indirectly, in any manner by such Person through an
agreement, contingent or otherwise, to supply funds to, or in any other manner
invest in, the debtor, or to purchase indebtedness, or to purchase and pay for
property if not delivered or pay for services if not performed, primarily for
the purpose of enabling the debtor to make payment of the indebtedness or to
assure the owners of the indebtedness against loss, (c) all indebtedness secured
by any mortgage, lien, pledge, charge or other encumbrance upon property owned
by such Person, even though such Person has not in any manner become liable for
the payment of such indebtedness, (d) all indebtedness of such Person created or
arising under any conditional sale, lease (intended primarily as a financing
device) or other title retention or security agreement with respect to property
acquired by such Person even though the rights and remedies of the seller,
lessor or lender under such agreement or lease in the event of default may be
limited or repossession or sale of such property, and (e) renewals, extensions
and refunding of any such indebtedness.
"Note" means this Convertible Note of the Corporation.
"Notes" means this Note and the other Hain Notes issued pursuant to the
Merger Agreement.
"Required Holders" shall mean the holders of at least a majority of the
aggregate principal amount of the Hain Notes from time to time outstanding.
"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Subsidiary" means any corporation of which the shares of stock having a
majority of the general voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Corporation
either directly or indirectly through one or more Subsidiaries.
[Remainder of page intentionally left blank.
Signature page follows.]
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IN WITNESS WHEREOF, the undersigned has executed this Convertible Note as
of the date first above written.
THE HAIN FOOD GROUP, INC.
By:
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Its:
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Address: 50 Charles Lindbergh Boulevard
Uniondale, New York 11553
-17-
