UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 2004
Or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to _______.
Commission file number: 0-22818
THE HAIN CELESTIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3240619
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
58 South Service Road, Melville, New York 11747
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 730-2200
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No ____
As of February 3, 2005, there were 36,539,642 shares outstanding of the
Registrant's Common Stock, par value $.01 per share.
THE HAIN CELESTIAL GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 2004
(unaudited) and June 30, 2004 2
Consolidated Statements of Income -
Three months and six months ended December 31, 2004
and 2003 (unaudited) 3
Consolidated Statement of Stockholders' Equity -
Six months ended December 31, 2004 (unaudited) 4
Consolidated Statements of Cash Flows -
Six months ended December 31, 2004 and 2003 (unaudited) 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 16
Part II Other Information
Items 1 through 3 and item 5 are not applicable
Item 4 - Submission of matters to a vote of
security holders 16
Item 6 - Exhibits 17
Signatures 18
1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share and share amounts)
December 31, June 30,
2004 2004
--------------------- --------------------
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 12,304 $ 27,489
Accounts receivable, less allowance for doubtful
accounts of $2,026 and $2,185 75,699 69,392
Inventories 88,261 86,873
Deferred income taxes 3,111 3,111
Other current assets 16,872 11,449
--------------------- --------------------
Total current assets 196,247 198,314
Property, plant and equipment, net of accumulated
depreciation and amortization of $47,147 and $40,799 89,386 87,002
Goodwill 345,235 333,218
Trademarks and other intangible assets, net of
accumulated amortization of $8,818 and $8,349 55,666 55,793
Other assets 11,012 9,904
--------------------- --------------------
Total assets $ 697,546 $ 684,231
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 55,317 $ 59,031
Current portion of long-term debt 3,851 6,845
Income taxes payable 6,211 2,489
--------------------- --------------------
Total current liabilities 65,379 68,365
Long-term debt, less current portion 93,782 104,294
Deferred income taxes 14,807 14,807
--------------------- --------------------
Total liabilities 173,968 187,466
Stockholders' equity:
Preferred stock - $.01 par value, authorized 5,000,000
shares, no shares issued - -
Common stock - $.01 par value, authorized 100,000,000
shares, issued 37,206,048 and 37,064,648 shares 372 371
Additional paid-in capital 396,767 394,740
Deferred compensation (2,341) (2,809)
Retained earnings 122,957 106,097
Foreign currency translation adjustment 15,108 7,651
--------------------- --------------------
532,863 506,050
Less: 671,556 shares of treasury stock, at cost (9,285) (9,285)
--------------------- --------------------
Total stockholders' equity 523,578 496,765
--------------------- --------------------
Total liabilities and stockholders' equity $ 697,546 $ 684,231
===================== ====================
Note: The balance sheet at June 30, 2004 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
2
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------------- ---------------------------------------
2004 2003 2004 2003
----------------- ------------------ ----------------- ------------------
(Unaudited) (Unaudited)
Net sales $ 169,753 $ 142,792 $ 307,357 $ 269,845
Cost of sales 116,522 95,693 215,151 185,584
----------------- ------------------ ----------------- ------------------
Gross profit 53,231 47,099 92,206 84,261
Selling, general and
administrative expenses 35,173 30,047 63,358 55,866
----------------- ------------------ ----------------- ------------------
Operating income 18,058 17,052 28,848 28,395
Interest expense and other
expenses, net 553 350 1,208 1,141
----------------- ------------------ ----------------- ------------------
Income before income taxes 17,505 16,702 27,640 27,254
Provision for income taxes 6,827 6,330 10,780 10,340
----------------- ------------------ ----------------- ------------------
Net income $ 10,678 $ 10,372 $ 16,860 $16,914
================= ================== ================= ==================
Net income per share:
Basic $ 0.29 $ 0.30 $ 0.46 $ 0.49
================= ================== ================= ==================
Diluted $ 0.29 $ 0.29 $ 0.46 $ 0.47
================= ================== ================= ==================
Weighted average common shares outstanding:
Basic 36,390 34,913 36,332 34,567
================= ================== ================= ==================
Diluted 37,207 36,135 37,031 35,745
================= ================== ================= ==================
See notes to consolidated financial statements.
3
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 2004
(In thousands, except per share and share amounts)
Foreign
Cur-
Unamor- rency
Common Addi- tized Re- Trans-
Stock tional Non-Cash tained Treasury lation Compre-
Amount Paid-in Compen- Earn- Stock Adjust- hensive
Shares at $.01 Capital sation ings Shares Amount ment Total Income
---------- --------- --------- -------- --------- --------- --------- -------- ---------- --------
Balance at
June 30, 2004 37,064,648 $371 $ 394,740 $ (2,809) $ 106,097 671,556 $ (9,285) $ 7,651 $ 496,765
Exercise of
stock
options 141,400 1 2,004 2,005
Non-cash
compensation
charge 23 468 491
Comprehensive
income:
Net income for
the period 16,860 16,860 $ 16,860
Translation
adjustments 7,457 7,457 7,457
---------
Total compre-
hensive
income $ 24,317
---------------------------------------------------------------------------------------------------- =========
Balance at
December 31,
2004 37,206,048 $372 $ 396,767 $ (2,341) $ 122,957 671,556 $ (9,285) $ 15,108 $ 523,578
====================================================================================================
See notes to consolidated financial statements.
4
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
December 31,
------------------------------------------
2004 2003
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited)
Net income $ 16,860 $ 16,914
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,817 5,331
Provision for doubtful accounts 22 (115)
Increase (decrease) in cash attributable to changes in
operating assets and liabilities, net of amounts
applicable to acquired businesses:
Accounts receivable (4,570) (12,641)
Inventories (1,215) (7,126)
Other current assets (4,563) (1,364)
Other assets (1,234) 1,868
Accounts payable and accrued expenses (7,469) 1,837
Income taxes, net 3,455 7,912
------------------ -------------------
Net cash provided by operating activities 8,103 12,616
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (5,340) (2,293)
Acquisitions of businesses, net of cash acquired (5,418) -
------------------ -------------------
Net cash used in investing activities (10,758) (2,293)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of bank revolving
credit facility, net (8,500) (1,650)
Payments on economic development revenue bonds (3,550) (258)
Purchase of treasury stock - (279)
Proceeds from exercise of warrants and options, net of
related expenses 2,005 9,788
Repayments of other long-term debt, net (871) (2,352)
------------------ -------------------
Net cash (used in) provided by financing activities (10,916) 5,249
------------------ -------------------
Effect of exchange rate changes on cash (1,614) (2,785)
------------------ -------------------
Net (decrease) increase in cash and cash equivalents (15,185) 12,787
Cash and cash equivalents at beginning of period 27,489 10,984
------------------ -------------------
Cash and cash equivalents at end of period $ 12,304 $ 23,771
================== ===================
See notes to consolidated financial statements.
5
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The Hain Celestial Group, Inc., a Delaware corporation, and its
subsidiaries (collectively, the "Company", and herein referred to as "we", "us",
and "our") manufacture, market, distribute and sell natural, organic, specialty
and snack food products and natural and organic personal care products under
brand names which are sold as "better-for-you" products. We are a leader in many
of the top natural food categories, with such well-known food brands as
Celestial Seasonings(R) teas, Hain Pure Foods(R), Westbrae(R), Westsoy(R), Rice
Dream(R), Soy Dream(R), Imagine(R), Walnut Acres Organic(R), Ethnic Gourmet(R),
Rosetto(R), Little Bear Organic Foods(R), Bearitos(R), Arrowhead Mills(R),
Health Valley(R), Breadshop's(R), Casbah(R), Garden of Eatin'(R), Terra
Chips(R), Harry's Premium Snacks(R), Boston's(R), Lima(R), Biomarche(R), Grains
Noirs(R), Natumi(R), Milkfree, Yves Veggie Cuisine(R), DeBoles(R), Earth's
Best(R), and Nile Spice(R). The Company's principal specialty product lines
include Hollywood(R) cooking oils, Estee(R) sugar-free products, Kineret(R)
kosher foods, Boston Better Snacks(R), and Alba Foods(R). Our natural and
organic personal care product line is marketed under the JASON(R), Orjene(R),
Shaman Earthly Organics(TM), and Heather's(R) brands.
We operate in one business segment: the sale of natural, organic and other
food and beverage and personal care products. In our 2004 fiscal year,
approximately 39% of our revenues were derived from products that were
manufactured within our own facilities with 61% produced by various co-packers.
All dollar amounts in our consolidated financial statements and notes have
been rounded to the nearest thousand dollars, except per share amounts. Share
amounts in the notes to consolidated financial statements are presented in
thousands.
2. BASIS OF PRESENTATION
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States. In the opinion of management, all adjustments (including normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months and six months ended December
31, 2004 are not necessarily indicative of the results that may be expected for
the year ending June 30, 2005. Please refer to the footnotes to our consolidated
financial statements as of June 30, 2004 and for the year then ended included in
our Annual Report on Form 10-K for information not included in these condensed
footnotes.
3. EARNINGS PER SHARE
We report basic and diluted earnings per share in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("SFAS
No. 128"). Basic earnings per share excludes the dilutive effects of options and
warrants. Diluted earnings per share includes only the dilutive effects of
common stock equivalents such as stock options and warrants.
6
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
The following table sets forth the computation of basic and diluted
earnings per share pursuant to SFAS No. 128:
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------- ----------------------------------
2004 2003 2004 2003
--------------- ----------------- ---------------- -----------------
Numerator:
Net income $ 10,678 $10,372 $ 16,860 $16,914
=============== ================= ================ =================
Denominator (in thousands):
Denominator for basic earnings per
share - weighted average shares
outstanding during the period 36,390 34,913 36,332 34,567
--------------- ----------------- ---------------- -----------------
Effect of dilutive securities:
Stock options 817 1,072 696 1,018
Warrants - 150 3 160
--------------- ----------------- ---------------- -----------------
817 1,222 699 1,178
--------------- ----------------- ---------------- -----------------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 37,207 36,135 37,031 35,745
=============== ================= ================ =================
Basic net income per share $ 0.29 $ 0.30 $ 0.46 $ 0.49
=============== ================= ================ =================
Diluted net income per share $ 0.29 $ 0.29 $ 0.46 $ 0.47
=============== ================= ================ =================
4. INVENTORIES
Inventories consisted of the following:
December 31, June 30,
2004 2004
------------------- --------------------
Finished goods $56,146 $56,132
Raw materials,
work-in-progress
and packaging 32,115 30,741
------------------- --------------------
$88,261 $86,873
=================== ====================
7
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
December 31, June 30,
2004 2004
-------------------- ---------------
Land $ 8,212 $ 8,113
Buildings and improvements 30,819 29,867
Machinery and equipment 85,581 79,275
Furniture and fixtures 2,607 2,527
Leasehold improvements 3,872 3,478
Construction in progress 5,442 4,541
-------------------- ---------------
136,533 127,801
Less: Accumulated depreciation
and amortization 47,147 40,799
-------------------- ---------------
$ 89,386 $ 87,002
==================== ===============
6. ACQUISITIONS
On June 3, 2004, we acquired 100% of the stock of privately-held Jason
Natural Products, Inc., a California-based manufacturer and marketer of natural
and organic personal care products. In recent years, Jason Natural Products has
expanded its lines of natural and organic personal care products by integrating
a series of brands including Orjene(R), Shaman Earthly Organics(TM), and
Heather's(R) into its portfolio. The purchase price consisted of approximately
$23.9 million in cash, plus the assumption of certain liabilities. At December
31, 2004, goodwill (not deductible for tax purposes) from this transaction was
estimated to be $24.7 million.
On May 27, 2004, we acquired substantially all of the assets and assumed
certain liabilities of the Rosetto(R) and Ethnic Gourmet(R) businesses of H.J.
Heinz Company, LP, which owned approximately 16.7% of our common stock at the
time of the transaction. These businesses produce and market frozen pasta and
natural ethnic frozen meals, respectively. The purchase price consisted of
approximately $22.8 million in cash, plus the assumption of certain liabilities.
At December 31, 2004, goodwill (deductible for tax purposes) from this
transaction was estimated to be $8.4 million.
The following table summarizes the estimated fair values of assets acquired
and liabilities assumed of Jason Natural Products, Rosetto, and Ethnic Gourmet
at the dates of the acquisitions:
Current assets $ 12,369
Property and equipment 12,871
Other assets 102
---------
Total assets 25,342
Liabilities assumed 4,364
---------
Net assets acquired $ 20,978
=========
The balance sheet at December 31, 2004, includes the assets acquired and
liabilities assumed valued at fair market value at the date of purchase. We are
in the process of performing the procedures required to finalize the purchase
price allocation for the above fiscal 2004 acquisitions; however, these
procedures are in the early stages and are expected to be completed during the
later half of fiscal 2005.
The results of operations for the three months and six months ended
December 31, 2004 include the results of the above described acquisitions for
the complete period. The following table presents information about sales and
net income had the operations of the acquired businesses been combined with our
business as of the first day of the periods shown. This information has not been
adjusted to reflect any changes in the operations of these businesses subsequent
to their
8
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
acquisition by us. Changes in operations of these acquired businesses include,
but are not limited to, integration of systems and personnel, discontinuation of
products (including discontinuation resulting from the integration of acquired
and existing brands with similar products, and discontinuation of sales of
private label products), changes in trade practices, application of our credit
policies, changes in manufacturing processes or locations, and changes in
marketing and advertising programs. Had any of these changes been implemented by
the former management of the businesses acquired prior to acquisition by us, the
sales and net income information might have been materially different than the
actual results achieved and from the pro forma information provided below.
Three Months Ended Six Months Ended
December 31, 2003 December 31, 2003
------------------------ ------------------------
Net sales $ 156,778 $ 296,842
======================== ========================
Net income $ 10,940 $ 16,861
======================== ========================
Earnings per share:
Basic $ 0.31 $ 0.49
======================== ========================
Diluted $ 0.30 $ 0.47
======================== ========================
Weighted average shares:
Basic 34,913 34,567
======================== ========================
Diluted 36,135 35,745
======================== ========================
In management's opinion, the unaudited pro forma results of operations is
not indicative of the actual results that would have occurred had the JASON(R),
Rosetto(R) and Ethnic Gourmet(R) acquisitions been consummated at the beginning
of the periods presented or of future operations of the combined companies under
our management.
On February 25, 2004, our subsidiary in Belgium acquired Natumi, AG, a
German producer of non-dairy beverages and desserts marketed principally in
retail channels in Europe. The purchase price consisted of approximately $1.75
million in cash as well as the assumption of certain liabilities. The purchase
price excludes the amount of contingency payments we are obligated to pay the
former owner of Natumi. The contingency payments are based on the achievement by
Natumi of certain financial targets over an approximate 3.5 year period
following the date of acquisition. Such payments, which could total
approximately 9.0 million euros, will be charged to goodwill if and when paid.
No such contingency payments have been made since the acquisition. The net
assets acquired, as well as the sales and operations of Natumi, are not material
to the Company's consolidated financial position or results of operations and,
therefore, have not been included in the detailed information about our
acquisitions.
7. CREDIT FACILITY
On April 22, 2004, we entered into a new $300 million credit facility (the
"Credit Facility") with a bank group led by our existing bank agents for a
five-year term expiring in April 2009. The Credit Facility provides for an
uncommitted $50 million accordion feature, under which the facility may be
increased to $350 million. The Credit Facility is secured only by a pledge of
shares of certain of our foreign subsidiaries and is guaranteed by all of our
current and future direct and indirect domestic subsidiaries. We are required to
comply with customary affirmative and negative covenants for facilities of this
nature. Revolving credit loans under this facility bear interest at a base rate
(greater of the applicable prime rate or Federal Funds Rate plus and applicable
margin) or, at our option, the reserve adjusted LIBOR rate plus an applicable
margin. As of December 31, 2004, $90.7 million was borrowed under the Credit
Facility at an interest rate of 3.7%. On February 7, 2005, the outstanding
borrowings under the Credit Facility were reduced to $82.7 million by an $8
million repayment.
9
THE HAIN CELESTIAL GROUP, INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
8. STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans using the
intrinsic value method under APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations. Under APB 25, when the
exercise price of our employee stock options at least equals the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
If compensation cost for the Company's stock-based compensation plans had
been determined based on the fair value at the grant dates consistent with the
method prescribed by SFAS No. 123, "Accounting For Stock-Based Compensation,"
net earnings and earnings per share for the three months and six months ended
December 31, 2004 and 2003 would have been the pro forma amounts that follow:
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------- --------------------------------
2004 2003 2004 2003
-------------- ------------- ------------- ---------------
Net income, as reported $ 10,678 $ 10,372 $ 16,860 $ 16,914
Non-cash compensation charge, net of
related tax effects 150 7 300 14
Stock-based employee compensation
expense determined under fair value
method, net of related tax effects (1,393) (716) (4,855) (1,937)
-------------- ------------- ------------- ---------------
Pro forma net income $ 9,435 $ 9,663 $ 12,305 $ 14,991
============== ============= ============= ===============
Basic net income per share:
As reported $ 0.29 $ 0.30 $ 0.46 $ 0.49
============== ============= ============= ===============
Pro forma $ 0.26 $ 0.28 $ 0.34 $ 0.43
============== ============= ============= ===============
Diluted net income per share:
As reported $ 0.29 $ 0.29 $ 0.46 $ 0.47
============== ============= ============= ===============
Pro forma $ 0.25 $ 0.27 $ 0.33 $ 0.42
============== ============= ============= ===============
On December 16, 2004, the Financial Accounting Standards Board issued
Statement No. 123 (revised 2004), "Share-Based Payment," which is a revision of
SFAS No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS No. 95,
"Statement of Cash Flows." Generally, the approach in SFAS No. 123 (R) is
similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R) must
be adopted no later than July 1, 2005. Early adoption will be permitted in
periods in which financial statements have not yet been issued. We expect to
adopt SFAS No. 123(R) on July 1, 2005.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We manufacture, market, distribute and sell natural, organic, specialty and
snack food products and natural and organic personal care products under brand
names which are sold as "better-for-you" products. We are a leader in many of
the top natural food categories, with such well-known food brands as Celestial
Seasonings(R) teas, Hain Pure Foods(R), Westbrae(R), Westsoy(R), Rice Dream(R),
Soy Dream(R), Imagine(R), Walnut Acres Organic(R), Ethnic Gourmet(R),
Rosetto(R), Little Bear Organic Foods(R), Bearitos(R), Arrowhead Mills(R),
Health Valley(R), Breadshop's(R), Casbah(R), Garden of Eatin'(R), Terra
Chips(R), Harry's Premium Snacks(R), Boston's(R), Lima(R), Biomarche(R), Grains
Noirs(R), Natumi(R), Milkfree, Yves Veggie Cuisine(R), DeBoles(R), Earth's
Best(R), and Nile Spice(R). The Company's principal specialty product lines
include Hollywood(R) cooking oils, Estee(R) sugar-free products, Kineret(R)
kosher foods, Boston Better Snacks(R), and Alba Foods(R). Our natural and
organic personal care product line is marketed under the JASON(R), Orjene(R),
Shaman Earthly Organics(TM), and Heather's(R) brands. Our website can be found
at www.hain-celestial.com.
Our products are sold primarily to specialty and natural food distributors,
supermarkets, natural food stores, and other retail classes of trade including
mass-market stores, drug stores, food service channels and club stores.
Our brand names are well recognized in the various market categories they
serve. We have acquired numerous brands and we will seek future growth through
internal expansion as well as the acquisition of additional complementary
brands.
Our overall mission is to be a leading marketer and seller of natural,
organic, beverage, snack and specialty food and personal care products by
integrating all of our brands under one management team and employing a uniform
marketing, sales and distribution program. Our business strategy is to
capitalize on the brand equity and the distribution previously achieved by each
of our acquired product lines and to enhance revenues by strategic introductions
of new product lines that complement existing products.
Results of Operations
Three months ended December 31, 2004
Net sales for the three months ended December 31, 2004 were $169.8 million,
an increase of $27.0 million or 18.9% over net sales of $142.8 million for the
three months ended December 31, 2003. The increase came from increases in sales
across our Company, including an 8.3% increase in our Celestial Seasonings tea
brand and an increase of 17.8% in our Canadian business. Sales of our
low-carbohydrate products declined parallel with trends in the consumer markets;
however, these sales were replaced by strong sales gains in our DeBoles pasta
and our Arrowhead Mills brands. During the December 31, 2004 quarter, we
benefited by approximately 2% from the phasing in of price increases we began to
implement in July 2004. Sales also benefited from sales generated by businesses
acquired that we did not own during the comparable quarter of the prior year.
Gross profit for the three months ended December 31, 2004 was 31.4% of net
sales as compared to 33.0% of net sales for the three months ended December 31,
2003. The decline in gross profit percentage was principally the result of a
change in the mix of products sold. This change in mix comes from acquired
businesses increasing our consolidated sales and thereby reducing the
proportionate contribution of our higher margin tea products. We also continued
to incur higher costs of ingredients, increased transportation costs which began
in the third quarter of fiscal 2004 resulting from higher fuel costs, the cost
effects of new regulations on the U.S. trucking industry, and an increase in the
percentage of our shipments that are delivered by us. These higher costs
increased the costs of our products by approximately 2.2%, which amount offset
the benefit of our price increase.
Selling, general and administrative expenses increased by $5.2 million to
$35.2 million for the three months ended December 31, 2004 as compared to $30.0
million for the three months ended December 31, 2003. Such expenses amounted to
20.7% of net sales for the three months ended December 31, 2004 compared with
21.0% in the December 31, 2003 quarter. Selling, general and administrative
expenses have increased in overall dollars, primarily as a result of costs
brought on by businesses acquired in 2004, increased consumer marketing expenses
needed to support our increased sales as well as increases across all levels of
general and administrative expenses to support our growing business. General and
administrative expenses for the three months ended December 31, 2004 includes
approximately $1.2 million for the cost of terminated employees, for non-cash
compensation charges, and for Sarbanes-Oxley compliance costs.
11
Operating income was $18.1 million for the three months ended December 31,
2004 compared to $17.1 million for the three months ended December 31, 2003.
Operating income as a percentage of net sales was 10.6% in the December 31, 2004
quarter, compared with 11.9% in the December 31, 2003 quarter. The dollar
increase resulted principally from higher sales, while the percentage decrease
resulted principally from lower gross profit as a percentage of sales.
Interest and other expenses, net amounted to $.6 million for the three
months ended December 31, 2004 compared to $.4 million for the three months
ended December 31, 2003. Our interest expense was $.4 million higher this
quarter as compared to the prior year quarter, principally as a result of the
higher average borrowings we carry this year after our recent acquisitions. We
had $.6 million in net currency exchange gains this quarter as compared to $.4
million in the prior year quarter, which partially offset the additional
interest costs.
Income before income taxes for the three months ended December 31, 2004
amounted to $17.5 million compared to $16.7 million in the comparable period of
the prior year. This increase was attributable to the increase in operating
income.
Our effective income tax rate approximated 39% of pre-tax income for the
three months ended December 31, 2004 compared to 38% for the three months ended
December 31, 2003. We expect our effective tax rate to approximate 39% during
the remainder of fiscal 2005.
Net income for the three months ended December 31, 2004 was $10.7 million
compared to $10.4 million for the three months ended December 31, 2003. The
increase of $.3 million in earnings was primarily attributable to the
aforementioned increase in income before income taxes offset by the increase in
our effective tax rate.
Six Months Ended December 31, 2004
Net sales for the six months ended December 31, 2004 were $307.4 million,
an increase of $37.6 million or 13.9% over net sales of $269.8 million for the
six months ended December 31, 2003. The increase came from volume increases and
from the phasing in of price increases and from sales generated by businesses
acquired in 2004. During the second quarter ended December 31, 2004, sales of
our low-carbohydrate products declined parallel with trends in the consumer
markets; however, these sales were replaced by strong sales gains in our DeBoles
pasta and our Arrowhead Mills brands. During the first quarter ended September
30, 2004, sales were negatively impacted by reductions in inventories estimated
at $12.0 million at two major distributors.
Gross profit for the six months ended December 31, 2004 was 30.0% of net
sales as compared to 31.2% of net sales for the six months ended December 31,
2003. The decline in gross profit percentage was the result of a change in the
mix of products sold whereby our higher margin tea sales became a lower
proportion of our consolidated sales; increases in transportation costs which
began in the third quarter of fiscal 2004 resulting from higher fuel costs; the
cost effects of new regulations on the U.S. trucking industry; and an increase
in the percentage of our shipments that are delivered by us. Also, we incurred
higher cost of ingredients and higher personnel and benefits costs this period
as compared to the prior year period. These higher costs were offset in part by
the effect of the price increase that we phased in beginning July 1, 2004.
Selling, general and administrative expenses increased by $7.5 million to
$63.4 million for the six months ended December 31, 2004 as compared to $55.9
million for the six months ended December 31, 2003. Such expenses amounted to
20.6% of net sales for the six months ended December 31, 2004 compared with
20.7% for the six months ended December 31, 2003. Selling, general and
administrative expenses have increased in overall dollars, primarily as a result
of costs brought on by businesses acquired in 2004, increased consumer marketing
expenses needed to support our increased sales as well as increases across all
levels of general and administrative expenses to support our growing business.
General and administrative expenses for the six months ended December 31, 2004
includes approximately $1.8 million for the cost of terminated employees, for
non-cash compensation charges and for Sarbanes-Oxley compliance costs.
12
Operating income was $28.8 million for the six months ended December 31,
2004 compared to $28.4 million for the six months ended December 31, 2003.
Operating income as a percentage of net sales was 9.4% for the current year
period, compared with 10.5% for the prior year period. The dollar increase
resulted principally from higher sales, while the percentage decrease resulted
principally from lower gross profit as a percentage of sales.
Interest and other expenses, net amounted to $1.2 million for the six
months ended December 31, 2004 compared to $1.1 million for the six months ended
December 31, 2003. Our interest expense was $.7 million higher the current year
period as compared to the prior year period, principally as a result of the
higher average borrowings we carry this year after our recent acquisitions. We
had $.8 million in net currency exchange gains in the current year period as
compared to $.3 million in net currency exchange losses in the prior year
period, which partially offset the additional interest costs.
Income before income taxes for the six months ended December 31, 2004
amounted to $27.6 million compared to $27.3 million in the comparable period of
the prior year. This increase was attributable to the increase in operating
income.
Our effective income tax rate approximated 39% of pre-tax income for the
six months ended December 31, 2004 compared to 38% for the six months ended
December 31, 2003. We expect our effective tax rate to approximate 39% during
the remainder of fiscal 2005.
Net income for the six months ended December 31, 2004 and 2003 was $16.9
million. Although overall dollars were flat period over period, the percentage
decrease from 6.3% for the prior year period to 5.5% for the current year period
was primarily attributable to the aforementioned decrease in income before
income taxes as a percentage of sales offset by the increase in our effective
tax rate as a percentage of sales.
Liquidity and Capital Resources
We finance our operations and growth primarily with the cash flows we
generate from our operations and from borrowings under our Credit Facility.
We have available to us a $300 million Credit Facility through April 22,
2009. The Credit Facility is secured only by a pledge of shares of certain of
our foreign subsidiaries and is guaranteed by all of our direct and indirect
domestic subsidiaries. We are required to comply with customary affirmative and
negative covenants for facilities of this nature. As of December 31, 2004, we
had $90.7 million outstanding under the Credit Facility. On February 7, 2005,
the outstanding borrowings under the Credit Facility were reduced to $82.7
million by an $8 million repayment.
This access to capital provides us with flexible working capital in the
ordinary course of business, the opportunity to grow our business through
acquisitions and the ability to develop our existing infrastructure through
capital investment.
Net cash provided by operations was $8.1 million and $12.6 million for the
six months ended December 31, 2004 and 2003, respectively. Our working capital
and current ratio was $130.9 million and 3.0 to 1, respectively, at December 31,
2004 compared with $129.9 million and 2.9 to 1 respectively, at June 30, 2004.
The increase in working capital resulted principally from a decrease in our
current liabilities offset by a decrease in current assets. The decrease in
current assets was driven by a decrease in cash which was used to reduce both
current liabilities and debt during the six months ended December 31, 2004.
Net cash (used in) provided by financing activities was $(10.9) million and
$5.2 million for the six months ended December 31, 2004 and 2003, respectively.
The change was due principally to our pay down of approximately $12.9 million of
debt offset by proceeds from the exercise of warrants and options of
approximately $2.0 million during the first six months of fiscal 2005, as
compared to our pay down of approximately $4.3 million offset by proceeds from
the exercise of warrants and options of approximately $9.8 million during the
first six months of fiscal 2004.
13
We believe that cash on hand of $12.3 million at December 31, 2004,
projected remaining fiscal 2005 cash flows from operations, and availability
under our Credit Facility are sufficient to fund our working capital needs,
anticipated capital expenditures of approximately $6 million, and scheduled debt
and lease payments of approximately $8.6 million for the remainder of fiscal
2005. We currently invest our cash on hand in highly liquid short-term
investments yielding approximately 2% interest.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States. The accounting principles we
use require us to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
amounts of income and expenses during the reporting periods presented. We
believe in the quality and reasonableness of our critical accounting policies;
however, it is likely that materially different amounts would be reported under
different conditions or using assumptions different from those that we have
consistently applied. We believe our critical accounting policies are as
follows, including our methodology for estimates made and assumptions used:
Valuation of Accounts and Chargebacks Receivables
We perform ongoing credit evaluations on existing and new customers daily.
We apply reserves for delinquent or uncollectible trade receivables based on a
specific identification methodology and also apply an additional reserve based
on the experience we have with our trade receivables aging categories. Credit
losses have been within our expectations over the last few years. While two of
our customers represent approximately 28% of our trade receivable balance on an
ongoing basis, we believe there is no credit exposure at this time.
Based on cash collection history and other statistical analysis, we
estimate the amount of unauthorized deductions that our customers have taken to
be repaid and collectible in the near future in the form of a chargeback
receivable. While our estimate of this receivable balance could be different had
we used different assumptions and judgments, historically our cash collections
of this type of receivable have generally been within our expectations. Our
chargebacks receivable balance approximated $6 million at December 31, 2004 and
June 30, 2004.
There can be no assurance that we would have the same experience with our
receivables during different economic conditions, or with changes in business
conditions, such as consolidation within the food industry and/or a change in
the way we market and sell our products.
Inventory
Our inventory is valued at the lower of actual cost or market, utilizing
the first-in, first-out method. We provide write-downs for finished goods
expected to become non-saleable due to age and specifically identify and provide
for slow moving or obsolete raw ingredients and packaging.
Property, Plant and Equipment
Our property, plant and equipment is carried at cost and depreciated or
amortized on a straight-line basis over the lesser of the estimated useful lives
or lease life, whichever is shorter. We believe the asset lives assigned to our
property, plant and equipment are within ranges/guidelines generally used in
food manufacturing and distribution businesses. Our manufacturing plants and
distribution centers, and their related assets, are periodically reviewed to
determine if any impairment exists by analyzing underlying cash flow
projections. At this time, we believe no impairment exists on the carrying value
of such assets. Ordinary repairs and maintenance are expensed as incurred.
14
Intangibles
Goodwill is no longer amortized and the value of an identifiable intangible
asset is amortized over its useful life unless the asset is determined to have
an indefinite useful life. The carrying values of goodwill and other intangible
assets with indefinite useful lives are tested annually for impairment.
Revenue Recognition and Sales Incentives
Sales are recognized when the earnings process is complete, which occurs
when products are shipped in accordance with terms of agreements, title and risk
of loss transfer to customers, collection is probable and pricing is fixed or
determinable. Sales are reported net of sales incentives, which include trade
discounts and promotions and certain coupon costs. Shipping and handling costs
billed to customers are included in reported sales. Allowances for cash
discounts are recorded in the period in which the related sale is recognized.
Seasonality
Our tea business consists primarily of manufacturing and marketing hot tea
products and, as a result, its quarterly results of operations reflect seasonal
trends resulting from increased demand for its hot tea products in the cooler
months of the year. This is also true for our soups and hot cereals businesses,
but to a lesser extent. Quarterly fluctuations in our sales volume and operating
results are due to a number of factors relating to our business, including the
timing of trade promotions, advertising and consumer promotions and other
factors, such as seasonality, abnormal and inclement weather patterns and
unanticipated increases in labor, commodity, energy, insurance or other
operating costs. The impact on sales volume and operating results, due to the
timing and extent of these factors, can significantly impact our business. For
these reasons, you should not rely on our quarterly operating results as
indications of future performance. In some future periods, our operating results
may fall below the expectations of securities analysts and investors, which
could harm our business.
Inflation
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
Note Regarding Forward Looking Information
Certain statements contained in this Quarterly Report constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1934 and Sections 21E of the Securities Exchange Act of 1934. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, levels of activity, performance
or achievements of the Company, or industry results, to be materially different
from any future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; our
ability to implement our business and acquisition strategy; the ability to
effectively integrate our acquisitions; our ability to obtain financing for
general corporate purposes; competition; availability of key personnel; changes
in, or the failure to comply with government regulations; and other risks
detailed from time-to-time in the Company's reports filed with the Securities
and Exchange Commission, including the report on Form 10-K for the fiscal year
ended June 30, 2004. As a result of the foregoing and other factors, no
assurance can be given as to future results, levels of activity and achievements
and neither the Company nor any person assumes responsibility for the accuracy
and completeness of these statements.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the reported market risks since the end
of the most recent fiscal year.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer have reviewed our
disclosure controls and procedures as of the end of the period covered by this
report. Based upon this review, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures are adequately designed to ensure
that information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time period specified in applicable rules and forms.
(b) Changes in Internal Controls.
There were no significant changes in our internal controls over financial
reporting during the fiscal quarter covered by this report that have materially
affected, or are reasonably likely to materially affect, those controls.
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on December 2, 2004. The Company
submitted the following matters to a vote of security holders:
1. To elect a board of directors to serve until the next Annual Meeting
of Stockholders and until their successors are duly elected and
qualified; and
2. To amend our 2002 Long Term Incentive and Stock Award Plan to increase
the number of shares issuable over the term of the plan by 1,800,000
shares to 4,900,000 shares in the aggregate; and
3. To ratify the appointment of Ernst & Young LLP as our registered
independent accountants for fiscal 2005.
The stockholders elected the persons named below, the Company's nominees for
directors, as directors for the Company, casting votes as shown below:
- ------------------------------------------------------ ------------------
ELECTION OF DIRECTORS FOR WITHHELD
- ------------------------------------------------------ ------------------
Irwin D. Simon 32,024,449 2,541,537
- ------------------------------------------------------ ------------------
Beth L. Bronner 31,157,998 3,407,988
- ------------------------------------------------------ ------------------
Jack Futterman 32,067,389 2,498,597
- ------------------------------------------------------ ------------------
Daniel R. Glickman 32,358,627 2,207,359
- ------------------------------------------------------ ------------------
Barry J. Alperin 32,289,772 2,276,214
- ------------------------------------------------------ ------------------
Marina Hahn 31,693,382 2,872,604
- ------------------------------------------------------ ------------------
Mitchell A. Ring 32,095,716 2,470,270
- ------------------------------------------------------ ------------------
Andrew R. Heyer 31,410,959 3,155,027
- ------------------------------------------------------ ------------------
Lewis D. Schiliro 32,261,889 2,304,097
- ------------------------------------------------------ ------------------
D. Edward I. Smyth 32,120,481 2,445,505
- ------------------------------------------------------ ------------------
Roger Meltzer 31,751,225 2,814,761
- ------------------------------------------------------ ------------------
Larry S. Zilavy 32,292,297 2,273,689
- ------------------------------------------------------ ------------------
The stockholders did not approve the proposal to amend our 2002 Long Term
Incentive and Stock Award Plan casting 13,635,165 votes in favor, 16,094,136
votes against, 118,365 abstaining and 4,718,320 not voted.
The stockholders ratified the appointment of Ernst & Young LLP, casting
34,263,151 votes in favor, 266,536 votes against, and 36,299 abstaining.
16
ITEM 6. EXHIBITS
EXHIBTS
Exhibit Number Description
- -------------- -----------
10.1 Form of Indemnification Agreement.
10.2 Form of Change in Control Agreement.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE HAIN CELESTIAL GROUP, INC.
Date: February 9, 2005 /s/ Irwin D. Simon
--------------------------------
Irwin D. Simon,
Chairman, President and Chief
Executive Officer
Date: February 9, 2005 /s/ Ira J. Lamel
--------------------------------
Ira J. Lamel,
Executive Vice President and
Chief Financial Officer
18
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, made and entered into as of this [ ] day of
[ ], 2004 ("Agreement"), by and between The Hain Celestial Group, Inc., a
Delaware corporation ("Company"), and [ ] ("Indemnitee"):
WHEREAS, highly competent persons continue to be reluctant to serve
corporations as directors, officers or in other capacities unless they are
provided with adequate protection through insurance and/or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation;
WHEREAS, uncertainties relating to such insurance and to indemnification
have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that the increased difficulty in attracting and retaining such persons is
detrimental to the best interest of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future;
WHEREAS, the Delaware corporate indemnification statute (Section 145 of the
Delaware General Corporation Law) is nonexclusive and, therefore, contemplates
that contracts may be entered into with respect to indemnification of directors,
officers, employees and agents;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on behalf
of, such persons to the fullest extent permitted by applicable law so that they
will serve or continue to serve the Company free from undue concern that they
will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that
Indemnitee be so indemnified.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby agree as follows:
Section 1. Services by Indemnitee. Indemnitee agrees to serve as a
director, officer, employee and/or agent of the Company and/or any of its
subsidiaries, as the case may be, and may serve as a director, officer, employee
and/or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise at the request of the Company (a "Relevant
Enterprise" and, together with the Company and the Company's subsidiaries, the
"Company Entities"). Indemnitee may at any time and for any reason resign from
such position (subject to any other contractual obligation or any obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in such position. This
Agreement shall not be deemed an employment contract between any of the Company
Entities and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's
employment with any of the Company Entities, if any, is "at will", and the
Indemnitee may be discharged at any time for any reason, with or without cause,
except as may be otherwise provided in any written employment contract between
Indemnitee and any of the Company Entities or other applicable formal severance
policies duly adopted by the Board, and, with respect to service as a director
of any of the Company Entities, Indemnitee specifically acknowledges that this
Agreement does not impose any obligation of the Company to continue Indemnitee's
service to the Company except as may otherwise be provided by the Certificate of
Incorporation or By-laws of the
relevant Company Entity and the General Corporation Law of the State of
Delaware. The foregoing notwithstanding, subject to Section 13 hereof, this
Agreement shall continue in force after Indemnitee has ceased to serve as a
director, officer, employee and/or agent, as the case may be, of any of the
Company Entities.
Section 2. Notice by Indemnitee. Indemnitee agrees to notify the Company in
writing immediately upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses (as
hereinafter defined) covered hereunder. The failure of Indemnitee to so notify
the Company shall not relieve the Company of any obligation which it may have to
the Indemnitee under this Agreement or otherwise.
Section 3. Indemnification -- General. The Company shall indemnify, and
advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) to the
fullest extent permitted by applicable law in effect on the date hereof and as
amended from time to time. The rights of Indemnitee provided under clause (b) of
the preceding sentence shall include, but shall not be limited to, the rights
set forth in the other Sections of this Agreement.
Section 4. Proceedings Other Than Proceedings by or in the Right of any of
the Company Entities. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 4 if, by reason of his Corporate Status
(as hereinafter defined), he is, or is threatened to be made, a party to or a
participant in any threatened, pending, or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of any of the Company
Entities. Pursuant to this Section 4, Indemnitee shall be indemnified against
all Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
or any claim, issue or matter therein, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
relevant Company Entity, and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 5. Proceedings by or in the Right of any of the Company Entities.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 5 if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to or a participant in any threatened, pending or completed
Proceeding brought by or in the right of any of the Company Entities to procure
a judgment in its favor. Pursuant to this Section, Indemnitee shall be
indemnified against all Expenses (including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses)
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the relevant Company Entity;
provided, however, that, if applicable law so provides, no indemnification
against such Expenses shall be made in respect of any claim, issue or matter in
such Proceeding as to which Indemnitee shall have been adjudged to be liable to
any of the Company Entities, unless and to the extent that the Court of Chancery
of the State of Delaware, or the court in which such Proceeding shall have been
brought or is pending, shall determine that such indemnification may be made.
Section 6. Partial Indemnification. Notwithstanding any other provision of
this Agreement, to the extent that Indemnitee is, by reason of his Corporate
Status, a party to (or a participant in) and is successful, on the merits or
otherwise, in defense of any Proceeding, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in defense of such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section and
-2-
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter. If Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for some
or a portion of the Expenses, judgments, penalties, fines and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments, penalties,
fines and amounts paid in settlement) actually and reasonably incurred by him or
on his behalf in connection with such Proceeding or any claim, issue or matter
therein, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion to which Indemnitee is
entitled.
Section 7. Indemnification for Additional Expenses.
(a) The Company shall indemnify Indemnitee against any and all Expenses
which are reasonably incurred by Indemnitee in connection with any action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or By-Law of the Company
now or hereafter in effect, or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company; but only to the extent
that Indemnitee prevails in such action and ultimately is determined to be
entitled to such indemnification, advance payment of Expenses or insurance
recovery, as the case may be. Indemnitee shall be entitled to advancement of
such Expenses pursuant to and in accordance with the provisions of Section 8
hereof.
(b) Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a witness in any
Proceeding to which Indemnitee is not a party, he shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 8. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within seven (7) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses. Notwithstanding the foregoing, the obligation of the Company to
advance Expenses pursuant to this Section 8 shall be subject to the condition
that, if, when and to the extent that the Company determines that Indemnitee
would not be permitted to be indemnified under applicable law, the Company shall
be entitled to be reimbursed, within thirty (30) days of such determination, by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Company that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any advance of
Expenses until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Section 9. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit
to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary or Assistant Secretary of the Company
shall,
-3-
promptly upon receipt of such a request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to the
first sentence of Section 9(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case:
(i) if a Change in Control (as hereinafter defined) shall have
occurred, by Independent Counsel (as hereinafter defined) in a written
opinion to the Board, a copy of which shall be delivered to Indemnitee; or
(ii) if a Change of Control shall not have occurred, (A) by a majority
vote of the Disinterested Directors (as hereinafter defined), even though
less than a quorum of the Board, or (B) if there are no such Disinterested
Directors or, if such Disinterested Directors so direct, by Independent
Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee or (C) if so directed by the Board, by a majority
vote of a quorum of the outstanding shares of stock of all classes entitled
to vote for directors, voting as a single class, which quorum shall consist
of stockholders who are not at that time parties to the Proceeding in
question;
and, if it is so determined that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within seven (7) days after such
determination. Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including reasonable attorneys' fees and disbursements)
incurred by Indemnitee in so cooperating with the person, persons or entity
making such determination shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification), and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 9(b) hereof, the Independent
Counsel shall be selected as provided in this Section 9(c). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board, and the Company shall give written notice to Indemnitee advising him
of the identity of the Independent Counsel so selected. If a Change of Control
shall have occurred, the Independent Counsel shall be selected by Indemnitee
(unless Indemnitee shall request that such selection be made by the Board, in
which event the preceding sentence shall apply), and Indemnitee shall give
prompt written notice to the Company advising it of the identity of the
Independent Counsel so selected. In either event, Indemnitee or the Company, as
the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 18 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
so made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 9(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee, as the case may be, may petition
the Court of Chancery of the State of Delaware for resolution of any objection
which shall have been made by the Company or Indemnitee to the other's selection
of Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other
-4-
person as the Court shall designate, and the person with respect to whom all
objections are so resolved or the person so appointed shall act as Independent
Counsel under Section 9(b) hereof. The Company shall pay any and all reasonable
fees and expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 9(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
9(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 11(a) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the consent of the
Indemnitee to the settlement of any Proceeding which the Company has undertaken
to defend if the Company assumes full and sole responsibility for such
settlement and the settlement grants the Indemnitee a complete and unqualified
release in respect of the potential liability. The Company shall not be liable
for any amount paid by the Indemnitee in settlement of any Proceeding that is
not defended by the Company, unless the Company has consented to such
settlement, which consent shall not be unreasonably withheld.
Section 10. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification or the advancement of expenses hereunder, the person or persons
or entity making such determination shall presume that Indemnitee is entitled to
indemnification or advancement of expenses under this Agreement if Indemnitee
has submitted a request for indemnification or the advancement of expenses in
accordance with Section 9(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
Neither the failure of the Company (including the Board or independent legal
counsel) to have made a determination prior to the commencement of any action
pursuant to this Agreement that indemnification is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Company (including the Board or independent legal counsel)
that Indemnitee has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that Indemnitee has not met the
applicable standard of conduct.
(b) If the person, persons or entity empowered or selected under Section 9
of this Agreement to determine whether Indemnitee is entitled to indemnification
shall not have made a determination within sixty (60) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 60-day period may be extended for a reasonable
time, not to exceed an additional thirty (30) days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; provided, further, that the
foregoing provisions of this Section 10(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 9(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination, the Board has resolved to submit such determination to the
stockholders for their consideration at an annual meeting thereof to be held
within seventy-five (75) days after such receipt and such determination is made
thereat, or (B) a special meeting of stockholders is called within fifteen (15)
days after such receipt for the purpose of making such determination, such
meeting is held for such purpose within sixty (60) days after having been so
-5-
called and such determination is made thereat, or (ii) if the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 9(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(d) For purposes of any determination of good faith, Indemnitee shall be deemed
to have acted in good faith if Indemnitee's action is based on the records or
books of account of the relevant Company Entity, including financial statements,
or on information supplied to Indemnitee by the officers of the relevant Company
Entity in the course of their duties, or on the advice of legal counsel for the
relevant Company Entity, by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by such Company Entity.
The provisions of this Section 10(d) shall not be deemed to be exclusive or to
limit in any way the other circumstances in which the Indemnitee may be deemed
to have met the applicable standard of conduct set forth in this Agreement.
(e) The knowledge and/or actions, or failure to act, of any other director,
officer, agent or employee of any of the Company Entities shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement.
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 9 of
this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8
of this Agreement, (iii) no determination of entitlement to indemnification
shall have been made pursuant to Section 9(b) of this Agreement within the time
periods specified therein, (iv) payment of indemnification is not made pursuant
to Section 6 or 7 of this Agreement within seven (7) days after receipt by the
Company of a written request therefor or (v) payment of indemnification is not
made within seven (7) days after a determination has been made that Indemnitee
is entitled to indemnification, Indemnitee shall be entitled to an adjudication
by the Court of Chancery of the State of Delaware of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 11(a); provided, however, that the foregoing clause shall not apply in
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 6 of this Agreement.
(b) In the event that a determination shall have been made pursuant to
Section 9(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 11 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 11, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
-6-
(c) If a determination shall have been made pursuant to Section 9(b) of
this Agreement that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination in any judicial proceeding or arbitration
commenced pursuant to this Section 11, absent (i) a misstatement by Indemnitee
of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 11, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to record damages for breach of, this Agreement, Indemnitee shall be entitled
to recover from the Company, and shall be indemnified by the Company against,
any and all expenses (of the types described in the definition of Expenses in
Section 18 of this Agreement) actually and reasonably incurred by him in such
judicial adjudication or arbitration, but only if he prevails therein. If it
shall be determined in said judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
(e) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 11 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
Section 12. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the relevant
company's Certificate of Incorporation or By-Laws, any other agreement, a vote
of stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in the General
Corporation Law of the State of Delaware, whether by statute or judicial
decision, permits greater indemnification or advancement of Expenses than would
be afforded under the relevant company's Certificate of Incorporation or By-Laws
and/or this Agreement, it is the intent of the parties hereto that Indemnitee
shall enjoy by this Agreement the greater benefits so afforded by such change.
No right or remedy herein conferred is intended to be exclusive of any other
right or remedy, and every other right and remedy shall be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents of any of the Company Entities, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
-7-
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
(e) The Company's obligations to indemnify or advance expenses hereunder to
Indemnitee who is or was serving a Relevant Enterprise shall be reduced by any
amount Indemnitee has actually received as indemnification or advancement of
expenses from such Relevant Enterprise.
Section 13. Duration of Agreement. This Agreement shall continue until and
terminate upon the later of: (a) 10 years after the date that Indemnitee shall
have ceased to serve as a director, officer, employee and/or agent of any of the
Company Entities; or (b) the final termination of any Proceeding then pending in
respect of which Indemnitee is granted rights of indemnification or advancement
of expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 11 of this Agreement relating thereto. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his heirs, executors and administrators.
Section 14. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; (b) such provision or provisions
shall be deemed reformed to the extent necessary to conform to applicable law
and to give the maximum effect to the intent of the parties hereto; and (c) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any Section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
Section 15. Exception to Right of Indemnification or Advancement of
Expenses. Except as provided in Section 7(a) of this Agreement, Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this
Agreement (including, with respect to subsection (c) of this Section 15, payment
of profits) with respect to any Proceeding:
(a) brought by Indemnitee (other than a Proceeding by Indemnitee to enforce
his rights under this Agreement),
(b) brought by any of the Company Entities against the Indemnitee alleging
(x) a willful violation by the Indemnitee of the terms and conditions of any
employment contract, (y) a willful misappropriation of corporate assets by the
Indemnitee or (z) any other willful and deliberate breach in bad faith of any of
the Indemnitee's duties to any of the Company Entities or its stockholders, if
the bringing of such Proceeding against Indemnitee shall have been approved or
subsequently ratified by the Board,
(c) arising out of the purchase and sale by Indemnitee of securities in
violation of Section 16(b) of the Securities Act of 1934, as amended, or any
similar successor statute, or
(d) arising out of acts or omissions, or transactions, from which
Indemnitee may not be relieved of liability under applicable law.
-8-
Section 16. Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 17. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
Section 18. Definitions. For purposes of this Agreement:
(a) "Change in Control" shall mean the occurrence of any of the following
events:
(i) the acquisition by any Person (as defined below) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of 50% or
more of the combined voting power of the then outstanding Voting Stock of
the Company; provided, however, that for purposes of this clause (i), the
following acquisitions shall not constitute a Change of Control: (A) any
issuance of Voting Stock of the Company directly from the Company that is
approved by the Incumbent Board (as defined in clause (ii) of this
definition), (B) any acquisition by the Company of Voting Stock of the
Company or (C) any acquisition of Voting Stock of the Company by any Person
pursuant to a Business Combination (as defined in clause (iii) of this
definition) that complies with clauses (A), (B) and (C) of clause (iii) of
this definition; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a member of
the Board (a "Director") subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least two-thirds of the Directors then comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be deemed to have been 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 (within the meaning of Rule 14a-11 of
the Exchange Act) 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 the Board; or
(iii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination (including, without
limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
relative to each other as their ownership, immediately prior to such
Business Combination, (B) no Person (other than the Company or such entity
resulting from such Business Combination) beneficially owns, directly or
indirectly, 50% or more of the combined voting power of the then
outstanding shares of Voting Stock of the entity resulting from such
Business Combination and (C) at least a majority of the members of the
-9-
board of directors of the entity 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) the stockholders of the Company approve (a) the sale or
disposition by the Company (other than to a subsidiary of the Company) of
all or substantially all of the assets of the Company, or (b) a complete
liquidation or dissolution of the Company.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee or agent of a Company Entity.
(c) "Disinterested Director" means a director of the Company who is not and
was not a party to the Proceeding in respect of which indemnification is sought
by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, being or preparing to be a witness in, or
otherwise participating in, a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(f) "Person" shall have the meaning ascribed thereto in Section 3(a)(9) of
the Exchange Act, as modified, applied and used in Sections 13(d) and 14(d)
thereof; provided, however, a Person shall not include (i) the Company or any of
its subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries (in its capacity
as such), (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation or other entity owned,
directly or indirectly, by the stockholders of the Company in substantially the
same character and proportions as their ownership of stock of the Company.
(g) "Proceeding" includes any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, investigation,
inquiry, administrative hearing or any other actual, threatened or completed
proceeding, whether brought by or in the right of the Company or otherwise and
whether civil, criminal, administrative or investigative, in which Indemnitee
was, is, may be or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director, officer, employee and/or agent of any
of the Company Entities or by reason of any action taken by him or of any
inaction on his part while acting in such capacity, in each case whether or not
he is acting or serving in any such capacity at the time any liability or
expense is incurred for which indemnification or advancement of expenses can be
provided under this Agreement, except for (i) one initiated by an Indemnitee
pursuant to Section 11 of this Agreement to enforce his rights under this
Agreement or (ii) one pending on or before the date of this agreement.
-10-
Section 19. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on it hereby in order to induce
Indemnitee to serve as a director, officer, employee and/or agent one or more of
the Company Entities, and the Company acknowledges that Indemnitee is relying
upon this Agreement in serving in such capacity.
(b) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral, written and implied, between the parties
hereto with respect to the subject matter hereof.
Section 20. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 21. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery, if delivered by hand and receipted for by the
party to whom said notice or other communication shall have been directed, (ii)
on the first business day after the date on which it is mailed by overnight
courier service or transmitted via facsimile or (iii) on the third business day
after the date on which it is mailed by certified or registered mail with
postage prepaid:
(a) If to Indemnitee, at the address specified on the signature page of
this Agreement; and
(b) If to the Company to:
The Hain Celestial Group, Inc.
58 South Service Road
Melville, NY 11747
Attention: Chief Executive Officer
with a copy (which shall not constitute notice) to:
Cahill Gordon & Reindel LLP
80 Pine Street
New York, NY 10005
Attention: Geoffrey E. Liebmann, Esq.
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
Section 22. Governing Law; Submission to Jurisdiction; Appointment of Agent
for Service of Process. This Agreement and the legal relations among the parties
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware, without regard to its conflict of laws rules. Except with
respect to any arbitration commenced by Indemnitee pursuant to Section 11(a) of
this Agreement, the Company and Indemnitee hereby irrevocably and
unconditionally:
(a) agree that any action or proceeding arising out of or in connection
with this Agreement shall be brought only in the Chancery Court of the State of
Delaware (the "Delaware Court"),
-11-
and not in any other state or federal court in the United States of America or
any court in any other country,
(b) consent to submit to the exclusive jurisdiction of the Delaware Court
for purposes of any action or proceeding arising out of or in connection with
this Agreement,
(c) waive any objection to the laying of venue of any such action or
proceeding in the Delaware Court and
(d) waive, and agree not to plead or to make, any claim that any such action or
proceeding brought in the Delaware Court has been brought in an improper or
otherwise inconvenient forum.
Section 23. Miscellaneous. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate, and vice versa.
-12-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
THE HAIN CELESITAL GROUP, INC.
By:
------------------------------------
Name: [ ]
Title: [ ]
INDEMNITEE:
------------------------------------------
Name: [ ]
Address:
[ ]
------------------------------------------
-13-
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT dated as of (this "Agreement"), is made by
and between The Hain Celestial Group, Inc., a Delaware corporation having its
principal offices at 58 South Service Road, Melville, NY 11747 (the "Company"),
and [ ] (the "Executive").
WHEREAS, the Company considers it essential to the best interest of its
shareholders to foster the continued employment of key executive management
personnel; and
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) of the Company exists from time to time and
that such possibility, and the uncertainty, instability and questions which it
may raise for and among key executive management personnel, may result in the
premature departure or significant distraction of such management personnel to
the material detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken to
reinforce, focus and encourage the continued attention and dedication of key
members of the executive management of the Company and its subsidiaries,
including (without limitation) the Executive, to their assigned duties without
distraction in the face of potentially disturbing or unsettling circumstances
arising from the possibility of a Change in Control of the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Definitions. For purposes of this Agreement, the following terms have
the meanings set forth below:
1.1 "Annual Base Salary" shall mean the Executive's rate of regular base
annual compensation prior to any reduction under a salary reduction agreement
pursuant to section 401(k) or section 125 of the Internal Revenue Code of 1986,
as amended from time to time (the "Code"), and shall not include (without
limitation) cost of living allowances, fees, retainers, reimbursements, bonuses,
incentive awards, prizes or similar payments.
1.2 "Cause" for termination by the Company or any subsidiary of the
Executive's employment, after any Change in Control, shall mean (i) the willful
and continued failure by the Executive to substantially perform the Executive's
duties with the Company, or a subsidiary of the Company, as such duties may
reasonably be defined from time to time by the Board (or a duly designated and
authorized committee thereof), or to abide by the reasonable written policies of
the Company or of the Executive's primary employer (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination by the Executive for Good Reason pursuant to Section 4.1) after a
written demand for substantial performance is delivered to the Executive by the
Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties or has not abided by any reasonable written policies, or (ii) the
continued and willful engaging by the Executive in conduct which is demonstrably
and materially injurious to the Company or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or
failure to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive in bad faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interests of
the Company or its subsidiaries.
1.3 "Change in Control" shall mean and be deemed to have occurred if:
(i) The acquisition by any Person of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of 50% or more of the combined
voting power of the then outstanding Voting Stock of the Company; provided,
however, that for purposes of this Section 1.3(i), the following
acquisitions shall not constitute a Change of Control: (A) any issuance of
Voting Stock of the Company directly from the Company that is approved by
the Incumbent Board (as defined below), (B) any acquisition by the Company
of Voting Stock of the Company or (C) any acquisition of Voting Stock of
the Company by any Person pursuant to a Business Combination (as defined
below) that complies with clauses (A), (B) and (C) of Section 1.3(iii)
below; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a member of
the Board (a "Director") subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least two-thirds of the Directors then comprising the Incumbent
Board (either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for director,
without objection to such nomination) shall be deemed to have been 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 (within the meaning of Rule 14a-11 of
the Exchange Act) 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 the Board; or
(iii) consummation of a reorganization, merger or consolidation, a
sale or other disposition of all or substantially all of the assets of the
Company, or other transaction (each, a "Business Combination"), unless, in
each case, immediately following such Business Combination, (A) all or
substantially all of the individuals and entities who were the beneficial
owners of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination (including, without
limitation, an entity
-2-
which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions relative to each
other as their ownership, immediately prior to such Business Combination,
(B) no Person (other than the Company or such entity resulting from such
Business Combination beneficially owns, directly or indirectly, 50% or more
of the combined voting power of the then outstanding shares of Voting Stock
of the entity resulting from such Business Combination and (C) at least a
majority of the members of the board of directors of the entity 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) the stockholders of the Company approve (a) the sale or
disposition by the Company (other than to a subsidiary of the Company) of
all or substantially all of the assets of the Company, or (b) a complete
liquidation or dissolution of the Company.
1.4 "Company" shall mean The Hain Celestial Group, Inc. and any successor
to its business and/or assets which assumes (either expressly, by operation of
law or otherwise) and/or agrees to perform this Agreement by operation of law or
otherwise (except in determining, under Section 1.3 hereof, whether or not any
Change in Control of the Company has occurred in connection with such
succession).
1.5 "Disability" shall mean and be deemed the reason for the termination by
the Executive of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties for a period of
three (3) consecutive months.
1.6 "Good Reason" for termination by the Executive of the Executive's
employment in connection with or as a result of any Change in Control shall mean
the occurrence (without the Executive's prior express written consent) of any
one of the following acts, or failures to act, unless, in the case of any act or
failure to act described in clauses (i), (iv), (v) or (vi) below, such act or
failure to act is corrected by the Company or any subsidiary prior to the Date
of Termination specified in the Notice of Termination given in respect thereof:
(i) the assignment to the Executive of any duties or responsibilities
inconsistent with the Executive's most significant position(s) (including
without limitation status, offices, titles and reporting
responsibilities/rights) as an executive officer of the Company and/or a
subsidiary held during the one hundred eighty (180) day period immediately
preceding any related Potential Change in Control, or a substantial adverse
alteration of the Executive's position or title(s) with the Company or any
subsidiary or in the nature of such status, offices, titles and reporting
responsibilities/rights;
(ii) a reduction in the Executive's Annual Base Salary as in effect on
the date of this Agreement or as the same may be increased at any time
thereafter and from time to time;
-3-
(iii) the relocation of the Company's principal executive offices to a
location more than thirty (30) miles from its location on the date of this
Agreement (or, if different, more than thirty (30) miles from where such
offices are located immediately prior to any Potential Change of Control)
or the Company's requiring the Executive to be based anywhere other than
the location where the Executive is performing his duties immediately prior
to any Potential Change in Control, except for required travel on the
Company's business to an extent substantially consistent with the
Executive's business travel obligations as of the date of the Potential
Change in Control;
(iv) any failure by the Company to comply with any of the provisions
of this Agreement, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(v) the failure by the Company or a subsidiary to continue in effect
any pension benefit or incentive or deferred compensation plan in which the
Executive participates immediately prior to any Potential Change in Control
which is material to the Executive's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan or arrangement) has been made with respect to such plan, or the
failure by the Company or a subsidiary to continue the Executive's
participation therein (or in such substitute or alternative plan or
arrangement) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's participation
relative to other participants, as existed at the time of the Potential
Change in Control;
(vi) the failure by the Company or a subsidiary to continue to provide
the Executive with health and welfare benefits substantially similar to
those enjoyed by the Executive under any of the Company's or a subsidiary's
retirement, life insurance, medical, health and accident, or disability or
similar plans in which the Executive was participating at the time of any
Potential Change in Control, the taking of any action by the Company or a
subsidiary which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit enjoyed by
the Executive at the time of the Potential Change in Control, or the
failure by the Company or a subsidiary to provide the Executive with the
number of paid vacation days to which the Executive is entitled in
accordance with the Company or a subsidiary's normal vacation policy in
effect at the time of the Potential Change in Control;
(vii) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 4.1; and/or
(viii) a termination by the Executive of his employment for any reason
during the Window Period.
1.7 "Person" shall have the meaning ascribed thereto in Section 3(a)(9) of
the Exchange Act, as modified, applied and used in Sections 13(d) and 14(d)
thereof; provided, however, a Person shall not include (i) the Company or any of
its subsidiaries, (ii) a trustee or
-4-
other fiduciary holding securities under an employee benefit plan of the Company
or any of its subsidiaries (in its capacity as such), (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities, or
(iv) a corporation or other entity owned, directly or indirectly, by the
stockholders of the Company in substantially the same character and proportions
as their ownership of stock of the Company.
1.8 "Potential Change in Control" shall mean and be deemed to have occurred
if:
(i) the Company enters into an agreement the consummation of which
would result in the occurrence of a Change in Control;
(ii) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a Potential Change in Control has occurred; and/or
(iii) any Person becomes, after the date hereof, the Beneficial Owner,
directly or indirectly, of securities of the Company representing twenty
five percent (25%) or more of the combined voting power of the Company's
then outstanding securities, or any Person increases such Person's
beneficial ownership of such securities by five (5) percentage points or
more over the percentage so owned by such Person on the date hereof.
1.9 "Voting Power" means securities entitled to vote generally in the
election of directors.
1.10 "Window Period" shall mean the thirteen (13) month period following a
Change in Control.
2. Term of this Agreement. This Agreement shall commence on the date hereof
and shall continue in effect as long as the Executive is employed by the
Company, provided, however, that if (i) a Change in Control shall have occurred
during the Executive's employment with the Company, this Agreement shall
continue in effect until the termination of the applicable Window Period, or
(ii) if a Potential Change in Control shall have occurred during the Executive's
employment with the Company, this Agreement shall continue in effect until one
(1) year after the Executive's termination of employment with the Company (the
"Term").
3. Severance Payments.
3.1 Severance. The Company shall pay the Executive the payments described
in Section 3.1.1 and 3.1.2 (the "Severance Payments") upon the termination of
the Executive's employment with the Company during the Window Period (including,
but not limited to, the Executive's termination of employment for Good Reason,
death or Disability), unless such termination is (i) by the Company for Cause,
or (ii) by the Executive without Good Reason. In addition, the Executive's
employment shall be deemed to have been terminated immediately following a
Change in Control by the Company without Cause or by the Executive for Good
Reason if (a) the Executive reasonably demonstrates that the Executive's
employment was terminated prior to a Change in Control without Cause (1) at the
request of a Person who has entered into an agreement with the Company the
consummation of which will constitute a
-5-
Change in Control (or who has taken other steps reasonably calculated to effect
a Change in Control) or (2) otherwise in connection with, as a result of or in
anticipation of a Change in Control, (b) the Executive terminates his employment
for Good Reason prior to a Change in Control and the Executive reasonably
demonstrates that the circumstance(s) or event(s) which constitute such Good
Reason occurred (1) at the request of such Person or (2) otherwise in connection
with, as a result of or in anticipation of a Change in Control, or (c) the
Executive dies or is terminated due to Disability, in each case, after the
occurrence of a Potential Change in Control and related Change in Control
actually occurs within one (1) year after the Date of Termination or the date of
death, as the case may be. The Executive's right to terminate the Executive's
employment for Good Reason shall not be affected by the Executive's incapacity
due to physical or mental illness. The Executive's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
3.1.1 In lieu of any further salary and bonus payments to the
Executive for periods subsequent to the Date of Termination, the Company
shall pay to the Executive (i) a lump sum severance payment in cash (or at
the Executive's sole and exclusive option receive such amounts as salary
continuation during the applicable periods set forth below), equal to (x) [
](1) times the highest Annual Base Salary paid or payable to the Executive
during the thirty-six (36) month period immediately preceding the month in
which the Change in Control occurs, and (y) [ ] times the highest annual
bonus amount paid or payable to the Executive during the thirty-six (36)
month period immediately preceding the month in which the change in control
occurs, and (ii) all unpaid accrued vacation through the Date of
Termination in accordance with the Company's plans and practices in effect
immediately prior to the Change in Control, provided that such unpaid
vacation has been accrued on the books and records of the Company prior to
the Date of Termination.
3.1.2 After the Date of Termination, the Company shall continue to
provide the Executive and/or the Executive's dependents, as the case may
be, with (i) life, disability, accident and health insurance benefits
("Benefits Coverage") substantially similar to those which the Executive
and/or the Executive's dependents is receiving immediately prior to any
related Potential Change in Control or the receipt of the Notice of
Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control which reduction constitutes Good Reason),
whichever is greater, until the earlier to occur of such time as the
Executive is provided with substantially comparable Benefits Coverage with
a new employer or [ ] months; (ii) the automobile allowance, gas and other
automobile benefits the Executive was receiving immediately prior to any
related Potential Change in Control or the receipt of the Notice of
Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control which reduction constitutes Good Reason),
whichever is greater, for a period of twelve (12) months; and (iii)
outplacement services, the scope and provider of which shall be selected by
the Executive with the cost of such services and related expenses borne by
the Company, subject to the submission of reasonable
- --------
1 The blanks on this page will be for 1, 2 or 3 years, depending on the
employee.
-6-
documentation in accordance with the Company's standard practice to
substantiate expenses.
3.1.3 During the term of this Agreement and through the period of [ ]
months following the Date of Termination, all benefits under any pension or
retirement plans, employees stock ownership plan or any other plan or
agreement relating to retirement benefits ("Retirement Benefits") in which
the Executive participates shall continue to accrue to the Executive,
crediting of service all Retirement Benefits provided to the Executive as a
fully vested participant under any such plan or agreement relating to
retirement benefits. No contributions shall be required to be made by the
Executive to any plan providing for employee contributions following the
Date of Termination. To the extent that the amount of any Retirement
Benefits are or would be payable from a nonqualified plan, the Company
shall, as soon as practicable following the Date of Termination (but in no
event later than the 30th day after the Date of Termination), pay directly
to the Executive in one lump sum, cash in an amount equal to the additional
benefits that would have been provided had such accrual or crediting been
taken into account in calculating such Retirement Benefits. Such lump sum
payment shall be calculated as provided in the relevant plan and, in the
case of a defined contribution plan, shall include an amount equal to the
gross amount of the maximum employer contributions.
3.1.4 Any outstanding options to purchase common stock of the Company
held by the Executive prior to the Date of Termination under an existing
stock option plan maintained by the Company shall immediately vest and
become exerciseable in full in accordance with the terms and the provisions
of the applicable stock option plan.
3.2 Special Reimbursement. In the event that the Executive becomes entitled
to the Severance Payments, if any payment or benefit paid or payable, or
received or to be received, by or on behalf of the Executive in connection with
a Change in Control or the termination of the Executive's employment, whether
any such payments or benefits are pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any of its subsidiaries,
any Person, or otherwise (the "Total Payments"), will or would be subject to the
excise tax imposed under section 4999 of the Code (the "Excise Tax"), the
Company shall pay to the Executive an additional amount (the "Gross-Up Payment")
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and any Excise Tax imposed upon or attributable to the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments.
3.2.1 For purposes of determining whether any of the Total Payments
will be subject of the Excise Tax and the amount of such Excise Tax, (i)
the Total Payments shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 280G(b)(1) of the Code shall be
treated as subject to the Excise Tax, unless in the opinion of tax counsel
(delivered to the Executive) selected by the Company and
-7-
reasonably acceptable to the Executive such Total Payments (in whole or in
part) (a) do not constitute parachute payments, including (without
limitation) by reason of section 280G(b)(4)(A) of the Code, (b) such excess
parachute payments (in whole or in part) represent reasonable compensation
for services actually rendered, within the meaning of section 280G(b)(4)(B)
of the Code, or (c) are otherwise not subject to the Excise Tax, and (ii)
the value of any non-cash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code.
3.2.2 In the event that the Excise Tax is subsequently determined to
be less than the amount taken into account hereunder at the time of
termination of the Executive's employment, the Executive shall repay to the
Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to
such reduction plus interest on the amount of such repayment at the rate
provided in section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder at the
time of the termination of the Executive's employment (including by reason
of any payment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) at the time
that the amount of such excess is finally determined. The Executive and the
Company shall each reasonably cooperate with the other in connection with
any administrative or judicial proceedings concerning the existence or
amount of any such subsequent liability for Excise Tax with respect to the
Severance Payments.
3.3 Date of Payment. The payment provided for in Section 3.1.1 and Section
3.2 hereof shall be made not later than the fifteenth (15th) day following the
Date of Termination; provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments to which the Executive is likely to be
entitled to and shall pay the remainder of such payments (together with interest
at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code). At the time that
payments are made under this Section 3.3, the Company shall provide the
Executive with a detailed written statement setting forth the manner in which
such payments were calculated and the basis for such calculations including,
without limitation, any opinions or other advice the Company has received from
outside counsel, auditors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
3.4 Legal Costs. The Company shall also reimburse the Executive for all
legal fees and expenses incurred in good faith by the Executive as a result of
any dispute with any party (including, but not limited to, the Company and/or
any affiliate of the Company) regarding the payment of any benefit provided for
in this Agreement (including, but not limited
-8-
to, all such fees and expenses incurred in disputing any termination or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
section 7872(f)(2)(A) of the Code. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied by such evidence of fees and expenses incurred as the Company
reasonably may require.
3.5 Employment Agreement. The payment to the Executive of the Severance
Payments provided for in Section 3.1 shall be in lieu of any severance payable
to the Executive under the terms of any other employment agreement in effect on
the Date of Termination. Except as provided in the preceding sentence, this
Agreement is not intended to and shall not modify or supersede any such
employment agreement or other contract or arrangement between the Executive and
the Company in effect from time to time.
4. Termination Procedures and Compensation During Dispute.
4.1 Notice of Termination. Any purported termination of the Executive's
employment with the Company (other than by reason of death) during the Window
Period shall be communicated by written Notice of Termination from one party
hereto to the other party hereto in accordance with Section 7 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment with the Company
under the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board in
the form and in the manner specified in Section 1.3 of this Agreement. For
purposes of this Agreement, any purported termination not effected in accordance
with the Section 4.1 shall not be considered effective.
4.2 Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment during the Window Period,
shall mean (i) if the Executive's employment is terminated for Disability,
fifteen (15) days after Notice of Termination is given, and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days and not more than forty-five (45) days
(except in the case of a termination for Cause) and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than thirty (30) days, respectively, after the date on which such Notice of
Termination is given).
4.3 Dispute Concerning Termination. If within fifteen (15) days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this Section 4.3), the party receiving such
Notice of Termination notifies the other party in writing that a dispute exists
concerning the termination, the Date of Termination shall be the date on which
the dispute is finally resolved in accordance with Section 4.4; provided,
however, that the Date of Termination shall be extended by a notice of dispute
only if
-9-
the basis for such notice is reasonable, such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence.
4.4 Alternative Dispute Resolution Including Arbitration. If a dispute
arises out of or related to this Agreement, the Company and the Executive agree
that they shall first seek to resolve any dispute by negotiation. If the dispute
has not been resolved within thirty (30) days after the date a party hereto
provides notice of dispute to the other party in accordance with Section 4.3,
either party may initiate mediation of the dispute by sending the other party a
written request dispute be mediated. The parties shall mediate the dispute
before a neutral, third party mediator (if a mutually agreeable mediator cannot
be identified, one shall be appointed by the American Arbitration Association)
selected by the mutual agreement of both parties within thirty (30) days after
the date of written request for mediation. If the dispute has not been resolved
within sixty (60) days after the original notice of a dispute or within thirty
(30) days after the date of the request for mediation, whichever is the later,
then either party may proceed to binding arbitration before a panel of three
independent arbitrators selected from a list made available by the American
Arbitration Association. The mediator shall not serve as an arbitrator. The
arbitration shall be governed by the current arbitration rules of the American
Arbitration Association or its successors. Any mediation or arbitration
commenced pursuant to this Section 4.4 shall be conducted in the metropolitan
area of New York, New York. Notwithstanding any provisions in such rules to the
contrary, the arbitrators shall issue findings of fact and conclusions of law,
and an award, within 15 days of the date of the hearing unless the parties
otherwise agree.
4.5 Compensation During Dispute. If a purported termination occurs during
the Window Period, and such termination is disputed in accordance with Section
4.3 above, the Company shall continue to pay the Executive the full compensation
(including without limitation Annual Base Salary and Target Bonus) in effect at
the time of any related Potential Change in Control or when the notice giving
rise to the dispute was given (whichever is greater) and continue the Executive
as a participant in all compensation, incentive, pension and welfare benefit and
insurance plans in which the Executive was participating at the time of any
Potential Change in Control or when the notice giving rise to the dispute was
given, whichever is greater, until the dispute is finally resolved in accordance
with Sections 4.3 and 4.4 hereof. Amounts paid under this Section 4.5 are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement or any other plan,
agreement or arrangement.
5. No Mitigation. The Company agrees that, if the Executive's employment is
terminated during the Window Period, the Executive is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the
Executive by the Company pursuant to Section 3 or Section 4.5. Further, the
amount of any payment or benefit provided for in Section 3 or Section 4.5 shall
not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, or offset against any
amount claimed to be owed by the Executive to the Company or any of its
subsidiaries, or otherwise.
6. Successors; Binding Agreement.
-10-
6.1 Successors. In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason during the Window Period, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
6.2 Binding Agreement. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the term of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
7. Notices. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
To the Company:
Irwin D. Simon
The Hain Celestial Group, Inc.
58 South Service Road
Melville, New York 11747
Attention: Chairman of the Board and
Chief Executive Officer
With a copy to:
Roger Meltzer, Esq.
Cahill, Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
To the Executive:
[ ]
[ ]
[ ]
-11-
8. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the Executive and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware without regard to the principles of
conflict of laws thereof. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to and include any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law and any
additional withholding to which the Executive has agreed. The rights and
obligations of the Company and the Executive under this Agreement shall survive
the expiration of the Term.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
11. No Limitation. Nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any other contract or
agreement with the Company or any of its affiliated companies. Amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of law provisions thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
THE HAIN CELESTIAL GROUP, INC.
By:
----------------------------------
Name: Irwin D. Simon
Title: President &
Chief Executive
Officer
[EXECUTIVE]
By:
----------------------------------
Name:
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EXHIBIT 31.1
CERTIFICATION
I, Irwin D. Simon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Hain Celestial
Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: February 9, 2005
/s/ Irwin D. Simon
- -------------------------------------
Irwin D. Simon
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Ira J. Lamel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Hain Celestial
Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: February 9, 2005
/s/ Ira J. Lamel
- ------------------------------
Ira J. Lamel
Executive Vice President and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION FURNISHED
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the period ended
December 31, 2004 (the "Report") filed by The Hain Celestial Group, Inc. (the
"Company") with the Securities and Exchange Commission, I, Irwin D. Simon, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: February 9, 2005
/s/ Irwin D. Simon
- -------------------------------------
Irwin D. Simon
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to The Hain Celestial Group, Inc. and will be retained by The Hain
Celestial Group, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.
EXHIBIT 32.2
CERTIFICATION FURNISHED
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the period ended
December 31, 2004 (the "Report") filed by The Hain Celestial Group, Inc. (the
"Company") with the Securities and Exchange Commission, I, Ira J. Lamel, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: February 9, 2005
/s/ Ira J. Lamel
- ------------------------------
Ira J. Lamel
Executive Vice President and
Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to The Hain Celestial Group, Inc. and will be retained by The Hain
Celestial Group, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.
